SanDisk 2007 Annual Report Download - page 68

In addition, in September 2007, we and Dr. Eli Harari, our founder, chairman and chief executive officer,
received grand jury subpoenas issued from the United States District Court for the Northern District of California
indicating a Department of Justice investigation into possible antitrust violations in the NAND flash memory
industry. We also received a notice from the Canadian Competition Bureau that the Bureau has commenced an
industry-wide investigation with respect to alleged anti-competitive activity regarding the conduct of companies
engaged in the supply of NAND flash memory chips to Canada and requesting that we preserve any records relevant
to such investigation. We intend to cooperate in these investigations. We are unable to predict the outcome of these
lawsuits and investigations. The cost of discovery and defense in these actions as well as the final resolution of these
alleged violations of antitrust laws could result in significant liability and may harm our business, financial
condition and results of operations. For additional information concerning these proceedings, see Item 3, “Legal
Proceedings.”
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.
We may be obligated to indemnify our current or former directors or employees, or former directors or
employees of companies that we have acquired, in connection with litigation or regulatory or Department of Justice
investigations. These liabilities could be substantial and may include, among other things, the costs of defending
lawsuits against these individuals; the cost of defending any shareholder derivative suits; the cost of governmental,
law enforcement or regulatory investigations; civil or criminal fines and penalties; legal and other expenses; and
expenses associated with the remedial measures, if any, which may be imposed.
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 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 and other risks related to international operations.
Currently, a large portion of our revenues is derived from our international operations, and all of our products are
produced overseas in China, Israel, Japan, South Korea and Taiwan. We are, therefore, affected by the political,
economic, labor, environmental, public health and military conditions in these countries.
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