Callaway 2008 Annual Report Download - page 106

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On February 27, 2007, the Company and Dailey & Associates (an advertising agency) filed a complaint in
the United States District Court for the Southern District of California, Case No. 07CV0373, asserting claims
against the Screen Actors Guild (“SAG”) and the Trustees of SAG’s Pension and Health Plans (“Plans”) seeking
declaratory and injunctive relief. Specifically, the Plans contend that Callaway Golf is required to treat a
significant portion of the sums paid to professional golfers who endorse the Company’s products as
compensation for “acting services,” and to make contributions to the Plans based upon a percentage of that total
amount. The Company is seeking a declaration that it is not required to contribute beyond the contributions
already made, or alternatively, is obligated to pay nothing and is entitled to restitution for all contributions
previously made to the Plans. The Plans filed a counterclaim to compel an audit and to recover unpaid Plan
contributions, as well as liquidated damages, interest, and reasonable audit and attorneys’ fees. The Company
recently agreed to dismiss its claims against SAG in return for SAG’s agreement to be bound by the result of the
Company’s litigation with the Plans. A pretrial conference is set for March 16, 2009. No trial date has been set.
On January 16, 2008, the Company issued a notice of default to Ashworth Inc. under the parties’ May 14,
2001 License Agreement, as amended from time to time (“Ashworth License”). Under the Ashworth License,
Ashworth had thirty (30) days from the date of notice in which to cure a default. Ashworth denied that any
breach has occurred, and did not take the steps requested by the Company to cure. Accordingly, it was the
Company’s belief that it had the right to terminate the Agreement and Ashworth’s assertion that the Ashworth
License was not subject to termination. The parties were prepared to arbitrate that dispute when TaylorMade-
adidas Golf announced that it was acquiring Ashworth, providing another basis for termination of the Ashworth
License. Callaway Golf thereafter negotiated a transition and termination of the Ashworth License with
TaylorMade-adidas Golf, calling for a termination of the Ashworth License in 2009. As a result of the transition
and termination agreement, the parties resolved and dismissed the arbitration with prejudice. Callaway Golf is
negotiating a new apparel license with a new licensee.
On February 13, 2008, Ogio International Inc. filed a complaint for patent infringement against Callaway
Golf in the United States District Court, for the District of Utah, Case No. 08CV116. Specifically, Ogio alleges
that Callaway Golf’s sales of Warbird XTT, Warbird Hot, Terra Firma X, Terra Firma XI, CX Cart, Euro Stand,
and Matrix and Hyper-X golf bags infringe one or more claims of United States Patents numbered 6,877,604 and
7,213,705. The complaint seeks compensatory damages and an injunction. The Company has answered the
complaint denying that it infringes the patents. Discovery has not yet commenced and no trial date has been set.
On May 8, 2008, Kenji Inaba filed a suit against Callaway Golf Japan in the Osaka District Court in
Japan. Inaba has alleged that certain golf balls sold by Callaway Golf Japan with a hex aerodynamic pattern
infringe his Japanese utility design patent No. 3,478,303 and his Japanese design patent No. 1,300,582. Inaba is
seeking damages pursuant to a royalty based on sales. The Court has conducted hearings to consider the
respective positions of the parties on infringement, non-infringement and invalidity. A decision is expected on
the matter sometime during 2010. Callaway Golf Japan has also filed a proceeding with the Japan Patent and
Trademark Office seeking to invalidate the patents in suit.
On May 13, 2008, Clear with Computers, LLC (“CWC”) filed a patent infringement suit against Callaway
Golf Company, Callaway Golf Interactive, Inc., and forty-five other defendants in the Eastern District of Texas.
CWC alleges that Callaway Golf’s websites (www.callawaygolf.com, www.odysseygolf.com,
www.benhogan.com, and www.topflite.com) infringe U.S. Pat. Nos. 5,615,342 and 5,367,627, relating to
computer-assisted proposal generation and part sales methods. On November 17, 2008, the Company resolved
the case pursuant to a confidential settlement agreement. The complaint was dismissed with prejudice on
December 2, 2008.
On July 11, 2008, the Company was sued in the Eastern District of Texas by Nicholas Colucci, dba EZ Line
Putters, pursuant to a complaint asserting that the Odyssey White Hot XG No. 7, White Hot XG (Long) No. 7,
Black Series i No. 7, and White Hot XG Sabertooth putters infringe U.S. Patent No. 4,962,927 and infringe the
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