Facebook 2012 Annual Report Download - page 28

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data
protection, and other matters. Many of these laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our business practices, monetary penalties, increased
cost of operations, or declines in user growth or engagement, or otherwise harm our business.
We are subject to a variety of laws and regulations in the United States and abroad that involve matters
central to our business, including user privacy, rights of publicity, data protection, content, intellectual property,
distribution, electronic contracts and other communications, competition, protection of minors, consumer
protection, taxation, securities law compliance, and online payment services. The introduction of new products
may subject us to additional laws and regulations. For example, depending on how our new Gifts product
evolves, we may be subject to laws and regulations governing returns, taxability of purchases, purchase of
restricted products such as alcohol, product liability, and international import and export restrictions. In addition,
foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United
States. These U.S. federal and state and foreign laws and regulations, which can be enforced by private parties or
government entities, are constantly evolving and can be subject to significant change. In addition, the application
and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving
industry in which we operate. For example, the interpretation of some laws and regulations that govern the use of
names and likenesses in connection with advertising and marketing activities is unsettled and developments in
this area could affect the manner in which we design our products, as well as our terms of use. A number of
proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly
affect our business. For example, a revision to the 1995 European Union Data Protection Directive is currently
being considered by European legislative bodies that may include more stringent operational requirements for
data processors and significant penalties for non-compliance. Similarly, there have been a number of recent
legislative proposals in the United States, at both the federal and state level, that would impose new obligations
in areas such as privacy and liability for copyright infringement by third parties. These existing and proposed
laws and regulations can be costly to comply with and can delay or impede the development of new products,
result in negative publicity, increase our operating costs, require significant management time and attention, and
subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or
cease existing business practices.
We have been subject to regulatory investigations and settlements and we expect to continue to be subject to
such proceedings in the future, which could cause us to incur substantial costs or require us to change our
business practices in a manner materially adverse to our business.
From time to time, we receive inquiries from regulators regarding our compliance with laws and other
matters. For example, in 2012, the Federal Trade Commission approved a settlement agreement with us that,
among other things, requires us to establish and refine certain practices with respect to treatment of user data and
privacy settings and also requires that we complete bi-annual independent privacy assessments. As another
example, in 2011 and 2012, the Irish Data Protection Commissioner audited the data, security, and privacy
practices and policies of Facebook Ireland. We expect to continue to be the subject of regulatory investigations
and audits in the future by these and other regulators throughout the world.
It is possible that a regulatory inquiry might result in changes to our policies or practices. Violation of
existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other
penalties that could negatively affect our financial condition and results of operations. In addition, it is possible
that future orders issued by, or enforcement actions initiated by, regulatory authorities could cause us to incur
substantial costs or require us to change our business practices in a manner materially adverse to our business.
If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be
diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our
employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright,
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