Carbonite 2011 Annual Report Download - page 26

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cannot assure you that the PRC government would agree that the operating arrangements of our affiliated Chinese entity comply with PRC licensing,
registration, or other regulatory requirements, with existing policies, or with requirements or policies that may be adopted in the future. For example, in
September 2011, the PRC Ministry of Commerce stated that the relevant departments of the PRC government are jointly considering additional
regulation of the type of investment structure that we use, which is based on the approach used by other non-PRC companies with respect to their
conduct of businesses that require an ICP license. If the PRC government determines that we do not comply with applicable law, it could revoke our
business and operating licenses and those of our affiliated Chinese entity, including our affiliated entity’s ICP license, require us to restructure our
operations, require us to discontinue or restrict our operations, restrict our right to collect revenue, block our websites, impose additional conditions or
requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or
enforcement actions against us that could be harmful to our business.
In addition, because of the particular weakness of the Chinese intellectual property regime, it is often difficult to create and enforce intellectual
property rights in China. Accordingly, we may not be able to effectively protect our intellectual property rights in China against infringement by other
business entities, individuals, and current or former employees.
Risks Related to Intellectual Property
Assertions by a third party that our solutions infringe its intellectual property, whether or not correct, could subject us to costly and time
-consuming
litigation or expensive licenses. We are currently a defendant in a lawsuit alleging patent infringement.
There is frequent litigation in the software and technology industries based on allegations of infringement or other violations of intellectual
property rights. Many companies are devoting significant resources to obtaining patents that could affect many aspects of our business. Third parties
may claim that our technologies or solutions infringe or otherwise violate their patents or other intellectual property rights. As we face increasing
competition and become increasingly visible as a publicly-traded company, or if we become more successful, the possibility of new third party claims
may increase.
We have licensed proprietary technologies from third parties that we use in our technologies and business, and we cannot be certain that the
owners’ rights in their technologies will not be challenged, invalidated, or circumvented. If we are forced to defend ourselves against intellectual
property infringement claims, whether they have merit or are determined in our favor, we may face costly litigation, diversion of technical and
management personnel, limitations on our ability to use our current websites and technologies, and an inability to market or provide our solutions. As a
result of any such claim, we may have to develop or acquire non-infringing technologies pay damages, enter into royalty or licensing agreements, cease
providing certain services, adjust our marketing and advertising activities, or take other actions to resolve the claims. These actions, if required, may be
costly or unavailable on terms acceptable to us or at all.
Furthermore, we may acquire proprietary technologies from third parties and may incorporate such technologies in our solutions. In addition to the
general risks described above associated with intellectual property and other proprietary rights, we are subject to the additional risk that the seller of such
technologies may not have appropriately created, maintained, or enforced such rights in such technology.
In August 2010 Oasis Research, LLC, or Oasis Research, filed a lawsuit against us and several of our competitors and other online technology
companies in the U.S. District Court for the Eastern District of Texas, alleging that our online backup storage services and other companies’ products or
services infringe certain of Oasis Research’s patents. Oasis Research seeks an award for damages in an unspecified amount. Oasis Research does not
currently seek an injunction. We expect that a trial date will be set for late 2012 or early 2013. We are not able to assess with certainty the outcome of
this litigation or the amount or range of potential damages or future payments associated with this litigation at this time. However, any litigation is
subject to inherent uncertainties, and there can be no assurance that the expenses associated with defending this lawsuit or its resolution will not have a
material adverse impact on our business, operations, financial condition, or cash flows.
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