Nokia 2005 Annual Report Download - page 58

will be increasingly difficult to anticipate our failure rates, the length of warranty periods and
repair costs. While we believe that our warranty provisions are adequate and that the judgments
applied are appropriate, the ultimate cost of product warranty could differ 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.
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 and other intellectual property rights 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 and other intellectual property right infringements may
and do occur. Through contact with parties claiming infringement of their patented or otherwise
exclusive technology, or through our own monitoring of developments in patent and other
intellectual property right 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- and other IPR-related cases in the
relevant legal systems. To the extent that we determine that an identified potential infringement
will result in a probable 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, IPR infringement claims can last for varying periods of time, resulting in irregular
movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of
settling an individual infringement may materially vary from our estimates.
Legal contingencies
As discussed in Item 8.A.7 Litigation and Note 32 to the consolidated financial statements, legal
proceedings covering a wide range of matters are pending or threatened in various jurisdictions
against the Group. We record provisions for pending litigation when we determine that an
unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the
inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may
materially vary from estimates.
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 technical 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 technical 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.
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