Annual Report 2009 (1 MB, pdf) - Vasco

Intellectual Property and Proprietary Rights and Licenses
We rely on a combination of patent, copyright, trademark and trade secret laws, as well as employee
and third-party non-disclosure agreements to protect our proprietary rights. In particular, we hold several patents
in the U.S. and in other countries, which cover multiple aspects of our technology. These patents expire between
2010 and 2022. We do not believe that the expiration of patents in 2010 will affect business, profitability or
increase competition. In addition to the issued patents, we also have several patents pending in the U.S., Europe
and other countries. The majority of our issued and pending patents cover our DIGIPASS family. We believe
these patents to be valuable property rights and we rely on the strength of our patents and on trade secret law to
protect our intellectual property rights. To the extent that we believe our patents are being infringed upon, we
intend to assert vigorously our patent protection rights, including but not limited to, pursuing all available legal
remedies.
Research and Development
Our research and development efforts historically have been, and will continue to be, concentrated on
product enhancement, new technology development and related new product introductions. We employ a team of
full-time engineers and, from time to time, also engage independent engineering firms to conduct non-strategic
research and development efforts on our behalf. We recorded $11.6, $11.6 and $9.4 million for fiscal years ended
December 31, 2009, 2008, and 2007, respectively, on company-sponsored research and development.
Production
Our security hardware DIGIPASSES are manufactured by third party manufacturers pursuant to
purchase orders that we issue. Our hardware DIGIPASSES are made primarily from commercially available
electronic components that are purchased globally. Our software products, including software versions of our
DIGIPASSES are produced in-house.
Hardware DIGIPASSES utilize commercially available programmable microprocessors, or chips. We
use a limited number of microprocessors, made by Samsung, for the various hardware products we produce. The
Samsung microprocessors are purchased from Samsung Semiconductor in Germany. The microprocessors are the
only components of our security authenticators that are not commodity items readily available on the open
market.
Orders of microprocessors generally require a lead-time of 12-16 weeks. We attempt to maintain a
sufficient inventory of all parts to handle short-term increases in orders. Large orders that would significantly
deplete our inventory are typically required to be placed with more than 12 weeks of lead-time, allowing us to
make appropriate arrangements with our suppliers.
We purchase the microprocessors and arrange for shipment to third parties for assembly and testing in
accordance with our design specifications. Our DIGIPASS products are assembled by one of three independent
companies with headquarters in Hong Kong and production facilities in China. Purchases from these companies
are made on a volume purchase order basis. These companies commit to very high production standards, and as a
result, they also have major production contracts with Japanese hi-tech companies. Equipment designed to test
product at the point of assembly is supplied by us and periodic visits are made by our personnel for purposes of
quality assurance, assembly process review and supplier relations.
Competition
The market for computer and network security solutions is very competitive and, like most technologydriven
markets, is subject to rapid change and constantly evolving products and services. Our main competitor is
RSA Security, a subsidiary of EMC Corporation. Additional competitors are ActivIdentity, Gemalto, Todos Data
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