NetFlix 2012 Annual Report Download - page 20

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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. 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 certain data centers are located in the San Francisco Bay Area. We have DVD
shipping centers located throughout the U.S., 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 DVD 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.
Most of these matters relate to patent infringement lawsuits, which are typically expensive to defend.
Litigation disputes could cause us to incur unforeseen expenses, could occupy a significant amount of our
management’s time and attention and could negatively affect our business operations and financial position.
We could be subject to economic, political, regulatory and other risks arising from our international
operations.
We offer our streaming plan in Canada, Latin America and certain countries in Europe (the U.K., Ireland,
Finland, Denmark, Sweden, and Norway). Operating in international markets requires significant resources and
management attention and will subject us to regulatory, economic and political risks that may be different from
and incremental to those in the U.S. In addition to the risks that we face in the U.S. our international operations
involve risks that could adversely affect our business, including:
• the need to adapt our content and user interfaces for specific cultural and language differences, including
licensing a certain portion of our content library before we have developed a full appreciation for its
performance within a given territory;
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