Travelzoo 2013 Annual Report Download - page 58

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• sales and other taxes; and
• other claims based on the nature and content of Internet materials.
The implementation of the CARD Act and similar state and foreign laws may harm our Local Deals business.
Vouchers which are issued under our Local Deals and Getaway may be considered gift cards, gift certificates, stored
value cards or prepaid cards and therefore governed by, among other laws, the Credit Card Act of 2009 (the "CARD Act"), and
state laws governing gift cards, stored value cards and coupons. Other foreign jurisdictions have similar laws in place, in
particular European jurisdictions where the European E-Money Directive regulates the business of electronic money
institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or
prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the
imposition of certain fees. For example, if the vouchers are subject to the CARD Act and are not included in the exemption for
promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the voucher, or the
promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may not expire before the later
of (i) five years after the date on which the voucher was issued; (ii) the voucher’s stated expiration date (if any); or (iii) a later
date provided by applicable state law. Purported class actions against other companies have been filed in federal and state court
claiming that coupons similar to the vouchers are subject to the CARD Act and various state laws governing gift cards and that
the defendants have violated these laws by issuing the coupons with expiration dates and other restrictions. In addition,
investigations by certain state attorney general offices have been launched against other companies with regards to similar
issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaway vouchers and are
successful, we may become subject to fines and penalties and incur additional costs. In addition, if federal or state laws require
that the face value of our vouchers have a minimum expiration period beyond the period desired by a merchant for its
promotional program, or no expiration period, this may affect the willingness of merchants to issue vouchers in jurisdictions
where these laws apply. For unredeemed vouchers, similar laws in other jurisdictions require us or merchants to honor the face
value of vouchers sold, after the redemption period. For example, in Germany, certain consumer protection laws require us to
refund consumers for almost four years after the purchase date for the amount of the face value of purchased vouchers which
remains unredeemed at the end of the redemption period. Therefore, we do not recognize the unredeemed amounts as revenue
until after we are not subject to these laws. There may be similar laws in other countries or provinces that require similar
practices. Such developments may materially and adversely affect the profitability or viability of our Local Deals and Getaway.
If we are required to materially increase the estimated liability recorded in our financial statements with respect to
unredeemed Local Deals and Getaway vouchers due to application of certain gift card laws, our net income could be
materially and adversely affected.
In certain states and foreign jurisdictions, our Local Deals and Getaway vouchers may be considered a gift card. Some of
these states and foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require
companies to remit to the government the value of the unredeemed balance on the gift cards after a specified period of time
(generally between one and five years) and impose certain reporting and recordkeeping obligations. The analysis of the
potential application of the unclaimed and abandoned property laws to our vouchers is complex, involving an analysis of
constitutional and statutory provisions and factual issues, including our relationship with subscribers and merchants and our
role as it relates to the issuance and delivery of a voucher. In the event that one or more states or foreign jurisdictions
successfully challenges our position on the application of its unclaimed and abandoned property laws to vouchers, or if the
estimates that we use in projecting the likelihood of vouchers being redeemed prove to be inaccurate, our liabilities with respect
to unredeemed vouchers may be materially higher than the amounts shown in our financial statements. If we are required to
materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net
income could be materially and adversely affected. Moreover, a successful challenge to our position could subject us to
penalties or interest on unreported and unremitted sums, and any such penalties or interest would have a further material
adverse impact on our net income.