Apple 2008 Annual Report Download - page 22

Table of Contents
expense. At present, the Company is vigorously defending more than 21 patent infringement cases, 13 of which were filed during fiscal 2008,
and several pending claims are in various stages of evaluation. In certain cases, the Company may consider the desirability of entering into
licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
If the Company is found to be infringing such rights, it may be required to pay substantial damages. If there is a temporary or permanent
injunction prohibiting the Company from marketing or selling certain products or a successful claim of infringement against the Company
requires it to pay royalties to a third party, the Company’s financial condition and operating results could be materially adversely affected,
regardless of whether it can develop non-infringing technology. While in management’s opinion the Company does not have a potential liability
for damages or royalties from any known current legal proceedings or claims related to the infringement of patent or other intellectual property
rights that would individually or in the aggregate have a material adverse effect on its financial condition and operating results, the results of
such legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any of the matters related to infringement of
patent or other intellectual property rights of others or should several of these matters be resolved against the Company in the same reporting
period, the Company’s financial condition and operating results could be materially adversely affected.
With the June 2007 introduction of iPhone, the Company has begun to compete with mobile communication device companies that hold
significant patent portfolios. Regardless of the scope or validity of such patents or the merits of any potential patent claims by competitors, the
Company may have to engage in protracted litigation, enter into expensive agreements or settlements and/or modify its products. Any of these
events could have a material adverse impact on the Company’s financial condition and operating results.
The Company’s future performance depends on support from third-party software developers. If third-party software applications and services
cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.
The Company believes decisions by customers to purchase its hardware products, including its Macs, iPods and iPhones, are often based to a
certain extent on the availability of third-party software applications and services. There is no assurance that third-party developers will continue
to develop and maintain applications and services for the Company’s products on a timely basis or at all, and discontinuance or delay of these
applications and services could have a material adverse effect on the Company’s financial condition and operating results.
With respect to its Mac products, the Company believes the availability of third-party software applications and services depends in part on the
developers’ perception and analysis of the relative benefits of developing, maintaining, and upgrading such software for the Company’
s products
compared to Windows-based products. This analysis may be based on factors such as the perceived strength of the Company and its products,
the anticipated revenue that may be generated, continued acceptance by customers of Mac OS X, and the costs of developing such applications
and services. If the Company’s minority share of the global personal computer market causes developers to question the Company’s prospects,
developers could be less inclined to develop or upgrade software for the Company’s products and more inclined to devote their resources to
developing and upgrading software for the larger Windows market. The Company’s development of its own software applications and services
may also negatively affect the decisions of third-party developers, such as Microsoft, Adobe, and Google, to develop, maintain, and upgrade
similar or competitive software and services for the Company’
s products. Mac OS X Leopard, which became available in October 2007, includes
a new feature that enables Intel-
based Mac systems to run Microsoft Windows XP and Windows Vista operating systems. This feature may deter
developers from creating software applications for Mac OS X if such applications are already available for the Windows platform.
With respect to iPhone and iPod touch, the Company relies on the continued availability and development of compelling and innovative software
applications. As with applications for the Company’s Mac products, the availability and development of these applications also depend on
developers’ perceptions and analysis of the relative benefits of developing software for the Company’s products rather than its competitors’,
including devices that use competing platforms. If developers focus their efforts on these competing platforms, the availability and quality of
applications for the Company’s devices may suffer.
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