Enom 2010 Annual Report Download - page 28

Table of Contents
previously-owned Internet domain names that have expired and that, following the period of permitted redemption by their prior owners, have been made
available for registration. The acquisition of Internet domain names generally is governed by regulatory bodies. The regulation of Internet domain names in
the United States and in foreign countries is subject to change. Regulatory bodies could establish additional requirements for previously-owned Internet
domain names or modify the requirements for holding Internet domain names. As a result, we might not acquire or maintain names that contribute to our
financial results in the same manner as we currently do. A failure to acquire or maintain such Internet domain names could adversely affect our business,
revenue, financial condition and results of operations.
We could face liability, or our corporate image might be impaired, as a result of the activities of our customers or the content of their websites.
Our role as a registrar of domain names and a provider of website hosting services may subject us to potential liability for illegal activities by our
customers on their websites. For example, we were named as a party to a lawsuit that has subsequently been dismissed in which a group registered a domain
name through our registrar and proceeded to fill the site with content that was allegedly defamatory to another business whose name is similar to the domain
name. We provide an automated service that enables users to register domain names and populate websites with content. We do not monitor or review, nor
does our accreditation agreement with ICANN require that we monitor or review, the appropriateness of the domain names we register for our customers or
the content of our network of customer websites, and we have no control over the activities in which our customers engage. While we have policies in place to
terminate domain names or to take other appropriate action if presented with a court order, governmental injunction or evidence of illegal conduct from law
enforcement or a trusted industry partner, we have in the past been publicly criticized for not being more proactive in this area by consumer watchdogs and we
may encounter similar criticism in the future. This criticism could harm our reputation. Conversely, were we to terminate a domain name registration in the
absence of legal compulsion or clear evidence of illegal conduct from a legitimate source, we could be criticized for prematurely and improperly terminating a
domain name registered by a customer. In addition, despite the policies we have in place to terminate domain name registrations or to take other appropriate
actions, customers could nonetheless engage in prohibited activities.
For example, we have been criticized for not being more proactive in policing online pharmacies acting in violation of U.S. laws. We recently entered
into an agreement with LegitScript, LLC, an Internet pharmacy verification and monitoring service recognized by the National Association of Boards of
Pharmacy, to assist us in identifying customers who are violating our terms of service by operating online pharmacies in violation of U.S. state or federal law.
Under that agreement, LegitScript provides us a list, updated regularly, of customers using their domain names knowingly to host illegal online pharmacies,
allowing us to better enforce our policy of terminating services or taking other appropriate action against customers engaged in illegal activity in violation or
our terms of service. In addition, LegitScript has agreed to serve as a resource to us regarding issues concerning drug safety, pharmacy laws and regulations,
coordination with law enforcement authorities, and complaints regarding action taken by us against our customers based on information provided by
LegitScript. We have agreed to assist LegitScript with its research concerning illegal online pharmacies by providing our expertise in the domain name
registrar business. Our agreement with LegitScript may not be sufficient to identify all illegal online pharmacies hosted by our customers, may not protect us
from further criticism when our customers engage in illegal activities, will not address any illegal activities other than in the online pharmacy area, and may
subject us to complaints or liability if we terminate customer websites mistakenly.
Several bodies of law may be deemed to apply to us with respect to various customer activities. Because we operate in a relatively new and rapidly
evolving industry, and since this field is
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