SanDisk 2006 Annual Report Download - page 69

others’ intellectual property, we could be required to license intellectual property from a third party. We may also
need to license some of our intellectual property to others in order to enable us to obtain important cross-licenses to
third-party patents. We cannot be certain that licenses will be offered when we need them, or that the terms offered
will be acceptable, or that these licenses will help our business. If we do obtain licenses from third-parties, we may
be required to pay license fees or royalty payments. In addition, if we are unable to obtain a license that is necessary
to the manufacture of our products, we could be required to suspend the manufacture of products or stop our product
suppliers from using processes that may infringe the rights of third-parties. We may not be successful in redesigning
our products, the necessary licenses may not be available under reasonable terms, our existing licensees may not
renew their licenses upon expiration and we may not be successful in signing new licensees in the future.
We are currently and may in the future be involved in litigation, including litigation regarding our intellectual
property rights or those of third parties, which may be costly, may divert the efforts of our key personnel and could
result in adverse court rulings, which could materially harm our business. We are involved in a number of
lawsuits, including among others, several cases involving our patents and the patents of third-parties. We are the
plaintiff in some of these actions and the defendant in other of these actions. Some of the actions could seek
injunctions against the sale of our products and/or substantial monetary damages, which if granted or awarded,
could have a material adverse effect on our business, financial condition and results of operations.
Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from
our expectations. Factors that could cause litigation results to differ include, but are not limited to, the discovery of
previously unknown facts, changes in the law or in the interpretation of laws, and uncertainties associated with the
judicial decision-making process. If we receive an adverse judgment in any litigation, we could be required to pay
substantial damages and/or cease the manufacture, use and sale of products. Litigation, including intellectual
property litigation, can be complex, can extend for a protracted period of time, and can be very expensive. Litigation
initiated by us could also result in counter-claims against us, which could increase the costs associated with the
litigation and result in our payment of damages or other judgments against us. In addition, litigation may divert the
efforts and attention of some of our key personnel.
We have been, and expect to continue to be, subject to claims and legal proceedings regarding alleged
infringement by us of the patents, trademarks and other intellectual property rights of third-parties. From
time-to-time we have sued, and may in the future sue, third-parties in order to protect our intellectual property
rights. Parties that we have sued and that we may sue for patent infringement may countersue us for infringing their
patents. If we are held to infringe the intellectual property of others, we may need to spend significant resources to
develop non-infringing technology or obtain licenses from third-parties, but we may not be able to develop such
technology or acquire such licenses on terms acceptable to us or at all. We may also be required to pay significant
damages and/or discontinue the use of certain manufacturing or design processes. In addition, we or our suppliers
could be enjoined from selling some or all of our respective products in one or more geographic locations. If we or
our suppliers are enjoined from selling any of our respective products or if we are required to develop new
technologies or pay significant monetary damages or are required to make substantial royalty payments, our
business would be harmed.
Moreover, from time-to-time we agree to indemnify certain of our suppliers and customers for alleged patent
infringement. The scope of such indemnity varies but generally includes indemnification for direct and conse-
quential damages and expenses, including attorneys’ fees. We may from time-to-time be engaged in litigation as a
result of these indemnification obligations. Third-party claims for patent infringement are excluded from coverage
under our insurance policies. A future obligation to indemnify our customers or suppliers may have a material
adverse effect on our business, financial condition and results of operations. For additional information concerning
legal proceedings, see Part I, Item 3, “Legal Proceedings.”
Because of our international business and operations, we must comply with numerous international laws and
regulations, and we are vulnerable to political instability, currency fluctuations and other risks related to
international operations. Currently, all of our products are produced overseas in China, Israel, Japan, South
Korea and Taiwan. We are, therefore, affected by the political, economic and military conditions in these countries.
Specifically, China does not currently have a comprehensive and highly developed legal system, particularly
with respect to the protection of intellectual property rights. This results, among other things, in the prevalence of
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