Callaway 2009 Annual Report Download - page 32

The Company also owns a manufacturing plant, warehouse and offices that encompass approximately
869,000 square feet in Chicopee, Massachusetts. In May 2008, the Company announced the closure of its golf
ball manufacturing facility in Gloversville, New York (approximately 70,000 square feet) following the
Company’s decision to consolidate its golf ball operations into other existing locations within and outside the
U.S. 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, China, Thailand, Malaysia and
India. 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 golf equipment manufacturers to encourage Chinese and
other foreign government officials to conduct raids of identified counterfeiters, resulting in the seizure and
destruction of counterfeit golf clubs and, in some cases, criminal prosecution of the counterfeiters. 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, Callaway Golf filed a complaint in the United States District Court in Delaware (Case
No. C.A. 06-91) asserting patent infringement claims against Acushnet, a wholly owned subsidiary of Fortune
Brands, alleging that Acushnet’s Titleist Pro V1 family of golf balls infringed nine claims contained in four golf
ball patents owned by Callaway Golf. Acushnet later stipulated that the Pro V1 golf balls infringed the nine
asserted claims, and the case proceeded to trial on the sole issue of validity. On December 14, 2007, a jury found
that eight of the nine patent claims asserted by the Company against Acushnet were valid, holding one claim
invalid. The District Court entered judgment in favor of the Company and against Acushnet on December 20,
2007. On November 10, 2008, the District Court entered an order, effective January 1, 2009, permanently
enjoining Acushnet from further infringing those patent claims, while at the same time denying Acushnet’s
motions for a new trial and for judgment as a matter of law. Acushnet appealed the District Court’s judgment to
the Federal Circuit (Appeal No. 2009-1076). On August 14, 2009, the Federal Circuit affirmed in part, reversed
in part and remanded the case for a new trial. The Federal Circuit affirmed the trial court’s rulings with respect to
claim construction, evidentiary rulings made during the trial and rejected Acushnet’s motion for judgment as a
matter of law, but ruled that the jury’s inconsistent verdicts and an error granting partial summary judgment on
Acushnet’s anticipation defense required the case against Acushnet to be retried. As a result of its ruling, the
Federal Circuit also vacated the permanent injunction. The Federal Circuit refused Acushnet’s petition to rehear
the case. Acushnet filed a petition for review by the United States Supreme Court and Callaway Golf opposed the
petition. Acushnet’s petition was denied on February 22, 2010. The District Court has set the matter for retrial on
March 22-26, 2010. The retrial will include Callaway Golf’s claim for damages and Acushnet’s defenses.
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