Baskin Robbins 2012 Annual Report Download - page 23

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or intend to open or franchise a restaurant. Failure to adequately protect our intellectual property rights could damage our
brands and impair our ability to compete effectively. Even where we have effectively secured statutory protection for our trade
secrets and other intellectual property, our competitors may misappropriate our intellectual property and our employees,
consultants and suppliers may breach their contractual obligations not to reveal our confidential information, including trade
secrets. Although we have taken measures to protect our intellectual property, there can be no assurance that these protections
will be adequate or that third parties will not independently develop products or concepts that are substantially similar to ours.
Despite our efforts, it may be possible for third-parties to reverse-engineer, otherwise obtain, copy, and use information that we
regard as proprietary. Furthermore, defending or enforcing our trademark rights, branding practices and other intellectual
property, and seeking an injunction and/or compensation for misappropriation of confidential information, could result in the
expenditure of significant resources and divert the attention of management, which in turn may materially and adversely affect
our business and operating results.
Although we monitor and restrict franchisee activities through our franchise and license agreements, franchisees may refer to
our brands improperly in writings or conversation, resulting in the dilution of our intellectual property. Franchisee
noncompliance with the terms and conditions of our franchise or license agreements may reduce the overall goodwill of our
brands, whether through the failure to meet health and safety standards, engage in quality control or maintain product
consistency, or through the participation in improper or objectionable business practices. Moreover, unauthorized third parties
may use our intellectual property to trade on the goodwill of our brands, resulting in consumer confusion or dilution. Any
reduction of our brands' goodwill, consumer confusion, or dilution is likely to impact sales, and could materially and adversely
impact our business and operating results.
Under certain license agreements, our subsidiaries have licensed to Dunkin' Brands the right to use certain trademarks, and in
connection with those licenses, Dunkin' Brands monitors the use of trademarks and the quality of the licensed products. While
courts have generally approved the delegation of quality-control obligations by a trademark licensor to a licensee under
appropriate circumstances, there can be no guarantee that these arrangements will not be deemed invalid on the ground that the
trademark owner is not controlling the nature and quality of goods and services sold under the licensed trademarks.
The restaurant industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions
may lessen the demand for our products, which could reduce sales by our franchisees and reduce our royalty revenues.
The restaurant industry is affected by changes in consumer tastes, national, regional and local economic conditions and
demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid donuts and other
products we offer in favor of foods that are perceived as more healthy, our franchisees' sales would suffer, resulting in lower
royalty payments to us, and our business and operating results would be harmed.
If we fail to successfully implement our growth strategy, which includes opening new domestic and international
restaurants, our ability to increase our revenues and operating profits could be adversely affected.
Our growth strategy relies in part upon new restaurant development by existing and new franchisees. We and our franchisees
face many challenges in opening new restaurants, including:
• availability of financing;
• selection and availability of suitable restaurant locations;
• competition for restaurant sites;
• negotiation of acceptable lease and financing terms;
• securing required domestic or foreign governmental permits and approvals;
• consumer tastes in new geographic regions and acceptance of or products
• employment and training of qualified personnel;
• impact of inclement weather, natural disasters and other acts of nature; and
• general economic and business conditions.
In particular, because the majority of our new restaurant development is funded by franchisee investment, our growth strategy
is dependent on our franchisees' (or prospective franchisees') ability to access funds to finance such development. We do not
provide our franchisees with direct financing and therefore their ability to access borrowed funds generally depends on their
independent relationships with various financial institutions. If our franchisees (or prospective franchisees) are not able to
obtain financing at commercially reasonable rates, or at all, they may be unwilling or unable to invest in the development of
new restaurants, and our future growth could be adversely affected.