Amazon.com 2005 Annual Report Download - page 27

selling merchandise to us on acceptable terms, we may not be able to acquire merchandise from other suppliers
in a timely and efficient manner and on acceptable terms.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or
property damage caused by such products, and may require us to take actions such as product recalls. Certain
businesses and individuals also sell products using our e-commerce platform that may increase our exposure to
product liability claims, such as if these sellers do not have sufficient resources to protect themselves from such
claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for
liabilities actually incurred or that insurance will continue to be available to us on economically reasonable
terms, or at all. In addition, some of our vendor agreements with our distributors, manufacturers, and third-party
sellers do not indemnify us from product liability.
We Are Subject to a Number of Risks Related to Payments We Accept
We accept payments by a variety of methods, including credit card, debit card, gift certificates, direct debit
from a customer’s bank account, physical bank check and payment upon delivery. As we offer new payment
options to our customers, like direct debit in the U.S., we may be subject to additional regulations, compliance
requirements, and fraud. For certain payment transactions, including credit and debit cards, we pay interchange
and other fees, which may increase over time and raise our operating costs and lower our profit margins. We are
also subject to payment card association operating rules, certification requirements and rules governing electronic
funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we
fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose
our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or
facilitate other types of online payments, and our business and operating results could be adversely affected.
Finally, we offer co-branded credit card programs that represent a significant component of our services revenue
and generate high margins. If one or more of these agreements are terminated and we are unable to replace them
on similar terms, or at all, it could adversely affect our operating results.
We Could Be Liable for Breaches of Security on Our Website
A fundamental requirement for e-commerce is the secure storage and transmission of confidential
information. Although we have developed systems and processes that are designed to protect consumer
information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such
fraud or breaches may adversely affect our operating results.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition,
we are aware that governmental agencies have investigated the provision of online payment services and could
require changes in the way this business is conducted. Under Merchants@, Marketplace and certain other of our
programs, we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers
never receive the products they ordered or when the products received are materially different from the sellers’
descriptions. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these situations
and as our third party sales grow, the cost of this program will increase and could negatively affect our operating
results. Any costs we incur as a result of liability because of our A2Z Guarantee or otherwise could harm our
business. In addition, the functionality of our payments program depends on certain third-party vendors
delivering services. If these vendors are unable or unwilling to provide services, our payments program and our
businesses that use it may not be viable. Finally, we may be unable to prevent sellers in our Merchants@,
Marketplace, Amazon Enterprise Solutions, and certain other programs from selling unlawful goods, from selling
goods in an unlawful manner, or violating the proprietary rights of others, and could face civil or criminal
liability for unlawful activities by our sellers.
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