HP 2007 Annual Report Download - page 147

Note 17: Litigation and Contingencies
HP is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of
intellectual property, commercial, securities, employment, employee benefits and environmental matters, which arise in the
ordinary course of business. In accordance with SFAS No. 5, “Accounting for Contingencies”, HP records a provision for a
liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. HP believes it has adequate provisions for any such matters. HP reviews these provisions at least
quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and
other information and events pertaining to a particular case. Based on its experience, HP believes that any damage amounts
claimed in the specific matters discussed below are not a meaningful indicator of HP’ s potential liability. Litigation is
inherently unpredictable. However, HP believes that it has valid defenses with respect to legal matters pending against it.
Nevertheless, it is possible that cash flows or results of operations could be materially affected in any particular period by the
unfavorable resolution of one or more of these contingencies, or because of the diversion of management’ s attention and the
creation of significant expenses.
Litigation, Proceedings and Investigations
Copyright levies. As described below, proceedings are ongoing against HP in certain European Union (“EU”) member
countries, including litigation in Germany, seeking to impose levies upon equipment (such as multifunction devices
(“MFDs”) and printers) and alleging that these devices enable producing private copies of copyrighted materials. The total
levies due, if imposed, would be based upon the number of products sold and the per-product amounts of the levies, which
vary. Some EU member countries that do not yet have levies on digital devices are expected to implement similar legislation
to enable them to extend existing levy schemes, while some other EU member countries are expected to limit the scope of
levy schemes and applicability in the digital hardware environment. HP, other companies and various industry associations
are opposing the extension of levies to the digital environment and advocating compensation to rights holders through digital
rights management systems.
VerwertungsGesellschaft Wort (“VG Wort”), a collection agency representing certain copyright holders, instituted non-
binding arbitration proceedings against HP in June 2001 in Germany before the arbitration board of the Patent and Trademark
Office. The proceedings relate to whether and to what extent copyright levies for photocopiers should be imposed in
accordance with copyright laws implemented in Germany on MFDs that allegedly enable the production of copies by private
persons. Following unsuccessful arbitration, VG Wort filed a lawsuit against HP in May 2004 in the Stuttgart Civil Court in
Stuttgart, Germany seeking levies on MFDs sold from 1997 to 2001. On December 22, 2004, the court held that HP is liable
for payments regarding MFDs sold in Germany, and ordered HP to pay VG Wort an amount equal to 5% of the outstanding
levies claimed plus interest on MFDs sold in Germany up to December 2001. VG Wort appealed this decision. On July 6,
2005, the Stuttgart Court of Appeals ordered HP to pay VG Wort levies based on the published tariffs for photocopiers in
Germany (which range from EUR 38.35 to EUR 613.56 per unit) plus interest on MFDs sold in Germany up to
December 2001. HP has appealed the Stuttgart Court of Appeals’ decision to the Bundesgerichtshof (the German Federal
Supreme Court). An oral hearing has been set for January 30, 2008.
On September 26, 2005, VG Wort filed an additional lawsuit against HP in the Stuttgart Civil Court in Stuttgart,
Germany seeking levies on MFDs sold in Germany between 1997 and 2001, as well
133