IBM 2015 Annual Report Download - page 120

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
118
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 oper-
ations, 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, 2015, 2014 and 2013
were not material to the Consolidated Financial Statements.
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
remaining claims, suits, investigations and proceedings discussed
in this Note, except as specifically discussed herein, 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 pre-
dict 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 company’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 question, the presence of com-
plex or novel legal theories, and/or the ongoing discovery and
development of information important to the matters. The com-
pany reviews claims, suits, investigations and proceedings at least
quarterly, and decisions are made with respect to recording or
adjusting provisions and disclosing reasonably possible losses
or range of losses (individually or in the aggregate), to reflect the
impact and status of settlement discussions, 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 condition,
results of operations or cash flows will depend on a number of
variables, including: the timing and amount of such losses or dam-
ages; the structure and type of any such remedies; the significance
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 con-
dition, 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
SCO Group, Inc. v. Novell, Inc., held a trial in March 2010. The jury
found that Novell is the owner of UNIX and UnixWare copyrights;
the judge subsequently ruled that SCO is obligated to recog-
nize Novell’s waiver of SCO’s claims against IBM and Sequent
for breach of UNIX license agreements. On August30, 2011, the
Tenth Circuit Court of Appeals affirmed the district court’s ruling
and denied SCO’s appeal of this matter. In June 2013, the Federal
Court in Utah granted SCO’s motion to reopen the SCO v. IBM