Rosetta Stone 2011 Annual Report Download - page 37

Table of Contents
Third-party use of our trademarks as keywords in internet search engine advertising programs may direct potential customers to competitors' websites,
which could harm our reputation and cause us to lose sales.
Competitors and other third parties, including counterfeiters, purchase our trademarks and confusingly similar terms as keywords in internet search
engine advertising programs and in the header and text of the resulting sponsored link advertisements in order to divert potential customers to their websites.
Preventing such unauthorized use is inherently difficult. If we are unable to protect our trademarks and confusingly similar terms from such unauthorized use,
competitors and other third parties may continue to drive potential online customers away from our websites to competing and unauthorized websites, which
could harm our reputation and cause us to lose sales.
Our trademarks are limited in scope and geographic coverage and may not significantly distinguish us from our competition.
We own several federal trademark registrations, including registrations of the Rosetta Stone mark, hold common law trademark rights and have
trademark applications pending in the United States and abroad for additional trademarks. Even if federal registrations and registrations in other countries are
granted to us, our trademark rights may be challenged. It is also possible that our competitors will adopt trademarks similar to ours, thus impeding our ability
to build brand identity and possibly leading to customer confusion. In fact, various third parties have registered trademarks that are similar to ours in the
United States and overseas. We could incur substantial costs in prosecuting or defending trademark infringement suits. If we fail to effectively enforce our
trademark rights, our competitive position and brand recognition may be diminished.
We have not registered copyrights for all our products, which may limit our ability to enforce them.
We have not registered our copyrights in all of our software, written materials, website information, designs or other copyrightable works. The United
States Copyright Act automatically protects all of our copyrightable works, but without a registration we cannot enforce those copyrights against infringers or
seek certain statutory remedies for any such infringement. Preventing others from copying our products, written materials and other copyrightable works is
important to our overall success in the marketplace. In the event we decide to enforce any of our copyrights against infringers, we will first be required to
register the relevant copyrights, and we cannot be sure that all of the material for which we seek copyright registration would be registrable in whole or in
part, or that once registered, we would be successful in bringing a copyright claim against any such infringers.
We must monitor and protect our internet domain names to preserve their value. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe on or otherwise decrease the value of our trademarks.
We own several domain names that include the terms Rosetta Stone and Rosetta World. Third parties may acquire substantially similar domain names
that decrease the value of our domain names and trademarks and other proprietary rights which may hurt our business. Third parties also may acquire country
specific domain names in the form of Country Code Top Level Domains which include our trademarks and which prevent us from operating country specific
websites from which customers can view our products and engage in transactions with us. Moreover, the regulation of domain names in the United States and
foreign countries is subject to change. Governing bodies could appoint additional domain name registrars or modify the requirements for holding domain
names. In June 2011, ICANN (the Internet Corporation for Assigned Names and Numbers), the international authority over top-level domain names, gave
final approval of the expansion of generic Top Level Domains ("TLDs") which will allow companies and organizations to create additional Web addresses
that appear to the right of the "dot," such as already created TLDs, ".com," ".gov" and ".org." Applications for new TLDs currently are being accepted until
April 12, 2012. As a result, we may not maintain exclusive
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