Rosetta Stone 2012 Annual Report Download - page 24

Table of Contents



Maintaining our network security is of critical importance because our online e-commerce systems and our online administration tools for our
institutional business store proprietary and confidential customer, employee and other sensitive data, such as names, addresses, other personal
information and credit card numbers. Our call centers also process confidential customer data, which is provided to employees in the call centers. We
and our vendors use commercially available encryption technology to transmit personal information when taking orders. We use security and business
controls to limit access and use of personal information. However, third parties may be able to circumvent these security and business measures by
developing and deploying viruses, worms and other malicious software programs that are designed to attack or attempt to infiltrate our systems and
networks. In addition, employee error, malfeasance or other errors in the storage, use or transmission of personal information could result in a breach of
customer or employee privacy. We employ contractors and temporary and part-time employees who may have access to the personal information of
customers and employees. It is possible such individuals could circumvent our controls, which could result in a breach of customer or employee
privacy.
Possession and use of personal information in conducting our business subjects us to legislative and regulatory burdens that could require
notification of data breaches, restrict our use of personal information and hinder our ability to acquire new customers or market to existing customers.
As our business evolves and as we expand internationally, we may become subject to additional and/or more stringent legal obligations concerning our
treatment of customer information. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols
imposed by law, regulation, industry standards or contractual obligations.
If third parties improperly obtain and use the personal information of our customers or employees, we may be required to expend significant
resources to resolve these problems. A major breach of our network security and systems could have serious negative consequences for our businesses,
including possible fines, penalties and damages, reduced customer demand for our products and services, harm to our reputation and brand and loss of
our ability to accept and process customer credit card orders.


Many of our customers use credit cards or automated payment systems to pay for our products and services. We have suffered losses, and may
continue to suffer losses, as a result of orders placed with fraudulent credit cards or other fraudulent payment data. For example, under current credit
card practices, we may be liable for fraudulent credit card transactions if we do not obtain a cardholder's signature, a frequent practice in internet sales.
We employ technology solutions to help us detect fraudulent transactions. However, the failure to detect or control payment fraud could cause us to lose
sales and revenue.
From time to time, credit card processing fees may increase as a result of rate changes by the payment processing companies or changes in our
business practices which increase the fees on a cost-per-transaction basis. Such increases may adversely affect our results of operations.
We are subject to rules, regulations and practices governing our accepted payment methods which could change or be reinterpreted to make it
difficult or impossible for us to comply. A failure to comply with these rules or requirements could make us subject to fines and higher transaction fees
and we could lose our ability to accept these payment methods. Our business and results of operations could be adversely affected if these changes were
to occur.
22