Shutterfly 2009 Annual Report Download - page 18

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As of December 31, 2008, we had 28 issued patents, which expire at various dates between 2019 and 2027, and more than 20 patent
applications pending in the United States. Our issued patents and patent applications relate generally to the user interface for our website, our
computer network infrastructure and software, personalized photo-
related products and automated workflow and digital printing. We intend to
pursue corresponding patent coverage in additional countries to the extent we believe such coverage is appropriate and cost efficient. However,
we cannot be certain that any of our pending or any future applications will be granted. In addition, third parties could bring invalidity, co-
inventorship or similar claims with respect to any of our currently issued patents or any patents that may be issued to us in the future.
We have in the past received claims, and in the future a third party may claim that we have infringed its patent rights. This can result in
litigation and/or require us to enter into a license agreement with a third party. For example, effective May 1, 2005, Shutterfly entered into a
settlement and license agreement to resolve litigation with respect to alleged infringement of certain processes under U.S. patents relating to
uploading, storing, sharing, accessing, downloading and/or requesting or obtaining digital images or prints of digital images or merchandise to
which such images are applied. Under the terms of the agreement, Shutterfly paid $2.0 million for a license to certain patents, including a non-
exclusive, fully-paid up, royalty-
free, worldwide license to the patents underlying the litigation, and a mutual release of claims and obtained a
royalty-bearing license for certain other private label activities for an addtional $2.0 million.
Our primary brand is “Shutterfly.”
We hold registrations for the Shutterfly service mark in our major markets of the United States and
Canada, as well as in the European Community, Mexico, Japan, Australia and New Zealand. We also hold “Shutterfly.com”
Internet domain
registrations in the United States, Mexico, Australia and New Zealand, and a “Shutterfly and Design” trademark, “Shutterfly Express”
,
“Shutterfly Collections” and “Postcards by Shutterfly”
service mark registrations in the United States. An additional application for the
Shutterfly mark is pending in Brazil. We also hold a registration for the “VividPics”
service mark in the United States and Mexico, and have
pending applications for additional marks, including “Shutterfly Studio”, a “Shutterfly Studio and Design” trademark, “Your pictures and more”
,
“Marking it personal”, and “Memory Vault”. We also own the trademark to our tagline, “Tell Your Story.”
These brand registrations are a critical component of our marketing programs. If we lose the ability to use our Shutterfly mark in a particular
country or our domain name, we could be forced to either incur significant additional expenses to market our products within that country or
elect not to sell products in that country. In addition, regulations governing domain names and laws protecting trademarks and similar
proprietary rights could change in ways that block or interfere with our ability to use our current brand and to acquire or maintain the domain
names that utilize the name Shutterfly in all of the countries in which we currently or intend to conduct business.
Government Regulation
The legal environment of the Internet is evolving rapidly in the United States and elsewhere. The manner in which existing laws and
regulations will be applied to the Internet in general, and how they will relate to our business in particular, is unclear in many cases.
Accordingly, we often cannot be certain how existing laws will apply in the online context, including with respect to such topics as privacy,
defamation, pricing, credit card fraud, advertising, taxation, sweepstakes, promotions, content regulation, quality of products and services and
intellectual property ownership and infringement. In particular, legal issues relating to the liability of providers of online services for activities of
their users are currently unsettled both within the United States and abroad.
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