NITTO DENKO GROUP CSR & Annual Report 2012

CSR & Annual Report 201213possibility that a third party might claim these rights to be invalid and the Group might not enjoy complete protection. The Group’s property may be imitated in some areas and may be involved in lawsuits. Intellectual property rights infringements could negatively affect the performance of the Group.(9) Product DefectsThe Group manufactures products according to ISO 9000 quality standards and carries out quality assurance management which is trusted by its customers. The business activities of the Group mainly involve the selling of parts to companies engaged in the manufacturing industry. Although the possibility of the Group being forced to directly compensate end users for its products or to conduct a product recall are slim, the Group cannot completely eliminate the risk of liability associated with product defects. If compensation were to exceed the coverage of product liability insurance, this could negatively affect the performance of the Group.(10) Environmental IssuesThe Group regards environmental preservation measures as one of its key business policies and acts from a position whereby it accepts social responsibility, focusing on reducing waste and preventing global warming and air pollution. The Group has not caused any serious environmental problems to date. To protect the global environment, the Group established a voluntary reduction plan, which it duly observes. However, there exists the possibility that unforeseen environmental pollution caused by an accident or natural disaster, or changes in future laws and regulations resulting in significant expenses due to environmental issues could have adverse effects on the performance of the Group.(11) Compliance and Legal RegulationsThe Group carries out business not only in Japan, but also overseas. Products of the Group are unique and some of these are patented medicines. Such business is governed by the various laws and regulations of different countries and the Group must abide by them. If these laws and regulations are strengthened or changed significantly, a temporary deficiency in internal control of these issues may occur and the activities of the Group might be impaired, or the Group might incur additional costs which could adversely affect its performance.(12) LawsuitsIn the business activities of the Group, there exists the possibility that the Group might become embroiled in legal cases with customers or third parties. In addition, the Group conducts business in various countries and could go into unexpected litigation. The risk that the outcome of litigation does not properly reflect the opinion of the Group, and thus differs from the Group’s forecasts, might be ineluctable and this could adversely affect its performance.(13) Accidents and DisastersThe Group carries out safety measures to protect itself from accidents and disasters by following a safety first policy. In particular, Japan has a high occurrence of earthquakes. If a large-scale earthquake were to occur in a particular area within Japan, direct damage could result or injury could occur within the production process due to fire or chemicals. The effects of an earthquake, tsunami or flood would not be limited to in-house, but would be wide-ranging, with damage to infrastructure such as electricity and gas supplies, damage to supply chains such as interruption to the procurement of raw materials and the distribution of products and losses or inconvenience to our customers, which could cause an interruption to business. Despite the existence of disaster insurance, coverage would be limited and costs incurred could affect the performance of the Group. Moreover, if there were to be a massive outbreak of new infections affecting human life, depending on the nature of the outbreak, it could not only impact on the global economy, but also the performance of the Group. (14) Retirement Benefit LiabilityEmployee accrued benefit costs and liabilities of the Group are calculated on the basis of assumptions made concerning such things as the discount rate and other actuarial calculations and expected returns of pension assets. When the actual results differ from the assumptions or when the assumptions are altered, effects will accumulate and be systematically recognized in the future. This may generally influence recognized costs and calculated liabilities in the future. If market interest rates decline or investment yields of pension assets deteriorate in the future, an increase in retirement benefit liability and a shortage of funds might occur and thus influence the business results of the Group.