LeapFrog 2009 Annual Report Download - page 25

service trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. Among our rights are inbound licenses from third parties for content, such as characters,
stories, illustrations and trade names, and for technologies we incorporate in our products including key
technology used in our Tag and Tag Jr. reading systems. Our continued use of these rights is dependent on our
ability to continue to obtain these license rights at reasonable rates. Any failure to do so could interrupt our
supply chain and require us to modify our products or business plans. In addition, the 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. The steps we have
taken may not prevent unauthorized use of our intellectual property, particularly in foreign countries where we
do not hold patents or trademarks or where the laws may not protect our intellectual property as fully as in the
United States. Some of our products and product features have limited 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. In addition, monitoring the unauthorized use of our intellectual
property 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. However, if we fail to protect
or to enforce our intellectual property rights successfully, our rights could be diminished and our competitive
position could suffer, which could harm our operating results.
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 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. For
example, in October 2009, TAG Toys, Inc. filed a complaint against us alleging, among other things, that our use
of various logos and marks relating to our Tag Reading Systems infringes trademark rights held by TAG Toys,
and seeking unspecified monetary damages, costs and attorneys’ fees, and injunctive relief. Responding to any
infringement claim, regardless of its validity, 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 of our products or against the use of a
trademark or copyright in the sale of some 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.
Any errors or defects contained in our products, or our failure to comply with applicable safety standards,
could result in recalls, delayed shipments and rejection of our products and damage to our reputation, and
could expose us to regulatory or other legal action.
Our products may contain errors or defects that are discovered after commercial shipments have begun, which
could result in the rejection of our products by our retailers, damage to our reputation, lost sales, diverted
development resources and increased customer service and support costs and warranty claims. Individuals could
sustain injuries from our products, and we may be subject to claims or lawsuits resulting from such injuries.
There is a risk that these claims or liabilities may exceed, or fall outside the scope of, our insurance coverage.
Moreover, we may be unable to retain adequate liability insurance in the future.
Concerns about potential public harm and liability may involve involuntary recalls or lead us to voluntarily recall
selected products. For example, in June 2009, we announced a voluntary recall of our original My Pal Scout to
replace the paw decals with embroidered paws because the decals, if removed, may have resulted in a safety
issue. Recalls or post-manufacture repairs of our products could harm our reputation and our competitive
position, increase our costs or reduce our net sales. Costs related to unexpected defects include the costs of
writing down the value of our inventory of defective products and providing product replacement, as well as the
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