Electronic Arts 2007 Annual Report Download - page 90

have been asserted against us. We incur substantial expenses in evaluating and defending against such claims,
regardless of the merits of the claims. In the event that there is a determination that we have infringed a third-
party patent, we could incur significant monetary liability and be prevented from using the rights in the future,
which could negatively impact our operating results. We may also discover that future opportunities to provide
new and innovative modes of game play and game delivery to consumers may be precluded by existing patents
that we are unable to license on reasonable terms.
Other intellectual property claims may increase our product costs or require us to cease selling affected
products.
Many of our products include extremely realistic graphical images, and we expect that as technology continues
to advance, images will become even more realistic. Some of the images and other content are based on real-
world examples that may inadvertently infringe upon the intellectual property rights of others. Although we
believe that we make reasonable efforts to ensure that our products do not violate the intellectual property
rights of others, it is possible that third parties still may claim infringement. From time to time, we receive
communications from third parties regarding such claims. Existing or future infringement claims against us,
whether valid or not, may be time consuming and expensive to defend. Such claims or litigations could require
us to stop selling the affected products, redesign those products to avoid infringement, or obtain a license, all
of which would be costly and harm our business.
From time to time we may become involved in other legal proceedings which could adversely affect us.
We are currently, and from time to time in the future may become, subject to other legal proceedings, claims,
litigation and government investigations or inquiries, which could be expensive, lengthy, and disruptive to
normal business operations. In addition, the outcome of any legal proceedings, claims, litigation, investigations
or inquiries may be difficult to predict and could have a material adverse effect on our business, operating
results, or financial condition.
Our business, our products and our distribution are subject to increasing regulation of content,
consumer privacy, distribution and online hosting and delivery in the key territories in which we
conduct business. If we do not successfully respond to these regulations, our business may suffer.
Legislation is continually being introduced that may affect both the content of our products and their
distribution. For example, data and consumer protection laws in the United States and Europe impose various
restrictions on our web sites. Those rules vary by territory although the Internet recognizes no geographical
boundaries. Other countries, such as Germany, have adopted laws regulating content both in packaged games
and those transmitted over the Internet that are stricter than current United States laws. In the United States,
the federal and several state governments are continually considering content restrictions on products such as
ours, as well as restrictions on distribution of such products. For example, recent legislation has been adopted
in several states, and could be proposed at the federal level, that prohibits the sale of certain games (e.g.,
violent games or those with “M (Mature)” or “AO (Adults Only)” ratings) to minors. Any one or more of
these factors could harm our business by limiting the products we are able to offer to our customers, by
limiting the size of the potential market for our products, and by requiring costly additional differentiation
between products for different territories to address varying regulations.
If one or more of our titles were found to contain hidden, objectionable content, our business could
suffer.
Throughout the history of our industry, many video games have been designed to include certain hidden
content and gameplay features that are accessible through the use of in-game cheat codes or other
technological means that are intended to enhance the gameplay experience. However, in several recent cases,
hidden content or features have been found to be included in other publishers’ products by an employee who
was not authorized to do so or by an outside developer without the knowledge of the publisher. From time to
time, some hidden content and features have contained profanity, graphic violence and sexually explicit or
otherwise objectionable material. In a few cases, the Entertainment Software Ratings Board (“ESRB”) has
reacted to discoveries of hidden content and features by reviewing the rating that was originally assigned to
the product, requiring the publisher to change the game packaging and/or fining the publisher. Retailers have
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