Incredimail 2014 Annual Report Download - page 38

All employees and consultants are required to execute confidentiality covenants in connection with their employment and consulting
relationships with us. In addition, our consulting agreements contain assignment and waiver provisions relating to the consultant’
s rights in
respect of inventions. However, there can be no assurance that these arrangements will provide us with adequate protection. Although our
employment agreements contain assignment and waiver provisions relating to the employee’
s rights in respect of inventions created within the
course of their employment with us, including in respect of "Service Inventions," as defined under the Israeli Patents Law, 5727-
1967, we cannot
guarantee that such waiver of rights to receive compensation for Service Inventions will be upheld by Israeli courts, due to a recent ruling by the
Israeli Supreme Court which left the validity of such a waiver to further judicial review.
Competition
The markets in which we are active are subject to intense competition. We compete with many other companies offering solutions for
online publishers and developers, including search services and other software in conjunction with changing a user’s default search settings.
As a major part of our revenues stem from our offering of search properties, we compete with search engine providers themselves such
as Google, Microsoft, Yahoo, Ask and others. We also compete with many other companies offering consumer downloadable software, albeit
totally different software, utilizing the same strategy, to offer their search properties, such as Interactive Corporation, AOL, Blucora, AVG
Technologies and others.
Many of our current and potential competitors have significantly greater financial, research and development, back-
end analytical
systems, manufacturing, and sales and marketing resources than we have. These competitors could use their greater financial resources to
acquire other companies to gain even further enhanced name recognition and market share, as well as to develop new technologies, enhanced
systems and analytical capabilities, products or features that could effectively compete with our existing solutions, products and search services.
Demand for our solutions, products and search services could be diminished by solutions, products, services and technologies offered by
competitors, whether or not their solutions, products, services and technologies are equivalent or superior.
Finally, our ability to attract developers is largely dependent on our ability to pay higher rates to our publishers and developers, our
success in creating strong commercial relationships with developers that have successful software, websites or distribution channels, and our
ability to differentiate our distribution, monetization, and optimization tools from those of our competitors.
Government Regulation
We are subject to a number of U.S. federal and state and foreign laws and regulations that affect companies conducting business on the
Internet. The manner in which existing laws and regulations will be applied to the Internet in general, and how they will relate to our business in
particular is unclear. Accordingly, we cannot be certain how existing laws will be interpreted or how they will evolve in areas such as user
privacy, data protection, content, use of "cookies," access changes, "net neutrality," pricing, advertising, distribution of "spam," intellectual
property, distribution, protection of minors, consumer protection, taxation and online payment services.
For example, we are subject to U.S. federal and state laws regarding copyright infringement, privacy and protection of user data, many
of which are subject to regulation by the Federal Trade Commission. These laws include the Digital Millennium Copyright Act, which aims to
reduce the liability of online service providers for listing or linking to third-
party websites that include materials that infringe copyrights or the
rights of others, and other federal laws that restrict online service providers’
collection of user information on minors as well as distribution of
materials deemed harmful to minors. Many U.S. states, such as California, are adopting statutes that require online service providers to report
certain security breaches of personal data and to report to consumers when personal data will be disclosed to direct marketers. There are also a
number of legislative proposals pending before the U.S. Congress and various state legislative bodies concerning data protection which could
affect us.
Foreign data protection, privacy and other laws and regulations may affect our business, and such laws can be more restrictive than
those in the United States. For example, in Israel, privacy laws require that any request for information for use or retention in a database be
accompanied by a notice that indicates: whether a person is legally required to disclose such information or that such disclosure is subject to such
person’
s consent; the purpose for which the information is requested; and to whom the information is to be delivered. A breach of privacy under
such laws is considered a civil wrong and subject to a significant fines and civil damages. Certain violations of the law are considered criminal
offences punishable by imprisonment. In the European Union, similar data protection rules exist and privacy legislation has tightened the
restrictions relating to the use of cookies and similar technologies. Subject to some limited exceptions, the storing of information, or the gaining
of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user
concerned has given his or her informed consent. Further, the upcoming Data Protection Regulation (expected to be adopted in 2015) will
include stringent operational requirements for companies that process personal data and will contain significant penalties for non-
compliance.
Also in other relevant subject matters such as cyber security, e-
commerce, copyright and cookies new European initiatives have been announced
by the European regulators. To further complicate matters in Europe, Member States have some flexibility when implementing European
Directives which can lead to diverging national rules.
These regulations result in significant compliance costs and could result in restricting the growth and profitability of our business.
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