Invacare 2009 Annual Report Download - page 30

In addition, the company holds patent and other intellectual property licenses from third parties for some of
its products and on technologies that are necessary in the design and manufacture of some of the company’s
products. The loss of these licenses could prevent the company from, or could cause additional disruption or
expense in, manufacturing, marketing and selling these products, which could harm the company’s business.
The company’s operating results and financial condition could be adversely affected if the company
becomes involved in litigation regarding its patents or other intellectual property rights.
Litigation involving patents and other intellectual property rights is common in the company’s industry, and
other companies within the company’s industry have used intellectual property litigation in an attempt to gain a
competitive advantage. The company currently is, and in the future may become, a party to lawsuits involving
patents or other intellectual property. If the company loses any of these proceedings, a court or a similar foreign
governing body could invalidate or render unenforceable the company’s owned or licensed patents, require the
company to pay significant damages, seek licenses and/or pay ongoing royalties to third parties, require the
company to redesign its products, or prevent the company from manufacturing, using or selling its products, any
of which would have an adverse effect on the company’s results of operations and financial condition. The
company has brought, and may in the future also bring, actions against third parties for infringement of the
company’s intellectual property rights. The company may not succeed in these actions. The defense and
prosecution of intellectual property suits, proceedings before the U.S. Patent and Trademark Office or its foreign
equivalents and related legal and administrative proceedings are both costly and time consuming. Protracted
litigation to defend or prosecute the company’s intellectual property rights could seriously detract from the time
the company’s management would otherwise devote to running its business. Intellectual property litigation
relating to the company’s products could cause its customers or potential customers to defer or limit their
purchase or use of the affected products until resolution of the litigation.
The company is subject to extensive government regulation, and if the company fails to comply with
applicable laws or regulations, the company could suffer severe criminal or civil sanctions or be required to
make significant changes to the company’s operations that could have a material adverse effect on the
company’s results of operations.
The company sells its products principally to medical equipment and home health care providers who resell
or rent those products to consumers. Many of those providers (the company’s customers) are reimbursed for the
Invacare products sold to their customers and patients by third-party payors, including Medicare and Medicaid.
The U.S. federal government and the governments in the states and other countries in which the company
operates regulate many aspects of the company’s business. As a medical device manufacturer, the company is
subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and
laws regulating reimbursement under various government programs. The marketing, invoicing, documenting and
other practices of health care suppliers and manufacturers are all subject to government scrutiny. Government
agencies periodically open investigations and obtain information from health care suppliers and manufacturers
pursuant to the legal process. Violations of law or regulations can result in severe criminal, civil and
administrative penalties and sanctions, including disqualification from Medicare and other reimbursement
programs, which could have a material adverse effect on the company’s business. The company has established
numerous policies and procedures that the company believes are sufficient to ensure that the company will
operate in substantial compliance with these laws and regulations. In addition, during 2009, the company hired a
Director of Compliance and Internal Audit to continue to develop, implement, monitor and manage these policies
and procedures, including internal controls, to comply with applicable legal, regulatory and company standards.
The company cannot guarantee that the efforts of the Director will be effective to prevent a material adverse
effect on the company's business from noncompliance issues.
The company received a subpoena in 2006 from the U.S. Department of Justice seeking documents relating to
three long-standing and well-known promotional and rebate programs maintained by the company. The company
believes that the programs described in the subpoena are in compliance with all applicable laws and the company
has cooperated fully with the government investigation. As of February 2010, the subpoena remains pending.
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