Rosetta Stone 2015 Annual Report Download - page 22

Table of Contents
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 U.S. and overseas. Furthermore, notwithstanding the fact that we may have
secured trademark rights for our various trademarks in the United States and in some countries where we do business, in other countries we may not have
secured similar rights and, in those countries there may be third parties who have prior use and prior or superior rights to our own. That prior use, prior or
superior right could limit use of our trademarks and we could be challenged in our efforts to use our trademarks. 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 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 related to our business. Third parties may acquire substantially similar domain names or Top Level Domains ("TLDs")
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 TLDs that include our trademarks or similar terms 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, modify the 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.
Our business depends on a strong brand, and failing to maintain or enhance the Rosetta Stone brands in a cost-effective manner could harm our operating
results.
Maintaining and enhancing our brands is an important aspect of our efforts to attract and expand our business. We believe that maintaining and
enhancing our brands will depend largely on our ability to provide high-quality, innovative products, and services, which we might not do successfully. Our
brands may be negatively impacted by a number of factors such as service outages, product malfunctions, data protection and security issues, and
exploitation of our trademarks by others without permission.
Further, while we attempt to ensure that the quality of our brands is maintained by our licensees, our licensees might take actions that could impair the
value of our brands, our proprietary rights, or the reputation of our products. If we are unable to maintain or enhance our brands in a cost-effective manner, or
if we incur excessive expenses in these efforts, our business, operating results and financial condition could be harmed.
Claims that we misuse the intellectual property of others could subject us to significant liability and disrupt our business.
As we expand our business and develop new technologies, products and services, 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
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