NetFlix 2014 Annual Report Download - page 11

Table of Contents
We are subject to payment processing risk
Our members pay for our service using a variety of different payment methods, including credit and debit cards, gift subscriptions and
direct debit. We rely on internal systems as well as those of third parties to process payment. Acceptance and processing of these payment
methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are disruptions in
our payment processing systems, increases in payment processing fees and/or changes to rules or regulations concerning payment processing,
our revenue, operating expenses and results of operation could be adversely impacted. In addition, from time to time, we encounter fraudulent
use of payment methods, which could impact our results of operation and if not adequately controlled and managed could create negative
consumer perceptions of our service.
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 we expect to file from time
to time for trademark and patent applications. Nevertheless, these applications may not be approved, third parties may challenge any
copyrights, patents or trademarks issued to or held by us, third parties may knowingly or unknowingly infringe our intellectual property rights,
and we may not be able to prevent infringement or misappropriation without substantial expense to us. If the protection of our intellectual
property rights is inadequate to prevent use or misappropriation 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 members and potential members may become confused in the marketplace, and our ability to attract members may 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. 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.
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.
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.
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