Columbia Sportswear 2013 Annual Report Download - page 21

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To distinguish our products in the marketplace and achieve commercial success, we rely on product innovations,
including new or exclusive technologies, inventive and appealing design, or other differentiating features. Research and
development plays a key role in technical innovation. We rely upon specialists in the fields of chemistry, biochemistry,
engineering, industrial design, and related fields, guided by consumer feedback, to develop and test innovative performance
products. Although we are committed to designing innovative and functional products that deliver relevant performance
benefits to consumers who participate in a wide range of competitive and recreational outdoor activities, if we fail to introduce
technical innovation in our products that address consumers’ performance expectations, demand for our products could
decline.
As we strive to achieve product innovations, we face a greater risk of inadvertent infringements of third party rights
or compliance issues with regulations applicable to products with technical innovations such as electrical heating components
and material treatments. In addition, technical innovations often involve more complex manufacturing processes, which
may lead to higher instances of quality issues, and if we experience problems with the quality of our products, we may incur
substantial expense to address the problems and any associated product risks. For example, in recent years we incurred
costs in connection with recalls of some of our battery-powered electrically heated apparel. Failure to successfully bring to
market innovations in our product lines could have a material adverse effect on our financial condition, results of operations
or cash flows.
We Face Risks Associated with Consumer Preferences and Fashion Trends
Changes in consumer preferences or consumer interest in outdoor activities may have a material adverse effect on
our business. In addition, changes in fashion trends may have a greater impact than in the past as we expand our offerings
to include more product categories in more geographic areas, particularly with the Sorel brand, a product line generally
more sensitive to fashion trends. We also face risks because our business requires us and our customers to anticipate consumer
preferences. Our decisions about product designs often are made far in advance of consumer acceptance. Although we try
to manage our inventory risk by soliciting advance order commitments by retailers, we must generally place a significant
portion of our seasonal production orders with our independent factories before we have received all of a season’s advance
orders from customers, and orders may be cancelled by customers before shipment. If we or our customers fail to anticipate
and respond to consumer preferences, we may experience lower sales, excess inventories and lower profit margins in current
and future periods, any of which could have a material adverse effect on our financial condition, results of operations or
cash flows.
Our Success Depends on Our Use and Protection of Intellectual Property Rights
Our registered and common law trademarks and our patented or patent-pending designs and technologies have
significant value and are important to our ability to differentiate our products from those of our competitors and to create
and sustain demand for our products. We also place significant value on our trade dress, the overall appearance and image
of our products. We regularly discover products that are counterfeit reproductions of our products or that otherwise infringe
on our proprietary rights. Counterfeiting activities typically increase as brand recognition increases, especially in markets
outside the United States. Increased instances of counterfeit manufacture and sales may adversely affect our sales and our
brand and result in a shift of consumer preference away from our products. The actions we take to establish and protect
trademarks and other proprietary rights may not be adequate to prevent imitation of our products by others or to prevent
others from seeking to block sales of our products as violations of proprietary rights. In markets outside of the United States,
it may be more difficult for us to establish our proprietary rights and to successfully challenge use of those rights by other
parties. We also license our proprietary rights to third parties. Failure to choose appropriate licensees and licensed product
categories may dilute or harm our brands. In addition to our own intellectual property rights, many of the intellectual property
rights in the technology, fabrics and processes used to manufacture our products are generally owned or controlled by our
suppliers and are generally not unique to us. In those cases, we may not be able to adequately protect our products or
differentiate their performance characteristics and fabrications from those of our competitors. The management of our
intellectual property portfolio may affect the strength of our brands, which may in turn have a material adverse effect on
our financial condition, results of operations or cash flows.
Although we have not been materially inhibited from selling products in connection with patent, trademark and trade
dress disputes, as we focus on innovation in our product lines, extend our brands into new product categories and expand
the geographic scope of our marketing, we may become subject to litigation based on allegations of infringement or other