McKesson 2005 Annual Report Download - page 47

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
The loss of third party licenses utilized by our Provider Technologies segment may adversely impact our operating results.
We license the rights to use certain technologies from third-party vendors to incorporate in or complement our Provider Technologies
segment products and solutions. These licenses are generally nonexclusive, must be renewed periodically by mutual consent, and may be
terminated if we breach the terms of the license. As a result, we may have to discontinue, delay or reduce product shipments until we obtain
equivalent technology, which could hurt our business. Our competitors may obtain the right to use any of the technology covered by these
licenses and use the technology to compete directly with us. In addition, if our vendors choose to discontinue support of the licensed
technology in the future, we may not be able to modify or adapt our own products.
Proprietary technology protections may not be adequate and proprietary rights may infringe on the rights of third parties.
We rely on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions and
technical measures to protect our proprietary rights to our products. There can be no assurance that these protections will be adequate or that
our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. Although we
believe that our products and other proprietary rights do not infringe upon the proprietary rights of third parties, from time to time third parties
have asserted infringement claims against us and there can be no assurance that third parties will not assert infringement claims against us in
the future. If we were found to be infringing on other’s rights, we may be required to pay substantial damage awards and forced to develop
non-infringing technology, obtain a license or cease selling the products that contain the infringing property. Additionally, we may find it
necessary to initiate litigation to protect our trade secrets, to enforce our patent, copyright and trademark rights, and to determine the scope and
validity of the proprietary rights of others. These types of litigation can be costly and time consuming. These litigation expenses, damage
payments, or cessation of use of infringing technology and development of respective replacement technology could be significant and result in
material losses to us.
Potential product liability claims arising from healthcare information technology business products could result in material losses to
us.
We provide products that assist clinical decision-making and relate to patient medical histories and treatment plans. If these products fail to
provide accurate and timely information, customers could assert liability claims against us. Litigation with respect to liability claims, regardless
of the outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our
products. We attempt to limit, by contract, our liability for damages from negligence, errors or mistakes. Despite this precaution, the limitations
of liability set forth in the contracts may not be enforceable or may not otherwise protect us from liability for damages. We maintain general
liability insurance coverage, including coverage for errors and omissions. However, this coverage may not continue to be available on
acceptable terms or may not be available in sufficient amounts to cover one or more large claims against us. In addition, the insurer might
disclaim coverage as to any future claim.
System errors and warranties in Provider Technologies segment’s products could cause unforeseen liabilities.
Our Provider Technologies segment’s software and software systems (“systems”) are very complex. As with complex systems offered by
others, our systems may contain errors, especially when first introduced. Our Provider Technologies business systems are intended to provide
information for healthcare providers in providing patient care. Therefore, users of our systems have a greater sensitivity to errors than the
general market for software products. Failure of a client’s system to perform in accordance with our documentation could constitute a breach of
warranty and could require us to incur additional expense in order to make the system comply with the documentation. If such failure is not
remedied in a timely manner, it could constitute a material breach under a contract, allowing the client to cancel the contract, obtain refunds of
amounts previously paid, or assert claims for significant damages.
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