Priceline 2011 Annual Report Download - page 23

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• new prior art will not be discovered that may diminish the value of or invalidate an issued patent; or
• legislative or judicial action will not directly or indirectly affect the scope and validity of any of our patent rights.
There has been recent discussion in the press regarding the examination and issuance of so called "business method"
patents. As a result, the United States Patent and Trademark Office has indicated that it intends to intensify the review process
applicable to such patent applications. The new procedures are not expected to have a direct effect on patents already granted.
We cannot anticipate what effect, if any, the new review process will have on our pending patent applications. In addition,
there has been recent discussion in various federal court proceedings regarding the patentability and validity of so called
"business method" patents. The U.S. Supreme Court, in a recent decision in Bilski v. Kappos, partially addressed the
patentability of so-called business method patents. We cannot anticipate what effect, if any, any new federal court decision or
new legislation will have on our issued patents or pending patent applications.
We pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective
trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are
made available online. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as
trademarks or copyrighted material, to third parties. These licensees may take actions that might diminish the value of our
proprietary rights or harm our reputation.
From time to time, in the ordinary course of our business, we have been subject to, and are currently subject to, legal
proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to
assert intellectual property claims, in particular patent claims, against us, particularly as we expand the complexity and scope of
our business. We endeavor to defend our intellectual property rights diligently, but intellectual property litigation is extremely
expensive and time consuming, and has and is likely to continue to divert managerial attention and resources from our business
objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating
our business, or portions of our business. In addition, resolution of claims may require us to obtain licenses to use intellectual
property rights belonging to third parties, which may be expensive to procure, or possibly to cease using those rights altogether.
Any of these events could have a material adverse effect on our business, results of operations or financial condition.
Our business is exposed to risks associated with processing credit card transactions.
Our results have been negatively impacted by purchases made using fraudulent credit cards. Because we act as the
merchant of record in a majority of our priceline.com transactions as well as those of Agoda and rentalcars.com, we may be
held liable for accepting fraudulent credit cards on our websites as well as other payment disputes with our customers.
Additionally, we are held liable for accepting fraudulent credit cards in certain retail transactions when we do not act as
merchant of record. Accordingly, we calculate and record an allowance for the resulting credit card chargebacks. If we are
unable to combat the use of fraudulent credit cards on our websites, our business, results of operations and financial condition
could be materially adversely affected.
In addition, in the event that one of our major suppliers voluntarily or involuntarily declares bankruptcy, we could
experience an increase in credit card chargebacks from customers with travel reservations with such supplier. For example,
airlines that participate in our system and declare bankruptcy or cease operations may be unable or unwilling to honor tickets
sold for their flights. Our policy in such event is to direct customers seeking a refund or exchange to the airline, and not to
provide a remedy ourselves. Because we are the merchant-of-record on sales of Name Your Own Price® airline tickets to our
customers, however, we could experience a significant increase in demands for refunds or credit card chargebacks from
customers, which could materially adversely affect our operations and financial results. For example, in April 2008, Aloha
Airlines and ATA Airlines each ceased operations and we experienced an increase in credit card chargebacks from customers
with tickets on those airlines.
Agoda and rentalcars.com process credit card transactions and operate in numerous currencies. Credit card costs are
typically higher for foreign currency transactions and in instances where cancellations occur.
We are party to legal proceedings which, if adversely decided, could materially adversely affect us.
We are a party to the legal proceedings described in Item 3 below, and Note 16 to the Consolidated Financial
Statements. The defense of the actions described in Item 3 and Note 16 may increase our expenses and an adverse outcome in
any of such actions could have a material adverse effect on our business and results of operations.