Restoration Hardware 2012 Annual Report Download - page 89

claims. Product safety concerns may also require us, whether on a voluntary or involuntary basis, to remove
selected products from our stores, particularly with respect to our Baby & Child brand. Product recalls and
removal of products and defending such product liability claims can result in, among other things, lost sales,
diverted resources, potential harm to our reputation and increased customer service costs, any of which could
have a material adverse effect on our business and results of operations.
There are claims made against us and/or our management from time to time that can result in litigation or
regulatory proceedings which could distract management from our business activities and result in significant
liability.
From time to time we and/or our management are involved in litigation, claims and other proceedings
relating to the conduct of our business, including but not limited to consumer protection class action litigation,
claims related to our collection of reproductions, claims related to our employment practices, claims of
intellectual property infringement, including with respect to trademarks and trade dress, and claims asserting
unfair competition and unfair business practices by third parties. In addition, from time to time, we are subject to
product liability and personal injury claims for the products that we sell and the stores we operate. Subject to
certain exceptions, our purchase orders generally require the vendor to indemnify us against any product liability
claims; however, if the vendor does not have insurance or becomes insolvent, we may not be indemnified. In
addition, we could face a wide variety of employee claims against us, including general discrimination, privacy,
labor and employment, ERISA and disability claims. Any claims could result in litigation against us and could
also result in regulatory proceedings being brought against us by various federal and state agencies that regulate
our business, including the United States Equal Employment Opportunity Commission. Often these cases raise
complex factual and legal issues, which are subject to risks and uncertainties and which could require significant
management time. Our Chief Executive Officer, Mr. Alberini was employed by Guess?, Inc., which has been
subject to a tax audit and assessment proceeding in Italy. There is a related proceeding by a prosecutor in Italy
that has been initiated with respect to several current and former members of the Guess Europe management
team as well as Mr. Alberini. There can be no assurance as to the exact timing or outcome of the Italian
prosecutorial proceeding or that it will not require Mr. Alberini to devote substantial time in addressing this
matter prior to its final resolution. Guess?, Inc. has reported a settlement of this tax proceeding in Italy and we
expect that the related proceeding regarding Mr. Alberini will be resolved favorably. Litigation and other claims
and regulatory proceedings against us or our management could result in unexpected expenses and liability and
could also materially adversely affect our operations and our reputation.
Labor activities could cause labor relations difficulties for us.
Currently none of our employees is represented by a union. However, our employees have the right at any
time to form or affiliate with a union, and union organizational activities have occurred previously at our
Baltimore distribution center. We cannot predict the negative effects that any future organizational activities will
have on our business and operations. If we were to become subject to work stoppages, we could experience
disruption in our operations and increases in our labor costs, either of which could materially adversely affect our
business, financial condition or results of operations.
Intellectual property claims by third parties or our failure or inability to protect our intellectual property rights
could diminish the value of our brand and weaken our competitive position.
Third parties have and may in the future assert intellectual property claims against us, particularly as we
expand our business to include new products and product categories and move into other geographic markets.
Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert
management resources. Successful infringement claims against us could result in significant monetary liability
and prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our
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Form 10-K