Incredimail 2013 Annual Report Download - page 19

Third party claims of infringement or other claims against us could require us to redesign our products, seek licenses, or engage in
costly intellectual property litigation, which could adversely affect our financial position and our ability to execute our business strategy.
The appeal of some our products is largely the result of the graphics, sound and multimedia content that we incorporate into 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. We have experienced such claims in the past 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.
In November 2013, MyMail, Ltd., a non-
practicing entity, filed a lawsuit against ClientConnect alleging that ClientConnect's toolbar
software infringes one of its U.S. patents. For more information, see Item 8.A below under "Legal Proceedings." If we do not prevail in this case
or in any future 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 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.
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
As a considerable portion of our revenues are derived from online advertising, any reduction in spending on online advertising by
advertisers could adversely impact our business and results of operations.
In addition to revenue generated under the various agreements with our search partners, such as Microsoft and Google, we generate a
portion of our revenues from users’ clicks on text-based links to advertisers’
websites, or sponsored links. When users click on a sponsored link,
the search provider receives a payment from the sponsor of that link and pays a portion of that amount to us. Spending by advertisers tends to be
cyclical, reflecting overall economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary
spending. Adverse economic conditions can have a material negative impact on the demand for advertising and cause advertisers to reduce the
amounts they spend on advertising, particularly online advertising, which could negatively impact our revenues.
Small and local businesses with which we interact are particularly sensitive to these events and trends, given that they are not as well-
situated to weather adverse economic conditions as their larger competitors, which are generally better capitalized and have greater access to
credit. In the recent past, adverse economic conditions have caused, and if such conditions were to recur in the future they could cause, decreases
and/or delays in advertising expenditures, which would reduce our revenues and adversely affect our business, financial condition and results of
operations.
Advertisers typically do not have long-
term advertising commitments with search providers or advertisement networks. A decrease in
overall advertising may adversely affect our results of operations.
In addition, the rates advertisers pay for each click on a sponsored link on a cost-per-
click (CPC) basis or for each time an
advertisement is displayed on a cost-per-
thousand impressions (CPM) basis are negotiated between the search providers or advertisement
networks and advertisers and depend on a number of factors over which we have no control. If search providers or advertisement networks
decrease the rates charged to advertisers, this would decrease the advertising revenues they share with us. In such an event, there could be no
assurance that we would be able to adjust the fees that we pay to publishers in order to acquire users in order to maintain its current levels of
profitability.
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