SanDisk 2013 Annual Report Download - page 130

We and our suppliers rely upon certain rare earth materials that are necessary for the manufacturing of our
products, and our business could be harmed if we or our suppliers experience shortages or delays of these rare
earth materials. Rare earth materials are critical to the manufacture of some of our products. We and/or
our suppliers acquire these materials from a number of countries, including the People’s Republic of
China. We cannot predict whether the government of China or any other nation will impose regulations,
quotas or embargoes upon the materials incorporated into our products that would restrict the worldwide
supply of these materials or increase their cost. If China or any other major supplier were to restrict the
supply available to us or our suppliers or increase the cost of the materials used in our products, we could
experience a shortage in supply and an increase in production costs, which would harm our operating
results.
We and certain of our officers are at times involved in litigation, including litigation regarding our IP rights
or that of third parties, which may be costly, may divert the efforts of our key personnel and could result in
adverse court rulings, which could materially harm our business. We are often involved in litigation, including
cases involving our IP rights and those of others. We are the plaintiff in some of these actions and the
defendant in others. Some of the actions seek injunctions against the sale of our products and/or
substantial monetary damages, which if granted or awarded, could materially harm our business, financial
condition and operating results.
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 IP litigation, can be complex, can extend for a protracted period of
time, can be very expensive, and the expense can be unpredictable. 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 may be obligated to indemnify our current or former directors or employees, or former directors
or employees of companies that we have acquired, in connection with litigation or regulatory
investigations. These liabilities could be substantial and may include, among other things, the costs of
defending lawsuits against these individuals; the cost of defending shareholder derivative suits; the cost of
governmental, law enforcement or regulatory investigations; civil or criminal fines and penalties; legal and
other expenses; and expenses associated with the remedial measures, if any, which may be imposed.
Moreover, from time-to-time, we agree to indemnify certain of our suppliers and customers for
alleged IP infringement. The scope of such indemnity varies but generally includes indemnification for
direct and consequential damages and expenses, including attorneys’ fees. We may 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 harm our business, financial condition and operating results. For additional information concerning
legal proceedings, see Part II, Item 1, ‘‘Legal Proceedings.’’
We may be unable to license, or license at a reasonable cost, IP from third parties as needed, which could
expose us to liability for damages, increase our costs or limit or prohibit us from selling products. If we
incorporate third-party technology into our products or if we are found to infringe the IP of others, we
could be required to license IP from third-parties. We may also need to license some of our IP to others in
order to enable us to obtain important cross-licenses to third-party patents. We cannot be certain that
licenses will be offered when we need them, that the terms offered 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,
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