Digital River 2002 Annual Report Download - page 24

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Protecting our intellectual property is critical to our success.
We regard the protection of our trademarks, copyrights, trade secrets and other intellectual property as critical to our success. We rely on a
combination of patent, copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights. We
have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with
parties with whom we conduct business, in order to limit access to and disclosure of our proprietary information. These contractual
arrangements and the other steps taken by us to protect our intellectual property may not prevent misappropriation of our technology or deter
independent third-party development of similar technologies. We also seek to protect our proprietary position by filing U.S. and foreign patent
applications related to our proprietary technology, inventions and improvements that are important to the development of our business.
Proprietary rights relating to our technologies will be protected from unauthorized use by third parties only to the extent they are covered by
valid and enforceable patents or are effectively maintained as trade secrets. We pursue the registration of our trademarks and service marks in
the U.S. and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in
which our services are made available online.
The steps we have taken to protect our proprietary rights may be inadequate and third parties may infringe or misappropriate our trade secrets,
trademarks and similar proprietary rights. Any significant failure on our part to protect our intellectual property could make it easier for our
competitors to offer similar services and thereby adversely affect our market opportunities. In addition, litigation may be necessary in the future
to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others.
Litigation could result in substantial costs and diversion of management and technical resources.
Claims of infringement of other parties’ intellectual property rights could require us to expend significant resources.
From time to time, we may receive notice of claims of infringement of other parties’ proprietary rights. In August 2001, an action was brought
against us and other defendants in the U.S. District Court in the District of Columbia alleging infringement of United States Patent No.
6,014,651 owned by Christopher M. Crawford of Washington, D.C. The case has been filed and is pending in the U.S. District Court in the
District of Columbia. No substantive actions have taken place as yet in this case. The court has delayed substantive discovery in this case,
pending a preliminary determination of the legal scope of Crawford’ s claim. We have been in the process of preparing materials regarding
claim interpretation to present to the court. Once the court determines the scope of the claims, we may file for a dismissal of the case if the
court’ s decision is consistent with our and the other defendants’ position regarding the interpretation of this patent claim. At this time, Crawford
has not made a definitive demand for the resolution of this case.
On April 25, 2002, we, along with RegSoft.com, Inc., a subsidiary of ours, and Register Now!, a division of ours, and other various defendants,
were named as defendants in a patent litigation regarding United States Patent No. 4,500,919 assigned to the Massachusetts Institute of
Technology, or MIT, by the inventor William F. Schreiber of Cambridge, Massachusetts. MIT licensed the patent to Electronics for Imaging,
Inc., or EFI, and these parties jointly filed a lawsuit in the U.S. District Court in the Eastern District of Texas. The suit is still pending. The
court set the Scheduling Order and the parties have exchanged documents, selected expert witnesses for claim interpretation, and conducted
depositions of the experts. Claim interpretation determines the scope of the claims and whether we may be liable based on those claims. We are
currently in the process of preparing and responding to legal briefs regarding the scope of the patent claims. Upon the determination of the
claims’ scope, we may file for a dismissal of the case if the court construes the patent claims consistently with our position. We have sought
indemnification from vendors and have been indemnified for portions of the potential liability, but remain potentially liable for other portions.
These claims and any future assertions or prosecutions of claims like this could require us to expend significant financial and managerial
resources. The defense of any claims, whether these claims are with or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product enhancement delays or require that we develop non-infringing technology or
enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us or at all.
In the event of a successful claim of infringement against us and our failure or inability to develop non-infringing technology or license the
infringed or similar technology on a timely basis, we may be unable to pursue our current business plan.