Enom 2011 Annual Report Download - page 30

Some of our systems, products and services involve the storage and transmission of information regarding our users, customers, and our advertising
and publishing partners, and security breaches could expose us to a risk of loss of this information, litigation, and potential liability. Our security measures
may be breached due to the actions of outside parties, employee error, malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to
this information. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to
gain access to our systems and the stored data therein. Any such breach or unauthorized access could result in significant legal and financial exposure, damage
to our reputation, and a loss of confidence in the security of our systems, products and services that could potentially have an adverse effect on our business,
financial condition and results of operations. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems
change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be
harmed and we could lose users, customers, advertisers or publishers.
If we do not adequately protect our intellectual property rights, our competitive position and business may suffer.
Our intellectual property, consisting of trade secrets, trademarks, copyrights and patents, is, in the aggregate, important to our business. We rely on
a combination of trade secret, trademark, copyright and patent laws in the United States and other jurisdictions together with confidentiality agreements and
technical measures to protect our proprietary rights. We rely more heavily on trade secret protection than patent protection. To protect our trade secrets, we
control access to our proprietary systems and technology and enter into confidentiality and invention assignment agreements with our employees and
consultants and confidentiality agreements with other third parties. Effective trade secret, copyright, trademark and patent protection may not be available in
all countries where we currently operate or in which we may operate in the future. In addition, because of the relatively high cost we would experience in
registering all of our copyrights with the United States Copyright Office, we generally do not register the copyrights associated with our content. We cannot
guarantee that:
• our intellectual property rights will provide competitive advantages to us;
• our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our
agreements with third parties;
• our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;
• any of the patents, trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in our business will not
lapse or be invalidated, circumvented, challenged or abandoned;
• competitors will not design around our protected systems and technology; or
• we will not lose the ability to assert our intellectual property rights against others.
Policing unauthorized use of our proprietary rights can be difficult and costly. In addition, it may be necessary to enforce or protect our intellectual
property rights through litigation or to defend litigation brought against us, which could result in substantial costs and diversion of resources and management
attention and could adversely affect our business, even if we are successful on the merits.
We rely on technology infrastructure and a failure to update or maintain this technology infrastructure could adversely affect our business.
Significant portions of our content, products and services are dependent on technology infrastructure that was developed over multiple years.
Updating and replacing our technology infrastructure may be challenging to implement and manage, may take time to test and deploy, may cause us to incur
substantial costs and may cause us to suffer data loss or delays or interruptions in service. For example, we have suffered a number of server outages at our
data center facilities, which resulted from certain failures that triggered data center wide outages and disrupted critical technology and infrastructure service
capabilities. These events impacted service to some of our significant media properties, including eHow, as well our proprietary online content production
studio, and eNom customers. As a result of these data center outages, we have recently developed initiatives to create automatic backup capacity at an
alternate facility for our top revenue generating services to address similar scenarios in the future. However, there can be no assurance that our efforts to
develop sufficient backup and redundant services will be successful or that we can prevent similar outages in the future. Delays or interruptions in our service
may cause our consumers, advertisers, customers and freelance creative professionals to become dissatisfied with our offerings and could
26