Callaway 2002 Annual Report Download - page 66

CALLAWAY GOLF COMPANY 63
On November 4, 2002, Callaway Golf Sales Company was served
with a complaint filed in the District Court of Sedgwick County,
Kansas, Case No. 0203607, seeking to assert an alleged class
action on behalf of Kansas consumers who purchased select
Callaway Golf products covered by the New Product Introduction
Policy. Callaway Golf Company is also named in the Kansas case.
The plaintiff in the Kansas case seeks damages and restitution for
the alleged class under Kansas law.
On October 3, 2001, the Company filed suit in the United States
District Court for the District of Delaware, Civil Action No. 01-669,
against Dunlop Slazenger Group Americas, Inc., d/b/a MaxFli
(“MaxFli”), for infringement of a golf ball aerodynamics patent
owned by the Company. On October 15, 2001, MaxFli filed an
answer to the complaint denying any infringement, and also filed
a counterclaim against the Company asserting that former MaxFli
employees hired by the Company had disclosed confidential
MaxFli trade secrets to the Company, and that the Company had
used that information to enter the golf ball business. Among other
remedies, MaxFli is seeking compensatory damages, punitive
damages and attorneys’ fees; a declaratory judgment; and injunctive
relief. Both parties have amended their claims. The Company
added a claim for false advertising and MaxFli added a claim for
inequitable conduct before the Patent and Trademark Office. The
parties are engaged in fact and expert discovery. MaxFli submitted
a report from its damages expert asserting that MaxFli is entitled
to at least $18,500,000 in compensatory damages from the
Company. MaxFli has informed the Company that it may seek
leave to amend its damages expert report to increase the damages
that MaxFli will seek at trial. The Company has submitted its own
expert report seeking damages of $6,300,000 for patent infringement
and false advertising. The Company anticipates that each party
will challenge the methodology and conclusions in the expert
damages reports of the other. The trial date has been scheduled for
February 23, 2004. An unfavorable resolution of MaxFli’s counter-
claim could have a significant adverse effect upon the Company’s
results of operations, cash flows and financial position.
On December 2, 2002, Callaway Golf Company was served with a
complaint filed in the Circuit Court of the 19th Judicial District in
and for Martin County, Florida, Case No. 935CA, by the Perfect
Putter Co., and certain principals of the Perfect Putter Co. Plaintiffs
have sued Callaway Golf Company, Callaway Golf Sales Company
and a Callaway Golf Sales Company sales representative. Plaintiffs
Legal Matters
The Company, incident to its business activities, is often the
plaintiff in legal proceedings, both in the United States and
abroad, in various stages of development. In conjunction with
the Company’s program of enforcing its proprietary rights, the
Company has initiated or may initiate actions against alleged
infringers under the intellectual property laws of various countries,
including, for example, the U.S. Lanham Act, the U.S. Patent
Act, and other pertinent laws. Defendants in these actions may,
among other things, contest the validity and/or the enforceability
of some of the Company’s patents and/or trademarks. Others
may assert counterclaims against the Company. Historically,
these matters individually and in the aggregate have not had a
material adverse effect upon the financial position or results of
operations of the Company. It is possible, however, that in the
future one or more defenses or claims asserted by defendants in
one or more of those actions may succeed, resulting in the loss
of all or part of the rights under one or more patents, loss of a
trademark, a monetary award against the Company or some
other loss to the Company. One or more of these results could
adversely affect the Company’s overall ability to protect its product
designs and ultimately limit its future success in the marketplace.
In addition, the Company from time to time receives informa-
tion claiming that products sold by the Company infringe or
may infringe patent or other intellectual property rights of
third parties. It is possible that one or more claims of potential
infringement could lead to litigation, the need to obtain
licenses, the need to alter a product to avoid infringement, a
settlement or judgment, or some other action or loss by the
Company.
On April 6, 2001, a complaint was filed against Callaway Golf
Company and Callaway Golf Sales Company, in the Circuit Court
of Sevier County, Tennessee, Case No. 2001-241-IV. The complaint
seeks to assert a class action by plaintiff on behalf of himself and
on behalf of consumers in Tennessee and Kansas who purchased
select Callaway Golf products on or after March 30, 2000.
Specifically, the complaint alleges that the Company adopted a
New Product Introduction Policy governing the introduction of
certain of the Company’s new products in violation of Tennessee
and Kansas antitrust and consumer protection laws. The plaintiff
is seeking damages, restitution and punitive damages. The
parties are engaged in discovery.