Lululemon 2010 Annual Report Download - page 26

Table of Contents
challenges regarding the application of overtime and related pay regulations to our employees. A determination that
we do not comply with these laws could harm our brand image, business, financial condition and results of operation.
Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence or mandated
health benefits could also cause our business, financial condition, results of operations or cash flows to suffer.
Our franchisees may take actions that could harm our business or brand, and franchise regulations and
contracts limit our ability to terminate or replace under-performing franchises.
As of January 30, 2011, we had four franchise stores in the United States. Franchisees are independent business
operators and are not our employees, and we do not exercise control over the day-to-day operations of their retail
stores. We provide training and support to franchisees, and set and monitor operational standards, but the quality of
franchise store operations may decline due to diverse factors beyond our control. For example, franchisees may not
successfully operate stores in a manner consistent with our standards and requirements, or may not hire and train
qualified employees, which could harm their sales and as a result harm our results of operations or cause our brand
image to suffer.
Franchisees, as independent business operators, may from time to time disagree with us and our strategies
regarding the business or our interpretation of our respective rights and obligations under applicable franchise
agreements. This may lead to disputes with our franchisees, and we expect such disputes to occur from time to time,
such as the collection of royalty payments or other matters related to the franchisee’s successful operation of the
retail store. Such disputes could divert the attention of our management and our franchisees from our operations,
which could cause our business, financial condition, results of operations or cash flows to suffer.
In addition, as a franchisor, we are subject to Canadian, U.S. federal, U.S. state and international laws regulating
the offer and sale of franchises. These laws impose registration and extensive disclosure requirements on the offer
and sale of franchises, frequently apply substantive standards to the relationship between franchisor and franchisee
and limit the ability of a franchisor to terminate or refuse to renew a franchise. We may therefore be required to
retain an under-performing franchise and may be unable to replace the franchisee, which could harm our results of
operations. We cannot predict the nature and effect of any future legislation or regulation on our franchise operations.
Our failure or inability to protect our intellectual property rights could diminish the value of our brand and
weaken our competitive position.
We currently rely on a combination of copyright, trademark, trade dress and unfair competition laws, as well as
confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. We
cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent
infringement of such rights by others, including imitation of our products and misappropriation of our brand. In
addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law
enforcement practices may not protect our intellectual property rights as fully as in the United States or Canada, and
it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in
these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be
diminished and our competitive position may suffer.
Our trademarks and other proprietary rights could potentially conflict with the rights of others and we may be
prevented from selling some of our products.
Our success depends in large part on our brand image. We believe that our trademarks and other proprietary
rights have significant value and are important to identifying and differentiating our products from those of our
competitors and creating and sustaining demand for our products. We have obtained and applied for some
United States and foreign trademark registrations, and will continue to evaluate the registration of additional
trademarks as appropriate. However, we cannot guarantee that any of our pending trademark applications will be
approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties
may seek to oppose or otherwise challenge these registrations. Additionally, we cannot assure you that obstacles
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