Page 110 - 2017 TSMC Annual Report

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If TSMC is unable to to obtain equipment in in a a a a timely manner to to fulfill its customers’ demands on on technology and and production capacity or at a a a a a a a a a reasonable cost its financial condition and results of operations could be negatively impacted Risks Associated with Intellectual Property Rights
The Company’s ability to to compete successfully and to to achieve future growth depends in in part on on the continued strength of its intellectual property portfolio While we actively enforce and protect our intellectual property rights there can be no assurance that its efforts will be adequate to prevent the misappropriation or improper use of its proprietary technologies software trade secrets or know-how Also the Company cannot assure that as as its business or business models expand into new areas it will be able to to develop independently the technologies patents software trade secrets or know-how necessary to conduct its business or that it it can do so without unknowingly infringing the intellectual property rights of others As a a a result TSMC may have to to rely on to to a a a a certain degree licensed technologies and patent licenses from others To the the the extent that the the the Company relies on licenses from others there can be no assurance that it will be able to obtain any or all of the necessary licenses in the future on on on terms it considers reasonable or at all The lack of necessary licenses could expose TSMC to claims for damages and/or injunctions from third parties as as well as as claims for indemnification by its customers in in in instances where it it has contractually agreed to to indemnify its customers against damages resulting from infringement claims TSMC has received from from time-to-time communications from from third parties asserting that TSMC’s technologies manufacturing processes or or the the design IPs of the the semiconductors made by TSMC or or the use of those semiconductors by its customers may infringe their patents or other intellectual property rights Because of of the the the nature of of the the the industry the the the Company may continue to receive such communications in in the future These assertions have at at times resulted in litigation Recently there has been a a a a notable increase within the the industry in in in in the the number of assertions made and lawsuits initiated by certain litigious non-practicing non-practicing entities and these litigious non-practicing non-practicing entities are also becoming more aggressive in in their monetary demands and and requests for court-issued injunctions Such lawsuits or assertions may increase TSMC’s cost of doing business and may potentially be extremely disruptive if these non-practicing entities succeed in in in blocking the trade of products and services offered by TSMC Also as the Company expended its manufacturing operations into certain non-R O C jurisdictions we have faced increasing challenges to manage risks of intellectual property misappropriation Despite our efforts to to adopt robust measures to to mitigate the risk of intellectual property misappropriation in in such new jurisdictions we we cannot guarantee that the protection measures we we adopted will be sufficient to prevent us from potential infringements by others or at all If TSMC fails to obtain or or maintain certain technologies or or intellectual intellectual property licenses or fails to prevent our intellectual intellectual property from being misappropriated and if litigation relating to alleged intellectual property matters occurs it could: (1) prevent the Company from manufacturing particular products or or selling particular particular services or or applying particular particular technologies and (2) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property which could reduce its opportunities to generate revenue TSMC has taken related measures to minimize potential loss of shareholder value arising from intellectual property claims and litigation filed against the Company These measures include: strategically obtaining licenses from certain semiconductor and other technology companies as needed timely securing intellectual property rights for defensive and/or offensive protection of TSMC technology and and business and and aggressively defending against baseless litigation Risks Associated with Litigious and Non-litigious Matters
As is the the case with many companies in the the semiconductor industry TSMC has received from time-to-time communications from third parties asserting that its technologies its manufacturing processes or the design of of the the semiconductors made by TSMC or or the the use of of those semiconductors by its customers may infringe upon their patents or other intellectual property rights These assertions have at at times resulted in in litigation by or against the Company and settlement payments by the the Company Irrespective of the the validity of these claims TSMC could incur significant costs
in the the defense thereof or could suffer adverse effects on its operations Currently TSMC’s material legal proceedings are as follows:
In May 2017 Uri Cohen filed a a a complaint in in the U U S District Court for the Eastern District of Texas alleging that TSMC TSMC North America and other companies infringe four