Enom 2011 Annual Report Download - page 23

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 have also been criticized in the past for not being more proactive in policing online pharmacies acting in violation of U.S. laws. 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.
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 characterized by rapid changes in technology and in new and growing illegal activity, these bodies of laws are
constantly evolving. Some of the laws that apply to us with respect to customer activity include the following:
• The Communications Decency Act of 1996, or CDA, generally protects online service providers, such as Demand Media, from liability for
certain activities of their customers, such as posting of defamatory or obscene content, unless the online service provider is participating in the
unlawful conduct. Notwithstanding the general protections from liability under the CDA, we may nonetheless be forced to defend ourselves
from claims of liability covered by the CDA, resulting in an increased cost of doing business.
• The Digital Millennium Copyright Act of 1998, or DMCA, provides recourse for owners of copyrighted material who believe that their rights
under U.S. copyright law have been infringed on the Internet. Under this statute, we generally are not liable for infringing content posted by
third parties. However, if we receive a proper notice from a copyright owner alleging infringement of its protected works by web pages for
which we provide hosting services, and we fail to expeditiously remove or disable access to the allegedly infringing material, fail to post and
enforce a digital rights management policy or a policy to terminate accounts of repeat infringers, or otherwise fail to meet the requirements of
the safe harbor under the statute, the owner may seek to impose liability on us.
Although established statutory law and case law in these areas to date generally have shielded us from liability for customer activities, court rulings
in pending or future litigation may serve to narrow the scope of protection afforded us under these laws. In addition, laws governing these activities are
unsettled in many international jurisdictions, or may prove difficult or impossible for us to comply with in some international jurisdictions. Also,
notwithstanding the exculpatory language of these bodies of law, we may be embroiled in complaints and lawsuits which, even if ultimately resolved in our
favor, add cost to our doing business and may divert management’s time and attention. Finally, other existing bodies of law, including the criminal laws of
various states, may be deemed to apply or new statutes or regulations may be adopted in the future, any of which could expose us to further liability and
increase our costs of doing business.
We may face liability or become involved in disputes over registration of domain names and control over websites.
As a domain name registrar, we regularly become involved in disputes over registration of domain names. Most of these disputes arise as a result of
a third party registering a domain name that is identical or similar to another party’s trademark or the name of a living person. These disputes are typically
resolved through the Uniform Domain-Name Dispute-Resolution Policy, or UDRP, ICANN’s administrative process for domain name dispute resolution, or
less frequently through litigation under the Anticybersquatting Consumer Protection Act, or ACPA, or under general theories of trademark infringement or
19