Enom 2012 Annual Report Download - page 24

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19
We are participating in ICANN's New gTLD Program that was approved in June 2011. Our initiative with respect to the
New gTLD Program includes applying for certain gTLD operator rights, as well as offering technical back-end
infrastructure services to new registry operators (our “gTLD Initiative”), both of which may present us with unique
operational and other risks and expose us to increased costs. If we are unsuccessful in managing these risks, our business,
financial condition and results of operations could be adversely affected.
We are pursuing certain opportunities in connection with ICANN's New gTLD Program, including operating the technical
back-end infrastructure for new gTLD registries and/or owning and operating one or more of our own gTLD registries. In June
2012, ICANN announced that it had received over 1,900 applications related to over 1,400 new gTLDs, with new registration
opportunities for consumers expected to be available beginning in 2013. Through a subsidiary, we have applied to operate
registries for a number of gTLDs on a stand-alone basis, and may acquire rights in an additional number of gTLDs based on
our strategic relationship with Donuts Inc., a third-party gTLD applicant. This subsidiary has also been selected to provide
technical back-end infrastructure services for any new gTLD operator rights acquired by Donuts Inc. We currently have no
operating experience providing technical back-end infrastructure services to new or existing registries or acting as an owner
and operator of domain name registries for gTLD strings. In addition, we will be required to compete with other established
and more experienced operators in these proposed service offerings, some of whom have greater financial, marketing and other
resources than we do, including companies that are existing competitors as well as new entrants into the domain name industry.
We may not be successful in implementing the businesses associated with our gTLD Initiative if we or our registry customers
are awarded new gTLDs under the New gTLD Program. If we are unsuccessful in implementing our gTLD Initiative,
including managing these risks and increased costs, our business, financial condition and results of operations could be
adversely affected.
ICANN's application submission and approval process for the New gTLD Program is new and untested. We may lose
some of our current and future investment under our gTLD Initiative in connection with the New gTLD Program, and the
returns on our investment in our gTLD Initiative may not meet our current expectations, either of which could adversely
affect our business, financial condition and results of operations.
To date, we have invested approximately $18 million in applications for gTLD operating rights in connection with our
gTLD Initiative to pursue the opportunity to be a registry operator of new gTLDs under ICANN's New gTLD Program, and we
may be required to expend significant additional funds in order to be a successful applicant for gTLDs. Our gTLD Initiative
also involves our active participation in a new, complex and untested process with respect to the application and awarding of
gTLD strings by ICANN, which may require us to rely upon or negotiate and collaborate with independent third parties,
including Donuts Inc., in order to be a successful applicant for contested gTLD strings. We will also need to invest capital in
the build out of the technical back-end infrastructure necessary to operate gTLDs for us and our customers, including Donuts
Inc., in advance of gTLD strings being awarded by ICANN. There can be no assurances that we or Donuts Inc. will ultimately
be successful in acquiring new gTLD operator rights, or be found as qualified applicants, in ICANN's process for awarding
gTLDs, or that we or Donuts Inc. will be granted the right to be a registry operator by ICANN. Furthermore, there is no
guarantee that any new gTLD operator rights acquired by us or Donuts Inc. will be successful. If we are unsuccessful in
pursuing either aspect of our gTLD Initiative, we may lose some of our current and future investment in our gTLD Initiative.
In addition, the return on investment in our gTLD Initiative may not meet our current expectations justifying such investment.
The loss of some of our investment or lower than expected return on investment in our gTLD Initiative could adversely affect
our business, 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