Callaway 2006 Annual Report Download - page 101

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 15. Commitments and Contingencies
Legal Matters
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 material 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 information 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 material loss by the Company.
On February 9, 2006, the Company filed a complaint in the United States District Court for the District of
Delaware, Case No. C.A. 06-91, asserting claims against Acushnet Company for patent infringement.
Specifically, Callaway Golf asserts that Acushnet’s sale of the Titleist Pro V1 family of golf balls infringes four
golf ball patents that Callaway Golf acquired when it acquired the assets of Top-Flite. Callaway Golf is seeking
damages and an injunction to prevent future infringement by Acushnet. In its answer to the Complaint, Acushnet
has responded that the patents at issue are invalid and not infringed by the Pro V1 golf balls. Acushnet also has
filed petitions for reexamination with the United States Patent and Trademark Office (“PTO”). Although the PTO
agreed the petitions for reexamination raised certain substantial new questions of patentability, and has issued a
first office action preliminarily rejecting the claims of two of the patents based on some of the arguments
advanced by Acushnet, the PTO has not made a final and binding determination as to validity and has not yet
considered Callaway Golf’s evidence as to the validity of the patents. The validity of the asserted patents has also
not yet been addressed by the District Court. Additionally, the District Court has denied Acushnet’s motion to
stay the litigation pending a resolution in the PTO. The trial of this matter is set to commence in the District
Court on December 3, 2007.
The Company and its subsidiaries, incident to their business activities, are parties to a number of legal
proceedings, lawsuits and other claims, including the matters specifically noted above. Such matters are subject
to many uncertainties and outcomes are not predictable with assurance. Consequently, management is unable to
estimate the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance, or the
financial impact with respect to these matters. Management believes at this time that the final resolution of these
matters, individually and in the aggregate, will not have a material adverse effect upon the Company’s
consolidated annual results of operations, cash flows or financial position.
Supply of Electricity and Energy Contracts
In 2001, the Company entered into an agreement with Pilot Power Group, Inc. (“Pilot Power”) as the
Company’s energy service provider and in connection therewith entered into a long-term, fixed-priced, fixed-
capacity, energy supply contract (the “Enron Contract”) with Enron Energy Services, Inc. (“EESI”), a subsidiary
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