Shutterfly 2013 Annual Report Download - page 28

As of December 31, 2013, Shutterfly had 65 patents issued, and had more than 40 patent applications
pending in the United States. We intend to pursue corresponding patent coverage in other countries to the
extent we believe such coverage is appropriate and cost efficient. We cannot ensure that any of our
pending applications will be granted. In addition, third parties have in the past and could in the future
bring infringement, invalidity, co-inventorship or similar claims with respect to any of our currently issued
patents or any patents that may be issued to us in the future. Any such claims, whether or not successful,
could be extremely costly to defend, divert management’s time and attention, damage our reputation and
brands and substantially harm our business and results of operations.
Our primary brands are ‘‘Shutterfly,’’ ‘‘Tiny Prints,’’ ‘‘Wedding Paper Divas,’’ ‘‘Treat,’’ and ‘‘ThisLife.’’
We hold applications and/or registrations for the Shutterfly, Tiny Prints, Wedding Paper Divas, Treat and
ThisLife trademarks in our major markets of the United States and Canada as well as in the European
Community. We also hold applications and registrations for the Shutterfly mark in Mexico, Japan and
China, and for the Shutterfly and Tiny Prints marks in Australia and New Zealand. Our marks are critical
components of our marketing programs. If we lose the ability to use these marks in any particular market,
we could be forced to either incur significant additional marketing expenses within that market, or elect
not to sell products in that market.
From time to time, third parties have adopted names similar to ours, have applied to register
trademarks similar to ours, and we believe have infringed or misappropriated our intellectual property
rights and impeded our ability to build brand identity and possibly leading to customer confusion. In
addition, we have been and may continue to be subject to potential trade name or trademark infringement
claims brought by owners of marks that are similar to Shutterfly, Tiny Prints, Wedding Paper Divas, Treat,
ThisLife or one of our other marks.
We respond on a case-by-case basis and where appropriate may send cease and desist letters or
commence opposition actions and litigation. However, we cannot ensure that the steps we have taken to
protect our intellectual property rights are adequate, that our intellectual property rights can be
successfully defended and asserted in the future or that third parties will not infringe upon or
misappropriate any such rights. In addition, our trademark rights and related registrations may be
challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could
prevent us in the future from challenging third parties who use names and logos similar to our trademarks,
which may in turn cause consumer confusion or negatively affect consumers’ perception of our brands,
products, and services. Any claims or consumer confusion related to our marks could damage our
reputation and brands and substantially harm our business and results of operations.
If we become involved in intellectual property litigation or other proceedings related to a determination of rights, we
could incur substantial costs, expenses or liability, lose our exclusive rights or be required to stop certain of our
business activities.
From time to time, we have received, and likely will continue to receive, communications from third
parties inviting us to license their patents or accusing us of infringement. There can be no assurance that a
third party will not take further action, such as filing a patent infringement lawsuit, including a request for
injunctive relief to bar the manufacture and sale of our products and services in the United States or
elsewhere. We may also choose to defend ourselves by initiating litigation or administrative proceedings to
clarify or seek a declaration of our rights. Additionally, from time to time, we have to defend against
infringement of our intellectual property by bringing suit against other parties. As competition in our
market grows, the possibility of patent infringement claims against us or litigation we will initiate increases.
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