Western Digital 2007 Annual Report Download - page 33

result in adverse rulings or decisions. We may enter into settlements or be subject to judgments that may, individually or
in the aggregate, have a material adverse effect on our business, financial condition or results of operations.
We evaluate notices of alleged patent infringement and notices of patents from patent holders that we receive from
time to time. If claims or actions are asserted against us, we may be required to obtain a license or cross-license, modify
our existing technology or design a new non-infringing technology. Such licenses or design modifications can be
extremely costly. In addition, we may decide to settle a claim or action against us, which settlement could be costly. We
may also be liable for any past infringement. If there is an adverse ruling against us in an infringement lawsuit, an
injunction could be issued barring production or sale of any infringing product. It could also result in a damage award
equal to a reasonable royalty or lost profits or, if there is a finding of willful infringement, treble damages. Any of these
results would increase our costs and harm our operating results.
Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients of our
business could be copied by competitors.
Our success depends, in significant part, on the proprietary nature of our technology, including non-patentable
intellectual property such as our process technology. Despite safeguards, to the extent that a competitor is able to
reproduce or otherwise capitalize on our technology, it may be difficult, expensive or impossible for us to obtain necessary
legal protection. Also, the laws of some foreign countries may not protect our intellectual property to the same extent as
do the laws of the United States. In addition to patent protection of intellectual property rights, we consider elements of
our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-
disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary
information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited
by others in the industry, which might harm our operating results.
Environmental regulation costs could harm our operating results.
We may be subject to various state, federal and international laws and regulations governing the environment,
including those restricting the presence of certain substances in electronic products and making producers of those
products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and
regulations have been passed in several jurisdictions in which we operate, including various European Union member
countries. For example, the European Union has enacted the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (“RoHS”) and the Waste Electrical and Electronic Equipment (“WEEE”) directives.
RoHS prohibits the use of certain substances, including lead, in certain products, including hard drives, put on the
market after July 1, 2006. The WEEE directive obligates parties that place electrical and electronic equipment onto the
market in the EU to put a clearly identifiable mark on the equipment, register with and report to EU member countries
regarding distribution of the equipment, and provide a mechanism to take-back and properly dispose of the equipment.
There is still some uncertainty in certain EU countries as to which party involved in the manufacture, distribution and
sale of electronic equipment will be ultimately responsible for registration, reporting and disposal. Similar legislation
may be enacted in other locations where we manufacture or sell our products, such as Asia. We will need to ensure that we
comply with such laws and regulations as they are enacted, and that our component suppliers also timely comply with
such laws and regulations. If we fail to timely comply with the legislation, our customers may refuse to purchase our
products, which would have a materially adverse effect on our business, financial condition and results of operations.
In connection with our compliance with such environmental laws and regulations, we could incur substantial costs
and be subject to disruptions to our operations and logistics. In addition, if we were found to be in violation of these laws,
we could be subject to governmental fines and liability to our customers. If we have to make significant capital
expenditures to comply with environmental laws, or if we are subject to significant expenses in connection with a
violation of these laws, our financial condition or operating results could suffer.
Fluctuations in currency exchange rates as a result of our international operations may negatively affect our operating results.
Because we manufacture our products abroad, our operating costs are subject to fluctuations in foreign currency
exchange rates. Further fluctuations in the exchange rate of the Thai Baht and of the Malaysian Ringgit may negatively
impact our operating results.
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