El Pollo Loco 2016 Annual Report Download - page 21

Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.
Werelyonourcomputersystemsandnetworkinfrastructureacrossouroperations,includingpoint-of-saleprocessingatourrestaurants.Ouroperationsdepend
uponourabilitytoprotectourcomputerequipmentandsystemsagainstdamagefromphysicaltheft,fire,powerloss,telecommunicationsfailure,andother
catastrophicevents,aswellasfrominternalandexternalsecuritybreaches,viruses,andotherdisruptiveproblems.Anydamageorfailureofourcomputersystems
ornetworkinfrastructurethatcausesaninterruptioninouroperationscouldhaveamaterialadverseeffectonourbusinessandsubjectustolitigationortoactions
byregulatoryauthorities.
If we are unable to protect our customers’ credit and debit card data, we could be exposed to data loss, litigation, liability, and reputational damage.
Weacceptelectronicpaymentcardsfromourguestsinourrestaurants.ForthefiscalyearendedDecember30,2015,approximately50%ofoursaleswere
attributabletocredit/debitcardtransactions,andcredit/debitcardusagecouldcontinuetoincrease.Anumberofrestaurantoperatorsandretailershaveexperienced
actualorpotentialsecuritybreachesinwhichcredit/debitcardinformationmayhavebeenstolen.Whilewehavetakenreasonablestepstopreventtheoccurrence
ofsecuritybreachesinthisrespect,wemayinthefuturebecomesubjecttoclaimsforpurportedlyfraudulenttransactionsarisingoutoftheactualorallegedtheft
ofcredit/debitcardinformation,andwemayalsobesubjecttolawsuitsorotherproceedingsinthefuturerelatingtothesetypesofincidents.Proceedingsrelatedto
theftofcredit/debitcardinformationmaybebroughtbypaymentcardproviders,banks,andcreditunionsthatissuecards,cardholders(eitherindividuallyoras
partofaclassactionlawsuit),andfederalandstateregulators.Anysuchproceedingscoulddistractourmanagementteammembersfromrunningourbusinessand
causeustoincursignificantunplannedlossesandexpenses.
Wealsoreceiveandmaintaincertainpersonalinformationaboutourguestsandteammembers.Theuseofthisinformationbyusisregulatedatthefederaland
statelevels.Ifoursecurityandinformationsystemsarecompromisedorourteammembersfailtocomplywiththeselawsandregulationsandthisinformationis
obtainedbyunauthorizedpersonsorusedinappropriately,itcouldadverselyaffectourreputation,aswellastheresultsofoperations,andcouldresultinlitigation
againstusortheimpositionofpenalties.Inaddition,ourabilitytoacceptcredit/debitcardsaspaymentinourrestaurantsandonlinedependsonusmaintainingour
compliancestatuswithstandardssetbythePCISecurityStandardsCouncil.Thesestandards,setbyaconsortiumofthemajorcreditcardcompanies,require
certainlevelsofsystemsecurityandprocedurestoprotectourguests’credit/debitcardinformationaswellasotherpersonalinformation.Privacyandinformation
securitylawsandregulationschangeovertime,andcompliancewiththosechangesmayresultincostincreasesduetonecessarysystemandprocesschanges.
The failure to enforce and maintain our trademarks and protect our other intellectual property could materially and adversely affect our business, including
our ability to establish and maintain brand awareness.
WehaveregisteredElPolloLoco®,PolloBowl®,TheCrazyChicken®,andcertainothernamesusedbyourrestaurantsastrademarksorservicemarkswith
thePTOandElPolloLoco®inapproximately42foreigncountries.Ourcurrentbrandcampaign,CrazyYouCanTaste™,hasalsobeenapprovedforregistration
withthePTO.Inaddition,theElPolloLocologo,websitenameandaddress,andFacebook,Twitter,InstagramandYouTubeaccountsareourintellectual
property.Thesuccessofourbusinessstrategydependsonourcontinuedabilitytouseourexistingtrademarksandservicemarksinordertoincreasebrand
awarenessandfurtherdevelopourbrandedproducts.Ifoureffortstoprotectourintellectualpropertyareinadequate,orifanythirdpartymisappropriatesor
infringesuponourintellectualproperty,whetherinprint,ontheInternet,orthroughothermedia,ourbrandsandbrandedproductscouldfailtomaintainorachieve
marketacceptanceandthevalueofourbrandscouldbeharmed,materiallyandadverselyaffectingourbusiness.Therecanbenoassurancethatallofthestepsthat
wehavetakentoprotectourintellectualpropertyintheUnitedStatesandinforeigncountrieswillbeadequate.Inaddition,thelawsofsomeforeigncountriesdo
notprotectintellectualpropertyrightstothesameextentasdothelawsoftheUnitedStates.
Wemaintaintherecipeforourchickenmarinade,aswellascertainproprietarystandards,specifications,andoperatingprocedures,astradesecretsorconfidential
proprietaryinformation.Wemaynotbeabletopreventtheunauthorizeddisclosureoruseofourtradesecretsorproprietaryinformation,despitetheexistenceof
confidentialityagreementsandothermeasures.Whilewetrytoensurethatthequalityofourbrandsandbrandedproductsismaintainedbyallofourfranchisees,
wecannotbecertainthatthesefranchiseeswillnottakeactionsthatadverselyaffectthevalueofourintellectualpropertyorreputation.Ifanyofourtradesecrets
orproprietaryinformationweretobedisclosedtoorindependentlydevelopedbyacompetitor,ourbusiness,financialcondition,andresultsofoperationscouldbe
materiallyandadverselyaffected.
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