SanDisk 2004 Annual Report Download - page 39

Table of Contents
Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from our expectations.
Factors that could cause litigation results to differ 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. If we receive an
adverse judgment in any litigation, we could be required to pay substantial damages and/or cease the manufacture, use and sale of
products. Litigation, including intellectual property litigation, can be complex, can extend for a protracted period of time, and can be
expensive. Litigation initiated by us could also result in counter−claims against us, which could increase the costs associated with the
litigation and result in our payment of damages or other judgments against us. In addition, litigation may divert the efforts and
attention of some of our key personnel.
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. From time to time we have sued, and may in the
future sue, third parties in order to protect our intellectual property rights. Parties that we have sued and that we may sue for patent
infringement may counter−sue us for infringing their patents. If we are held to infringe the intellectual property of others, we may
need to spend significant resources to develop non−infringing technology or obtain licenses from third parties, but we may not be able
to develop such technology or acquire such licenses on terms acceptable to us or at all. We may also be required to pay significant
damages and/or discontinue the use of certain manufacturing or design processes. If we are required to pay significant monetary
damages, are enjoined from selling any of our products, develop new technology or are required to make substantial royalty payments,
our business would be harmed.
Moreover, from time−to−time we agree to indemnify certain of our suppliers and customers for alleged patent infringement. The
scope of such indemnity varies but may in some instances include indemnification for damages and expenses, including attorneys’
fees. We may from time to time be engaged in litigation as a result of these indemnification obligations. Third party claims for patent
infringement are excluded from coverage under our insurance policies. A future obligation to indemnify our customers or suppliers
may have a material adverse effect on our business, financial condition and results of operations. For additional information
concerning legal proceedings, see Item 3 “Legal Proceedings.”
Because of our international business and operations, we must comply with numerous international laws and regulations, and we
are vulnerable to political instability, currency fluctuations and other risks related to international operations. Currently, all of our
products are produced overseas in Taiwan, Israel, China, South Korea and Japan. We may, therefore, be affected by the political,
economic and military conditions in these countries.
Specifically, China does not currently have a comprehensive and highly developed legal system, particularly with respect to the
protection of intellectual property rights. This results, among other things, in the prevalence of counterfeit goods in China. The
enforcement of existing and future laws and contracts remains uncertain, and the implementation and interpretation of such laws may
be inconsistent. Such inconsistency could lead to piracy and degradation of our intellectual property protection. Our results of
operations and financial condition could be harmed by the sale of counterfeit products.
Our international business activities could also be limited or disrupted by any of the following factors:
• the need to comply with foreign government regulation;
• general geopolitical risks such as political and economic instability, potential hostilities and changes in diplomatic and trade
relationships;
• natural disasters affecting the countries in which we conduct our business, particularly Japan, such as the earthquakes
experienced in Taiwan in 1999, in Japan in 2004, 2003 and previous years, and in China in previous years;
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