Etsy 2015 Annual Report Download - page 30

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may change unfavorably. In that event, we may be held secondarily liable for the intellectual property infringement of Etsy sellers.
Regardless of the validity of any claims made against us, we may incur significant costs and efforts to defend against or settle them. If a governmental
authority determines that we have aided and abetted the infringement or sale of counterfeit goods or if legal changes result in us potentially being liable for
actions by Etsy sellers on our platform, we could face regulatory, civil or criminal penalties. Successful claims by third-party rights owners could require us to
pay substantial damages or refrain from permitting any further listing of the relevant items. These types of claims could force us to modify our business
practices, which could lower our revenue, increase our costs or make our platform less user-friendly. Moreover, public perception that counterfeit or other
unauthorized items are common in our marketplace, even if factually incorrect, could result in negative publicity and damage to our reputation.
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Companies in the Internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of
intellectual property rights. We periodically receive communications that claim we have infringed, misappropriated or misused others’ intellectual property
rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims. Third-parties may have
intellectual property rights that cover significant aspects of our technologies or business methods and prevent us from expanding our offerings. Any
intellectual property claim against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of our
management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in
defending ourselves in such matters.
In addition, some of our competitors have extensive portfolios of issued patents. Many potential litigants, including some of our competitors and patent
holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against
us could subject us to significant liability for damages and we may be required to stop using technology or other intellectual property alleged to be in
violation of a third party’s rights. We also might be required to seek a license for third-party intellectual property. Even if a license is available, we could be
required to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop
alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly
infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could harm our
business.
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In addition to intellectual property claims, we may become involved in other litigation matters, including class action lawsuits. For example, as described
further in "Note 14Commitments and ContingenciesLegal Proceedings" in the Notes to Consolidated Financial Statements, three purported securities
class action lawsuits have been filed naming Etsy and certain of our officers and/or directors as defendants. Under certain circumstances, we have contractual
and other legal obligations to indemnify and to incur legal expenses on behalf of current and former directors, officers, and underwriters, in connection with
the litigation described in this Annual Report on Form 10-K and in connection with any future lawsuits. Any lawsuit to which we are a party, with or without
merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in
payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Any of these results could
adversely affect our business. In addition, defending claims is costly and can impose a significant burden on our management.
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Our intellectual property is an essential asset of our business. To establish and protect our intellectual property rights, we rely on a combination of trade
secret, copyright, trademark and, to a lesser extent, patent laws, as well as confidentiality procedures and contractual provisions. The efforts we have taken to
protect our intellectual property may not be sufficient or effective. We generally do not elect to register our copyrights or the majority of our trademarks,
relying instead on the laws protecting unregistered intellectual property, which may not be sufficient. In addition, our copyrights and trademarks, whether or
not registered, and patents may be held invalid or unenforceable if challenged. While we have obtained or applied for patent protection with respect to some
of our intellectual property, we generally do not rely on patents as a principal means of protecting intellectual property. To the extent we do seek patent
protection, any U.S. or other patents issued to us may not be sufficiently broad to protect our proprietary technologies.
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