Digital River 2002 Annual Report Download - page 27

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users with the ability to access, correct and delete personal information stored by us. Even in the absence of these regulations, the FTC has
settled several proceedings resulting in consent decrees in which Internet companies have been required to establish programs regarding the
manner in which personal information is collected from users and provided to third parties. We could become a party to a similar enforcement
proceeding. These regulatory and enforcement efforts could limit our collection of demographic and personal information from end-users, which
could adversely affect our ability to comprehensively serve our clients.
The adoption and implementation of international laws and regulations applicable to electronic commerce may impair our efforts to
expand revenue from international transactions.
The European Union has adopted a privacy directive that regulates the collection and use of information that identifies an individual person.
These regulations may inhibit or prohibit the collection and sharing of personal information in ways that could harm our clients or us. The
globalization of Internet commerce may be harmed by these and similar regulations because the European Union privacy directive prohibits
transmission of personal information outside the European Union. The United States and the European Union have negotiated an agreement
providing a “safe harbor” for those companies who agree to comply with the principles set forth by the U.S. Department of Commerce and
agreed to by the European Union. Failure to comply with these principles may result in fines, private lawsuits and enforcement actions. These
enforcement actions can include interruption or shutdown of operations relating to the collection and sharing of information pertaining to
citizens of the European Union.
Compliance with future laws imposed on electronic commerce may substantially increase our costs of doing business or otherwise
adversely affect our ability to offer our services.
Because our services are accessible worldwide and we facilitate sales of products to end-users worldwide, foreign jurisdictions may claim that
we are required to comply with their laws. Laws regulating Internet companies outside of the United States may be less favorable than those in
the United States, giving greater rights to consumers, content owners and users. Compliance may be more costly or may require us to change our
business practices or restrict our service offerings relative to those provided in the United States. Any failure to comply with foreign laws could
subject us to penalties ranging from fines to bans on our ability to offer our services.
As our services are available over the Internet in multiple states and foreign countries, these jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each state or foreign country. We are qualified to do business only in California, Connecticut,
Illinois, Minnesota and Washington. Failure to qualify as a foreign corporation in a required jurisdiction could subject us to taxes and penalties
and could result in our inability to enforce contracts in these jurisdictions.
In addition, we are subject to United States laws governing the conduct of business with other countries, such as export control laws, which
prohibit or restrict the export of goods, services and technology to designated countries, denied persons or denied entities from the United States.
Any significant changes in these laws, particularly an expansion in the export control laws, will increase our costs of compliance and may
further restrict our overseas client base.
We intend to continue to expand our international operations and these efforts may not be successful in generating additional revenue.
We sell software products and services to end-users outside the United States and we intend to continue to expand our international presence.
Expansion into international markets, particularly the European and Asia-Pacific regions, requires significant resources that we may fail to
recover by generating additional revenue. Conducting business outside of the United States is subject to risks, including:
• changes in regulatory requirements and tariffs;
• uncertainty of application or governing of local laws;
• reduced protection of intellectual property rights;
• difficulties in distribution for international sales;
• higher incidences of credit card fraud and difficulties in accounts receivable collection;
• the burden and cost of complying with a variety of foreign laws; and
• political or economic constraints on international trade or instability.