Upon reviewing the Form 10-K filed by Palm, the staff inquired regarding the company's reliance on software licensing arrangements. The staff first asked the company to describe the nature of its arrangements with third-party suppliers (some of them sole source suppliers) of various components of its smartphones, but especially with respect to the available operating systems. Palm replied that, with the exception of the Palm OS and Microsoft Windows Mobile OS, Palm is not substantially dependent on the various suppliers of smartphone components and related technologies, and thus need not file all such agreements under Item 601(b)(10) of Regulation S-K. Palm further stated that its third-party arrangements with suppliers are in the ordinary course of business and Palm has identified alternative suppliers of many components. The company noted, however, that historically it has been dependent on the Palm OS which is licensed by ACCESS Systems.

The staff further observed that Palm's product strategy was substantially dependent on offering two operating systems. As such, the staff inquired why Palm filed the ACCESS Systems agreement previously, but had not filed the agreement covering Microsoft's Windows Mobile OS. Palm replied that it had not filed the Microsoft agreement because it was not substantially dependent upon the use of the Microsoft OS in its smartphones. According to Palm, "saying that the company’s product strategy is substantially dependent on providing a choice of operating systems is not the same as saying that Palm’s business is substantially dependent on the license agreements for any of those operating systems or the terms and conditions set forth in those agreements." The company further explained that previously it offered only the Palm OS and was therefore dependent upon the arrangement with ACCESS Systems. The company's present strategy, however, is to offer multiple operating systems to customers to gain leverage in making deals with OS providers, to better satisfy geographic demand, and to provide customers with choices. The company also noted that Palm smartphones with the Microsoft OS amounted to less than 30 percent of total revenues. The company also noted that the terms of the Microsoft agreement had been disclosed in prior filings. In a follow-up comment, the staff reiterated its position that the Microsoft agreement should be filed. Palm responded with qualitative and quantitative data in defense of its view that the Microsoft agreement need not be filed. Following a second follow-up comment in which the staff again stated that Palm should file the Microsoft agreement, Palm agreed to do so in Form 8-K prior to filing its next Form10-K. The staff subsequently indicated that it had no further comments.