Incredimail 2008 Annual Report Download - page 15

Property.”
Third party claims of infringement or other claims against us could require us to redesign our products, seek licenses, or engage in future
costly intellectual property litigation, which could adversely affect our financial position and our ability to execute our business strategy.
The appeal of our products is largely the result of the graphics, sound and multimedia content that we incorporate in our products. We enter
into licensing arrangements with third parties for these uses. However, other third parties may from time to time claim that our current or future
use of content, sound and graphics infringe their intellectual property rights, and seek to prevent, limit or interfere with our ability to make, use or
sell our products. For example, in 2002 and again in 2004, a third party had contacted us to demand that we remove certain “Smiley” graphics
from our website, claiming that he had registered a trademark with respect to these graphics and that our use infringed his rights. We believe this
claim to be without any merit and intend to vigorously defend any suit filed against us in this matter.
If it appears necessary or desirable, we may seek to obtain licenses for intellectual property rights that we are allegedly infringing, may
infringe or desire to use. Although holders of these types of intellectual property rights often offer these licenses, we cannot assure you that
licenses will be offered or that the terms of any offered licenses will be acceptable to us. Our failure to obtain a license for key intellectual
property rights from a third party for technology or content, sound or graphic used by us could cause us to incur substantial liabilities and to
suspend the development and sale of our products. Alternatively, we could be required to expend significant resources to re-
design our products or
develop non-infringing technology. If we are unable to re-design our products or develop non-infringing technology, our revenues could decrease
and we may not be able to execute our business strategy.
We may become involved in litigation not only as a result of alleged infringement of a third-party’s intellectual property rights, but also to
protect our own intellectual property rights. If we do not prevail in any third-party action for infringement, we may be required to pay substantial
damages and be prohibited from using intellectual property essential to our products.
We may also become involved in litigation in connection with the brand name rights associated with our Company name or the names of our
products. We do not know whether others will assert that our Company name or brand name infringes their trademark rights. In addition, names
we choose for our products may be claimed to infringe names held by others. If we have to change the name of our Company or products, we may
experience a loss in goodwill associated with our brand name, customer confusion and a loss of sales. Any lawsuit, regardless of its merit, would
likely be time-consuming, expensive to resolve and require additional management time and attention.
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Unlawful copying of our products or other third party violations of existing legal protections or reductions in the legal protection for
intellectual property rights of software developers or use of open source software could adversely affect our revenue.
The software products that we sell incorporate a technology that reduces the ability of third parties to copy the software without having paid
for it. Unlicensed copying and use of software and intellectual property rights represents a loss of potential revenue to us, which could be more
significant in countries where laws are less protective of intellectual property rights. Continued educational and enforcement efforts may not affect
revenue positively and further deterioration in compliance with existing legal protections or reductions in the legal protection for intellectual
property rights of software developers could adversely affect our revenue.
In addition, certain of our products or services may now or in the future incorporate open source software, which are typically distributed “as-
is” without warranties, such as warranties of performance or ownership or indemnities against intellectual property infringement claims.
Moreover, to the extent that we incorporate open source software into our products or services, although we do not currently intend ever to
incorporate open source software that would require us to do so, the license for such open source software may obligate us, among other things, to
pass on to our licensees without charge the rights to use, copy, modify and redistribute the underlying software source code, both with respect to
the original open source code and any modifications to such code created by us.
If we fail to detect and stop misrepresentations of our site and products, we could lose confidence of our customers, thereby causing
our business to suffer.
We are exposed to the risk of domains using our brand names (such as “IncrediMail”) in various ways, and attracting in this manner our
potential or existing users. Many times these domains are engaged with fraudulent or spam activities and using our brand names can result in
damaging our reputation and losing our clients’ confidence in our products. If we are unable to detect and terminate effectively this
misrepresentation activity, we may lose users and our ability to produce revenues will be harmed.
Risks Related to Our Industry
The Internet as a medium for commerce and communication is subject to uncertainty and a decline in the number of Internet users or
users of email could cause our revenues to decrease and our products to become obsolete.
The Internet and electronic communication industry is rapidly evolving, as new means for electronic communication are offered to the public.