Question

All businesses are subject to various types of legal proceedings. Merck & Co. Inc., a global health care company that manufacturers prescription medicines, has been a defendant in a number of product liability lawsuits. In the notes to Merck’s 2012 financial statements, the company states: “There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate.”

Required:
Explain in your own words what Merck means by this statement. In particular, include what
they mean by “material” and “remote.” Who is in the best position to determine the outcome
of a lawsuit?

Answer 1

According to the case law,Merck & Co. Inc which is a global health care company has been sued or accused for number of product liability lawsuits, so in financial statements the company states that there are several pending legal proceedings on them because of product liability and intellectual property.

Here intellectual property means intangible property such as patents or copyrights,But the company is not sure about the outcome of such proceeding whether the outcome will be material or not, or it which be going to impact their financial position.

Here word material means materiality .If Merck & Co. is big company then it will be impacted by the losses and if not then it is not going to effect its financial position. In simple words material means items which are important enough to the company must be disclosed so that financial user are able to understand properly.

Here loss is remote means court donot impose any liability when loss is not so much or for large co. it doesnot matter.In simple language loss which is not natural and ordinary result of such process.

Company or user are in the best position to determine the outcome of lawsuit as they are the person who knows there financial postion very well and can predict their future on the basis of this cases