IHOP 2013 Annual Report Download - page 36

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We face a variety of risks associated with doing business with franchisees and vendors in foreign markets. Our
expansion into international markets could create risks to our brands and reputation. We believe that we have selected high-
caliber international franchisees with significant experience in restaurant operations. However, the ultimate success and quality
of any franchise restaurant rests with the franchisee. If the franchisee does not successfully operate its restaurants in a manner
consistent with our standards, or customers have negative experiences due to issues with food quality or operational execution,
our brand values could suffer, which could have an adverse effect on our business.
There is no assurance that international operations will be profitable or that international growth will continue. Our
international operations are subject to all of the same risks associated with our domestic operations, as well as a number of
additional risks. These include, among other things, international economic and political conditions, foreign currency
fluctuations, and differing cultures and consumer preferences.
We also are subject to governmental regulations throughout the world that impact the way we do business with our
international franchisees and vendors. These include antitrust and tax requirements, anti-boycott regulations, import/export/
customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act.
Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could
harm our business, results of operations and financial condition.
Factors outside our control may harm our brands' reputations. The success of our restaurant business is largely
dependent upon brand recognition and the strength of our franchise systems. The continued success of our franchisees and our
company-operated restaurants will be directly dependent upon the maintenance of a favorable public view of the Applebee's
and IHOP brands. Negative publicity (e.g., crime, scandal, litigation, on-site accidents and injuries or other harm to customers)
at a single Applebee's or IHOP location can have a substantial negative impact on the operations of all restaurants within the
Applebee's or IHOP system. Multi-unit food service businesses such as ours can be materially and adversely affected by
widespread negative publicity of any type, but particularly regarding food quality, food-borne illness, food tampering, obesity,
injury or other health concerns with respect to certain foods, whether or not accurate or valid. The risk of food-borne illness or
food tampering cannot be completely eliminated. Any outbreak of food-borne illness or other food-related incidents attributed
to Applebee's or IHOP restaurants or within the food service industry or any widespread negative publicity regarding the
Applebee's or IHOP brands or the restaurant industry in general could harm our reputation. Although the Company maintains
liability insurance, and each franchisee is required to maintain liability insurance pursuant to its franchise agreements, a
liability claim could injure the reputation of all Applebee's or IHOP restaurants, whether or not it is ultimately successful.
We may be subject to legal proceedings that could be time consuming, result in costly litigation, require significant
amounts of management time and result in the diversion of significant operational resources. We are involved in lawsuits,
claims and proceedings incident to the ordinary course of our business. Litigation is inherently unpredictable. Any claims
against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of
management time and result in the diversion of significant operational resources. There have been a growing number of
lawsuits in recent years. There has also been a rise in employment-related lawsuits. From time to time, we have been subject to
these types of lawsuits. The cost of defending claims against us or the ultimate resolution of such claims may harm our business
and operating results. In addition, the increasingly regulated business environment may result in a greater number of
enforcement actions and private litigation. This could subject us to increased exposure to stockholder lawsuits.
We and our franchisees are subject to a variety of litigation. We and our franchisees are subject to complaints or
litigation from guests alleging illness, injury or other food quality, food safety, health or operational concerns. We and our
franchisees are also subject to "dram shop" laws in some states pursuant to which we and our franchisees may be subject to
liability in connection with personal injuries or property damages incurred in connection with wrongfully serving alcoholic
beverages to an intoxicated person. We may also initiate legal proceedings against franchisees for breach of the terms of their
franchise agreements, including underreporting of sales, failure to operate restaurants according to standard operating
procedures and payment defaults. Such claims may reduce the ability of our franchisees to make payments to us and the profits
generated by our company-operated restaurants. These claims may also reduce the ability of franchisees to enter into new
franchise agreements with us. Although our franchise agreements require our franchisees to defend and indemnify us, we may
be named as a defendant and sustain liability in legal proceedings against franchisees under the doctrines of vicarious liability,
agency, negligence or otherwise.
Third-party claims with respect to intellectual property assets, if decided against us, may result in competing uses or
require adoption of new, non-infringing intellectual property, which may in turn adversely affect sales and revenues. We
regard our service marks and trademarks related to our restaurant businesses as having significant value and being important to
our marketing efforts. To protect our restaurants and services from infringement, we rely on contracts, copyrights, patents,
trademarks, service marks and other common law rights, such as trade secret and unfair competition laws. We have registered
certain trademarks and service marks in the United States and foreign jurisdictions; however, effective intellectual property
protection may not be available in every country in which we have or intend to open or franchise a restaurant. Although we