Recent example:
28 September 2013 Transponder failure: LOT Polish Airlines Boeing 787-800, registration SP-LRA performing flight LOT41 from Warsaw to Toronto, was descending towards Toronto when approach control directed crew to use another transponder. ATC lost LOT41's tag off radar. Approach queried a minute later and crew responded they had tried the other transponder but received a fail indication.
Aircraft was serviced and turned around for a flight back the same day:
28 September 2013 outbound from Canada Transponder failure: LOT Polish Airlines Boeing 787-800, registration SP-LRA performing LOT42 from Toronto back to Warsaw climbing out of Toronto when crew halted their climb at FL270 due to transponder failure, then decided to continue towards Warsaw at FL270. About 130 nm west-southwest of Keflavik her crew diverted to Iceland.
LOT reported the transponder malfunction prompting Norway to not permit overflight of the aircraft.
Ironically radar data show the Mode-S transponder of the aircraft, including position reporting, worked without flaw throughout the flight but the crew had conflicting indications.