Shutterfly 2014 Annual Report Download - page 29

extent we believe such coverage is appropriate and cost efficient. We cannot ensure that any of our
pending applications will be granted. In addition, third parties have in the past and could in the future
bring infringement, 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. Any such claims, whether or not successful,
could be extremely costly to defend, divert management’s time and attention, damage our reputation and
brands and substantially harm our business and results of operations.
Our primary brands are ‘‘Shutterfly,’’ ‘‘Tiny Prints,’’ ‘‘Wedding Paper Divas,’’ ‘‘BorrowLenses,’’ and
‘‘ThisLife.’’ We hold applications and/or registrations for the Shutterfly, Tiny Prints, Wedding Paper Divas,
BorrowLenses and ThisLife trademarks in our major markets of the United States and Canada as well as
in the European Community. Our marks are critical components of our marketing programs. If we lose the
ability to use these marks in any particular market, we could be forced to either incur significant additional
marketing expenses within that market, or elect not to sell products in that market.
From time to time, third parties have adopted names similar to ours, have applied to register
trademarks similar to ours, and we believe have infringed or misappropriated our intellectual property
rights and impeded our ability to build brand identity and possibly leading to customer confusion. In
addition, we have been and may continue to be subject to potential trade name or trademark infringement
claims brought by owners of marks that are similar to Shutterfly, Tiny Prints, Wedding Paper Divas,
BorrowLenses, ThisLife or one of our other marks.
We respond on a case-by-case basis and where appropriate may send cease and desist letters or
commence opposition actions and litigation. For example, in July 2013, we filed a complaint for damages
and injunctive relief, which was settled in July 2014, alleging that Interactive Memories, Inc.
(dba ‘‘Mixbook’’) infringed two of our patents. However, we cannot ensure that the steps we have taken to
protect our intellectual property rights are adequate, that our intellectual property rights can be
successfully defended and asserted in the future or that third parties will not infringe upon or
misappropriate any such rights. In addition, our trademark rights and related registrations may be
challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could
prevent us in the future from challenging third parties who use names and logos similar to our trademarks,
which may in turn cause consumer confusion or negatively affect consumers’ perception of our brands,
products, and services. Any claims or consumer confusion related to our marks could damage our
reputation and brands and substantially harm our business and results of operations.
If we become involved in intellectual property litigation or other proceedings related to a determination of rights, we
could incur substantial costs, expenses or liability, lose our exclusive rights or be required to stop certain of our
business activities.
From time to time, we have received, and likely will continue to receive, communications from third
parties inviting us to license their patents or accusing us of infringement. There can be no assurance that a
third party will not take further action, such as filing a patent infringement lawsuit, including a request for
injunctive relief to bar the manufacture and sale of our products and services in the United States or
elsewhere. We may also choose to defend ourselves by initiating litigation or administrative proceedings to
clarify or seek a declaration of our rights. Additionally, from time to time, we have to defend against
infringement of our intellectual property by bringing suit against other parties. As competition in our
market grows, the possibility of patent infringement claims against us or litigation we will initiate increases.
The cost to us of any litigation or other proceeding relating to intellectual property rights, whether or
not initiated by us and even if resolved in our favor, could be substantial, and the litigation would divert
our management’s efforts from growing our business. Some of our competitors may be able to sustain the
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