SanDisk 2003 Annual Report Download - page 55

packaging our raw cards, as well as shipping the Ñnished product directly to our customers. While our third-
party fulÑllment houses bear the risk of loss with respect to our inventory, the amount we are reimbursed by
them or their insurers may be less than our original cost of the inventory, which would harm our business,
Ñnancial condition and results of operations.
There is seasonality in our business, which may impact our product sales, particularly in the fourth and
Ñrst quarters of the Ñscal year.
Sales of our products in the consumer electronics market may be subject to seasonality. As a result,
product sales may be impacted by seasonal purchasing patterns with higher sales generally occurring in the
fourth quarter of each year followed by declines in the Ñrst quarter of the following year. In addition, in the
past we have experienced a decrease in orders in the Ñrst quarter from our Japanese OEM customers primarily
because most customers in Japan operate on a Ñscal year ending in March and prefer to delay purchases until
the beginning of their next Ñscal year.
Risks Related to Our Intellectual Property
We may be unable to protect our intellectual property rights, which would harm our business, Ñnancial
condition and results of operations.
We rely on a combination of patents, trademarks, copyright and trade secret laws, conÑdentiality
procedures and licensing arrangements to protect our intellectual property rights. In the past, we have been
involved in signiÑcant disputes regarding our intellectual property rights and claims that we may be infringing
third parties' intellectual property rights. We expect that we may be involved in similar disputes in the future.
We cannot assure you that:
‚ any of our existing patents will not be invalidated;
‚ patents will be issued for any of our pending applications;
‚ any claims allowed from existing or pending patents will have suÇcient scope or strength;
‚ our patents will be issued in the primary countries where our products are sold in order to protect our
rights and potential commercial advantage; or
‚ any of our products do not infringe on the patents of other companies.
In addition, our competitors may be able to design their products around our patents.
We intend to vigorously enforce our patents, but we cannot be sure that our eÅorts will be successful. If
we bring a patent infringement action and are not successful, our competitors would be able to use similar
technology to compete with us. Moreover, the defendant in such an action may successfully assert a
counterclaim that our patents are invalid or unenforceable. If we did not prevail as a defendant in a patent
infringement case, we could be required to pay substantial damages, cease the manufacture, use and sale of
infringing products, expend signiÑcant resources to develop non-infringing technology, discontinue the use of
speciÑc processes or obtain licenses to the infringing technology. Any litigation is likely to result in signiÑcant
expense to us, as well as divert the eÅorts of our technical and management personnel.
We may be unable to license intellectual property to or from third parties as needed, or renew existing
licenses, and we have agreed to indemnify various suppliers and customers for alleged patent infringement,
which could expose us to liability for damages, increase our costs or limit or prohibit us from selling certain
products.
If we decide to incorporate third-party technology into our products or if we are found to infringe on
others' intellectual property, we could be required to license intellectual property from a third party. We may
also need to license some of our intellectual property to others in order to enable us to obtain cross-licenses to
third-party patents. Currently, we have patent cross-license agreements or similar intellectual property
agreements with several companies, including, Intel, Matsushita, Olympus, SST, Renesas, Samsung, Sharp,
Silicon Systems, Smartdisk, Sony, TDK and Toshiba and we are in discussions with other companies
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