Vistaprint 2009 Annual Report Download - page 42

Our practice of offering free products and services could be subject to judicial or regulatory
challenge which, if successful, would hinder our ability to attract customers and generate
revenue.
We regularly offer free products and services as an inducement for customers to try our products
and services. Although we believe that we conspicuously and clearly communicate all details and
conditions of these offers—for example, that customers are required to pay shipping and processing
charges to take advantage of a free product offer—we have in the past, and may in the future, be subject
to claims from individuals or governmental regulators in Europe, the United States and other countries that
our free offers are misleading or do not comply with applicable legislation or regulation. For example, in
2004, one of our subsidiaries and one of our predecessor corporations were named as defendants in a
class action lawsuit, which was ultimately settled, alleging that the shipping and handling fees we charged
in connection with our free business card offer violated sections of the California Business and Professions
Code that limit the amount that may be charged for shipping and handling in connection with a prize or gift.
In addition, customers and competitors have filed complaints with governmental and standards bodies in
other jurisdictions claiming that customers were misled by the terms of our free offers. Our free product
offers could be subject to additional challenges in the future. If we are subject to further actions in the
future, or if we are compelled or determine to curtail or eliminate our use of free offers as the result of any
such actions, our business prospects and results of operations could be materially harmed.
Our failure to protect our network and the confidential information of our customers against
security breaches and to address risks associated with credit card fraud could damage our
reputation and brand and substantially harm our business and results of operations.
A significant prerequisite to online commerce and communications is the secure transmission of
confidential information over public networks. Our failure to prevent security breaches of our network
could damage our reputation and brand and substantially harm our business and results of operations.
Currently, a majority of our sales are billed to our customers’ credit card accounts directly. We retain
our customers’ credit card information for a limited time following a purchase of products for the
purpose of issuing refunds. For customers purchasing certain subscription-based services from us,
such as our website hosting service, we also retain credit card information for the purpose of
undertaking recurring billing. We rely on encryption and authentication technology licensed from third
parties to effect secure transmission of confidential information, including credit card numbers.
Advances in computer capabilities, new discoveries in the field of cryptography or other related
developments, among other factors, may result in a compromise or breach of our network or the
technology used by us to protect our network and our customer transaction data including credit card
information. Any such compromise of our network or our security could damage our reputation and
brand and expose us to a risk of loss or litigation and possible liability which would substantially harm
our business and results of operations. In addition, anyone who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in our operations. We
may need to expend significant resources to protect against security breaches or to address problems
caused by breaches.
In addition, under current credit card practices, we may be liable for fraudulent credit card
transactions conducted on our websites, such as through the use of stolen credit card numbers,
because we do not obtain a cardholder’s signature. To date, quarterly losses from credit card fraud
have not exceeded 1% of total revenues in any quarter, but we continue to face the risk of significant
losses from this type of fraud. Although we seek to maintain insurance to cover us against this risk, we
cannot be certain that our coverage will be adequate to cover liabilities actually incurred as a result of
such fraud or that insurance will continue to be available to us on economically reasonable terms, or at
all. Our failure to limit fraudulent credit card transactions could damage our reputation and brand and
substantially harm our business and results of operations.
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