LeapFrog 2002 Annual Report Download - page 55

Third parties have claimed, and may claim in the future, that we are infringing their intellectual property
rights, which may cause us to incur significant litigation or licensing expenses or to stop selling some or all
of our products or using some of our trademarks.
In the course of our business, we periodically receive claims of infringement or otherwise become aware of
potentially relevant patents, copyrights, trademarks or other intellectual property rights held by other parties.
Upon receipt of this type of communication, we evaluate the validity and applicability of allegations of
infringement of intellectual property rights to determine whether we must negotiate licenses or cross-licenses to
incorporate or use the proprietary technologies or trademarks or other proprietary matters in or on our products.
Any dispute or litigation regarding patents, copyrights, trademarks or other intellectual property rights, regardless
of its outcome, may be costly and time-consuming, and may divert our management and key personnel from our
business operations. If we, our distributors or our manufacturers are adjudged to be infringing the intellectual
property rights of any third party, we or they may be required to obtain a license to use those rights, which may
not be obtainable on reasonable terms, if at all. We also may be subject to significant damages or injunctions
against the development and sale of some or all of our products or against the use of a trademark in the sale of
some or all of our products. Our insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all the liability that could be imposed. We may presently be unaware of intellectual property
rights of others that may cover some or all of our technology or products. We will continue to be subject to
infringement claims as we increase the number and type of products we offer, as the number of products, services
and competitors in our markets grow, as we enter new markets and as our products receive more attention and
publicity. See “Item 3—Legal Proceedings” in this report for a discussion of intellectual property infringement
suits in which we are currently involved. These suits include a suit filed by Technology Innovations, LLC
alleging that our LeapPad platform, My First LeapPad platform and other products infringe one of its patents,
and a suit filed by General Creation LLC alleging that our LeapPad platforms infringe one of their patents. If we
fail to be successful in these lawsuits, it could require us to stop selling our LeapPad and other platforms and to
pay damages.
Our intellectual property rights may not prevent our competitors from using our technologies or similar
technologies to develop competing products, which could weaken our competitive position and harm our
operating results.
Our success depends in large part on our proprietary technologies which are used in our My First LeapPad,
LeapPad and Quantum Pad platforms, as well as our Explorer interactive globe series. We rely, and plan to
continue to rely, on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and
licensing arrangements to establish and protect our proprietary rights. We have entered into confidentiality and
invention assignment agreements with our employees and contractors, and nondisclosure agreements with
selected parties with whom we conduct business to limit access to and disclosure of our proprietary information.
These contractual arrangements and the other steps we have taken to protect our intellectual property may not
prevent misappropriation of our intellectual property or deter independent third-party development of similar
technologies. For example, we are aware that products very similar to ours have been produced in China, and we
have written a letter to the developer of the product advising that we will not tolerate infringement of our
intellectual property rights. However, we may not be able to enforce our intellectual property rights, if any, in
China or other countries where such product may be manufactured or sold. Monitoring the unauthorized use of
our proprietary technology and trademarks is costly, and any dispute or other litigation, regardless of outcome,
may be costly and time-consuming and may divert our management and key personnel from our business
operations. The steps we have taken may not prevent unauthorized use of our proprietary technology or
trademarks, particularly in foreign countries where we do not hold patents or trademarks or where the laws may
not protect our proprietary rights and trademarks as fully as in the United States. Some features of our products
do not have intellectual property protection, and, as a consequence, we may not have the legal right to prevent
others from reverse engineering or otherwise copying and using these features in competitive products. If we fail
to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which
could harm our operating results.
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