Enom 2013 Annual Report Download - page 26

dilution. Therefore, we may face an increased volume of domain name registration disputes in the future as the overall number of registered
domain names increases.
Domain name registrars also face potential tort law liability for their role in wrongful transfers of domain names. The safeguards and
procedures we have adopted may not be successful in insulating us against liability from such claims in the future. In addition, we face potential
liability for other forms of “domain name hijacking,” including misap propriation by third parties of our network of customer domain names and
attempts by third parties to operate websites on these domain names or to extort the customer whose domain name and website were
misappropriated. Furthermore, our risk of incurring liability for a security breach on a customer website would increase if the security breach
were to occur following our sale to a customer of a Secure Socket Layer (“SSL”) certificate that proved ineffectual in preventing it. Finally, we
are exposed to potential liability as a result of our private domain name registration service, wherein we become the domain name registrant, on
a proxy basis, on behalf of our customers. While we have a policy of providing the underlying Whois information and reserve the right to cancel
privacy services on domain names giving rise to domain name disputes, including when we receive reasonable evidence of an actionable harm,
the safeguards we have in place may not be sufficient to avoid liability in the future, which could increase our costs of doing business.
As the number of available domain names with commercial value in existing TLDs diminishes over time, our domain name registration
revenue and our overall business could be adversely impacted.
As the number of domain name registrations increases and the number of available domain names with commercial value in existing
TLDs diminishes over time, and if it is perceived that the more desirable domain names are generally unavailable (and new gTLDs are not seen
as a viable alt ernative), fewer Internet users might register domain names with us. If this occurs, our domain name registration revenue and our
overall business could be adversely affected.
Changes in Internet user behavior, either as a result of evolving technologies or user practices, may impact the demand for domain names.
Currently, Internet users often navigate to a website either by directly typing its domain name into a web browser or through the use of a
search engine. If (i) web browser or Internet search technologies were to change significantly; (ii) Internet search engines were to change the
value of their algorithms on the use of a domain name for finding a website; (iii) Internet users’ preferences or practices were to shift away from
direct navigation; (iv
) Internet users were to significantly increase the use of web and mobile device applications to locate and access content; or
(v) Internet users were to increasingly use third level domains or alternate identifiers, such as social networking and microblogging sites, in each
case the demand for domain names could decrease.
We may experience unforeseen liabilities in connection with our acquisitions of Internet domain names or arising out of domain names
included in our portfolio of domain names that are monetized via advertising, which could negatively impact our financial results.
Certain of our acquisitions involve the acquisition of a large portfolio of previously registered domain names. Furthermore, we have
separately acquired, and may acquire in the future, additional individual previously registered domain names. In some cases, these acquired
names may have trademark significance that is not readily apparent to us or is not identified by us in the bulk purchasing process. As a result we
may face dema nds by third-party trademark owners asserting infringement or dilution of their rights and seeking transfer of acquired domain
names under the UDRP or actions under the ACPA. The potential violation of third-party intellectual property rights and potential causes of
action under consumer protection laws may subject us to unforeseen liabilities including injunctions and judgments for money damages.
If we are unable to acquire, renew or sell domain names, we may not be able to grow our domain name aftermarket and advertising business.
New regulations could negatively impact the domain name acquisition process.
The continued growth of our domain name aftermarket and advertising services business depends on our ability to acquire domain names
from a variety of sources. These sources include previously registered domain names that are not renewed at the domain name registry by the
current owner, private sales of domain names, participation in domain name auctions and registering new domain names identified by us. The
acquisition and renewal of domain names generally are governed by regulatory bodies. These regulatory bodies could establish additional
requirements for previously registered domain names or modify the requirements for holding domain names. Any changes in the way expired
registrations of domain names are made available for acquisition could make it more difficult to acquire domain names. Similarly, increasing
competition from other potential buyers could make it more difficult for us to acquire domain names on a cost-effective basis. Any such adverse
change in our ability to acquire high quality, previously registered domain names, as well as any increase in competition in the domain name
reseller market, could have a material adverse effect on our ability to grow our domain name services business, which could adversely affect our
business, financial condition and results of operations. In addition, our failure to renew our domain name registrations or any increase in the cost
of renewal could have a material adverse effect on our revenue and profitability.
24