Callaway 2007 Annual Report Download - page 30

Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company and its subsidiaries conduct operations in both owned and leased properties. The Company’s
principal executive offices and domestic operations are located in Carlsbad, California. The eight buildings
utilized in the Company’s Carlsbad operations include corporate offices, as well as manufacturing, research and
development, warehousing and distribution facilities. These buildings comprise approximately 735,000 square
feet of space. The Company owns five of these buildings, representing approximately 492,000 square feet of
space. An additional three properties, representing approximately 243,000 square feet of space, are leased and the
leases are scheduled to expire between March 2009 and November 2017. The Company is in the process of
converting its headquarters building to consolidate its campus into a more efficient layout. The Company also
owns a manufacturing plant, warehouse and offices that encompass approximately 869,000 square feet in
Chicopee, Massachusetts and a manufacturing plant in Gloversville, New York comprising approximately 70,000
square feet. In addition, the Company owns and leases a number of other properties domestically and
internationally, including properties in Australia, Canada, Japan, Korea, the United Kingdom and China. The
Company’s operations at each of these properties are used to some extent for both the golf club and golf ball
businesses. The Company believes that its facilities currently are adequate to meet its requirements.
Item 3. Legal Proceedings
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. The Company is also active
internationally. For example, it has worked with other manufacturers to encourage Chinese government officials
to conduct raids of identified counterfeiters, resulting in the seizure and destruction of counterfeit golf clubs.
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 asserted 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
responded that the patents at issue are invalid and not infringed by the Pro V1 golf balls. On November 20, 2007,
the District Court granted Callaway Golf’s motion for summary judgment on a breach of contract claim, holding
that Acushnet’s initiation of parallel re-examination proceedings, described below, constituted a breach of a
pre-existing dispute resolution agreement with Callaway Golf. The Court also rejected various legal challenges
by Acushnet as to the validity of the patents, permitting Callaway Golf’s claims against Acushnet to proceed to
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