Callaway 2009 Annual Report Download - page 111

Acushnet has filed requests for reexamination with the PTO challenging the validity of the two patents
asserted by the Company in the new litigation filed against Acushnet. The PTO has issued office actions with
respect to each of the patents to which the Company has responded.
On March 3, 2009, Acushnet filed a complaint in the United States District Court for the District of
Delaware, Case No. C.A. 09-130, asserting claims against the Company for patent infringement. Specifically,
Acushnet asserts that the Company’s sale of the Tour i and Tour ix golf balls infringe nine Acushnet golf ball
patents. Acushnet has since dropped one of the patents, but expanded its infringement contentions to allege that
seven other models of the Company’s golf balls, using Callaway Golf’s patented HX surface geometry, infringe
five of the Acushnet patents asserted in the new suit. Acushnet is seeking damages and an injunction to prevent
alleged infringement by the Company. The Company’s response to the complaint was filed on April 17, 2009,
and the case has been consolidated for discovery and pretrial with Callaway Golf’s March 3, 2009 case against
Acushnet, described above. The case has been set for trial in March 2012. The district court has not yet
determined whether the cases will be tried together or separately.
On February 27, 2007, the Company and Dailey & Associates (the Company’s former 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 contended that the Company was
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 sought a declaration that it, and its advertising agency, were not required to
contribute to the Plans based on amounts paid by the Company to professional golfers for acting services beyond
the contributions already made, or alternatively, were entitled to restitution for all contributions previously made
to the Plans because the Plans had no authority to demand contributions based on amounts paid by the Company
in any event. The Plans filed a counterclaim against Dailey & Associates and the Company to compel an audit
and to recover unpaid Plan contributions based on amounts paid by the Company to the professional golfers, as
well as liquidated damages, interest, and reasonable audit and attorneys’ fees. The Company and Dailey &
Associates agreed to dismiss their claims against SAG in return for SAG’s agreement to be bound by the result of
the litigation with the Plans. Because the Company was not a signatory to the SAG collective bargaining
agreement, and was not in contractual privity with SAG or the Plans, on July 3, 2009 the Court granted the
Company’s motion to dismiss the Plans’ complaint, resulting in dismissal of the Plans’ action against the
Company and a favorable resolution of the Company’s action against the Plans. At the same time, however, the
Court denied Dailey & Associates’ motion to dismiss, because it was a SAG signatory. The trial commenced on
January 12, 2010. After three days of testimony the parties reached a settlement pursuant to which the Plans will
release all claims against Callaway Golf and its signatory advertising agencies through January 31, 2010 in
exchange for an immaterial payment. Formal settlement documentation has been exchanged.
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. Callaway Golf Japan filed an administrative proceeding in the
Japan Patent and Trademark Office (“Japan PTO”) seeking to invalidate the patents in suit. The Japan PTO ruled
that the asserted claims in the Inaba patents are invalid. The Osaka District Court also ruled, on different
grounds, that the patents are invalid and also that Callaway Golf does not infringe the patents. Inaba appealed
both the Osaka District Court and Japan PTO rulings to the Japan Intellectual Property High Court. The
Intellectual Property High Court is considering the appeal of the Japan PTO’s ruling on the design patent, has
remanded the invalidation of the utility patent to the Japan PTO for further proceedings based on a technical
issue, and is considering the appeal of the Osaka District Court’s decision.
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,
F-35