SanDisk 2005 Annual Report Download - page 143

associated with the judicial decision-making process. If the Company receives an adverse judgment in any
litigation, it 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 the Company could also result in counter-claims against it, which could
increase the costs associated with the litigation and result in the Company’s payment of damages or other judgments
against it.
The Company has been subject to, and expects to continue to be subject to, claims and legal proceedings
regarding alleged infringement by the Company of the patents, trademarks and other intellectual property rights of
third parties. From time to time the Company has sued, and may in the future sue, third parties in order to protect its
intellectual property rights. Parties that the Company has sued and that it may sue for patent infringement may
counter-sue the Company for infringing their patents. If the Company was held to infringe the intellectual property
of others, the Company may need to spend significant resources to develop non-infringing technology or obtain
licenses from third parties, but the Company may not be able to develop such technology or acquire such licenses on
terms acceptable to it or at all.
From time to time the Company agrees to indemnify certain of its 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. The Company may from time to time be engaged in litigation as a result of
such indemnification obligations. Third-party claims for patent infringement are excluded from coverage under the
Company’s insurance policies. Any future obligation to indemnify the Company’s customers or suppliers may have
a material adverse effect on the Company’s business, financial condition and results of operations.
Legal Proceedings
On or about August 3, 2001, the Lemelson Medical, Education & Research Foundation, or Lemelson
Foundation, filed a complaint for patent infringement against the Company and four other defendants. The suit,
captioned Lemelson Medical, Education, & Research Foundation, Limited Partnership vs. Broadcom Corporation,
et al., Civil Case No. CIV01 1440PHX HRH, was filed in the United States District Court, District of Arizona. On
November 13, 2001, the Lemelson Foundation filed an amended complaint, which made the same substantive
allegations against the Company but named more than twenty five additional defendants. The amended complaint
alleges that the Company, and the other defendants, have infringed patents held by the Lemelson Foundation
pertaining to bar code scanning technology. By its complaint, the Lemelson Foundation requests that the Company
be enjoined from its allegedly infringing activities and seeks unspecified damages. The case as to the Company was
stayed pending the outcome of litigation in the District Court of Nevada related to the same Lemelson bar code
scanning patents asserted against the Company. In early 2004, the Nevada Court ruled that the Lemelson bar code
patents (as well as other Lemelson patents) were invalid, not infringed and unenforceable. The Nevada Court’s
findings were thereafter affirmed by the Federal Circuit. Based on the Federal Circuit’s affirmance, the Lemelson
Foundation moved to dismiss with prejudice all claims against the Company, and that request for dismissal has been
granted.
On October 31, 2001, the Company filed a complaint for patent infringement in the United States District
Court for the Northern District of California against Memorex Products, Inc., Pretec Electronics Corporation, Ritek
Corporation, and Power Quotient International Co., Ltd. In the suit, captioned SanDisk Corp. v. Memorex Products,
Inc., et al., Civil Case No. CV 01 4063 VRW, the Company seeks damages and injunctions against these companies
from making, selling, importing or using flash memory cards that infringe its U.S. Patent No. 5,602,987. The court
granted summary judgment of non-infringement in favor of defendants Ritek, Pretec and Memorex and entered
judgment on May 17, 2004. On June 2, 2004, the Company filed a notice of appeal of the summary judgment rulings
to the United States Court of Appeals for the Federal Circuit. On July 8, 2005, the Federal Circuit held in favor of
SanDisk, vacating the judgment of non-infringement and remanding the case back to district court.
On or about June 9, 2003, the Company received written notice from Infineon Technologies AG, or Infineon,
that it believes the Company has infringed its U.S. Patent No. 5,726,601 (the ’601 patent). On June 24, 2003, the
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Notes to Consolidated Financial Statements — (Continued)