Restoration Hardware 2015 Annual Report Download - page 24

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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 purported class action litigation. Such legal proceedings may include claims related to our employment
practices, claims of intellectual property infringement, including with respect to trademarks and trade dress, claims asserting unfair
competition and unfair business practices, claims with respect to our collection and sale of reproduction products, and consumer class
action claims relating to our consumer practices including the collection of zip code or other information from customers. 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. Litigation and other claims and regulatory proceedings against our management or us could result in unexpected
expenses and liability and could also materially adversely affect our operations and our reputation.
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 products, license rights from third parties or cease using those rights altogether, which could have a material
adverse impact on our business, financial condition or results of operations.
We currently rely on a combination of copyright, trademark, patent, trade dress and unfair competition laws, as well as
confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. We believe that our
trademarks and other proprietary rights have significant value and are important to identifying and differentiating certain of our
products and brand from those of our competitors and creating and sustaining demand for certain of our products. We have from time
to time encountered other retailers selling products substantially similar to our products or misrepresenting that the products such
retailers were selling were our products. We cannot assure you that the steps taken by us to protect our intellectual property rights will
be adequate to prevent infringement of our rights by others, including imitation of our products and misappropriation of our brand.
The costs of defending and enforcing our intellectual property assets may incur significant time and legal expense, and we may not be
entirely successful in protecting our assets and enforcing our rights. If we are unable to protect and maintain our intellectual property
rights, the value of our brand could be diminished and our competitive position could suffer.
Compliance with laws, including laws relating to our business activities outside of the United States, may be costly, and changes in
laws could make conducting our business more expensive or otherwise change the way we do business.
We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, e-
commerce, privacy, safety, real estate, environmental and zoning and occupancy laws, and other laws and regulations that regulate
retailers generally or govern our business. If these regulations were to change or were violated by us or our vendors or buying agents,
the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or
suffer reputational harm, which could reduce demand for our products and harm our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more
expensive or require us to change the way we do business. For example, as a retail business, changes in laws related to employee
benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence,
mandated health benefits or overtime pay, could negatively impact us by increasing compensation and benefits costs for overtime and
medical expenses. In addition, relatively new United States health care laws and potential global and domestic greenhouse gas
emission requirements and other environmental legislation and regulations could result in increased direct compliance costs for us (or
may cause our vendors to raise the prices they charge us in order to maintain profitable operations because of increased compliance
costs), increased transportation costs or reduced availability of raw materials.