Callaway 2004 Annual Report Download - page 96

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
also alleges a violation of the state antitrust laws of Tennessee, Kansas, South Carolina and Oklahoma.
Lundsford II seeks to assert a nationwide class action consisting of all persons who purchased Callaway Golf
clubs subject to the NPIP on or after March 30, 2000. PlaintiÅ seeks treble damages under the federal
antitrust laws, compensatory damages under state law, and injunctive relief. The Lundsford II court has not
made a determination that the case may proceed in the form of a class action. The parties are engaged in
discovery and motion practice.
On October 3, 2001, the Company Ñled 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 MaxÖi
(""MaxÖi''), for infringement of a golf ball aerodynamics patent owned by the Company, U.S. Patent
No. 6,213,898 (the ""Aerodynamics Patent''). The Company later amended its complaint to add a claim that
MaxÖi engaged in false advertising by claiming that its A10 golf balls were the ""longest ball on tour.'' MaxÖi
answered the complaint denying patent infringement and false advertising, and also Ñled a counterclaim
asserting that former MaxÖi employees hired by the Company had disclosed conÑdential MaxÖi trade secrets
to the Company, and that the Company had used that information to enter the golf ball business. In the
counterclaim, MaxÖi sought compensatory damages of $30.0 million; punitive damages equal to two times the
compensatory damages; prejudgment interest; attorneys' fees; a declaratory judgment; and injunctive relief.
On November 12, 2003, pursuant to an agreement between the Company and MaxÖi, the court dismissed the
Company's claim for infringement of the Aerodynamics Patent. On May 13, 2004, the Court granted the
Company's motion for summary judgment, eliminating a portion of MaxÖi's counterclaim and reducing
MaxÖi's compensatory damages claim from approximately $30.0 million to $18.5 million. The case was tried
to a jury beginning on August 2, 2004. On August 12, 2004, the jury returned a verdict of $2.2 million in favor
of the Company based upon its Ñnding that MaxÖi willfully engaged in false advertising. The jury also rejected
MaxÖi's counterclaim that the Company used any MaxÖi trade secrets. MaxÖi Ñled post-trial motions seeking
to set aside the verdict and/or obtain a new trial. In post-trial motions, Callaway Golf is seeking attorneys' fees
and prejudgment interest on its successful false advertising claim, while MaxÖi is seeking attorneys' fees on
the dismissal of the patent infringement claims Ñled by Callaway Golf. It is expected that if MaxÖi is
ultimately unsuccessful with its post-trial motions, it will appeal the verdict. If MaxÖi is successful with its
post-trial motions, or an appeal of the verdict, and MaxÖi's counterclaims are ultimately resolved in MaxÖi's
favor, such matters could have a signiÑcant adverse eÅect upon the Company's results of operations, cash
Öows and Ñnancial position.
On December 2, 2002, Callaway Golf Company was served with a complaint Ñled in the Circuit Court of
the 19th Judicial District in and for Martin County, Florida, Case No. 935CA, by the Perfect Putter Co. and
its principals. PlaintiÅs sued Callaway Golf Company, Callaway Golf Sales Company and a Callaway Golf
Sales Company sales representative. PlaintiÅs alleged that the Company misappropriated certain alleged trade
secrets and proprietary information of the Perfect Putter Co. and incorporated those purported trade secrets in
the Company's Odyssey White Hot 2-Ball Putter. PlaintiÅs also allege that the Company made false
statements and acted inappropriately during discussions with plaintiÅs. PlaintiÅs sought compensatory
damages, exemplary damages, attorneys' fees and costs, pre- and post-judgment interest and injunctive relief.
On December 20, 2002, the Company removed the case to the United States District Court for the Southern
District of Florida, Case No. 02-14342. On April 29, 2003, the District Court denied plaintiÅs' motion to
remand the case to state court. On January 7, 2005, the parties announced a resolution and dismissal of the
litigation with Callaway Golf's acquisition of putter patents from Perfect Putter. Other terms of the resolution
are conÑdential.
On December 14, 2004, Callaway Golf Sales Company was served with a complaint captioned York v.
Callaway Golf Sales Company, Ñled in the Circuit Court for Dade County, Florida, Case No. 04-25625
CA 11, asserting a purported class action on behalf of all consumers who purchased allegedly defective HX
Red golf balls with cracked covers. The complaint contains causes of action for strict liability, breach of
implied and express warranties, and violation of the Magnuson-Moss Consumer Product Warranty Act.
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