Callaway 2013 Annual Report Download - page 30

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16
ability to attract other tour professionals. A decline in the level of professional usage of the Company’s products, or a
significant increase in the cost to attract or retain endorsers, 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 reputation and sales.
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.
Recent changes to U.S. patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office could
adversely affect the Company’s ability to protect its intellectual property.
The Leahy-Smith America Invents Act (the “Leahy-Smith Act”) includes a number of significant changes to the
U.S. patent laws, such as, among other things, changing from a “first to invent” to a “first inventor to file” system,
establishing new procedures for challenging patents and establishing different methods for invalidating patents. The U.S.
Patent and Trademark Office is still in the process of implementing regulations relating to these changes, and the courts
have yet to address many of the new provisions of the Leahy-Smith Act. Some of these changes or potential changes may
not be advantageous to the Company, and it may become more difficult to obtain adequate patent protection or to enforce
the Company’s patents against third parties. While the Company cannot predict the impact of the Leahy-Smith Act at this
time, these changes or potential changes could increase the costs and uncertainties surrounding the prosecution of the
Company’s patent applications and adversely affect the Company’s ability to protect its intellectual property.
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.