Travelzoo 2012 Annual Report Download - page 80

Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as the European
Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, impose certain anti-
money laundering requirements on companies that are financial institutions or that provide financial products and services. For these purposes,
financial institutions are broadly defined to include money services businesses such as money transmitters, check cashers and providers of
prepaid access cards. Examples of anti-money laundering requirements imposed on financial institutions include customer identification and
verification programs, suspicious activity monitoring and reporting, record retention policies and procedures and transaction reporting. We do
not believe that we are a financial institution subject to these laws and regulations based, in part, upon the closed loop nature and other
characteristics of vouchers and our role with respect to the distribution of vouchers to subscribers. However, the Financial Crimes Enforcement
Network, a division of the U.S. Department of the Treasury tasked with implementing the requirements of the Bank Secrecy Act, recently issued
final rules regarding the scope and requirements for non-bank parties involved in stored value or prepaid access cards, including obligations on
sellers or providers of “prepaid access”. Under the final rule, providers or sellers of closed loop vouchers, such as those offered through the
Local Deals program, would only be subject to registration if the voucher exceed $2,000 in total value or if they are sold in aggregate amounts
exceeding $10,000 to any single person in one day. Should the $2,000 limit be exceeded or should more than $10,000 in aggregate vouchers be
sold to any individual person (sales to businesses for resale or distribution are excluded) then we may be deemed either a seller or provider of
prepaid access subject to regulation. In the event that we become subject to the requirements of the Bank Secrecy Act or any other anti-money
laundering law or regulation imposing obligations on us as a money services business, our regulatory compliance costs to meet these obligations
would likely increase which could reduce our net income. In addition, the costs for third parties to sell vouchers would increase, which may
restrict our ability to enlist third parties to issue vouchers.
Our internal control over financial reporting may not be effective, and our independent auditors may not be able to certify as to the
effectiveness of such internal controls, which could have a significant and adverse effect on our business.
We are obligated to evaluate our internal control over financial reporting in order to allow management to report on, and our independent
auditors to opine on, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules
and regulations of the SEC, which we collectively refer to as Section 404. In our Section 404 evaluation, we have identified areas of internal
controls that may need improvement and have instituted remediation efforts where necessary. Currently, none of our identified areas that need
improvement has been categorized as material weaknesses. We may identify conditions that may result in significant deficiencies or material
weaknesses in the future.
We may be unable to protect our registered trademark or other proprietary intellectual property rights.
Our success depends to a significant degree upon the protection of the Travelzoo brand name. We rely upon a combination of copyright,
trade secret and trademark laws, as well as non-disclosure and other contractual arrangements to protect our intellectual property rights. The
steps we have taken to protect our proprietary rights, however, may not always succeed in deterring misappropriation of proprietary information.
We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea, Taiwan, the EU and
the U.K. If we are unable to protect our rights in the mark in North America, Europe, and Asia Pacific, where we have licensed the trademark as
described above under “overview”, a key element of our strategy of promoting Travelzoo as a brand could be disrupted and our business could
be adversely affected. We may not always be able to detect unauthorized use of our proprietary information or take appropriate steps to enforce
our intellectual property rights. In addition, the validity, enforceability, and scope of protection of intellectual property in Internet-related
industries are uncertain and still evolving. The laws of countries in which we may market our services in the future are uncertain and may afford
little or no effective protection of our intellectual property. The unauthorized reproduction or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology and brand name without paying us for them. If this were to occur, our
business could be materially adversely affected.
We may face liability from intellectual property litigation that could be costly to prosecute or defend and distract management’s attention
with no assurance of success.
We cannot be certain that our products, content and brand names do not or will not infringe valid patents, copyrights or other intellectual
property rights held by third parties. While we have a trademark for “Travelzoo,” many companies in the industry have similar names including
the word “travel”. We expect that infringement claims in our markets will increase in number as more participants enter the markets. We may be
subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. We
may incur substantial expenses in defending against these third party infringement claims, regardless of their merit, and such claims could result
in a significant diversion of the efforts of our management personnel. Successful infringement claims against us may result in monetary liability
or a material disruption in the conduct of our business. As discussed under Note 3 to the consolidated financial statements included
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