VMware 2013 Annual Report Download - page 27

Table of Contents
our ability to compete for new contracts. In the ordinary course of business, VMware also receives inquiries from and has ongoing discussions with
government entities regarding the compliance of its contracting and sales practices with laws and regulations. While no formal legal proceedings that could
have a material impact on our financial condition or results of operations have been commenced, there can be no assurance that actions will not be
commenced 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, our business, operating results or financial condition could be adversely affected.
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 to 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 several dozen 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 or contribute to the infringement of 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 secrets and frequently enter into
litigation based on allegations of infringement or other violations of intellectual property rights. This risk may increase as the number of products and
competitors in our market increases as computing, networking, storage, and software technologies increasingly converge. The threat of intellectual property
infringement claims against us may increase in the future because of constant technological change in the segments in which we compete, extensive patent
coverage of existing technologies and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. Additionally, there is
an increased risk that our competitors will use their intellectual property rights to limit our freedom to operate and exploit our products or to otherwise block
us from taking full advantage of our markets.
In addition, as a well-known information technology company, we risk being the subject to an increasing number of intellectual property infringement
claims, including claims by entities that do not have operating businesses of their own and therefore limit our ability to seek counterclaims for damages and
injunctive relief. Any claim of infringement by a third party,
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