Stamps.com 2006 Annual Report Download - page 15

the practices and rules of issuing financial institutions. If we do not effectively charge and bill our customers in future periods through credit
cards and debit cards, it would adversely affect our 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 aware of, or we may increasingly receive correspondence claiming, potential infringement of other parties’ intellectual property
rights. 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 59 issued US
patents, 86 pending US patent applications, 9 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 U.S. 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.
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