Lexmark 2010 Annual Report Download - page 127

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On October 12 and 13, 2010, the USPTO granted the Company’s request for re-examination of the
asserted patents.
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, 2010, the Company has accrued a total of approximately
$64.8 million for pending copyright fee charges, including litigation proceedings, local legislative
initiatives and/or negotiations with the parties involved.
As of December 31, 2010, approximately $53 million of the $64.8 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 in October 2002 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. On September 21, 2010,
the German Federal Constitutional Court published a decision holding that the German Federal Supreme
Court erred by not considering referring questions on interpretation of German copyright law to the Court of
Justice of the European Communities and therefore revoked the German Federal Supreme Court decision
and remitted the matter to it. The German Federal Supreme Court has set a hearing date of March 24,
2011.
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 from 2001 to 2007. In its submissions to the Patent and Trademark Office in Munich the
Company asserts that all claims for levies on single function printers sold by the Company in Germany
should be dismissed.
The Company believes the amounts accrued represent its best estimate of the copyright fee issues
currently pending and these accruals are included in Accrued liabilities on the Consolidated Statements of
Financial Position.
20. SEGMENT DATA
During 2010, the Company executed two strategic actions. First, in the second quarter of 2010, the
Company acquired Perceptive Software in order to build upon and strengthen Lexmark’s industry workflow
solutions and allow the Company to compete in the faster growing ECM and document-process
automation software solutions markets. Historically, the Company has focused primarily on the
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