Stamps.com 2004 Annual Report Download - page 12

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Delays in features or upgrade introductions could cause a decline in our revenue, earnings or stock price. We cannot
determine the ultimate effect these delays or the introduction of new features or upgrades will have on our revenue
or results of operations.
Third party assertions of violations of their intellectual property rights could adversely affect our business.
Substantial litigation regarding intellectual property rights exists in our industry. Third parties may
currently have, or may eventually be issued, patents upon which our products or technology infringe. Any of these
third parties might make a claim of infringement against us. We may become increasingly aware of, or we may
increasingly receive correspondence claiming, potential infringement of other parties’ intellectual property rights.
We are currently a defendant in two such cases filed in the fourth quarter of 2004. We could incur significant costs
and diversion of management time and resources to defend claims against us regardless of their validity. Any
associated costs and distractions could have a material adverse effect on our business, financial condition and results
of operations. In addition, litigation in which we are accused of infringement might cause product development
delays, require us to develop non-infringing technology or require us to enter into royalty or license agreements,
which might not be available on acceptable terms, or at all. If a successful claim of infringement were made against
us and we could not develop non-infringing technology or license the infringed or similar technology on a timely
and cost-effective basis, our business could be significantly harmed or fail. Any loss resulting from intellectual
property litigation could severely limit our operations, cause us to pay license fees, or prevent us from doing
business.
A failure to protect our own intellectual property could harm our competitive position.
We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions,
such as confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-
how and information. We have 45 issued US patents, 78 pending US patent applications, 12 international patents
and 19 pending international patent applications. We also have a number of registered and unregistered trademarks.
We plan to apply for more patents in the future. We may not receive patents for any of our patent applications. Even
if patents are issued to us, claims issued in these patents may not protect our technology. In addition, a court might
hold any of our patents, trademarks or service marks invalid or unenforceable. Even if our patents are upheld or are
not challenged, third parties may develop alternative technologies or products without infringing our patents. If our
patents fail to protect our technology or our trademarks and service marks are successfully challenged, our
competitive position could be harmed. We also generally enter into confidentiality agreements with our employees,
consultants and other third parties to control and limit access and disclosure of our confidential information. These
contractual arrangements or other steps taken to protect our intellectual property may not prove to be sufficient to
prevent misappropriation of technology or deter independent third party development of similar technologies.
Additionally, the laws of foreign countries may not protect our services or intellectual property rights to the same
extent as do the laws of the United States.
System and online security failures could harm our business and operating results.
Our services depend on the efficient and uninterrupted operation of our computer and communications
hardware systems. In addition, we must provide a high level of security for the transactions we execute. We rely on
internally-developed and third-party technology to provide secure transmission of postage and other confidential
information. Any breach of these security measures would severely impact our business and reputation and would
likely result in the loss of customers. Furthermore, if we are unable to provide adequate security, the US Postal
Service could prohibit us from selling postage over the Internet.
Our systems and operations are vulnerable to damage or interruption from a number of sources, including
fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host
provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also
vulnerable to computer viruses, physical, electrical or electronic break-ins and similar disruptions. We have
experienced minor system interruptions in the past and may experience them again in the future. Any substantial
interruptions in the future could result in the loss of data and could completely impair our ability to generate
revenues from our service. We do not presently have a full disaster recovery plan in effect to cover the loss of
facilities and equipment. In addition, we do not have a fail-over site that mirrors our infrastructure to allow us to
operate from a second location. We have business interruption insurance; however, we cannot be certain that our
coverage will be sufficient to compensate us for losses that may occur as a result of business interruptions.