Lexmark 2013 Annual Report Download - page 130

Company increased the accrual during the fourth quarter of 2013 from $1.8 million to $14.4 million for the Molina matter, which
represents the Company’s best estimate of the potential loss based on the terms of the stipulation described above. The $14.4 million
payment related to the Molina litigation was made by the Company in February 2014, subsequent to the date of the financial
statements.
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, 2013, the Company has accrued approximately $64.0 million for pending copyright fee charges,
including litigation proceedings, local legislative initiatives and/or negotiations with the parties involved. Although it is reasonably
possible that amounts may exceed the amount accrued by the Company, such amount, or range of possible loss, given the complexities
of the legal issues in these matters, cannot be reasonably estimated by the Company at this time.
As of December 31, 2013, approximately $58.1 million of the $64.0 million accrued for the pending copyright fee issues was related
to single function printer devices sold in Germany prior to December 31, 2007. For the period after 2007, the German copyright levy
laws were revised and the Company has been making payments under this revised copyright levy scheme related to single function
printers sold in Germany.
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 a decision of the court of final appeal in 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 (“CJEU”) and therefore revoked the German Federal Supreme Court decision and remitted the matter to it. On July 21,
2011, the German Federal Supreme Court stayed the proceedings and submitted several questions regarding the interpretation of
Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society to the CJEU
for a decision. The CJEU issued its opinion on June 27, 2013 and the matter has been remitted back to the German Federal Supreme
Court for further proceedings. A hearing is scheduled at the German Federal Supreme Court for April 30, 2014.
In December, 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 asserted that all claims for levies on single function printers sold by the Company in Germany should be dismissed. On
February 22, 2011 the arbitration board issued a partial decision finding that the claims of VG Wort for the years 2001 through 2005
are time barred by the statute of limitations. On October 27, 2011, the arbitration board further found that the copyright levy claims for
single function printers for the years 2006 and 2007 should be dismissed pursuant to the October 2002 agreement between the
Company and VG Wort finding the parties agreed to be bound by the judgment of the German Federal Supreme Court of December 6,
2007 which dismissed VG Wort’s copyright levy claims for single function printers. VG Wort has filed objections against these non-
binding decisions and, on April 25, 2012, filed legal action against the Company in the Munich (Civil) Court of Appeals seeking to
collect copyright levies for single function printers sold by the Company in Germany from 2001 to 2007. In contesting VG Wort’s
filing, the Company is seeking the Munich (Civil) Court of Appeals’ determination that the Company does not owe copyright levies
for single function printers sold by the Company in Germany for the contested period. On June 6, 2013, the Munich (Civil) Court of
Appeals ruled that the Company’s payment obligation for single-function printers sold until 2007 is dependent on the final outcome of
the industry-wide litigation of VG Wort vs. HP described above. On June 26, 2013 the Company filed a complaint against denial of
leave of appeal with the German Federal Supreme Court.
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.
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