Apple 2011 Annual Report Download - page 15

Download and view the complete annual report

Please find page 15 of the 2011 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 107

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107

Company to license their content in the future. Other content owners, providers or distributors may seek to limit the Company’
s access to, or
increase the cost of, such content. If the Company is unable to continue to offer a wide variety of content at reasonable prices with acceptable
usage rules, or continue to expand its geographic reach, the Company’
s financial condition and operating results may be materially adversely
affected.
Many third-party content providers require the Company to provide digital rights management (“DRM”)
and other security solutions. If these
requirements change, the Company may have to develop or license new technology to provide these solutions. There is no assurance the
Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In addition, certain countries have passed
or may propose legislation that would force the Company to license its DRM, which could lessen the protection of content and subject it to
piracy and also could affect arrangements with the Company’s content providers.
The Company’s future results could be materially adversely affected if it is found to have infringed on intellectual property rights.
Technology companies, including many of the Company’
s competitors, frequently enter into litigation based on allegations of patent
infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have
purchased or otherwise obtained. As the Company has grown, the intellectual property rights claims against it have increased and may continue
to increase. In particular, the Company’
s cellular enabled products compete with mobile communication and media device companies that hold
significant patent portfolios, and the number of patent claims against the Company has significantly increased. The Company is vigorously
defending infringement actions in courts in a number of U.S. jurisdictions and before the U.S. International Trade Commission, as well as
internationally in Europe and Asia. The plaintiffs in these actions frequently seek injunctions and substantial damages.
Regardless of the scope or validity of such patents or the merits of any patent claims by potential or actual litigants, the Company may have to
engage in protracted litigation. If the Company is found to infringe one or more patents, 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 requiring it to pay royalties to a third-
party, its financial condition and operating results could be materially adversely
affected, regardless of whether it can develop non-infringing technology.
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. These licenses may also significantly increase the Company’
s
operating expenses.
In management’
s opinion there is not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess
of a recorded accrual, with respect to loss contingencies, including matters related to infringement of intellectual property rights. However, the
outcome of litigation is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, if one
or more of these legal matters were resolved against the Company in the same reporting period for amounts in excess of management’
s
expectations, the Company’s consolidated financial statements of a particular reporting period could be materially adversely affected.
The Company’s future performance depends in part on support from third-party software developers.
The Company believes decisions by customers to purchase its hardware products depend in part on the availability of third-
party software
applications and services. There is no assurance that third-
party developers will continue to develop and maintain software applications and
services for the Company’s products. 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, which could materially adversely affect the Company’
s financial condition
and operating results.
13