Rosetta Stone 2013 Annual Report Download - page 27

Table of Contents
Claims that we misuse the intellectual property of others could subject us to significant liability and disrupt our business.
We may become subject to material claims of infringement by competitors and other third parties with respect to current or future products, e-commerce
and other web-related technologies, online business methods, trademarks or other proprietary rights. Our competitors, some of which may have substantially
greater resources than we have and they have made significant investments in competing products and technologies, may have, or seek to apply for and
obtain, patents, copyrights or trademarks that will prevent, limit or interfere with our ability to make, use and sell our current and future products and
technologies, and we may not be successful in defending allegations of infringement of these patents, copyrights or trademarks. Further, we may not be aware
of all of the patents and other intellectual property rights owned by third parties that may be potentially adverse to our interests. We may need to resort to
litigation to enforce our proprietary rights or to determine the scope and validity of a third-party's patents or other proprietary rights, including whether any of
our products, technologies or processes infringe the patents or other proprietary rights of third parties. We may incur substantial expenses in defending against
third-party infringement claims regardless of the merit of such claims. The outcome of any such proceedings is uncertain and, if unfavorable, could force us
to discontinue sales of the affected products or impose significant penalties or restrictions on our business. We do not conduct comprehensive patent searches
to determine whether the technologies used in our products infringe upon patents held by others. In addition, product development is inherently uncertain in a
rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with
regard to similar technologies.
We do not own all of the software, other technologies and content used in our products and services.
Some of our products and services include intellectual property owned by third parties, including software that is integrated with internally developed
software and a portion of our voice recognition software, which we license from the University of Colorado. From time to time we may be required to
renegotiate with these third parties or negotiate with new third parties to include their technology or content in our existing products, in new versions of our
existing products or in wholly new products. We may not be able to negotiate or renegotiate licenses on commercially reasonable terms, or at all, and the third-
party software may not be appropriately supported, maintained or enhanced by the licensors. If we are unable to obtain the rights necessary to use or continue
to use third-party technology or content in our products and services, the inability to support, maintain and enhance any software could result in increased
costs, or in delays or reductions in product shipments until equivalent software could be developed, identified, licensed and integrated.
Our use of open source software could impose limitations on our ability to commercialize our products.
We incorporate open source software into our products and may use more open source software in the future. The use of open source software is
governed by license agreements. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could
be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we could be
required to seek licenses from third parties in order to continue offering our products, make generally available, in source code form, proprietary code that
links to certain open source modules, re-engineer our products, discontinue the sale of our products if re-engineering could not be accomplished on a cost-
effective and timely basis, or become subject to other consequences. In addition, open source licenses generally do not provide warranties or other contractual
protections regarding infringement claims or the quality of the code. Thus, we may have little or no recourse if we become subject to infringement claims
relating to the open source software or if the open source software is defective in any manner.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our
stock could decline.
The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our
business. If one or more of the analysts covering our business downgrade their evaluations of or recommendations regarding our stock, or if one or more of the
analysts cease providing research coverage on our stock, the price of our stock could decline. If one or more of these analysts cease providing research coverage
on our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
Our stock price is volatile, and changes in net revenue, margin or earnings shortfalls or the volatility of the market generally could cause the
market price of our stock to decline.
The market price for our common stock has experienced significant fluctuations and may continue to fluctuate significantly. Our quarterly financial
results have fluctuated in the past and are likely to vary significantly in the future due to a number of factors, many of which are outside of our control and
which could adversely affect our operations and operating results. A number of factors may affect the market price for our common stock, including:
shortfalls in revenue, margins,
26