Callaway 2011 Annual Report Download - page 32

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 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.
Failure to adequately enforce the Company’s intellectual property rights could adversely affect its business.
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. 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 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
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