Stamps.com 2013 Annual Report Download - page 18

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, the costs of enforcing our patents can be material, and 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 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. In addition, we are
susceptible to system and operational disruptions caused by substantial changes to the demand for our services and surges in the use of our
service by customers. Any substantial system interruptions in the future, whatever the cause, could result in the loss of data and could completely
impair our ability to generate revenues from our service. Our servers also periodically experience directed attacks intended to cause a disruption
in service. Any attempts by hackers to disrupt our service or our internal systems, if successful, could harm our business, be expensive to remedy
and damage our reputation.
Our insurance may not be sufficient to cover expenses related to system and operational disruptions or attacks on our Web site, servers or
internal systems. We do not presently have a full disaster recovery plan in effect to cover the loss of all facilities and equipment. We do,
however, have a secondary location that mirrors our core system 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.
We may be exposed to risks and costs associated with the collection of credit card data and the secure transmission of confidential
information over public networks.
A significant portion of our customer transactions requires the collection of certain customer data, such as credit card information. We and other
parties involved in processing customer transactions must be able to transmit confidential information, including credit card information,
securely over public networks. Third parties may have the technology or knowledge to breach the security of customer transaction data.
Although we have security measures related to our systems and the privacy of our customers, we cannot guarantee these measures will
effectively prevent others from obtaining unauthorized access to our information and our customers’ information. Any person who circumvents
our security measures could destroy or steal valuable information or disrupt our operations. A security breach could cause customers to lose
confidence in the security of our services or websites. Any security breach could also expose us to risks of data loss, litigation and liability, and
could seriously disrupt operations and harm our reputation, any of which could adversely affect our financial condition and results of operations.
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