SanDisk 2003 Annual Report Download - page 56

regarding potential cross-license agreements. We cannot be certain that licenses will be oÅered when we need
them, or that the terms oÅered will be acceptable, or that these licenses will help our business. If we do obtain
licenses from third parties, we may be required to pay license fees or royalty payments. In addition, if we are
unable to obtain a license that is necessary to the manufacture of our products, we could be required to
suspend the manufacture of products or stop our wafer suppliers from using processes that may infringe the
rights of third parties. We cannot assure you that we would be successful in redesigning our products or that
the necessary licenses will be available under reasonable terms, or that our existing licensees will renew their
licenses upon expiration, or that we will be successful in signing new licensees in the future.
We have historically agreed to indemnify suppliers and customers for alleged patent infringement. The
scope of such indemnity varies, but may, in some instances, include indemniÑcation for damages and
expenses, including attorney's fees. We may periodically engage in litigation as a result of these indemniÑca-
tion obligations.
Our insurance policies exclude coverage for third-party claims for patent infringement. Any future obligation
to indemnify our customers or suppliers could harm our business, Ñnancial condition or results of operations.
We may be involved in litigation regarding our intellectual property rights or those of third parties, which
would be costly and would divert the eÅorts of our key technical and management personnel.
Litigation is subject to inherent risks and uncertainties that may cause actual results to diÅer materially
from our expectations. Factors that could cause litigation results to diÅer include, but are not limited to, the
discovery of previously unknown facts, changes in the law or in the interpretation of laws, and uncertainties
associated with the judicial decision-making process. We have been subject to, and expect to continue to be
subject to, claims and legal proceedings regarding alleged infringement by us of the patents, trademarks and
other intellectual property rights of third parties. Furthermore, parties that we have sued and that we may sue
for patent infringement may counter sue us for infringing their patents. Litigation involving intellectual
property can become complex and extend for protracted time and is often very expensive. Intellectual property
claims, whether or not meritorious, may result in the expenditure of signiÑcant Ñnancial resources, injunctions
against us or the imposition of damages that we must pay and would also divert the eÅorts and attention of
some of our key management and technical personnel. We may need to obtain licenses from third parties who
allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or
at all. Moreover, if we are required to pay signiÑcant monetary damages, are enjoined from selling any of our
products or are required to make substantial royalty payments, our business would be harmed. For additional
information concerning legal proceedings, see Item 3 ""Legal Proceedings'' in Part I of this report.
Risks Related to Our International Operations and Changes in Securities Laws and Regulations
Because of our international operations, we must comply with numerous international laws and
regulations, and we are vulnerable to political instability and currency Öuctuations.
Political Risks. Currently, all of our Öash memory, controller wafers and Öash memory products are
produced overseas by FlashVision, Renesas, Samsung, Toshiba, Tower and UMC. We also use third-party
subcontractors in Taiwan, China and Japan for the assembly and testing of some of our card and component
products. We may, therefore, be aÅected by the political, economic and military conditions in these countries.
Taiwan is currently engaged in various political disputes with China and in the past both countries have
conducted military exercises in or near the other's territorial waters and airspace. The Taiwanese and Chinese
governments may escalate these disputes, resulting in an economic embargo, disruption in shipping routes or
even military hostilities. This could harm our business by interrupting or delaying the production or shipment
of Öash memory wafers or card products by our Taiwanese or Japanese foundries and subcontractors.
Under its current leadership, the Chinese government has been pursuing economic reform policies,
including the encouragement of foreign trade and investment and greater economic decentralization. The
Chinese government may not continue to pursue these policies and, even if it does continue, these policies may
not be successful. The Chinese government may also signiÑcantly alter these policies from time to time. In
addition, China does not currently have a comprehensive and highly developed legal system, particularly with
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