Toshiba 2014 Annual Report Download - page 104

16 TOSHIBA Annual Report 2014
Management's Discussion and Analysis
to a ruling requiring payment of amounts far exceeding its expectations. Any judgment or decision unfavorable to the
Group could also have a material adverse effect on the Group’s business, operating results or financial condition. In
addition, due to various circumstances, there can be no assurance that lawsuits involving claims for large sums will not be
brought, even if the possibility of receiving orders for such payment is quite low.
The Group is under investigation by the European Commission, and other competition regulatory authorities, for
alleged violations of competition laws with respect to products that include semiconductors, LCD products, cathode ray
tubes (CRT), heavy electrical equipment, and optical disc devices. In addition, class action lawsuits and other claims with
respect to alleged anti-competitive behavior regarding certain products brought against the Group are currently pending
in the United States.
The Ministry of Defense (“MOD”) cancelled a contract for the development and manufacture of the “reconnaissance
system for the F-15” between MOD and the Company. Therefore, in July 2011, the Company filed a lawsuit against MOD
with the Tokyo District Court seeking payment therefore. In October 2012, MOD filed a countersuit for penalty charges
based on the alleged infringement by the Company of the contract. The Company believes that it had properly executed
its duties pursuant to the conditions of the contract and that MOD’s cancellation of the contract and claim for penalty
charges were unreasonable. Therefore, the Company will assert its opinion in the suit.
In the U.S., since December 2006, actions against the Group and others to claim for damages have been filed by
purchasers, etc. of LCD-related products on the ground of alleged infringements of U.S. Competition Law. Among them,
lawsuits with individual companies have been pending. Believing that the Group has not committed any violations in the
LCD business, the Company intends to take any legal action to have its claims accepted.
In December 2012, the European Commission determined that there was an infringement of EU Competition Law in the
Color Picture Cathode Ray Tube market, and adopted the decision to impose a fine of approximately 28 million euro on
the Company, plus a fine of approximately 87 million euro jointly and severally with Panasonic Corporation and MT
Picture Display Co., Ltd. According to the Company’s investigation, the Company has not infringed EU Competition law.
Therefore, the Company brought an action to the General Court of the European Union in February 2013.
9. Risks related to directors, employees, major shareholders and affiliates
(1) Alliance in NAND flash memory
The Group has a strategic alliance with a U.S. company, SanDisk Corporation (“SanDisk”), for the production of NAND flash
memory, which includes production joint ventures (equity method affiliates). Under the joint venture agreement, the
Group may purchase SanDisk’s ownership interests in the production joint ventures. In addition, the Company and
SanDisk each provide a 50% guaranty in respect of the lease agreements of production facilities held by the production
joint ventures. In the event that SanDisk’s operating results and financial condition deteriorate, the Company may
succeed to SanDisk’s guaranty obligations or purchase SanDisk’s ownership interests in the relevant production joint
ventures, in which case the production joint ventures will be treated as consolidated subsidiaries of the Company.
(2) Alliance in nuclear power systems business
The Group acquired Westinghouse group in October 2006. The Company’s ownership interest in Westinghouse group
(including the holding companies) is currently 87% at present. The remainder is held by two companies in Japan and
overseas (the “Minority Shareholders”). The Company is considering inviting the participation of new investors in
Westinghouse, on the condition that the Company retains a majority-in-interest.
The Minority Shareholders, based on a separate agreement with the Company, have been given an option to sell all or
part of their ownership interests to the Company (“Put Options”).
The Group also has an option to purchase from the Minority Shareholders all or part of their respective ownership
interests in companies of Westinghouse group under certain conditions. These options are in place for the purpose of
protecting the interests of the Minority Shareholders, while preventing equity participation by a third party which may
put the Group at disadvantage. The Company makes every effort to maintain a favorable relationship with the Minority
Shareholders in connection with Westinghouse group’s business. However in the event that the Minority Shareholders
exercise their respective Put Options, or the Group exercises its purchase option, the Group will seek investment from a
new strategic partner. Prior to such an investment, the Group may need to procure a certain amount of funds in
connection with the exercise of Put Options or purchase options.
10. Others
(1) Measures against counterfeit products
While the Group protects and seeks to enhance the value of the Toshiba brand, counterfeit products created by third
parties are found worldwide. While the Group makes every effort to prevent counterfeit products, the heavy circulation
of counterfeit products may dilute the value of the Toshiba brand, and the Group’s net sales may be adversely affected.
(2) Protection of intellectual property rights
The Group makes every effort to secure intellectual property rights. However, in some regions, it may not be possible to
secure sufficient protection.