Canon 2005 Annual Report Download - page 86

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84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CANON INC. AND SUBSIDIARIES
Legal proceedings
In February 2003, a lawsuit was filed by St. Clair Intellectual
Property Consultants, Inc. (“St. Clair”) against the Company
and one of its subsidiaries in the United States District Court of
Delaware, which accused the Company of infringement of
patents related to certain technology. In connection with this
case, in October 2004, a jury preliminarily found damages
against the Company of approximately ¥4,000 million
($33,898 thousand) based on a percentage of certain product
sales in the United States through 2003. Subsequent to this
jury finding, St. Clair also made a motion to the court for dam-
ages relating to certain 2004 sales, using the same royalty rate
awarded by the jury which could result in additional in dam-
ages. There are additional defenses that are yet to be litigated
in a follow-up non-jury trial solely before a judge; thus, a final
decision by the court, as to both infringement and the total
amount of damages, has not yet been reached.
In November 2003, a law suit was filed by a former
employee against the Company at the Tokyo District Court in
Japan. The lawsuit alleges that the former employee is entitled
to ¥45,872 million ($388,746 thousand) as compensation for
an invention related to certain technology used by the Com-
pany, and the former employee has sued for a partial payment
of ¥1,000 million ($8,475 thousand) and interest thereon. The
case is still pending and the final outcome is not yet
determinable.
In Germany, Verwertungsgesellschaft Wort (“VG Wort”), a
collecting agency representing certain copyright holders, has
filed a series of lawsuits seeking to impose copyright levies
upon digital products such as PCs and printers, that allegedly
enable the reproduction of copyrighted materials, against the
companies importing and distributing these digital products. In
May 2004, VG Wort filed a civil lawsuit against Hewlett-
Packard GmbH seeking for levies on multi-function printers.
This is an industry test case under which Hewlett-Packard
GmbH represents other companies sharing common interests,
and Canon has undertaken to be bound by the final decision
of this court case. The court of first instance and the court of
appeals held that the multi-function printers were subject to a
levy. In particular, the court of appeals ordered Hewlett-
Packard GmbH to pay the amount equivalent to the levies
imposed on photocopiers (EUR 38.35 to EUR 613.56 per unit,
depending on printing speed and color printing capability). This
lawsuit is currently under appeal before the German Federal
Supreme Court. With regard to single-function printers, VG
Wort filed a separate lawsuit on January 3, 2006 against
Canon seeking for payment of copyright levies. Canon, other
companies and the industry associations have expressed oppo-
sition to such extension of the levy scope and the final conclu-
sion of these court cases including the amount of levies to be
imposed, remains uncertain.
Canon is involved in various claims and legal actions,
including those noted above, arising in the ordinary course of
business. In accordance with SFAS No. 5, “Accounting for Con-
tingencies,” Canon has recorded provisions for liabilities when
it is probable that liabilities have been incurred and the amount
of loss can be reasonably estimated. Canon reviews these pro-
visions at least quarterly and adjusts these provisions to reflect
the impact of the negotiations, settlements, rulings, advice of
legal counsel and other information and events pertaining to a
particular case. Based on its experience, Canon believes that
any damage amounts claimed in the specific matters discussed
above are not a meaningful indicator of Canon’s potential lia-
bility. In the opinion of management, the ultimate disposition
of the above mentioned matters will not have a material
adverse effect on Canon’s consolidated financial position,
results of operations, or cash flows. However, litigation is inher-
ently unpredictable. While Canon believes that it has valid
defenses with respect to legal matters pending against it, it is
possible that Canon’s consolidated financial position, results of
operations, or cash flows could be materially affected in any
particular period by the unfavorable resolution of one or more
of these matters.