Chegg 2015 Annual Report Download - page 68

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practicing entities” or “patent trolls,” are devoting significant resources to developing or acquiring patents that could potentially
affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business
on the Internet. We have not exhaustively searched patents related to our technology.
Third parties may initiate litigation against us without warning. Others may send us letters or other communications
that make allegations without initiating litigation. We have in the past and may in the future receive such communications,
which we assess on a case-by-case basis. We may elect not to respond to the communication if we believe it is without merit or
we may attempt to resolve disputes out-of-court by electing to pay royalties or other fees for licenses. If we are forced to defend
ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, we may
face costly litigation, diversion of technical and management personnel, inability to use our current website or inability to
market our service or merchandise our products. As a result of a dispute, we may have to develop non-infringing technology,
enter into licensing agreements, adjust our merchandising or marketing activities or take other action to resolve the claims.
These actions, if required, may be unavailable on terms acceptable to us or may be costly or unavailable. If we are unable to
obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices, as appropriate,
on a timely basis, our reputation or brand, our business and our competitive position may be affected adversely and we may be
subject to an injunction or be required to pay or incur substantial damages and/or fees.
In addition, we use open source software in connection with certain of our products and services. Companies that
incorporate open source software into their products have, from time to time, faced claims challenging the ownership of open
source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming
ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open
source software licenses require users who distribute or use open source software as part of their software to publicly disclose
all or part of the source code to such software and/or make available any derivative works of the open source code on
unfavorable terms or at no cost. Any requirement to disclose our proprietary source code or pay damages for breach of contract
could have a material adverse effect on our business, financial condition and results of operations.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and
proprietary information.
We have devoted substantial resources to the development of our intellectual property and proprietary rights. In order
to protect our intellectual property and proprietary rights, we rely in part on confidentiality agreements with our employees,
book vendors, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure
of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential
information. In addition, others may independently discover trade secrets and proprietary information and in such cases we
could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights and failure to obtain or maintain trade secret protection could adversely affect
our competitive business position.
If we are unable to protect our domain names, our reputation and brand could be adversely affected.
We currently own over 550 registered domain names relating to our brand, including Chegg.com. Failure to protect our
domain names could affect adversely our reputation and brand and make it more difficult for students to find our website, our
content and our services. The acquisition and maintenance of domain names generally are regulated by governmental agencies
and their designees. The regulation of domain names in the United States may change in the near future. Governing bodies may
establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, we may be unable to acquire or maintain relevant domain names. Furthermore, the relationship
between regulations governing domain names and laws protecting trademarks and similar intellectual property and proprietary
rights is unclear. We may be unable to prevent third parties from acquiring and using domain names that are similar to, infringe
upon or otherwise decrease the value of our brand name, trademarks or other intellectual property or proprietary rights.
Our wide variety of accepted payment methods subjects us to third-party payment processing-related risks.
We accept payments from students using a variety of methods, including credit cards, debit cards and PayPal. As we
offer new payment options to students, we may be subject to additional regulations, compliance requirements and incidents of
fraud. For certain payment methods, 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. For example, we have in the past experienced higher
transaction fees from our third-party processors as a result of chargebacks on credit card transactions.