eTrade 1999 Annual Report Download - page 22

effect on our business, financial condition and operating results. Despite any precautions we take, a third party may be able to copy or
otherwise obtain and use our software or other proprietary information without authorization or to develop similar software
independently. Policing unauthorized use of our technology is made especially difficult by the global nature of the Internet and
difficulty in controlling the ultimate destination or security of software or other data transmitted on it. The laws of other countries may
afford us little or no effective protection for our intellectual property. There can be no assurance that the steps we take will prevent
misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In addition, litigation may be
necessary in the future to:
.enforce our intellectual property rights;
.protect our trade secrets;
.determine the validity and scope of the proprietary rights of others; or
.defend against claims of infringement or invalidity.
Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could
have a material adverse effect on our business, financial condition and operating results. We currently have several ongoing trademark
infringement litigation actions that we have filed in an effort to protect our trademarks.
Risks Associated with Infringement
We may in the future receive notices of claims of infringement of other parties' proprietary rights. There can be no assurance that
claims for infringement or invalidity (or any indemnification claims based on such claims) will not be asserted or prosecuted against
us. Any such claims, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources
or require us to enter into royalty or licensing agreements. There can be no assurance that such licenses would be available on
reasonable terms, if at all, and the assertion or prosecution of any such claims could have a material adverse effect on our business,
financial condition and operating results.
Risks Associated with Entering New Markets
One element of our strategy is to leverage the E*TRADE brand and technology to enter new markets. No assurance can be given that
we will be able to successfully adapt our proprietary processing technology for use in other markets. Even if we do adapt our
technology, no assurance can be given that we will be able to compete successfully in any such new markets. There can be no
assurance that our pursuit of any of these opportunities will be successful. If these efforts are not successful, we could realize less than
expected earnings, which in turn could result in a decrease in the market value of our Common Stock. Furthermore, such efforts may
divert management attention or inefficiently utilize our resources.
Risks Associated with Telebanc Merger
In June, E*TRADE and Telebanc Financial Corporation ("Telebanc") announced a definitive agreement to merge. The Boards of
Directors of both companies have approved the merger, but final consummation of the merger, which is expected to be completed this
fall, is contingent upon regulatory approval and the vote of the Telebanc shareowners. Telebanc is an online provider of Internet
banking services. This represents a new line of business for us. No assurance can be given that we will be successful in this market.
We may experience difficulty in assimilating Telebanc's products and services with our own and we may not be able to integrate
successfully the former employees of Telebanc into our organization. These difficulties will be exacerbated by the geographical
distance between the Company's locations and Telebanc's Virginia location. If we fail to successfully integrate Telebanc's operations
with our own, our operating results and business could be adversely effected.
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Telebanc, as a savings and loan holding company, and Telebank, as a federally chartered savings bank and wholly owned subsidiary of
Telebanc, are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision as their primary federal
regulator. Telebank also is subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation. We have
limited experience and knowledge of the regulatory requirements of the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation, and there is a risk that we could incur significant additional costs in complying with these regulations, or significant
penalties if we fail to comply. Such costs or penalties could harm our operating results and business.
Several proposals for abolishing the federal thrift charter were introduced in Congress during 1998 in bills addressing modernization
of financial services legislation. While no legislation was enacted in 1998, financial modernization legislation continues to be
2002. EDGAR Online, Inc.