Digital River 2006 Annual Report Download - page 30

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.
Our clients’ sales cycles are lengthy, which may cause us to incur substantial expenses and expend
management time without generating corresponding consumer revenue, which would impair our cash
flow.
We market our services directly to software publishers, online retailers and other prospective customers
outside of the software industry. These relationships are typically complex and take time to finalize. Due to
operating procedures in many organizations, a significant amount of time may pass between selection of our
products and services by key decision-makers and the signing of a contract. The period between the initial
client sales call and the signing of a contract with significant sales potential is difficult to predict and typically
ranges from six to twelve months. If at the end of a sales effort a prospective client does not purchase our
products or services, we may have incurred substantial expenses and expended management time that cannot
be recovered and that will not generate corresponding revenue. As a result, our cash flow and our ability to
fund expenditures incurred during the sales cycle may be impaired.
The listing of our network addresses on anti-SPAM lists could harm our ability to service our clients and
deliver goods over the Internet.
Certain privacy and anti-email proponents have engaged in a practice of gathering, and publicly listing,
network addresses that they believe have been involved in sending unwanted, unsolicited emails commonly
known as SPAM. In response to user complaints about SPAM, Internet service providers have from
time-to-time blocked such network addresses from sending emails to their users. If our network addresses
mistakenly end up on these SPAM lists, our ability to provide services for our clients and consummate the
sales of digital and physical goods over the Internet could be harmed.
We are subject to regulations relating to consumer privacy.
We collect and maintain end-user data for our clients, which subjects us to increasing international,
federal and state regulations related to online privacy and the use of personal user information. Congress has
enacted anti-SPAM legislation with which we must comply when providing email campaigns for our clients.
Legislation and regulations are pending in various domestic and international governmental bodies that address
online privacy protections. Several governments have proposed, and some have enacted, legislation that would
limit the use of personal user information or require online services to establish privacy policies. In addition,
the U.S. Federal Trade Commission, or FTC, has urged Congress to adopt legislation regarding the collection
and use of personal identifying information obtained from individuals when accessing websites. In the past,
the emphasis has been on information obtained from minors. Focus has now shifted to include online privacy
protection for minors and adults.
Even in the absence of laws requiring companies to establish these procedures, the FTC has settled
several proceedings resulting in consent decrees in which Internet companies have been required to establish
programs regarding the manner in which personal information is collected from users and provided to third
parties. We could become a party to a similar enforcement proceeding. These regulatory and enforcement
efforts could limit our collection of and/or ability to share with our clients demographic and personal
information from end-users, which could adversely affect our ability to comprehensively serve our clients.
The European Union has adopted a privacy directive that regulates the collection and use of information
that identifies an individual person. These regulations may inhibit or prohibit the collection and sharing of
personal information in ways that could harm our clients or us. The globalization of Internet commerce may
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