Western Digital 2011 Annual Report Download - page 31

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. If a competitor is able to reproduce or otherwise capitalize on our
technology despite the safeguards we have in place, 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 U.S. laws. 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.
The costs of compliance with state, federal and international legal and regulatory requirements, such as environmental, labor,
trade and tax regulations, and customers’ standards of corporate citizenship could cause an increase in our operating costs.
We may be or become subject to various state, federal and international laws and regulations governing our
environmental, labor, trade and tax practices. These laws and regulations, particularly those applicable to our inter-
national operations, are or may be complex, extensive and subject to change. We will need to ensure that we and our
component suppliers timely comply with such laws and regulations, which may result in an increase in our operating
costs. For example, the European Union (“EU”) has enacted the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (“RoHS”) directive, which prohibits the use of certain substances in electronic
equipment, and the Waste Electrical and Electronic Equipment (“WEEE”) directive, which 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. Similar legislation may be enacted in other locations where we
manufacture or sell our products. In addition, climate change and financial reform legislation in the United States is a
significant topic of discussion and has generated and may continue to generate federal or other regulatory responses in the
near future. If we or our component suppliers fail to timely comply with applicable legislation, our customers may refuse
to purchase our products or we may face increased operating costs as a result of taxes, fines or penalties, which would have
a materially adverse effect on our business, financial condition and operating results.
In connection with our compliance with such environmental laws and regulations, as well as our compliance with
industry environmental initiatives, the standards of business conduct required by some of our customers, and our
commitment to sound corporate citizenship in all aspects of our business, we could incur substantial compliance and
operating costs and be subject to disruptions to our operations and logistics. In addition, if we were found to be in
violation of these laws or noncompliant with these initiatives or standards of conduct, we could be subject to
governmental fines, liability to our customers and damage to our reputation and corporate brand which could cause
our financial condition or operating results to suffer.
Violation of applicable laws, including labor or environmental laws, and certain other practices by our suppliers could harm
our business.
We expect our suppliers to operate in compliance with applicable laws and regulations, including labor and
environmental laws, and to otherwise meet our required supplier standards of conduct. While our internal operating
guidelines promote ethical business practices, we do not control our suppliers or their labor or environmental practices.
The violation of labor, environmental or other laws by any of our suppliers, or divergence of a supplier’s business practices
from those generally accepted as ethical in the United States, could harm our business by:
• interrupting or otherwise disrupting the shipment of our product components;
• damaging our reputation;
• forcing us to find alternate component sources;
• reducing demand for our products (for example, through a consumer boycott); or
25