McKesson 2006 Annual Report Download - page 53

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Proprietary technology protections may not be adequate, and products may infringe on the rights of third parties.
We rely on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions and
technical measures to protect our proprietary rights in our products. There can be no assurance that these protections will be adequate or that
our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. Although we
believe that our products do not infringe upon the proprietary rights of third parties, from time to time third parties have asserted infringement
claims against us and there can be no assurance that third parties will not assert infringement claims against us in the future. If we were found
to be infringing on others’ rights, we may be required to pay substantial damage awards and forced to develop non-infringing technology,
obtain a license or cease selling the products that contain the infringing technology. Additionally, we may find it necessary to initiate litigation
to protect our trade secrets, to enforce our patent, copyright and trademark rights, and to determine the scope and validity of the proprietary
rights of others. These types of litigation can be costly and time consuming. These litigation expenses, damage payments, or costs of
developing replacement technology could be significant and result in material losses to us.
System errors or failures of our products to conform to specifications could cause unforeseen liabilities.
The software and software systems (“systems”) that we sell or operate are very complex. As with complex systems offered by others, our
systems may contain errors, especially when first introduced. For example, our Provider Technologies business systems are intended to provide
information for healthcare providers in providing patient care. Therefore, users of our systems have a greater sensitivity to errors than the
general market for software products. Failure of a client’s system to perform in accordance with our documentation could constitute a breach of
warranty and could require us to incur additional expense in order to make the system comply with the documentation. If such failure is not
remedied in a timely manner, it could constitute a material breach under a contract, allowing the client to cancel the contract, obtain refunds of
amounts previously paid, or assert claims for significant damages.
Potential regulation by the U.S. Food and Drug Administration of our products as medical devices could impose increased costs, delay
the introduction of new products and negatively impact our business.
The Food and Drug Administration (the “FDA”) has increasingly focused on the regulation of computer products and computer-assisted
products as medical devices under the Federal Food, Drug and Cosmetic Act. If the FDA chooses to regulate any of our products as medical
devices, it can impose extensive requirements upon us. If we fail to comply with the applicable requirements, the FDA could respond by
imposing fines, injunctions or civil penalties, requiring recalls or product corrections, suspending production, refusing to grant pre-market
clearance of products, withdrawing clearances and initiating criminal prosecution. Any final FDA policy governing computer products, once
issued, may increase the cost and time to market new or existing products or may prevent us from marketing our products.
New and potential federal regulations relating to patient confidentiality and format and data content standards could depress the
demand for our Provider Technologies products and impose significant product redesign costs and unforeseen liabilities on us.
State and federal laws regulate the confidentiality of patient records and the circumstances under which those records may be released.
These regulations govern both the disclosure and use of confidential patient medical record information and will require the users of such
information to implement specified security measures. Regulations currently in place governing electronic health data transmissions continue to
evolve and are often unclear and difficult to apply.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) requires national standards for some types of electronic health
information transactions and the data elements used in those transactions, security standards to ensure the integrity and confidentiality of health
information and standards to protect the privacy of individually identifiable health information. Healthcare organizations were required to
comply with the privacy standards by April 2003, additional transaction regulations by October 2003, and security regulations by April 2005.
In addition, the National Provider Identifier becomes effective May 23, 2007 and a final rule for the claims attachment regulation is anticipated
later this year, which will mandate the implementation date.
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