Canon 2008 Annual Report Download - page 94

92
of levies to digital products, Canon’s assessments of the fi nal
conclusion of these court cases including the amount of levies to
be imposed and the associated
fi
nancial impact on Canon remains
uncertain. In, 2007, an amendment o
f
German cop
y
ri
g
ht law
was carried out, and a new law has been effective from January
1, 2008 for both multi-function printers and single-function
printers. The new law sets
f
orth that the scope and tari
ff
o
f
cop
y
ri
g
ht levies will be a
g
reed between industr
y
and the collect
-
in
g
societ
y
. In
d
ustr
y
an
d
t
h
e co
ll
ectin
g
societ
y
,
b
ase
d
on t
h
e
requirement un
d
er t
h
e new
l
aw, reac
h
e
d
an agreement in
December 2008. This agreement is applicable retroactively
f
rom
Januar
y
1, 2008 and will remain e
ff
ective throu
g
h end o
f
2010.
Accor
d
in
gly
, t
h
ere is no
l
on
g
er an
y
uncertaint
y
wit
h
respect to
levies for sales of printers on and after January 1, 2008
.
In April 2005, a lawsuit was fi led by Nano-Proprietary Inc.,
currently Applied Nanotech Holdings, Inc.,
(
“NPI”
)
against the
Compan
y
and Canon U.S.A., Inc. in the United States District
Court of Texas alle
g
in
g
that SED Inc., a
j
oint venture compan
y
esta
bl
is
h
e
d
b
y t
h
e Company an
d
Tos
h
i
b
a Corporation, was not
regarded as a “subsidiary” under the Patent License Agreement
between the Compan
y
and NPI and the extension o
f
the license
to SED Inc. constituted a breach o
f
the a
g
reement. NPI also alle
g
ed
that Canon committed fraud in executing such agreement, and
requested rescission of the agreement and compensatory
damages. In November 2006, the Court denied Canon’s motion
f
or a summar
y
j
ud
g
ment that SED Inc. was a subsidiar
y
o
f
the
Compan
y
. In Januar
y
2007, t
h
e Compan
y
purc
h
ase
d
a
ll
t
h
e
shares of SED Inc. owned by Toshiba Corporation, making SED
Inc. a 100% owned subsidiary of the Company. However, on
Februar
y
22, 2007, the Court issued a summar
y
j
ud
g
ment
statin
g
that SED Inc. (be
f
ore the above stock purchase) was not
a subsidiary of the Company, that the Company had materially
breached the patent license agreement and that NPI was allowed
to terminate that agreement. Therea
f
ter, a trial was held
f
rom
April 30 to Ma
y
3, 2007, in Austin, Texas. NPI’s
f
raud claims
a
g
ainst Canon were wit
hd
rawn
by
NPI an
d
t
h
e
j
ur
y
returne
d
a
ver
d
ict t
h
at NPI
h
a
d
sustaine
d
no
d
amages. A
ll
c
l
aims against
Canon U.S.A., Inc. were a
l
so wit
hd
rawn
b
y NPI. On May 15,
2007, Canon fi led a notice of appeal to the United States Court
o
f
Appeals
f
or the Fi
f
th Circuit (“Appeals Court”), appealin
g
the
District Court’s prior ru
l
in
g
t
h
at Canon
h
a
d
b
reac
h
e
d
t
h
e patent
l
icense agreement an
d
a
ll
owing NPI to terminate t
h
at agreement.
On June 4, 2007, NPI also fi led a notice of appeal, appealing the
District Court’s determination that NPI had sustained no damages.
On Jul
y
25, 2008, the Appeals Court reversed the District Court’s
j
ud
g
ment and found that termination of the patent license
agreement was ineffective and that the 100% owned SED Inc.
is a subsidiary o
f
Canon. The Appeal Court also a
ffi
rmed the
District Court’s
j
ud
g
ment den
y
in
g
dama
g
es to NPI. NPI petitioned
f
or rehearin
g
o
f
the
j
ud
g
ment, but the Appeals Court denied
t
h
e
p
etition. Since NPI
d
i
d
not a
pp
ea
l
to t
h
e Su
p
reme Court
within the required time limit, the Fifth Circuit’s judgment is
de
fi
nitive and conclusive in
f
avor o
f
Canon
.
Canon is involved in various claims and le
g
al actions, includin
g
those noted above, arisin
g
in the ordinar
y
course of business. In
accordance with SFAS No. 5, “Accounting for Contingencies,”
Canon has recorded provisions for liabilities when it is probable
that liabilities have been incurred and the amount o
f
loss can be
reasona
bly
estimate
d
. Canon reviews t
h
ese provisions at
l
east
quarterly and adjusts these provisions to refl ect the impact of
the negotiations, settlements, rulings, advice of legal counsel
and other in
f
ormation and events pertaining to a particular case.
Based on its experience, Canon believes that an
y
dama
g
e
amounts claimed in the s
p
ecifi c matters discussed above are not
a meaningful indicator of Canon’s potential liability. In the
opinion of management, the ultimate disposition of the above
mentioned matters will not have a material adverse e
ff
ect on
Canon’s consolidated
fi
nancial position, results o
f
operations, or
cash fl ows. However, litigation is inherently unpredictable. While
Canon believes that it has valid defenses with respect to legal
matters pending against it, it is possible that Canon’s consolidated
fi
nancial position, results o
f
operations, or cash
fl
ows could be
materiall
y
affected in an
y
particular period b
y
the unfavorable
r
eso
l
ut
i
o
n
o
f
o
n
e
o
r m
o
r
e
o
f
t
h
ese
m
atte
r
s.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES
F
a
ir v
a
l
ue
o
f fi n
a
n
c
i
a
l in
st
r
u
m
e
n
ts
The estimated fair values of Canon’s fi nancial instruments at
December 31, 2008 and 2007 are set
f
orth below. The
f
ollowin
g
summar
y
exc
l
u
d
es cas
h
an
d
cas
h
equiva
l
ents, tra
d
e receiva
bl
es,
2
2. Disclosures about the Fair Value o
f
Financial Instruments and Concentrations o
f
Credit Ris
k
fi nance receivables, noncurrent receivables, short-term loans,
trade pa
y
ables and accrued expenses
f
or which
f
air values
approximate their carr
y
in
g
amounts. The summar
y
also excludes
inv
est
m
e
n
ts
w
h
i
ch
a
r
e
d
i
sclosed
in N
ote
4
.
Decem
b
er 3
1
Millions of
y
en Th
ousa
n
d
o
f
U
.
S
.
do
ll
a
r
s
2008
2007
2008
Carryin
g
a
moun
t
Estimate
d
f
air valu
e
C
arryin
g
a
moun
t
Estimate
d
f
air valu
e
Carryin
g
a
moun
t
Estimate
d
f
air valu
e
Long-term
d
e
b
t, inc
l
u
d
ing current insta
ll
ments ¥ (13,743) ¥ (13,727) ¥
(
24,109
)
¥
(
24,714
)
$ (151,022) $ (150,846)
Forei
g
n exchan
g
e contracts:
Assets
10,516 10,516
806
806
115,560 115,560
Lia
b
i
l
itie
s
(678) (678)
(
12,335
)
(
12,335
)
(7,451) (7,451)