Callaway 2015 Annual Report Download - page 32

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team and other key personnel. Competition for these individuals’ talents is intense, and the Company may not be able to attract
and retain a sufficient number of qualified personnel in the future. The loss of one or more of these senior officers could have
a material adverse effect upon the Company and its ability to achieve its strategic goals.
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 lawsuits 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, golf balls and other golf products. 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, withdraw them from the market, 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 and consumers. On the other hand,
stopping such commerce could result in a potential decrease in sales to those customers who are selling the Company’s products
to unauthorized distributors or an increase in sales returns over historical levels. While the Company has taken some lawful
steps to limit commerce of its products in the “gray market” in both the United States and abroad, it has not stopped such
commerce.
The Company has significant international operations and is exposed to risks associated with doing business globally.
The Company sells and distributes its products directly in many key international markets in Europe, Asia, North America
and elsewhere around the world. These activities have resulted and will continue to result in investments in inventory, accounts
receivable, employees, corporate infrastructure and facilities. In addition, there are a limited number of suppliers of golf club
components in the United States, and the Company has increasingly become more reliant on suppliers and vendors located
outside of the United States. The operation of foreign distribution in the Company’s international markets, as well as the