Amazon.com 2006 Annual Report Download - page 24

selection, and accurately forecast product demand. The acquisition of certain types of inventory, or inventory
from certain sources, may require significant lead-time and prepayment, and such inventory may not be
returnable. We carry a broad selection and significant inventory levels of certain products, such as consumer
electronics, and we may be unable to sell products in sufficient quantities or during the relevant selling seasons.
Any one of the inventory risk factors set forth above may adversely affect our operating results.
We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of
Infringing Intellectual Property Rights of Third Parties
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary
technology, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and
patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers,
and others to protect our proprietary rights. Effective intellectual property protection may not be available in
every country in which our products and services are made available. We also may not be able to acquire or
maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing
domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks
and other proprietary rights.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights.
Third parties that license our proprietary rights also may take actions that diminish the value of our proprietary
rights or reputation. The protection of our intellectual property may require the expenditure of significant
financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not
adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights.
We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior
technology or other intellectual property rights.
Other parties also may claim that we infringe their proprietary rights. We have been subject to, and expect to
continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual
property rights of third parties. The ready availability of damages, royalties and the potential for injunctive relief
has increased the costs associated with the litigation and settlement of patent infringement claims, especially
those asserted by third parties whose sole or primary business is to assert such claims. Such claims, whether or
not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions
against us or the payment of damages. We may need to obtain licenses from third parties who allege that we have
infringed their rights, but such licenses may not be available on terms acceptable to us or at all. In addition, we
may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect
to intellectual property we do not own in providing e-commerce services to other businesses and individuals
under commercial agreements.
Our digital content offerings depend in part on effective digital rights management technology to control
access to digital content. If the digital rights management technology that we use is compromised or otherwise
malfunctions, we could be subject to claims, and content providers may be unwilling to include their content in
our service.
We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly
in response to, among other risks, the risks described elsewhere in this Item 1A, as well as:
• changes in interest rates;
• conditions or trends in the Internet and the e-commerce industry;
• quarterly variations in operating results;
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