SanDisk 2002 Annual Report Download - page 29

2 7 2 0 0 2 Annua l Re port
infringing activities and seeks unspecified dam ages. On
February 4, 2002, w e filed an answ er to the am ended com -
plaint, w herein w e alleged that we do not infringe the
asserted patents, and further contend that the patents are
not valid or enforceable.
On October 15, 2001, w e filed a com plaint for patent
infringem ent in the United States District Court for the
Northern District of California against M icron Technology,
Inc., or M icron. In the suit, captioned SanDisk Corp. v.
M icron Technology, Inc., Civil No. CV 01-3855 CW, the com-
plaint sought dam ages and an injunction against M icron for
m aking, selling, im porting or using flash m em ory cards that
infringed our U.S. Patent No. 6,149,316. On February 15,
2002, M icron answ ered the complaint, denied liability, and
counterclaim ed seeking a declaration that the patent in suit
w as not infringed, w as invalid, and w as unenforceable. On
M ay 31, 2002, based on allegations of infringem ent leveled
by M icron against us, w e filed a com plaint for declaratory
judgm ent, seeking a declaration that we did not and had not
infringed five patents (or, in the alternative, that the patents
w ere invalid). The patents in question w ere U.S. Patent No.
4,468,308; U.S. Patent No. 5,286,344; U.S. Patent No.
5,320,981; U.S. Patent No. 6,015,760; and U.S. Patent No.
6,287,978 B1. The suit w as captioned SanDisk Corp. v.
M icron Technology, Inc., Civil No. CV 02-2627 VRW. On June
4, 2002, M icron answered and counterclaim ed alleging that
w e did infringe the five listed patents. On October 29, 2002,
w e filed a motion for sum m ary adjudication against M icron
to elim inate som e of M icron’s claim s. On Decem ber 23,
2002, the parties reached a settlem ent and dismissed all
pending litigation betw een them . The term s of the settle-
m ent are confidential.
On October 31, 2001, w e filed a com plaint for patent
infringem ent in the United States District Court for the
Northern District of California against M emorex Products,
Inc., Pretec Electronics Corporation, Ritek Corporation and
Pow er Quotient International Co., Ltd. In the suit, captioned
SanDisk Corp. v. M em orex Products, Inc., et al., Civil No. CV
01-4063 VRW, w e seek dam ages and injunctions against
these companies from making, selling, im porting or using
flash m em ory cards that infringe our U.S. patent No.
5,602,987 or the ’987 Patent. Defendants have filed answ ers
denying the allegations. We filed a m otion for a preliminary
injunction in the suit to enjoin M em orex, Pretec and Ritek
from making, selling, im porting or using flash m em ory cards
that infringe our ’987 Patent prior to the trial on the m erits.
On M ay 17, 2002, the Court denied our m otion. Discovery
has com menced. A hearing on claim construction and
Ritek’s m otion for sum m ary judgm ent of non-infringement is
scheduled for M ay 2, 2003.
On Novem ber 30, 2001, w e filed a com plaint for patent
infringem ent in the United States District Court for the
Northern District of California against Power Quotient
International – USA Inc, or PQI-USA. In the suit, captioned
SanDisk Corp. v. Pow er Quotient International – USA Inc.,
Civil No. C 01-21111, w e sought dam ages and an injunction
against PQI- USA from m aking, selling, im porting or using
flash m em ory cards that infringe our U.S. patent No.
5,602,987. The PQI-USA complaint and litigation are related
to the October 31, 2001 litigation referred to above. On
October 16, 2002, Pow er Quotient International Co., Ltd. and
Pow er Quotient International-USA entered into a Consent
Judgm ent of Infringem ent and Validity and Injunction and
settlem ent agreem ent w ith us, in w hich both PQI companies
stipulated that the Com pactFlash™ and PC ATA cards sold
by them infringe our ’987 patent and that the ’987 Patent is
valid and enforceable. In addition, both PQI companies are
“enjoined from using in the United States, m aking in the
United States… selling in the United States… or im porting
into the United States for sale, Com pactFlash™ and PC ATA
cards.” In addition, the PQI com panies w ill pay us an undis-
closed am ount for past damages and the parties agreed to
dism iss all claim s betw een SanDisk and the PQI com panies
in both law suits described above w ithout prejudice. The
Consent Judgm ent of Infringem ent and Validity and Injunction
is subject to court approval, w hich is currently pending.
On August 8, 2002, w e filed an am ended com plaint to
join M r. Flash USA and M ark C. Lee as defendants in the
PQI-USA m atter. On Decem ber 5, 2002, w e entered into a
settlem ent agreem ent w ith M r. Lee, doing business as M r.
Flash USA. On Decem ber 12, 2002, the parties filed a
Stipulated Dism issal W ithout Prejudice and Consent
Injunction, in w hich M r. Lee is “enjoined from directly or indi-
rectly m aking in the United States… selling in the United
States… or im porting into the United States for sale,
Com pactFlash™ and PC ATA cards that are m anufactured
by Pow er Quotient International Co., Ltd.” On January 28,
2003, the Court entered the Stipulated Dism issal Without
Prejudice and Consent injunction.
On or about M arch 5, 2002, Samsung filed a patent
infringem ent lawsuit against us in the United States District
Court for the Eastern District of Texas, Civil Action No.
9:02CV58. The law suit alleged that w e infringed four
Sam sung United States patents, Nos. 5,473,563; 5,514,889;
5,546,341 and 5,642,309, and sought a prelim inary and per-
m anent injunction against certain of our products, as w ell as
dam ages, attorneys’ fees and costs of the law suit. On M arch
28, 2002, w e filed an answ er and counterclaim s denying
infringem ent and asserting that the Sam sung patents are
invalid and/or unenforceable. Our counterclaim s asserted
that Sam sung breached a 1997 agreem ent betw een SanDisk
and Sam sung. In August 2002, w e and Sam sung settled all
pending litigation betw een us and entered into a new patent
cross license agreem ent and a flash m emory purchase
agreem ent. On Novem ber 26, 2002, the parties filed a
Stipulated Dism issal W ithout Prejudice, w hich w as entered by
the Court on Decem ber 4, 2002.
Risk s Re la te d to O ur Inte rna tio na l O p e ra tio ns, W a r in
Ira q a nd Thre a ts o f W a r Else w he re , a nd C ha nge s in
Se c uritie s Law s and Re g ula tio ns
Be c ause o f o ur international o p e ratio ns, w e m ust c om -
ply w ith num e ro us international law s and reg ulatio ns
and w e a re vulnerab le to po litic al instability a nd c ur-
renc y fluc tuatio ns.
Po litic al risks. Currently, the m ajority of our flash mem ory
and controller w afers are produced by Toshiba in Japan and
UM C in Taiw an. After the restructuring of our FlashVision
business and the signing of our new flash mem ory purchase
agreem ent with Samsung, all of our flash m emory and con-
troller w afers and flash mem ory products are now produced
overseas by Toshiba, UM C and Sam sung. We also use third-
party subcontractors in Taiw an, China and Japan for the
assem bly and testing of som e of our card and com ponent
products. We m ay therefore be affected by the political, eco-
nom ic and m ilitary conditions in these countries. Taiw an is