Rosetta Stone 2014 Annual Report Download - page 23

Table of Contents
requirements for holding domain names or release additional TLDs. As a result, we may have to incur additional costs to maintain control over potentially
relevant domain names or may not maintain exclusive rights to all potentially relevant domain names in the United States or in other countries in which we
conduct business, which could harm our business or reputation. Moreover, attempts may be made to register our trademarks as new TLDs or as domain names
within new TLDs and we will have to make efforts to enforce our rights against such registration attempts.
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 made
significant investments in competing products and technologies, and 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 advertising and sale of the affected
products or impose significant penalties, limitations 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, and the failure to obtain rights to use such software,
other technologies and content could harm our business.
Some of our products and services contain intellectual property owned by third parties, including software that is integrated with internally developed
software and voice recognition software, which we license from third parties. 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, this could harm our business, by resulting 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. Therefore, 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.
As our product and service offerings become more complex, our reported revenue may become less predictable.
During 2014, we continued to transition our consumer distribution to more online. The accounting policies that apply to these sources of revenue may
be more complex than those that apply to our traditional products and services. In addition, we may change the manner in which we sell our software licenses,
and such change could cause delays in revenue recognition in accordance with accounting standards. Under these accounting standards, even if we deliver
products and services to, and collect cash from, a customer in a given fiscal period, we may be required to defer recognizing revenue from the sale of such
product or service until a future period when all the conditions necessary for revenue recognition have been satisfied. If we move more of our consumer
business online we will also collect less cash from our initial transactions with consumers which could substantially decrease our revenues in the short term.
Conditions that can cause delays in revenue recognition include software arrangements that have undelivered elements for which we have not yet established
vendor specific objective
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