Western Digital 2014 Annual Report Download - page 33

management or staff, our operating results would likely be harmed. Furthermore, if we do not realize the anticipated
benefits of our intended realignment after we make decisions regarding our personnel and implement our realignment
plans, our operating results could be adversely affected.
The nature of our industry and its reliance on intellectual property and other proprietary information subjects us and our
suppliers and customers to the risk of significant litigation.
The data storage industry has been characterized by significant litigation. This includes litigation relating to
patent and other intellectual property rights, product liability claims and other types of litigation. Litigation can be
expensive, lengthy and disruptive to normal business operations. Moreover, the results of litigation are inherently
uncertain and may 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
operating results. As disclosed in Part II, Item 8, Note 5 in the Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K on November 18, 2011, a sole arbitrator ruled against us in an arbitration in
Minnesota. The arbitration involves claims brought by Seagate Technology LLC against us and a now former
employee, alleging misappropriation of confidential information and trade secrets. The arbitrator issued an interim
award against us in the amount of $525 million plus pre-award interest. On January 23, 2012, the arbitrator issued a
final award adding pre-award interest in the amount of $105.4 million, for a total award of $630.4 million. On Jan-
uary 23, 2012, we filed a petition in the District Court of Hennepin County, Minnesota to have the final arbitration
award vacated, and a hearing on the petition was held on March 1, 2012. On October 12, 2012, the District Court of
Hennepin County, Minnesota vacated, in full, the $630.4 million final arbitration award and ordered that a rehearing
be held concerning certain trade secret claims before a new arbitrator. On October 30, 2012, Seagate initiated an
appeal of the District Court’s decision with the Minnesota Court of Appeals. On July 22, 2013, the Minnesota Court
of Appeals reversed the District Court’s decision and remanded for entry of an order and judgment confirming the
arbitration award. We strongly disagree with the decision of the Court of Appeals and believe that the District Court’s
decision was correct. On August 20, 2013, the Company filed a petition for review with the Minnesota Supreme
Court and, on October 15, 2013, the Company was informed that the Minnesota Supreme Court granted the Compa-
ny’s petition. The appeal before the Minnesota Supreme Court has been fully briefed, and oral argument was held on
February 5, 2014.
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 dam-
ages. Any of these results would increase our costs and harm our operating results. In addition, our suppliers and cus-
tomers are subject to similar risks of litigation, and a material, adverse ruling against a supplier or customer could
negatively impact our business.
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 neces-
sary 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 could harm our operating results.
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