VMware 2011 Annual Report Download - page 25

Table of Contents
If we fail to comply with our customer contracts or government contracting regulations, our business could be adversely affected.
Our contracts with our customers may include unique and specialized performance requirements. In particular, our contracts with federal,
state, and local and non-U.S. governmental customers and our arrangements with distributors and resellers who may sell directly to
governmental customers are subject to various procurements regulations, contract provisions and other requirements relating to their formation,
administration and performance. Any failure by us to comply with provisions in our customer contracts or any violation of government
contracting regulations could result in the imposition of various civil and criminal penalties, which may include termination of contracts,
forfeiture of profits, suspension of payments and, in the case of our government contracts, fines and suspension from future government
contracting. Further, any negative publicity related to our customer contracts or any proceedings surrounding them, regardless of its accuracy,
may damage our business and affect our ability to compete for new contracts. From time to time, we receive inquiries from government entities
regarding the compliance of our contracting and sales practices with applicable regulations. While no formal legal proceedings that could have a
material impact on our results of operations or financial condition have been taken, there can be no assurance that actions will not be taken in the
future. If our customer contracts are terminated, if we are suspended from government work or fines or other government sanctions are imposed,
or if our ability to compete for new contracts is adversely affected, we could suffer an adverse effect on our business, operating results or
financial condition.
If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur
significant expenses to enforce our rights.
We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and trademark laws and
confidentiality agreements with employees and third parties, all of which offer only limited protection. As such, despite our efforts, the steps we
have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of
our intellectual property rights, and our ability to police such misappropriation or infringement is uncertain, particularly in countries outside of
the United States. Further, with respect to patent rights, we do not know whether any of our pending patent applications will result in the
issuance of patents or whether the examination process will require us to narrow our claims. To the extent that additional patents are issued from
our patent applications, which are not certain, they may be contested, circumvented or invalidated in the future. Moreover, the rights granted
under any issued patents may not provide us with proprietary protection or competitive advantages, and, as with any technology, competitors
may be able to develop similar or superior technologies to our own now or in the future. In addition, we rely on confidentiality or license
agreements with third parties in connection with their use of our products and technology. There is no guarantee that such parties will abide by
the terms of such agreements or that we will be able to adequately enforce our rights, in part because we rely on “click-wrap” and “shrink-wrap”
licenses in some instances.
Detecting and protecting against the unauthorized use of our products, technology and proprietary rights is expensive, difficult and, in some
cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management
resources, either of which could harm our business, financial condition and results of operations, and there is no guarantee that we would be
successful. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to protecting
their technology or intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from
infringing upon or misappropriating our intellectual property, which could result in a substantial loss of our market share.
We provide access to our hypervisor and other selected source code to partners, which creates additional risk that our competitors could
develop products that are similar or better than ours.
Our success and ability to compete depend substantially upon our internally developed technology, which is incorporated in the source code
for our products. We seek to protect the source code, design code, documentation and other information relating to our software, under trade
secret and copyright laws. However, we have chosen to provide access to our hypervisor and other selected source code to more than 50 of our
partners for co-development, as well as for open APIs, formats and protocols. Though we generally control access to our source code and other
intellectual property, and enter into confidentiality or license agreements with such partners, as well as with our employees and consultants, this
combination of procedural and contractual safeguards may be insufficient to protect our trade secrets and other rights to our technology. Our
protective measures may be inadequate, especially because we may not be able to prevent our partners, employees or consultants from violating
any agreements or licenses we may have in place or abusing their access granted to our source code. Improper disclosure or use of our source
code could help competitors develop products similar to or better than ours.
We are, and may in the future be, subject to claims by others that we infringe their proprietary technology which could force us to pay
damages or prevent us from using certain technology in our products.
Companies in the software and technology industries own large numbers of patents, copyrights, trademarks, and trade
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