Callaway 2008 Annual Report Download - page 28

manufacturers may 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. The failure to prevent or limit
such infringers or imitators could adversely affect the Company’s reputation and sales.
The Company may become subject to intellectual property suits that could cause it to incur significant costs or
pay significant damages or that could prohibit it from selling its products.
An increasing number of the Company’s competitors have 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 staff 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 offerings. From time to time, third parties have claimed or
may claim that the Company’s products infringe upon their proprietary rights. 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 significant interruptions in the Company’s business as a result of any claims of infringement.
However, in the future, intellectual property claims could force the Company to alter its existing products or
withdraw them from the market or could delay the introduction of new products.
Various patents have been issued to the Company’s competitors in the golf industry and these competitors
may assert that the Company’s golf products infringe their patent or other proprietary rights. If the Company’s
golf products are found to infringe third-party intellectual property rights, the Company may be unable to obtain
a license to use such technology, and it could incur substantial costs to redesign its products or to defend legal
actions.
The Company’s brands may be damaged by the actions of its licensees.
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 brands could be damaged. The Company’s brands could also be damaged if a licensee becomes
insolvent or by any negative publicity concerning a licensee or if the licensee does not maintain good
relationships with its customers or consumers, many of which are also the Company’s customers and consumers.
Sales of the Company’s products by unauthorized retailers or distributors could adversely affect the
Company’s authorized distribution channels and harm the Company’s reputation.
Some of the Company’s products find their way to unauthorized outlets or distribution channels. This “gray
market” for the Company’s products can undermine authorized retailers and foreign wholesale distributors who
promote and support the Company’s products, and can injure the Company’s image in the minds of its customers
and consumers. On the other hand, stopping such commerce could result in a potential decrease in sales to those
customers who are selling the Company’s products to unauthorized distributors or an increase in sales returns
over historical levels. While the Company has taken some lawful steps to limit commerce of its products in the
“gray market” in both the United States and abroad, it has not stopped such commerce.
The Company has significant international operations and is exposed to risks associated with doing business
globally.
The Company’s management believes that controlling the distribution of its products in certain major
markets in the world has been and will be an element in the future growth and success of the Company. The
Company sells and distributes its products directly in many key international markets in Europe, Asia, North
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