NetFlix 2006 Annual Report Download - page 26

practices could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply
with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to
accept these payment methods, and our business and results of operations would be adversely affected.
If our trademarks and other proprietary rights are not adequately protected to prevent use or
appropriation by our competitors, the value of our brand and other intangible assets may be diminished,
and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our
employees, consultants and third parties with whom we have relationships, as well as trademark, copyright,
patent and trade secret protection laws, to protect our proprietary rights. We may also seek to enforce our
proprietary rights through court proceedings, such as our complaint for patent infringement against Blockbuster,
Inc. filed in April 2006. Netflix is a registered trademark of Netflix, Inc. in the United States and United
Kingdom. We have also filed trademark applications in the United States for the Friends and Profiles service
marks and for the Netflix design logo, and have filed U.S. patent applications for certain aspects of our
technology. We have also filed a trademark application in the European Union for the Netflix name. From time
to time we expect to file additional trademark and patent applications. Nevertheless, these applications may not
be approved, third parties may challenge any patents issued to or held by us, third parties may knowingly or
unknowingly infringe our patents, trademarks and other proprietary rights, and we may not be able to prevent
infringement without substantial expense to us. If the protection of our proprietary rights is inadequate to prevent
use or appropriation by third parties, the value of our brand and other intangible assets may be diminished,
competitors may be able to more effectively mimic our service and methods of operations, the perception of our
business and service to subscribers and potential subscribers may become confused in the marketplace and our
ability to attract subscribers may be adversely affected.
Intellectual property claims against us could be costly and result in the loss of significant rights related to,
among other things, our Web site, our recommendation service, title selection processes and marketing
activities.
Trademark, copyright, patent and other intellectual property rights are important to us and other companies.
Our intellectual property rights extend to our technology, business processes and the content on our Web site. We
use the intellectual property of third parties in merchandising our products and marketing our service through
contractual and other rights. From time to time, third parties allege that we have violated their intellectual
property rights. If we are unable to obtain sufficient rights or develop non-infringing intellectual property or
otherwise alter our business practices on a timely basis in response to claims against us for infringement,
misappropriation, misuse or other violation of third party intellectual property rights, our business and
competitive position may be adversely affected. Many companies are devoting significant resources to
developing patents that could potentially affect many aspects of our business. There are numerous patents that
broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched
patents relative to our technology. Defending ourselves against intellectual property claims, whether they are
with or without merit or are determined in our favor, results in costly litigation and diversion of technical and
management personnel. It also may result in our inability to use our current Web site or our recommendation
service or inability to market our service or merchandise our products. As a result of a dispute, we may have to
develop non-infringing technology, enter into royalty or licensing agreements, adjust our merchandising or
marketing activities or take other actions to resolve the claims. These actions, if required, may be costly or
unavailable on terms acceptable to us.
If we are unable to protect our domain names, our reputation and brand could be adversely affected.
We currently hold various domain names relating to our brand, including Netflix.com. Failure to protect our
domain names could adversely affect our reputation and brand, and make it more difficult for users to find our
Web site and our service. The acquisition and maintenance of domain names generally are regulated by
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