Callaway 2010 Annual Report Download - page 114

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various
states and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax
authorities in its major jurisdictions as follows:
Major Tax Jurisdiction Years No Longer Subject to Audit
U.S. federal 2007 and prior
California (U.S.) 2004 and prior
Canada 2005 and prior
Japan 2007 and prior
Korea 2008 and prior
United Kingdom 2006 and prior
As of December 31, 2010, the Company did not provide for United States income taxes or foreign
withholding taxes on a cumulative total of $85,000,000 of undistributed earnings from certain non-U.S.
subsidiaries that will be permanently reinvested outside the United States. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against
the Company’s U.S. tax liability, if any. It is not practicable to estimate the amount of the deferred tax liability on
such unremitted earnings. Should the Company repatriate foreign earnings, the Company would have to adjust
the income tax provision in the period management determined that the Company would repatriate earnings.
Note 17. Commitments and Contingencies
Legal Matters
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 consolidated financial position
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
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