Stamps.com 2008 Annual Report Download - page 14

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 a portfolio of issued and pending US and international patents. 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
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confidential information. Any breach of these security measures would severely impact our business and reputation and would
likely result in the loss of customers and revenues. Furthermore, if we fail to provide adequate security, the USPS 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.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over
public networks. Anyone who is able to circumvent our security measures could misappropriate confidential information or
cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We rely on specialized technology from within our
own infrastructure to provide the security necessary for secure transmission of postage and other confidential information.
Advances in computer capabilities, new discoveries in security technology, or other events or developments may result in a
compromise or breach of the algorithms we use to protect customer transaction data. Should someone circumvent our security
measures, our reputation, business, financial condition and results of operations could be seriously harmed. Security breaches
could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information.
As a result, we may be required to expend a significant amount of financial and other resources to protect against security