IBM 2014 Annual Report Download - page 123

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
122
NOTE M.
CONTINGENCIES AND COMMITMENTS
Contingencies
As a company with a substantial employee population and with
clients in more than 175 countries, IBM is involved, either as plain-
tiff or defendant, in a variety of ongoing claims, demands, suits,
investigations, tax matters and proceedings that arise from time
to time in the ordinary course of its business. The company is a
leader in the information technology industry and, as such, has
been and will continue to be subject to claims challenging its IP
rights and associated products and offerings, including claims of
copyright and patent infringement and violations of trade secrets
and other IP rights. In addition, the company enforces its own IP
against infringement, through license negotiations, lawsuits or oth-
erwise. Also, as is typical for companies of IBM’s scope and scale,
the company is party to actions and proceedings in various juris-
dictions involving a wide range of labor and employment issues
(including matters related to contested employment decisions,
country-specific labor and employment laws, and the company’s
pension, retirement and other benefit plans), as well as actions with
respect to contracts, product liability, securities, foreign opera -
tions, competition law and environmental matters. These actions
may be commenced by a number of different parties, including
competitors, clients, current or former employees, government and
regulatory agencies, stockholders and representatives of the loca-
tions in which the company does business. Some of the actions to
which the company is party may involve particularly complex tech-
nical issues, and some actions may raise novel questions under
the laws of the various jurisdictions in which these matters arise.
The company records a provision with respect to a claim,
suit, investigation or proceeding when it is probable that a liability
has been incurred and the amount of the loss can be reasonably
estimated. Any recorded liabilities, including any changes to such
liabilities for the years ended December 31, 2014, 2013 and 2012
were not material to the company’s results of continuing opera-
tions and financial position.
In accordance with the relevant accounting guidance, the com-
pany provides disclosures of matters for which the likelihood of
material loss is at least reasonably possible. In addition, the com-
pany also discloses matters based on its consideration of other
matters and qualitative factors, including the experience of other
companies in the industry, and investor, customer and employee
relations considerations.
With respect to certain of the claims, suits, investigations and
proceedings discussed herein, the company believes at this time
that the likelihood of any material loss is remote, given, for exam-
ple, the procedural status, court rulings, and/or the strength of the
company’s defenses in those matters. With respect to the remain-
ing claims, suits, investigations and proceedings discussed in this
Note, the company is unable to provide estimates of reasonably
possible losses or range of losses, including losses in excess of
amounts accrued, if any, for the following reasons. Claims, suits,
investigations and proceedings are inherently uncertain, and it
is not possible to predict the ultimate outcome of these matters.
It is the company’s experience that damage amounts claimed
in litigation against it are unreliable and unrelated to possible
outcomes, and as such are not meaningful indicators of the com-
pany’s potential liability. Further, the company is unable to provide
such an estimate due to a number of other factors with respect
to these claims, suits, investigations and proceedings, including
considerations of the procedural status of the matter in ques-
tion, the presence of complex or novel legal theories, and/or the
ongoing discovery and development of information important to
the matters. The company reviews claims, suits, investigations
and proceedings at least quarterly, and decisions are made with
respect to recording or adjusting provisions and disclosing rea-
sonably possible losses or range of losses (individually or in the
aggregate), to reflect the impact and status of settlement discus-
sions, discovery, procedural and substantive rulings, reviews by
counsel and other information pertinent to a particular matter.
Whether any losses, damages or remedies finally determined
in any claim, suit, investigation or proceeding could reasonably
have a material effect on the company’s business, financial condi-
tion, results of operations or cash flows will depend on a number
of variables, including: the timing and amount of such losses or
damages; the structure and type of any such remedies; the sig-
nificance of the impact any such losses, damages or remedies
may have in the Consolidated Financial Statements; and the
unique facts and circumstances of the particular matter that may
give rise to additional factors. While the company will continue to
defend itself vigorously, it is possible that the company’s business,
financial condition, results of operations or cash flows could be
affected in any particular period by the resolution of one or more
of these matters.
The following is a summary of the more significant legal matters
involving the company.
The company is a defendant in an action filed on March 6, 2003
in state court in Salt Lake City, Utah by the SCO Group (SCO v.
IBM). The company removed the case to Federal Court in Utah.
Plaintiff is an alleged successor in interest to some of AT&T’s UNIX
IP rights, and alleges copyright infringement, unfair competition,
interference with contract and breach of contract with regard to
the company’s distribution of AIX and Dynix and contribution of
code to Linux and the company has asserted counterclaims. On
September 14, 2007, plaintiff filed for bankruptcy protection, and all
proceedings in this case were stayed. The court in another suit, the