Medtronic 2012 Annual Report Download - page 37

The laws applicable to us are subject to evolving interpretations. If a governmental authority were to
conclude that we are not in compliance with applicable laws and regulations, we and our officers and
employees could be subject to severe criminal and civil penalties, including, for example, exclusion from
participation as a supplier of product to beneficiaries covered by CMS. If we are excluded from participation
based on such an interpretation it could adversely affect our reputation and business operations.
Quality problems with our processes, goods, and services could harm our reputation for producing
high-quality products and erode our competitive advantage, sales, and market share.
Quality is extremely important to us and our customers due to the serious and costly consequences of
product failure. Our quality certifications are critical to the marketing success of our goods and services. If
we fail to meet these standards, our reputation could be damaged, we could lose customers, and our revenue
and results of operations could decline. Aside from specific customer standards, our success depends
generally on our ability to manufacture to exact tolerances precision-engineered components, subassemblies,
and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt
to evolving standards, our reputation as a manufacturer of high-quality components will be harmed, our
competitive advantage could be damaged, and we could lose customers and market share.
We are substantially dependent on patent and other proprietary rights and failing to protect such
rights or to be successful in litigation related to such rights may result in our payment of significant
monetary damages and/or royalty payments, negatively impact our ability to sell current or future
products, or prohibit us from enforcing our patent and other proprietary rights against others.
We operate in an industry characterized by extensive patent litigation. Patent litigation can result in
significant damage awards and injunctions that could prevent our manufacture and sale of affected products
or require us to pay significant royalties in order to continue to manufacture or sell affected products. At any
given time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement
actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to
predict the outcome of patent litigation, we believe the results associated with any such litigation could
result in our payment of significant monetary damages and/or royalty payments, negatively impact our
ability to sell current or future products, or prohibit us from enforcing our patent and proprietary rights
against others, which would generally have a material adverse impact on our consolidated earnings, financial
condition, and/or cash flows.
We rely on a combination of patents, trade secrets, and nondisclosure and non-competition agreements
to protect our proprietary intellectual property, and we will continue to do so. While we intend to defend
against any threats to our intellectual property, these patents, trade secrets, or other agreements may not
adequately protect our intellectual property. Further, pending patent applications owned by us may not
result in patents being issued to us, patents issued to or licensed by us in the past or in the future may be
challenged or circumvented by competitors and such patents may not be found to be valid or sufficiently
broad to protect our technology or to provide us with any competitive advantage. Third parties could obtain
patents that may require us to negotiate licenses to conduct our business, and the required licenses may not
be available on reasonable terms or at all. We also rely on nondisclosure and non-competition agreements
with certain employees, consultants, and other parties to protect, in part, trade secrets and other proprietary
rights. We cannot be certain that these agreements will not be breached, that we will have adequate remedies
for any breach, that others will not independently develop substantially equivalent proprietary information,
or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.
Product liability claims could adversely impact our financial condition and our earnings and impair
our reputation.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture,
and marketing of medical devices. In addition, many of the medical devices we manufacture and sell are
designed to be implanted in the human body for long periods of time or indefinitely. Component failures,
manufacturing defects, design flaws, or inadequate disclosure of product-related risks or product-related
information with respect to our products could result in an unsafe condition or injury to, or death of, a
patient. The occurrence of such a problem could result in product liability claims or a recall of, or safety alert
relating to, one or more of our products which could ultimately result, in certain cases, in the removal from
the body of such products and claims regarding costs associated therewith. We have elected to self-insure
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