8x8 2006 Annual Report Download - page 22

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Many of our current and potential competitors have longer operating histories, are substantially larger, and have
greater financial, manufacturing, marketing, technical, and other resources. Many also have greater name
recognition and a larger installed base of customers than we have. Competition in our markets may result in
significant price reductions. As a result of their greater resources, many current and potential competitors may be
better able than us to initiate and withstand significant price competition or downturns in the economy. There can be
no assurance that we will be able to continue to compete effectively, and any failure to do so would harm our
business, operating results or financial condition.
If we do not develop and maintain successful partnerships for VoIP telephony products, we may not be able
to successfully market our solutions.
We are entering into new market areas and our success is partly dependent on our ability to forge new marketing and
engineering partnerships. VoIP telephony communication systems are extremely complex and few, if any,
companies possess all the required technology components needed to build a complete end to end solution. We will
likely need to enter into partnerships to augment our development programs and to assist us in marketing complete
solutions to our targeted customers. We may not be able to develop such partnerships in the course of our product
development. Even if we do establish the necessary partnerships, we may not be able to adequately capitalize on
these partnerships to aid in the success of our business.
Inability to protect our proprietary technology or our infringement of a third party's proprietary technology
would disrupt our business.
We rely in part on trademark, copyright, and trade secret law to protect our intellectual property in the United States
and abroad. We seek to protect our software, documentation, and other written materials under trade secret and
copyright law, which afford only limited protection. We also rely in part on patent law to protect our intellectual
property in the United States and internationally. We hold fifty-nine United States patents and have a number of
United States and foreign patent applications pending. We cannot predict whether such pending patent applications
will result in issued patents that effectively protect our intellectual property. We may not be able to protect our
proprietary rights in the United States or internationally (where effective intellectual property protection may be
unavailable or limited), and competitors may independently develop technologies that are similar or superior to our
technology, duplicate our technology or design around any patent of ours. We have in the past licensed and in the
future expect to continue licensing our technology to others; many of whom are located or may be located abroad.
There are no assurances that such licensees will protect our technology from misappropriation. Moreover, litigation
may be necessary in the future to enforce our intellectual property rights, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of management time and resources and could have a material adverse effect on our
business, financial condition, and operating results. Any settlement or adverse determination in such litigation would
also subject us to significant liability.
There has been substantial litigation in the communications, semiconductor, electronics, and related industries
regarding intellectual property rights, and from time to time third parties may claim infringement by us of their
intellectual property rights. Our broad range of technology, including IP telephony systems, digital and analog
circuits, software, and semiconductors, increases the likelihood that third parties may claim infringement by us of
their intellectual property rights. If we were found to be infringing on the intellectual property rights of any third
party, we could be subject to liabilities for such infringement, which could be material. We could also be required to
refrain from using, manufacturing or selling certain products or using certain processes, either of which could have a
material adverse effect on our business and operating results. From time to time, we have received, and may
continue to receive in the future, notices of claims of infringement, misappropriation or misuse of other parties'
proprietary rights. There can be no assurance that we will prevail in these discussions and actions or that other
actions alleging infringement by us of third party patents will not be asserted or prosecuted against us.
We rely upon certain technology, including hardware and software, licensed from third parties. There can be no
assurance that the technology licensed by us will continue to provide competitive features and functionality or that
licenses for technology currently utilized by us or other technology which we may seek to license in the future will
be available to us on commercially reasonable terms or at all. The loss of, or inability to maintain, existing licenses
could result in shipment delays or reductions until equivalent technology or suitable alternative products could be
developed, identified, licensed and integrated, and could harm our business. These licenses are on standard
commercial terms made generally available by the companies providing the licenses. The cost and terms of these
licenses individually are not material to our business.