Western Digital 2015 Annual Report Download - page 35

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.
The costs of compliance with state, federal and international legal and regulatory requirements, such as environmental, labor,
trade, health, safety, anti-corruption and tax regulations, customers’ standards of corporate citizenship, and industry and
coalition standards, such as those established by the Electronics Industry Citizenship Coalition, could cause an increase in our
operating costs.
We are subject to, and may become subject to additional, state, federal and international laws and regulations
governing our environmental, labor, trade, health, safety, anti-corruption and tax practices. These laws and regu-
lations, particularly those applicable to our international operations, are or may be complex, extensive and subject to
change. We will need to ensure that we and our suppliers and partners timely comply with such laws and regulations,
which may result in an increase in our operating costs. Legislation has been, and may in the future be, enacted in loca-
tions where we manufacture or sell our products. In addition, climate change and financial reform legislation is a sig-
nificant topic of discussion and has generated and may continue to generate federal, international or other regulatory
responses in the near future. If we or our suppliers or partners 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, or legal liability and reputational damage, which would have a materially adverse effect on our business,
financial condition and operating results.
In connection with our compliance with environmental laws and regulations, as well as our compliance with
industry and coalition environmental initiatives, such as those established by the Electronics Industry Citizenship Coali-
tion, the standards of business conduct required by some of our customers, and our commitment to sound corporate cit-
izenship 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.
Conflict minerals regulations may cause us to incur additional expenses and could limit the supply and increase the cost of certain
components and metals contained in our products.
In August 2012, the SEC adopted new rules establishing diligence and disclosure requirements regarding the use
and source of gold, tantalum, tin and tungsten, commonly referred to as 3TG or conflict minerals, that are necessary to
the functionality or production of products manufactured or contracted to be manufactured by public companies. These
rules require us to determine and report annually whether such 3TG originated from the Democratic Republic of the
Congo or an adjoining country. These rules could affect our ability to source components that contain 3TG, or 3TG
generally, at acceptable prices and could impact the availability of such components or 3TG, since there may be only a
limited number of suppliers of “conflict free” 3TG. Our customers, including our OEM customers, may require that our
products contain only conflict free 3TG, and our revenues and margins may be harmed if we are unable to meet this
requirement at a reasonable price, or at all, or are unable to pass through any increased costs associated with meeting this
requirement. Additionally, we may suffer reputational harm with our customers and other stakeholders if our products
are not conflict free or if we are unable to sufficiently verify the origins of the 3TG contained in our products through the
due diligence procedures that we implement. We could incur significant costs to the extent that we are required to make
changes to products, processes, or sources of supply due to the foregoing requirements or pressures. To the extent that
proposed conflict minerals legislation is adopted by the European Commission or Canada, these risks could increase.
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