Incredimail 2014 Annual Report Download - page 22

We monitor our use of open source code to avoid subjecting our products to conditions we do not intend. The use of open source code,
however, may ultimately subject some of our products to unintended conditions so that we are required to take remedial action that may divert
resources away from our development efforts.
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 of 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 such as these 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. We are in the process of mounting an aggressive defense against all claims. 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. In addition, the cost of a robust
defense can be significant, particularly if the proceedings continue over an extended period of time. 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 alleged 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 for online advertising by
advertisers could adversely impact our business and results of operations.
The revenue generated under the various agreements with our search partners are essentially advertising revenues. When users search
for a term, they receive a search result page including generic and sponsored links. Should the user subsequently 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, a
decrease and/or delay in advertising expenditures, which would reduce our revenues and adversely affect our business, financial condition and
results of operations.
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