Expedia 2005 Annual Report Download - page 26

Our investment in eLong creates risks and uncertainties relating to the laws of the People's Republic
of China.
The success of our investment in eLong, a Cayman Island company, whose principal business is the
operation of an internet-based travel business in China, is subject to risks and uncertainties regarding the
interpretation of China's laws and regulations. The China legal system is a civil law system based on
written statutes. Unlike common law systems, it is a system in which decided legal cases have limited
value as precedent. The lack of precedent causes the interpretation and enforcement of China law to
involve uncertainties that could limit the available legal protections. In addition, we cannot predict the
effect of future developments in the China's legal system, particularly with respect to the travel industry or
the internet, including the introduction of new laws, changes to existing laws or the interpretation or
enforcement of current or future laws and regulations, or the preemption of local regulations by national
laws. In addition, the laws and regulations of China restrict foreign investment in the air-ticketing, travel
agency, internet content provision and advertising businesses. Such laws and regulations require that we
establish effective control through a series of agreements with eLong's affiliated Chinese entities and could
restrict our ability to engage in desirable strategic transactions. Finally, China does not have treaties with
the United States or most other western countries providing for the reciprocal recognition and enforcement
of judgment of courts. As a result, court judgments obtained in jurisdictions with which China does not
have treaties on reciprocal recognition of judgment and in relation to any matter not subject to a binding
arbitration provision may be difficult or impossible to be enforced in China.
Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result
of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
In the processing of our traveler transactions, we receive and store a large volume of personally
identifiable information. This information is increasingly subject to legislation and regulations in numerous
jurisdictions around the world. This government action is typically intended to protect the privacy of
personal information that is collected, processed and transmitted in or from the governing jurisdiction. We
could be adversely affected if legislation or regulations are expanded to require changes in our business
practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that
negatively affect our business, financial condition and results of operations. As privacy and data protection
have become more sensitive issues, we may also become exposed to potential liabilities as a result of
differing views on the privacy of travel data. These and other privacy developments that are difficult to
anticipate could adversely affect our business, financial condition and results of operations.
We rely on the Internet infrastructure which may be unable to support increased levels of demand.
The internet infrastructure may not expand fast enough to meet the increased levels of demand. In
particular, the expected benefits from our international operations may be reduced if internet usage does
not continue to grow in our overseas markets or grows at significantly lower rates compared to expected
trends. In addition, activities that diminish the experience for internet users, such as spyware, spoof
e-mails, viruses and spam directed at internet users, as well as viruses and ""denial of service'' attacks
directed at internet companies and service providers, may discourage people from using the internet,
including for commerce. If consumer use diminishes or grows at a slower rate, then our business and
results of operations could be adversely affected.
We may be found to have infringed on intellectual property rights of others that could expose us to
substantial damages and restrict our operations.
We could face claims that we have infringed the patents, copyrights or other intellectual property
rights of others. In addition, we may be required to indemnify travel suppliers for claims made against
them. Any claims against us could require us to spend significant time and money in litigation, delay the
release of new products or services, pay damages, develop new intellectual property or acquire licenses to
intellectual property that is the subject of the infringement claims. These licenses, if required, may not be
available on acceptable terms or at all. As a result, intellectual property claims against us could have a
material adverse effect on our business, operating results and financial condition.
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