HP 2011 Annual Report Download - page 149

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 18: 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 that arise in the ordinary course of business. 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, and, as of October 31, 2011, it was not reasonably possible that an additional material loss had
been incurred in an amount in excess of the amounts already recognized on HP’s financial statements.
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, 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.
Litigation, Proceedings and Investigations
Copyright levies. As described below, proceedings are ongoing or have been concluded involving
HP in certain European Union (‘‘EU’’) member countries, including litigation in Germany, Belgium
and Austria, seeking to impose or modify levies upon equipment (such as multifunction devices
(‘‘MFDs’’), personal computers (‘‘PCs’’) and printers) and alleging that these devices enable producing
private copies of copyrighted materials. Descriptions of some of the ongoing proceedings are included
below. The levies are generally 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 have opposed the
extension of levies to the digital environment and have advocated alternative models of compensation
to rights holders.
VerwertungsGesellschaft Wort (‘‘VG Wort’’), a collection agency representing certain copyright
holders, instituted legal proceedings against HP in the Stuttgart Civil Court seeking levies on printers.
On December 22, 2004, the court held that HP is liable for payments regarding all printers using
ASCII code sold in Germany but did not determine the amount payable per unit. HP appealed this
decision in January 2005 to the Stuttgart Court of Appeals. On May 11, 2005, the Stuttgart Court of
Appeals issued a decision confirming that levies are due. On June 6, 2005, HP filed an appeal to the
German Federal Supreme Court in Karlsruhe. On December 6, 2007, the German Federal Supreme
Court issued a judgment that printers are not subject to levies under the existing law. The court issued
a written decision on January 25, 2008, and VG Wort subsequently filed an application with the
German Federal Supreme Court under Section 321a of the German Code of Civil Procedure
contending that the court did not consider their arguments. On May 9, 2008, the German Federal
Supreme Court denied VG Wort’s application. VG Wort appealed the decision by filing a claim with
the German Federal Constitutional Court challenging the ruling that printers are not subject to levies.
On September 21, 2010, the Constitutional Court published a decision holding that the German
Federal Supreme Court erred by not referring questions on interpretation of German copyright law to
the Court of Justice of the European Union (‘‘CJEU’’) and therefore revoked the German Federal
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