eBay 2005 Annual Report Download - page 16

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mail-order companies, classifieds, directories, search engines, products of search engines, virtually all online
and offline commerce participants (consumer-to-consumer, business-to-consumer and business-to-business),
online and offline shopping channels and networks. As our product offerings continue to broaden into new
categories of items and new commerce formats, we expect our competition to continue to broaden to include
other online and offline channels for those new offerings. We also compete on the basis of price, product
selection, and services. For our PayPal service, our users may choose to pay through a variety of alternative
means, including other online payment services, offline payment methods such as cash, check or money order,
and traditional online or offline credit card merchant accounts. For our Communications business, our users
may choose to use their local telephone companies, cable providers, and other VoIP providers. To compete
effectively, we may need to expend significant resources in technology and marketing. These efforts may be
expensive and could reduce our margins and have a material adverse effect on our business, financial position,
operating results, and cash flows and reduce the value of our stock. We believe that we will be able to maintain
profitability by preserving and expanding the abundance and diversity of our users' online community and
enhancing our user experience, but there can be no assurance that we will be able to continue to manage our
operating expenses to mitigate a decline in consolidated net income. For more information regarding these
risks, see the information in Item 1A under ""Risk Factors Ì Our industry is intensely competitive.''
Seasonality
Our results of operations historically have been seasonal because many of our users reduce their activities
on our websites with the onset of good weather during the summer months, and on and around national
holidays. We have historically experienced our strongest quarters of online sequential growth in our first and
fourth fiscal quarters due to the holiday season. PayPal has shown similar seasonality, especially in the fourth
fiscal quarter. We expect transaction activity patterns on our websites to increasingly mirror general consumer
buying patterns, both online and offline, as our business matures. Our expectation is that Skype's business will
experience seasonally slower growth during holiday periods.
Intellectual Property
We regard the protection of our trademarks, copyrights, patents, domain names, trade dress and trade
secrets as critical to our success. We have entered into confidentiality and invention assignment agreements
with our employees and contractors, and nondisclosure agreements with parties with whom we conduct
business in order to limit access to and disclosure of our proprietary information.
We aggressively protect our intellectual property rights by relying on a combination of trademark,
copyright, patent, trade dress and trade secret laws and by using the domain name dispute resolution system.
As a result, we actively pursue the registration of our trademarks, copyrights, patents and domain names in the
U.S. and other major countries. We must also protect our trademarks, patents and domain names in an
increasing number of jurisdictions, a process that is expensive, may require litigation, and may not be
successful in every location. We have registered or applied for our ""eBay'' trademark in the U.S. and over 50
non-U.S. jurisdictions and have in place an active program to continue securing the ""eBay,'' ""PayPal,'' and
""Skype'' domain names in major non-U.S. jurisdictions. Our inability to secure our trademarks or domain
names could adversely affect us in any jurisdiction in which we are not able to register.
Third parties have from time to time claimed, and others may claim in the future, that we have infringed
their intellectual property rights. We currently are involved in several such legal proceedings. Please see the
information in ""Item 3: Legal Proceedings'' and in Item 1A under ""Risk Factors Ì We are subject to
intellectual property and other litigation'' and ""Ì We may be unable to protect or enforce our own intellectual
property rights adequately.''
Employees
As of December 31, 2005, eBay Inc. and its subsidiaries employed approximately 11,600 people
(excluding approximately 1,000 temporary employees), of whom approximately 6,500 were located in the
United States (excluding approximately 400 temporary employees). Our future success is substantially
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