Lexmark 2009 Annual Report Download - page 131

an assumption that none of the California employees ever used any of their accrued vacation or personal
choice days. The class is also seeking injunctive relief, costs and attorneys’ fees.
The Company is also party to various litigation and other legal matters, including claims of intellectual
property infringement, that are being handled in the ordinary course of business. In addition, various
governmental authorities have from time to time initiated inquiries and investigations, some of which are
ongoing, including concerns regarding the activities of participants in the markets for printers and supplies.
The Company intends to continue to cooperate fully with those governmental authorities in these matters.
Although it is not reasonably possible to estimate whether a loss will occur as a result of these legal
matters, or if a loss should occur, the amount of such loss, the Company does not believe that any legal
matters to which it is a party is likely to have a material adverse effect on the Company’s financial position,
results of operations and cash flows. However, there can be no assurance that any pending legal matters
or any legal matters that may arise in the future would not have a material adverse effect on the Company’s
financial position, results of operations or cash flows.
Copyright fees
Certain countries (primarily in Europe) and/or collecting societies representing copyright owners’ interests
have taken action to impose fees on devices (such as scanners, printers and multifunction devices)
alleging the copyright owners are entitled to compensation because these devices enable reproducing
copyrighted content. Other countries are also considering imposing fees on certain devices. The amount of
fees, if imposed, would depend on the number of products sold and the amounts of the fee on each
product, which will vary by product and by country. The Company has accrued amounts that it believes are
adequate to address the risks related to the copyright fee issues currently pending. The financial impact on
the Company, which will depend in large part upon the outcome of local legislative processes, the
Company’s and other industry participants’ outcome in contesting the fees and the Company’s ability to
mitigate that impact by increasing prices, which ability will depend upon competitive market conditions,
remains uncertain. As of December 31, 2009, the Company has accrued a total of approximately
$70 million for pending copyright fee charges, including litigation proceedings, local legislative
initiatives and/or negotiations with the parties involved.
As of December 31, 2009, approximately $57 million of the $70 million accrued for the pending copyright
fee issues was related to single function printer devices sold in Germany prior to December 31, 2007. The
VerwertungsGesellschaft Wort (“VG Wort”), a collection society representing certain copyright holders,
instituted legal proceedings against Hewlett-Packard Company (“HP”) in July of 2004 relating to whether
and to what extent copyright levies for photocopiers should be imposed in accordance with copyright laws
implemented in Germany on single function printers. The Company is not a party to this lawsuit, although
the Company and VG Wort entered into an agreement pursuant to which both VG Wort and the Company
agreed to be bound by the outcome of the VG Wort/HP litigation. On December 6, 2007, the
Bundesgerichtshof (the “German Federal Supreme Court”) in the VG Wort litigation with HP issued a
judgment that single function printer devices sold in Germany prior to December 31, 2007 are not subject
to levies under the then existing law (German Federal Supreme Court, file reference I ZR 94/05). VG Wort
filed an appeal with the Bundesverfassungsgericht (the “German Federal Constitutional Court”)
challenging the ruling that single function printers are not subject to levies. The matter is still pending
with the German Federal Constitutional Court. On or about December 15, 2009, VG Wort instituted non-
binding arbitration proceedings against the Company before the arbitration board of the Patent and
Trademark Office in Munich relating to whether and to what extent copyright levies should be imposed on
single function printers sold by the Company in Germany for the years 2006 and 2007.
An agreement was reached in the first quarter of 2009 with the collecting societies in which the Company
participated regarding the copyright fees to be levied on all-in-one and multifunctional devices (“AIO/
MFDs”) sold in Germany after December 31, 2001 through December 31, 2007. As part of this settlement,
the Company paid the collection societies $42.6 million in July 2009. This matter is now closed.
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