ADT 2015 Annual Report Download - page 95

FORM 10-K
disclosure of our trade secrets. If we fail to successfully enforce our intellectual property rights, our competitive
position could suffer, which could adversely affect our business, financial condition, results of operations and
cash flows.
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.
Our independent, third party authorized dealers may not be able to mitigate certain risks such as
information technology breaches, data security breaches, product liability, errors and omissions and
marketing compliance.
We generate a portion of our new customers through our authorized dealer network. We rely on
independent, third party authorized dealers to implement mitigation plans for certain risks they may experience,
including but not limited to, information technology breaches, data security breaches, product liability, errors and
omissions and marketing compliance. If our authorized dealers experience any of these risks, or fail to implement
mitigation plans for their risks, or if such implemented mitigation plans fail, we may be susceptible to risks
associated with our authorized dealers through which we rely to generate customers. Any interruption in the
generation of customer accounts or services provided by our authorized dealers could adversely affect our cash
flows, results of operations and financial condition.
We may not be able to continue to develop and execute a competitive yet profitable pricing structure.
We resist competing on price alone because we believe we have competitive advantage such as brand name
recognition and a reputation for a high level of service and security. However, with cable and telecommunications
companies actively targeting the home automation market and expanding into the monitored security space, and
with large technology companies expanding into the connected home market through the development of their own
solutions or the acquisition of other companies with home automation solution offerings, this increased competition
could result in pricing pressure, a shift in customer preferences towards the services of these companies and reduce
our market share. Continued pricing pressure from these competitors or failure to achieve pricing based on the
competitive advantages previously identified above could prevent us from maintaining competitive price points for
our products and services resulting in lost customers or in our inability to attract new customers and have an adverse
effect on our business, financial condition, results of operations and cash flows.
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