ADT 2012 Annual Report Download - page 106

Allegations that we have infringed the intellectual property rights of third parties could negatively affect
us.
We may be subject to claims of intellectual property infringement rights by third parties. In particular, as
our services have expanded into areas more heavily populated by intellectual property, we have become subject
to claims alleging infringement of intellectual property, including litigation brought by special purpose or
so-called “non-practicing” entities that focus solely on extracting royalties and settlements by enforcing patent
rights. These companies typically have little or no business or operations and there are few effective deterrents
available to prevent such companies from filing patent infringement lawsuits against us. In addition, we rely on
licenses and other arrangements with third parties covering intellectual property related to the products and
services that we market, including a Patent Agreement with Tyco covering the manufacture, use and sale of
pre-separation products. Notwithstanding these arrangements, we could be at risk for infringement claims from
third parties, including Tyco. Although the Patent Agreement generally includes a covenant by Tyco not to sue us
for products and services in existence as of the distribution date that may infringe Tyco patents, it does not
protect us from infringement claims for future product or service expansions, or if we change third-party product
suppliers or if an alleged infringement involves certain patents. In general, if a court determines that one or more
of our services infringes on intellectual property owned by others, we may be required to cease marketing those
services, to obtain licenses from the holders of the intellectual property at a material cost or to take other actions
to avoid infringing the intellectual property. The litigation process is costly and subject to inherent uncertainties,
and we may not prevail in litigation matters regardless of the merits of our position. Intellectual property lawsuits
or claims may become extremely disruptive if the plaintiffs succeed in blocking the trade of our products and
services and may have a material adverse effect on our business, financial condition, results of operations and
cash flows.
Unauthorized use of our brand name by third parties, and the expenses incurred in developing and
preserving the value of our brand name, may adversely affect our business.
Our brand name is critical to our success. Unauthorized use of our brand name by third parties may
adversely affect our business and reputation, including the perceived quality and reliability of our products. We
rely on trademark law, company brand name protection policies and agreements with our employees, customers,
business partners and others to protect the value of our brand name. Despite our precautions, we cannot provide
assurance that those procedures are sufficiently effective to protect against unauthorized third-party use of our
brand name. In particular, in recent years various third parties have used the ADT®brand name to engage in
fraudulent activities, including inducing customers to switch monitoring service providers, generating leads for
competitors and obtaining personal financial information. We may not be successful in investigating, preventing
or prosecuting unauthorized third-party use of our brand name. Future litigation with respect to such
unauthorized use could also result in substantial costs and diversion of our resources. These factors could
adversely affect our reputation, business, financial condition, results of operations and cash flows.
We do not own the right to use certain of our trademarks, including the ADT®brand name, outside of the
United States and Canada.
Following the Separation, Tyco owns the ADT®brand name outside of the United States and Canada.
Therefore, in order to expand our business outside the United States and Canada, we would need to either acquire
or otherwise license the ADT®brand name from Tyco (to the extent not already used by Tyco in the applicable
jurisdictions(s)) or use an alternative brand name. This would put us at a distinct competitive disadvantage.
Development of a new brand outside the United States and Canada could be costly and would also require us to
market other brands as superior alternatives to the ADT®brand, which could undermine its value among
customers within the United States and Canadian residential and small business security markets. These factors
may make it difficult for us to develop a business outside of the United States and Canada. These factors also
expose us to the risk that the ADT®brand name could suffer reputational damage or devaluation for reasons
outside of our control, including Tyco’s business conduct outside of the United States and Canada. Any of these
factors may materially and adversely affect our business, financial condition, results of operations and cash
flows.
14