Callaway 2009 Annual Report Download - page 29

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the golf industry globally during this time. It is also possible that the elimination of the older groove designs can
impact ongoing consumer purchasing behavior, including the promptness with which consumers replace their
older clubs in hopes of upgrading, and thereby reduce overall demand. If the Company has large inventories of
older models in 2010 and the deadline to sell such models prior to 2011 is not extended, then it could be forced to
discount those products heavily to guarantee sale prior to the deadline, write-off and destroy those products, or
choose to continue to offer those products for sale past the deadline even though they are not in compliance with
the Rules of Golf. Any of these scenarios could have a significant negative impact on the Company’s earnings
and/or its brand.
The Company’s sales could decline if professional golfers do not endorse or use the Company’s products.
The Company establishes relationships with professional golfers in order to evaluate and promote Callaway
Golf, Odyssey, Top-Flite and Ben Hogan branded products. The Company has entered into endorsement
arrangements with members of the various professional tours, including the Champions Tour, the PGA Tour, the
LPGA Tour, the PGA European Tour, the Japan Golf Tour and the Nationwide Tour. While most professional
golfers fulfill their contractual obligations, some have been known to stop using a sponsor’s products despite
contractual commitments. If certain of the Company’s professional endorsers were to stop using the Company’s
products contrary to their endorsement agreements, the Company’s business could be adversely affected in a
material way by the negative publicity or lack of endorsement.
The Company believes that professional usage of its golf clubs and golf balls contributes to retail sales. The
Company therefore spends a significant amount of money to secure professional usage of its products. Many
other companies, however, also aggressively seek the patronage of these professionals and offer many
inducements, including significant cash incentives and specially designed products. There is a great deal of
competition to secure the representation of tour professionals. As a result, it is becoming increasingly difficult
and more expensive to attract and retain such tour professionals. The inducements offered by other companies
could result in a decrease in usage of the Company’s products by professional golfers or limit the Company’s
ability to attract other tour professionals. A decline in the level of professional usage of the Company’s products
could have a material adverse effect on the Company’s sales and business.
If the Company is unable to enforce its intellectual property rights, its reputation and sales could be adversely
affected.
The golf club industry, in general, has been characterized by widespread imitation of popular club designs.
The Company has an active program of monitoring, investigating and enforcing its proprietary rights against
companies and individuals who market or manufacture counterfeits and “knockoff” products. The Company
asserts its rights against infringers of its copyrights, patents, trademarks, and trade dress. However, these efforts
may not be successful in reducing sales of golf products by these infringers. Additionally, other golf club
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.
The Company’s competitors also seek 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 in the
future that the Company’s products infringe upon their proprietary rights. The Company evaluates any such
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