Shake Shack 2016 Annual Report Download - page 33

Table of Contents
Changes in economic conditions, both domestically and internationally, could materially affect our business, financial condition and results of operations.
The restaurant industry depends on consumer discretionary spending. During the economic downturn that began in 2008, disruptions in the overall economy,
including the impact of the housing crisis, high unemployment, and financial market volatility and unpredictability, caused a related reduction in consumer
confidence, which negatively affected the restaurant industry. These factors, as well as national, regional and local regulatory and economic conditions, gasoline
prices, energy and other utility costs, inclement weather, conditions in the residential real estate and mortgage markets, health care costs, access to credit,
disposable consumer income and consumer confidence, affect discretionary consumer spending. Additionally, because some of our Shacks are located in or near
retail malls, general declines in mall traffic experienced by the retail industry in general could negatively affect us.
In poor economic conditions, guest traffic could be adversely impacted if our guests choose to dine out less frequently or reduce the amount they spend on meals
while dining out. Reduced guest traffic could result in lower Shack sales and licensing revenue, as well as a decline in our profitability as we spread fixed costs
across a lower level of Shack sales. Prolonged negative trends in sales could cause us and our licensees to, among other things, reduce the number and frequency of
new Shack openings, close Shacks or delay remodeling of our existing Shacks or recognize asset impairment charges.
We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect our business.
Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks,
proprietary products and other intellectual property, including our name and logos and the unique character and atmosphere of our Shacks. We rely on U.S. and
foreign trademark, copyright, and trade secret laws, as well as license agreements, non-disclosure agreements, and confidentiality and other contractual provisions
to protect our intellectual property. Nevertheless, our competitors may develop similar menu items and concepts, and adequate remedies may not be available in
the event of an unauthorized use or disclosure of our trade secrets and other intellectual property.
The success of our business depends on our continued ability to use our existing trademarks and service marks to increase brand awareness and further develop our
brand in both domestic and international markets. We have registered and applied to register trademarks and service marks in the United States and foreign
jurisdictions. We may not be able to adequately protect our trademarks and service marks, and our competitors and others may successfully challenge the validity
and/or enforceability of our trademarks and service marks and other intellectual property. The steps we have taken to protect our intellectual property in the United
States and in foreign countries may not be adequate. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the
laws of the United States.
If our efforts to maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or infringes on our intellectual property,
the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining
market acceptance.
We may also from time to time be required to institute litigation to enforce our trademarks, service marks and other intellectual property. Such litigation could
result in substantial costs and diversion of resources and could negatively affect our sales, profitability and prospects regardless of whether we are able to
successfully enforce our rights.
Third parties may assert that we infringe, misappropriate or otherwise violate their intellectual property and may sue us for intellectual property infringement. Even
if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and other personnel may be diverted in
pursuing these proceedings. If a court finds that we infringe a third party's intellectual property, we may be required to pay damages and/or be subject to an
injunction. With respect to any third party intellectual property that we use or wish to use in our business (whether or not asserted against us in litigation), we may
not be able to enter into licensing or other arrangements with the owner of such intellectual property at a reasonable cost or on reasonable terms.
31 | Shake Shack Inc. Form 10-K