Motorola 2009 Annual Report Download - page 33

25
We attempt to negotiate favorable intellectual property indemnities with our suppliers for infringement of
third-party intellectual property rights. However, there is no assurance that we will be successful in our
negotiations or that a supplier’s indemnity will cover all damages and losses suffered by Motorola and our
customers due to the infringing products or that a supplier may choose to accept a license or modify or replace
its products with non-infringing products which would otherwise mitigate such damages and losses. Further,
Motorola may not be able to participate in intellectual property litigation involving a supplier and may not be
able to influence any ultimate resolution or outcome that may negatively impact Motorola’s sales if a court enters
an injunction that enjoins the supplier’s products or if the International Trade Commission issues an exclusionary
order that blocks Motorola products from importation into the U.S.
In addition, our customers increasingly demand that we indemnify them broadly from all damages and losses
resulting from intellectual property litigation against them. Because our customers often derive much larger
revenue streams by reselling or leasing our products than we generate from the same products, these indemnity
claims by our customers have the potential to expose us to damages that are much higher than we would be
exposed to if we were sued directly.
Our patent and other intellectual property rights are important competitive tools and may generate income
under license agreements. We regard our intellectual property as proprietary and attempt to protect them with
patents, copyrights, trademarks, trade secret laws, confidentiality agreements and other methods. We also
generally restrict access to and distribution of our proprietary information. Despite these precautions, it may be
possible for a third party to obtain and use our proprietary information or develop similar technology
independently. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable
or limited in certain foreign countries. Unauthorized use of our intellectual property rights by third parties and
the cost of any litigation necessary to enforce our intellectual property rights could have a negative impact on our
business.
As we expand our business, including through acquisitions, and compete with new competitors in new
markets, the breadth and strength of our intellectual property portfolio in those new areas may not be as
developed as in our longer-standing businesses. This may expose us to a heightened risk of litigation and other
challenges from competitors in these new markets. Further, competitors may be able to negotiate significantly
more favorable terms for licensed intellectual property than we are able to, which puts them at a competitive
advantage.
Our future financial results may be negatively impacted if we are not successful in licensing our intellectual
property.
As part of the business strategy of some of our business segments, primarily our Mobile Devices business, we
generate revenue through the licensing of intellectual property rights. The licensed rights include those that are
essential to telecommunications standards, such as the GSM, 3G and 4G standards. Previously agreed-upon terms
of some of our long-standing license agreements have reduced our royalty revenue over the past several years and
are likely to continue to reduce that revenue. Uncertainty in the legal environment makes it difficult to assure that
we will be able to enter into new license agreements that will be sufficient to offset that reduction in our revenue.
Copyright levies in numerous countries for the sale of products may negatively impact our business.
Motorola faces the possibility of substantial copyright levies from collecting societies in numerous countries
for the sale of products that might be used for the private copying of copyright protected works such as mobile
phones, memory cards and set top boxes. The collecting societies argue that such levies should apply to such
products because they include audio/video recording functionality, such as an MP3 player or DVR or storage
capability, despite the fact that such products are not primarily intended to act as a recording device. As of this
date, to our knowledge, no copyright levies have been paid to any collecting societies anywhere by any
manufacturer. Motorola is currently working with other major mobile communications companies to challenge
the applicability of these levies to mobile phones, and is also engaged in aggressive lobbying efforts against the
levies in general at the European Union level. However, if these levies are imposed, our financial results will be
negatively impacted.