Legal Proceedings


In July 2004, a licensing agent for J2 Global Communications, Inc., or J2, sent
to us a letter suggesting that an aspect of our services may employ inventions
covered by U. S. Patent No. 6,350,066, "Systems and methods for storing,
delivering and managing messages," or the '066 patent, and offering a
non-exclusive license for that patent. On August 24, 2004, J2 filed a complaint
against us in the United States District Court for the Central District of
California alleging that our operations infringe the '066 patent. J2's complaint
seeks unspecified damages and permanent injunctive relief, among other relief.
We have reviewed the '066 patent and believe that although the claims of the
'066 patent disclose systems and methods that may resemble portions of our prior
operations, we do not use those same systems and methods in our present
operations. Therefore, we believe that we do not infringe any claim of the '066
patent in our present operations. We currently anticipate that the risks of the
J2 litigation relate primarily to whether any aspect of our prior operations may
have infringed the '066 patent, and whether we may be ordered to pay money
damages to J2 with respect to prior periods. In addition, we received an opinion
from our patent counsel that the claims of the '066 patent are not infringed by
our operations as presently constituted. However, the scope of the litigation
may be expanded over time, and the outcome of any litigation is inherently
uncertain. We anticipate that J2 will continue to pursue litigation with respect
to its claims, and we can offer no assurance that our present operations or past
operations will not be determined to infringe or to have infringed the '066
patent.


In the event of an adverse result in the J2 litigation, or in any other
litigation with third parties that could arise in the future with respect to
intellectual property rights relevant to our services, we could be required to
pay substantial damages, including treble damages if we are held to have
willfully infringed, to cease the use and sale of infringing services, to expend
significant resources to develop non-infringing technology, or to obtain
licenses to the infringing technology. We cannot be certain that licenses will
be available from J2, or any third party that has such intellectual property
claims against us, on commercially reasonable terms, or at all. In addition,
litigation frequently involves substantial expenditures and can require
significant management attention even if we ultimately prevail. Accordingly, we
cannot predict whether the J2 matter will have a material adverse effect on our
business, operating results, financial condition or cash flows. Due to the early
stage of this litigation, and because J2 has sought unspecified damages, neither
the outcome of this litigation nor any costs and payments resulting from the
litigation nor any settlement can be determined at this time. Accordingly, no
provision for any loss which may result from the J2 litigation has been recorded
in the accompanying financial statements. Please see Note 11, on page F-21.


We are not a party to any other material pending legal proceedings. We may from
time to time, however, become subject to lawsuits in the ordinary course of our
business, and any such lawsuit could substantially harm our business.



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