Callaway 2004 Annual Report Download - page 47

Intellectual Property and Proprietary Rights
The golf club industry, in general, has been characterized by widespread imitation of popular club
designs. The Company has an active program of enforcing its proprietary rights against companies and
individuals who market or manufacture counterfeits and ""knock oÅ'' products, and asserts its rights against
infringers of its copyrights, patents, trademarks, and trade dress. However, there is no assurance that these
eÅorts will reduce the level of acceptance obtained by these infringers. Additionally, there can be no assurance
that other golf club manufacturers will not be able to produce successful golf clubs which imitate the
Company's designs without infringing any of the Company's copyrights, patents, trademarks, or trade dress.
An increasing number of the Company's competitors have, like the Company itself, sought to obtain
patent, trademark, copyright or other protection of their proprietary rights and designs for golf clubs and golf
balls. As the Company develops new products, it attempts to avoid infringing the valid patents and other
intellectual property rights of others. Before introducing new products, the Company's legal staÅ evaluates the
patents and other intellectual property rights of others to determine if changes are required to avoid infringing
any valid intellectual property rights that could be asserted against the Company's new product oÅerings.
From time to time, others have contacted or may contact the Company to claim that they have proprietary
rights that have been infringed upon by the Company and/or its products. The Company evaluates any such
claims and, where appropriate, has obtained or sought to obtain licenses or other business arrangements. To
date, there have been no interruptions in the Company's business as a result of any claims of infringement. No
assurance can be given, however, that the Company will not be adversely aÅected in the future by the assertion
of intellectual property rights belonging to others. This eÅect could include alteration or withdrawal of existing
products and delayed introduction of new products.
Various patents have been issued to the Company's competitors in the golf ball industry. As the Company
develops its golf ball products, it attempts to avoid infringing valid patents or other intellectual property rights.
Despite these attempts, it cannot be guaranteed that competitors will not assert and/or a court will not Ñnd
that the Company's golf balls infringe certain patent or other rights of competitors. If the Company's golf balls
are found to infringe on protected technology, there is no assurance that the Company would be able to obtain
a license to use such technology, and it could incur substantial costs to redesign them and/or defend legal
actions.
The Company has procedures to maintain the secrecy of its conÑdential business information. These
procedures include criteria for dissemination of information and written conÑdentiality agreements with
employees and suppliers. Suppliers, when engaged in joint research projects, are required to enter into
additional conÑdentiality agreements. While these eÅorts are taken seriously, there can be no assurance that
these measures will prove adequate in all instances to protect the Company's conÑdential information.
The Company's Code of Conduct prohibits misappropriation of trade secrets and conÑdential information
of third parties. The Code of Conduct is contained in the Company's Employee Handbook and is also
available on the Company's website. Employees also sign an Employee Invention and ConÑdentiality
Agreement prohibiting disclosure of trade secrets and conÑdential information from third parties. Periodic
training is provided to employees on this topic as well. Despite taking these steps, as well as others, the
Company cannot guarantee that these measures will be adequate in all instances to prevent misappropriation
of trade secrets from third parties or the accusation by a third party that such misappropriation has taken
place.
Brand Licensing
The Company licenses its trademarks to third party licensees who produce, market and sell their products
bearing the Company's trademarks. The Company chooses its licensees carefully and imposes upon such
licensees various restrictions on the products, and on the manner, on which such trademarks may be used. In
addition, the Company requires its licensees to abide by certain standards of conduct and the laws and
regulations of the jurisdictions in which they do business. However, if a licensee fails to adhere to these
requirements, the Company's brand could be damaged by the use or misuse of the Company's trademarks in
connection with its licensees' products.
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