NetFlix 2010 Annual Report Download - page 16

Intellectual property claims against us could be costly and result in the loss of significant rights related to,
among other things, our Web site, streaming technology, our recommendation and merchandising
technology, 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, successfully defend our use, or develop
non-infringing technology 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 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, streaming technology, 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.
In the event of an earthquake or other natural or man-made disaster, our operations could be adversely
affected.
Our executive offices and data centers are located in the San Francisco Bay Area. We have shipping centers
located throughout the United States, including earthquake and hurricane-sensitive areas. Our business and
operations could be adversely affected in the event of these natural disasters as well as from electrical blackouts,
fires, floods, power losses, telecommunications failures, break-ins or similar events. We may not be able to
effectively shift our fulfillment and delivery operations to handle disruptions in service arising from these events.
Because the San Francisco Bay Area is located in an earthquake-sensitive area, we are particularly susceptible to
the risk of damage to, or total destruction of, our executive offices and data centers. We are not insured against
any losses or expenses that arise from a disruption to our business due to earthquakes and may not have adequate
insurance to cover losses and expenses from other natural disasters.
We are engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a
significant amount of our management’s time and attention.
From time to time, we are subject to litigation or claims that could negatively affect our business operations
and financial position. As we have grown, we have seen a rise in the number of litigation matters against us.
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