Nokia 2003 Annual Report Download - page 50

materially from our estimates. When the actual cost of quality of our products is lower than we
originally anticipated, we release an appropriate proportion of the provision, and if the cost of
quality is higher than anticipated, we increase the provision.
Provision for intellectual property rights, or IPR, infringements
We provide for the estimated future settlements related to asserted and unasserted IPR
infringements based on the probable outcome of each infringement. The ultimate outcome or
actual cost of settling an individual infringement may vary from our estimates.
Our products and solutions include increasingly complex technologies involving numerous
patented and other proprietary technologies. Although we proactively try to ensure that we are
aware of any patents related to our products and solutions under development and thereby avoid
inadvertent infringement of proprietary technologies, the nature of our business is such that
patent infringements may and do occur. Through contact with parties claiming infringement of
their patented technology, or through our own monitoring of developments in patent cases
involving our competitors, we identify potential IPR infringements.
We estimate the outcome of all potential IPR infringements made known to us through assertion
by third parties, or through our own monitoring of patent-related cases in the relevant legal
systems. To the extent that we determine that an identified potential infringement will more
likely than not result in an outflow of resources, we record a liability based on our best estimate
of the expenditure required to settle infringement proceedings.
Our experience with claims of IPR infringement is that there is typically a discussion period with
the accusing party, which can last from several months to years. In cases where a settlement is
not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For
this reason, the ultimate outflow relating to IPR infringement claims can last for varying periods
of time, resulting in irregular movements in the IPR infringement provision.
Capitalized development costs
We capitalize certain development costs when it is probable that a development project will be a
success and certain criteria, including commercial and technological feasibility, have been met.
These costs are then amortized on a systematic basis over their expected useful lives, which due
to the constant development of new technologies is between two to five years. During the
development stage, management must estimate the commercial and technological feasibility of
these projects as well as their expected useful lives. Should a product fail to substantiate its
estimated feasibility or life cycle, we may be required to write off excess development costs in
future periods.
Whenever there is an indicator that development costs capitalized for a specific project may be
impaired, the recoverable amount of the asset is estimated. An asset is impaired when the
carrying amount of the asset exceeds its recoverable amount. The recoverable amount is defined
as the higher of an asset’s net selling price and value in use. Value in use is the present value of
discounted estimated future cash flows expected to arise from the continuing use of an asset and
from its disposal at the end of its useful life. For projects still in development, these estimates
include the future cash out flows that are expected to occur before the asset is ready for use. See
Note 7 to our consolidated financial statements.
Impairment reviews are based upon our projections of anticipated future cash flows. The most
significant variables in determining cash flows are discount rates, terminal values, the number of
years on which to base the cash flow projections, as well as the assumptions and estimates used
to determine the cash inflows and outflows. Management determines discount rates to be used
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