Lexmark 2011 Annual Report Download - page 139

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penalties and interest but did not include post judgment interest, costs and attorneys’ fees. On
November 17, 2010, the trial court Judge partially granted the Company’s motion for a new trial solely
as to the argument that current employees are not entitled to any damages. On March 7, 2011 the trial
court Judge reduced the original award to $7.8 million. On October 28, 2011, the trial court Judge
awarded the class members $5.7 million in attorneys’ fees.
The Company filed a notice of appeal with the California Court of Appeals objecting to the trial court
Judge’s award of damages and attorneys’ fees. The appeal is pending.
The Company believes an unfavorable outcome in the matter is probable. The range of potential loss
related to this matter is subject to a high degree of estimation. In accordance with the accounting
guidance for contingencies, if the reasonable estimate of a probable loss is a range and no amount
within the range is a better estimate, the minimum amount of the range is accrued. Because no amount
within the range of potential loss is a better estimate than any other amount, the Company has accrued
$1.8 million for the Molina matter, which represents the low-end of the range. At the high-end of the
range, the class has sought $16.7 million in damages along with $5.7 million in attorneys’ fees, plus
post judgment interest. Thus, it is reasonably possible that a loss exceeding the $1.8 million already
accrued may be incurred in this matter, ranging from $0 to $22.4 million, excluding post judgment
interest, costs and any additional attorneys’ fees which may be assessed against the Company.
Advanced Cartridge Technologies, LLC v. Lexmark
Advanced Cartridge Technologies, LLC (“ACT”) filed suit against the Company on February 22, 2010
in the U.S. District Court for the Middle District of Florida (“District Court”). The Complaint alleges that
the Company has infringed three U.S. patents related to toner cartridge technology, and further alleges
that the Company has committed false patent marking by improperly marking patent numbers on
certain Company toner cartridge products. ACT is seeking up to the statutory maximum of $500 per
alleged false patent marking offense. ACT’s damage expert has also provided damage estimates
between $27 million and $29 million for the claimed infringement of the ACT patents. There has been
no damage estimate for the false marking claim. A jury trial will likely be held in the first quarter of 2012
on the patent infringement claims. On December 21, 2011, the District Court Judge granted the
Company’s motion to dismiss ACT’s false marking claim. The Company believes the claims are without
merit, and intends to continue to defend against them vigorously. The Company has not established an
accrual for the ACT litigation, because it has not determined that a loss with respect to such litigation is
probable. Although there is a reasonable possibility of a potential loss with respect to the ACT litigation,
the Company does not believe a reasonable estimate of the range of possible loss is currently possible
in view of the uncertainty regarding the amount of damages, if any, that could be awarded in this
matter.
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, 2011, the
Company has accrued approximately $63.3 million for pending copyright fee charges, including
litigation proceedings, local legislative initiatives and/or negotiations with the parties involved. The
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