NetFlix 2009 Annual Report Download - page 24

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
and merchandising technology 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
governmental agencies and their designees. The regulation of domain names in the United States may change in
the near future. Governing bodies may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or
maintain relevant domain names. Furthermore, the relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear. We may be unable, without significant
cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise
decrease the value of our trademarks and other proprietary rights.
If we become subject to liability for content that we distribute through our service, our results of
operations would be adversely affected.
As a distributor of content, we face potential liability for negligence, copyright, patent or trademark
infringement or other claims based on the nature and content of materials that we distribute. We also may face
potential liability for content uploaded from our users in connection with our community-related content or
movie reviews. If we become liable, then our business may suffer. Litigation to defend these claims could be
costly and the expenses and damages arising from any liability could harm our results of operations. We cannot
assure that we are adequately insured or indemnified to cover claims of these types or liability that may be
imposed on us.
If government regulations relating to the Internet or other areas of our business change or if consumer
attitudes toward use of the Internet change, we may need to alter the manner in which we conduct our
business, or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the Internet or other areas of our business
could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the
growth and development of the market for online commerce may lead to more stringent consumer protection
laws, which may impose additional burdens on us. If we are required to comply with new regulations or
legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
The manner in which Internet and other legislation may be interpreted and enforced cannot be precisely
determined and may subject either us or our customers to potential liability, which in turn could have an adverse
effect on our business, results of operations and financial condition. The adoption of any laws or regulations that
adversely affect the popularity or growth in use of the Internet, including laws limiting Internet neutrality, could
decrease the demand for our subscription service and increase our cost of doing business.
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