NetFlix 2010 Annual Report Download - page 15

authentication technology to secure such information. We take measures to protect against unauthorized intrusion
into our subscribers’ data. If, despite these measures, we, or our payment processing services, experience any
unauthorized intrusion into our subscribers’ data, current and potential subscribers may become unwilling to
provide the information to us necessary for them to become subscribers, we could face legal claims, and our
business could be adversely affected. Similarly, if a well-publicized breach of the consumer data security of any
other major consumer Web site were to occur, there could be a general public loss of confidence in the use of the
Internet for commerce transactions which could adversely affect our business.
In addition, we do not obtain signatures from subscribers in connection with the use of credit cards by them.
Under current credit card practices, to the extent we do not obtain cardholders’ signatures, we are liable for
fraudulent credit card transactions, even when the associated financial institution approves payment of the orders.
From time to time, fraudulent credit cards are used on our Web site to obtain service and access our DVD
inventory and streaming. Typically, these credit cards have not been registered as stolen and are therefore not
rejected by our automatic authorization safeguards. While we do have a number of other safeguards in place, we
nonetheless experience some loss from these fraudulent transactions. We do not currently carry insurance against
the risk of fraudulent credit card transactions. A failure to adequately control fraudulent credit card transactions
would harm our business and results of operations.
Increases in payment processing fees or changes to operating rules would increase our operating expenses
and adversely affect our business and results of operations.
Our subscribers pay for our subscription services predominately using credit cards and debit cards. Our
acceptance of these payment methods requires our payment of certain fees. From time to time, these fees may
increase, either as a result of rate changes by the payment processing companies or as a result in a change in our
business practices which increase the fees on a cost-per-transaction basis. Such increases may adversely affect
our results of operations.
We are subject to rules, regulations and practices governing our accepted payment methods, which are
predominately credit cards and debit cards. These rules, regulations and 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. We have filed and from time to time we expect to file for 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.
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