Medtronic 2013 Annual Report Download - page 37

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Table of Contents
Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more
rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s non-compliance with foreign
governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal
sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on
us. Our worldwide operations are also required to comply with the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-
bribery laws in other jurisdictions and with U.S. and foreign export control, trade embargo and customs laws. If we fail to comply
with them, we could suffer civil and/or criminal sanctions.
We are also subject to various environmental laws and regulations both within and outside the U.S. Our operations involve the
use of substances regulated under environmental laws, primarily those used in manufacturing and sterilization processes. We
cannot guarantee that compliance with environmental protection laws and regulations will not have a material impact on our
consolidated earnings, financial condition, and/or cash flows.
Our failure to comply with rules relating to reimbursement and regulation of health care goods and services may subject us
to penalties and adversely impact our reputation and business operations.
Our devices and therapies are subject to regulation regarding quality and cost by HHS, including the Centers for Medicare &
Medicaid Services (CMS) as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of
health care goods and services. U.S. federal government health care laws apply when we submit a claim on behalf of a U.S. federal
health care program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal
government-funded health care program, such as Medicare or Medicaid. The principal U.S. federal laws implicated include those
that prohibit the filing of false or improper claims for federal payment, known as the false claims laws; those that prohibit unlawful
inducements for the referral of business reimbursable under federally-funded health care programs, known as the anti-kickback
laws; and that which prohibits health care service providers seeking reimbursement for providing certain services to a patient who
was referred by a physician who has certain types of direct or indirect financial relationships with the service provider, known as
the Stark law.
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 our rights or the rights of others 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 against us 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 non-disclosure 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 be found invalid, unenforceable or insufficiently broad
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