Stamps.com 2007 Annual Report Download - page 15

our patents, trademarks or service marks invalid or unenforceable. Even if our patents are upheld or are not challenged, third
parties may develop alternative technologies or products without infringing our patents. If our patents fail to protect our
technology or our trademarks and service marks are successfully challenged, our competitive position could be harmed. We also
generally enter into confidentiality agreements with our employees, consultants and other third parties to control and limit access
and disclosure of our confidential information. These contractual arrangements or other steps taken to protect our intellectual
property may not prove to be sufficient to prevent misappropriation of technology or deter independent third party development
of similar technologies. Additionally, the laws of foreign countries may not protect our services or intellectual property rights to
the same extent as do the laws of the United States.
System and online security failures could harm our business and operating results.
Our services depend on the efficient and uninterrupted operation of our computer and communications hardware systems. In
addition, we must provide a high level of security for the transactions we execute. We rely on internally-developed and third-
party technology to provide secure transmission of postage and other confidential information. Any breach of these security
measures would severely impact our business and reputation and would likely result in the loss of customers and revenues.
Furthermore, if we are unable to provide adequate security, the USPS could prohibit us from selling postage over the Internet.
Our systems and operations are vulnerable to damage or interruption from a number of sources, including fire, flood, power
loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host
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provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to
computer viruses, physical, electrical or electronic break-ins and similar disruptions. We have experienced minor system
interruptions in the past and may experience them again in the future. Any substantial interruptions in the future could result in
the loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a full
disaster recovery plan in effect to cover the loss of facilities and equipment. In addition, we do not have a fail-over site that
mirrors our infrastructure to allow us to operate from a second location. We have business interruption insurance; however, we
cannot be certain that our coverage will be sufficient to compensate us for losses that may occur as a result of business
interruptions.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over
public networks. Anyone who is able to circumvent our security measures could misappropriate confidential information or
cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We rely on specialized technology from within our
own infrastructure to provide the security necessary for secure transmission of postage and other confidential information.
Advances in computer capabilities, new discoveries in security technology, or other events or developments may result in a
compromise or breach of the algorithms we use to protect customer transaction data. Should someone circumvent our security
measures, our reputation, business, financial condition and results of operations could be seriously harmed. Security breaches
could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information.
As a result, we may be required to expend a significant amount of financial and other resources to protect against security
breaches or to alleviate any problems that they may cause.
We are exposed to various risks associated with the credit and capital markets.
Our cash equivalents and investments are comprised of money market, U.S. government obligations, asset-backed securities
and public corporate debt securities. Uncertainties in the credit and capital markets or credit rating downgrades on any
investments in our portfolio could cause impairment to our investment portfolio which could negatively affect our financial
condition, cash flow, and reported earnings.
Risks Related to Our Industry
USPS regulations or fee assessments may cause disruptions or discontinuance of our business.
We are subject to continued USPS scrutiny and other government regulations. The availability of our services is dependent
upon us continuing to meet USPS performance specifications and regulations. The USPS could change its certification
requirements or specifications for PC Postage or revoke or suspend the approval of one or more of our services at any time. If at
any time we fail to meet USPS requirements, we may be prohibited from offering our services and our business would be
severely and negatively impacted. In addition, the USPS could suspend or terminate our approval or offer services which