Etsy 2015 Annual Report Download - page 26

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political unrest. Disruptions in the operations of a substantial number of Etsy sellers could also result in negative experiences for a substantial number of Etsy
buyers, which could harm our reputation and adversely affect our business.
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Our emphasis on our values makes our reputation particularly sensitive to allegations of unethical business practices by Etsy sellers or other members of our
community. Our policies promote legal and ethical business practices, such as encouraging Etsy sellers to work only with manufacturers who do not use child
or involuntary labor, who do not discriminate and who promote sustainability and humane working conditions. However, we do not control Etsy sellers or
other members of our community or their business practices and cannot ensure that they comply with our policies. If members of our community engage in
illegal or unethical business practices or are perceived to do so, we may receive negative publicity and our reputation may be harmed.
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Although we have measures in place to detect and reduce the occurrence of fraudulent activity in our marketplace, those measures may not always be
effective.
For example, Etsy sellers occasionally receive orders placed with fraudulent or stolen credit card data. Under current credit card practices, we could be held
liable for orders placed through Direct Checkout with fraudulent credit card data even if the associated financial institution approved the credit card
transaction. Although we attempt to detect or challenge fraudulent transactions, we may not be able to do so effectively. As a result, our business could be
adversely affected. We could also incur significant fines or lose our ability to give the option of paying with credit cards if we fail to follow payment card
industry data security standards or fail to limit fraudulent transactions conducted in our marketplace.
Negative publicity and sentiment resulting from fraudulent or deceptive conduct by members of our community or the perception that our levels of
responsiveness and support for Etsy sellers and Etsy buyers are inadequate could reduce our ability to attract and retain Etsy sellers and Etsy buyers and
damage our reputation.
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We collect, transmit and store personal and financial information provided by members of our community, such as names, email addresses, the details of
transactions and credit card and other financial information. Some of our third-party service providers, such as identity verification and payment processing
providers, also regularly have access to some confidential and sensitive data. In an effort to protect sensitive information, we rely on a variety of security
measures, including encryption and authentication technology licensed from third parties. However, advances in computer capabilities, increasingly
sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our
failure or inability to adequately protect sensitive information. The preventive measures we take to address these risks are costly and may become more costly
in the future.
Like all online services, our platform is vulnerable to power outages, telecommunications failures and catastrophic events, as well as computer viruses, break-
ins, phishing attacks, denial-of-service attacks and other cyber attacks. Any of these incidents could lead to interruptions or shutdowns of our platform, loss
of data or unauthorized disclosure of personally identifiable or other sensitive information. Cyber attacks could also result in the theft of our intellectual
property. As we gain greater public visibility, we may face a higher risk of being targeted by cyber attacks. Advances in computer capabilities, new
technological discoveries or other developments may result in cyber attacks becoming more sophisticated and more difficult to detect. We and our third-
party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyber attacks. Moreover, techniques used to
obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers. Security
breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or employees of our third-party
service providers.
We and our third-party service providers regularly experience cyber attacks aimed at disrupting our and our third-party service providers’ services. If we or
our third-party service providers experience security breaches that result in marketplace performance or availability problems or the loss or unauthorized
disclosure of sensitive information, people may become unwilling to provide us the information necessary to set up an account with us. Existing Etsy sellers
and Etsy buyers may stop listing new items for sale, decrease their purchases or close their accounts altogether. We could also face potential liability, costly
remediation efforts and litigation, which may not be adequately covered by insurance. Any of these results could harm our growth prospects, our business and
our reputation.
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