Build-A-Bear Workshop 2009 Annual Report Download - page 20

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
MANAGEMENT INFORMATION SYSTEMS AND TECHNOLOGY
Technology is a key component of our business strategy, and
we are committed to utilizing technology to enhance our
competitive position. Our information and operational systems
utilize a broad range of both purchased and internally
developed applications which support our guest relationships,
marketing, financial, retail operations, real estate,
merchandising, and inventory management processes.
Our employees can securely access these systems over a
company-wide network. Sales, daily deposit and guest
information are automatically collected from the stores’
point-of-sale terminals and kiosks on a near real time basis.
We have developed proprietary software including domestic
and international versions of our Name Me kiosk, which
populates our Find-A-Bear®identification system, and our
party scheduling system. Data from these systems are used to
support key decisions in all areas of our business, including
merchandising, allocation and operations.
We regularly evaluate strategic information technology
initiatives focused on competitive differentiation, support of
corporate strategy and reinforcement of our internal support
systems. Our critical systems are reviewed on a regular basis
to evaluate disaster recovery plans and the security of our
systems.
COMPETITION
We view our Build-A-Bear Workshop experience as a
distinctive combination of entertainment and retail. Because
we are mall-based, we see our competition as those mall-
based retailers that compete for prime mall locations,
including various apparel, footwear and specialty retailers.
We also compete with toy retailers, such as Wal-Mart, Toys
“R” Us, Target, Kmart and Sears and other discount chains,
as well as with a number of companies that sell teddy bears
and dolls in the United States, including, but not limited to, Ty,
Fisher Price, Mattel, Ganz, Russ Berrie, Applause, Boyd’s,
Hasbro, Commonwealth, Gund and Vermont Teddy Bear.
Since we sell a product that integrates merchandise and
experience, we also view our competition as any company
that competes for our guests’ time and entertainment dollars,
such as movie theaters, amusement parks and arcades, other
mall-based entertainment venues and on line entertainment.
We are aware of several small companies that operate
“make your own” teddy bear and stuffed animal stores or
kiosks in retail locations, but we believe none of those
companies offer the breadth and depth of the Build-A-Bear
Workshop experience or operate as a national or
international retail company.
We also believe that there is an emerging trend within
children’s play patterns towards internet and online play.
According to Emarketer.com, kids aged 8 to 11 reported that
they spend between one and two hours online each day. In
2007, 24% of US child and teen Internet users visited virtual
worlds. By 2011, an estimated 53% will do so. Therefore, we
believe we compete with other companies and internet sites
that vie for children’s attention in the online space including
webkinz.com, clubpenguin.com and neopets.com.
INTELLECTUAL PROPERTY AND TRADEMARKS
As of January 2, 2010, we had obtained over 273 U.S.
trademark registrations, including Build-A-Bear Workshop for
stuffed animals and accessories for the animals, retail store
services and other goods and services, 37 issued U.S. patents
with expirations ranging from 2013 through 2024 and over
321 copyright registrations. In addition, we have over 49
U.S. trademark and one U.S. patent applications pending.
We also license three patents from third-parties, including a
patent for the pre-stitching system used for closing up our
stuffed animals after they have been stuffed (U.S. Patent
No. 6,109,196). Pursuant to an exclusive patent license
agreement with Tonyco, Inc. dated March 12, 2001, we
were granted an exclusive license for use of the patent in
retail stores similar to ours. While we have the right to
sublicense the patent, the licensor has agreed not to grant
competing license rights to any of our competitors. In the
event that we or the licensor has reason to believe that a third
party is infringing upon the patent, the licensor is generally
required to bear the expenses required to maintain and
defend the patent. The term of the agreement is for the full life
of the patent and any improvements thereon. The term will
expire in 2019 unless we terminate the agreement, upon
notice to the licensor, in the event that the patent lapses due to
the licensor’s non-payment of maintenance taxes and fees for
the patent. We paid the licensor $760,000 for the license.
All payments due under the license have been made and no
ongoing payments are required by us.
We believe our copyrights, service marks, trademarks,
trade secrets, patents and similar intellectual property are
critical to our success, and we intend, directly or indirectly,
to maintain and protect these marks and, where applicable,
license the intellectual property and the registrations for the
intellectual property. We rely on trademark, copyright and
other intellectual property law to protect our proprietary rights
to the extent available in any relevant jurisdiction. We also
depend on trade secret protection through confidentiality and
license agreements with our employees, subsidiaries,
licensees, licensors and others. We may not have agreements
containing adequate protective provisions in every case, and
the contractual provisions that are in place may not provide
us with adequate protection in all circumstances. Any
infringement or misappropriation of our intellectual property
rights or breach of our confidentiality or license agreements
could result in significant litigation costs, and any failure to
adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in
loss of one or more competitive advantages and decreased
revenues. In addition, intellectual property litigation or claims
could force us to do one or more of the following: cease
selling or using any of our products that incorporate the
challenged intellectual property, which would adversely
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