Redbox 2003 Annual Report Download - page 12

Our future success may depend in part on our ability to penetrate new markets and distribution
channels. We currently derive, and expect to derive for the near term, substantially all of our revenue from the
operation of our coin-counting units. In order to continue our unit installation growth, we will need to develop
operational or unit production cost efficiencies that make it feasible for us to penetrate lower density markets
and/or new distribution channels. In 2003, we began installing more units in lower density markets and intend to
continue to install in these areas as we are able to obtain continued economies of scale. We may be unable to
drive down costs relating to the manufacture, installation or servicing of Coinstar units or transportation and
coin-processing costs to levels that would enable us to operate profitably in such markets.
Our future success may depend in part on our ability to develop and commercialize new products and
services. Our future growth will depend in part on our success in developing and commercializing new
products and services. For example, we have recently begun to upgrade certain Coinstar units to provide
consumers with a means to purchase prepaid products, including MasterCard cards and wireless airtime.
Currently we have rolled out our prepaid wireless and prepaid MasterCard products to consumers and are
offering these services in over 600 locations. In order to develop and commercialize new products or services, we
will need to enhance the capabilities of our units and our network and establish market acceptance of such
products or services. Furthermore, we may need to hire additional qualified employees and enter into
relationships with third parties to assist in the development and commercialization of new products and
enhancements. We may be unable to develop new products or services that generate acceptable market
acceptance or establish third party relationships necessary to develop and commercialize such products or
services. Moreover, additional products or services that we may attempt to commercialize may not prove
successful.
We may be unable to adequately protect or enforce our patents and proprietary rights. Our success
depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our
technology through a combination of patents, licenses and other intellectual property arrangements, without
infringing the proprietary rights of third parties. We have significant United States and international patents
relevant to aspects of self-service coin counting, machine networking and fraud avoidance and voucher
authentication, among other areas. We also have additional patent applications pending in the United States and
several foreign jurisdictions directed to this technology.
Our patents may not be held valid if challenged, pending patent applications may not be issued, and other
parties may claim rights in or ownership of our patents and other proprietary rights. Moreover, patents issued to
us may be circumvented or fail to provide adequate protection of our technologies. Further, our competitors
might independently develop or patent technologies that are substantially equivalent or superior to our
technologies.
Since many patent applications in the United States are not publicly disclosed until the patent is issued,
others may have filed applications, which, if issued as patents, could cover our products. Accordingly, others
may assert claims of patent infringement or misappropriation against us based on current or pending United
States and/or foreign patents, copyrights or trade secrets. If such claims were successful, our business could be
harmed. In addition, defending our company and our retail partners against these types of claims, regardless of
their merits, could require us to incur substantial costs and divert the attention of key personnel. Parties making
these types of claims may be able to obtain injunctive or other equitable relief which could effectively block our
ability to provide our coin processing service and use our processing equipment in the United States and abroad,
and could result in an award of substantial damages. If third parties have or obtain proprietary rights that our
products infringe, we may be unable to obtain necessary licenses from others at a reasonable cost or at all. We
have from time to time engaged in discussions with a former supplier, ScanCoin AB, in an effort to clarify
certain contract rights and obligations as well as ownership of certain of our intellectual property.
We also rely on trade secrets to develop and maintain our competitive position. Although we protect our
proprietary technology in part by confidentiality agreements with our employees, consultants, vendors and
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