Canon 2011 Annual Report Download - page 91

Strategy Business Units Management System FINANCIAL SECTION
89
!37 !101
FINANCIAL SECTION
Guarantees
Canon provides guarantees for bank loans of its employees,
affiliates and other companies. The guarantees for the
employees are principally made for their housing loans. The
guarantees of loans of its affiliates and other companies are
made to ensure that those companies operate with less finan-
cial risk.
For each guarantee provided, Canon would have to per-
form under a guarantee if the borrower defaults on a
payment within the contract periods of 1 year to 30 years, in
the case of employees with housing loans, and of 1 year to 10
years, in the case of affiliates and other companies. The maxi-
mum amount of undiscounted payments Canon would have
had to make in the event of default is ¥15,245 million
($195,449 thousand) at December 31, 2011. The carrying
amounts of the liabilities recognized for Canon’s obligations
as a guarantor under those guarantees at December 31, 2011
were not significant.
Canon also issues contractual product warranties under
which it generally guarantees the performance of products
delivered and services rendered for a certain period or
term. Changes in accrued product warranty cost for the
years ended December 31, 2011 and 2010 are summarized
as follows:
Balance at beginning of year
Addition
Utilization
Other
Balance at end of year
2010
Millions of yen
Thousands of
U.S. dollars
20112011
¥ 13,343
14,296
(14,649)
(1,299)
¥ 11,691
¥13,944
17,605
(14,713)
(3,493)
¥13,343
$171,064
183,282
(187,808)
(16,653)
$149,885
Years ended December 31
Legal proceedings
In Germany, Verwertungsgesellschaft Wort (!VG Wort"), a col-
lecting society 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.
VG Wort filed a lawsuit in January 2006 against Canon seek-
ing payment of copyright levies on single-function printers,
and the court of first instance in D)sseldorf ruled in favor of
the claim by VG Wort in November 2006. Canon lodged an
appeal against such decision in December 2006 before the
court of appeals in D)sseldorf. Following a decision by the
same court of appeals in D)sseldorf on January 23, 2007 in
relation to a similar court case seeking copyright levies on
single-function printers of Epson Deutschland GmbH, Xerox
GmbH and Kyocera Mita Deutschland GmbH, whereby the
court rejected such alleged levies, in its judgment of
November 13, 2007, the court of appeals rejected VG Wort’s
claim against Canon. VG Wort appealed further against said
decision of the court of appeals before the Federal Supreme
Court. In December 2007, for a similar Hewlett-Packard
GmbH case relating to single-function printers, the Federal
Supreme Court delivered its judgment in favor of Hewlett-
Packard GmbH and dismissed VG Wort’s claim. VG Wort has
already filed a constitutional complaint with the Federal
Constitutional Court against said judgment of the Federal
Supreme Court. Also, after rejection by the Federal Supreme
Court of an appeal by VG Wort in relation to Canon’s single-
function printers case in September 2008, VG Wort lodged a
claim before the Federal Constitutional Court. The Federal
Constitutional Court, in the same way as the decision given
in the HP case in September 2010, gave its decision in January
2011 that the case should be reverted back to the Federal
Supreme Court, admitting VG Wort’s claim for lack of *due
process#(i.e., insufficient deliberation before judgment on the
merits). The hearing of Canon’s case was reverted back to the
Federal Supreme Court and it was held in June 2011. During
the hearing, the Federal Supreme Court indicated it is possi-
ble that Canon’s case would be referred to the European
Court of Justice for a preliminary ruling. On July 21, 2011,
the Federal Supreme Court delivered its decision to refer this
case to the European Court of Justice for its preliminary rul-
ing, upon which the Federal Supreme Court will render its
final judgment on this case. The timeline of that proceeding
from now on is yet to be known. In 2007, an amendment of
German copyright 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 forth
that the scope and tariff of copyright levies will be agreed
between industry and the collecting society. Industry and the
collecting society, based on the requirement under the new
law, reached an agreement in December 2008. This agree-
ment is applicable retroactively from January 1, 2008. The
timing of the final outcome of the court case regarding the
single-function printers sold in Germany before January 1,
2008 remains uncertain.
Canon is involved in various claims and legal actions,
including those noted above, arising in the ordinary course of
business. 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 provisions at least quarterly and adjusts these provi-
sions to reflect the impact of the negotiations, settlements,