Nokia 2007 Annual Report Download - page 69

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 in Note 29 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.
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 outflows that are expected to occur before the asset is ready for use. See Note 8 to our
consolidated financial statements.
Impairment reviews are based upon our projections of anticipated discounted 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 based
on the risk inherent in the related activity’s current business model and industry comparisons.
Terminal values are based on the expected life of products and forecasted life cycle and forecasted
cash flows over that period. While we believe that our assumptions are appropriate, such amounts
estimated could differ materially from what will actually occur in the future.
Business combinations
We apply the purchase method of accounting to account for acquisitions of businesses. The cost of an
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