Incredimail 2010 Annual Report Download - page 19

If we fail to detect and stop misrepresentations of our site and products, or for some reason are perceived as promoting malware or
"spamming", we could lose the confidence of our customers, or software could be blocked by software or utilities designed to detect such
practices, 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. In addition, if we or our products were for some reason perceived as
promoting "malware or "spamming", our software could be blocked by software or utilities designed to detect such practices. If we are unable to
detect and terminate effectively this misrepresentation activity of others or the way we and our products are perceived, we may lose users and
our ability to produce revenues will be harmed.
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. In the past there were examples of such occurrences, although ultimately with no material consequence.
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.
Risks Related to Our Industry
The Internet as a medium for commerce and communication is subject to uncertainty and there could be a shift in communication
platforms away from email.
The Internet and electronic communication industry is rapidly evolving, as new means for electronic communication are offered to the
public. Our ability to execute our business strategy is currently dependent upon the continued predominance of email as a means of electronic
communication and upon the continued use of the Internet.
Although we are seeking to diversify our product portfolio, we may not be successful and currently our email product generates
approximately
90% of our revenues. And although email software programs and services currently enjoy a large market, the development and
consumer acceptance of other means of electronic communication, such as text messaging over phone networks, chat-boards, blogs and web-
based social networks, could result in a substantial decrease in the size of this market, in which case our revenues could decrease and our
products could become obsolete.
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