THQ 2005 Annual Report Download - page 71

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requiring significant research and development expense, as well as the accurate anticipation of
technological and market trends. As the life cycle of mobile phone models and other wireless devices
shortens, we will be required to develop and adapt our existing applications and create new applications
more quickly. These efforts may not be successful. Any failure or delay in anticipating technological
advances or developing and marketing new applications that respond to any significant change in
technology or customer demand could limit the available channels for our applications and limit or reduce
our sales.
Unauthorized productionand use of our intellectual property and rights could cause us material harm.
Unauthorized production occurs in the computer software industry generally, and were a significant
amount of unauthorized production of our products to occur, it could materially and adversely affect our
results of operations. We hold copyrights on the products, manuals, advertising and other materials owned
by us and we maintain certain trademark rights. We regard our titles, including the underlying software, as
proprietary and rely on a combination of trademark, copyright and trade secret laws as well as employee
and third-party nondisclosure and confidentiality agreements, among other methods to protect our rights.
We include with our products a “shrink-wrap” or “click-wrap” license agreement or limitations on use of
the software. It is uncertain to what extent these agreements and limitations are enforceable, especially in
foreign countries. Policing unauthorized use of our products is difficult, and software piracy is a persistent
problem, especially in some international markets. Further, the laws of some countries where our products
are or may be distributed either do not protect our products and intellectual property rights to the same
extent as the laws of the United States, or are poorly enforced. Legal protection of our rights may be
ineffective in such countries. We cannot be certain that existing intellectual property laws will provide
adequate protection for our products.
We may be subject to intellectual property claims.
Many patents have been issued that may apply to widely used game technologies. Although we believe that
we make reasonable efforts to ensure that our products do not violate the intellectual property rights of
others, it is possible that third parties still may claim infringement. We are currently involved in litigation
regarding such a claim. Existing or future infringement claims against us, whether valid or not, may be time
consuming and expensive to defend and could force us to cease selling, incorporating or using products or
services that incorporate the challenged intellectual property; obtain a license from the holder of the
infringed intellectual property, whichif available at all, may not be available on commercially favorable
terms; redesign the effected interactive entertainment software products, which could cause us to incur
additional costs, delay introduction and possibly reduce commercial appeal of our products; or pay
damages to the holder of the infringed intellectual property for use of its property without a license. Any of
these actions may cause material harm to our business and financial results.
Our reported financial results could be affected by changes in current accounting principles.
Recent actions and public comments from the Securities and Exchange Commission have focused on the
integrity of financial reporting generally. Similarly, Congress has considered a variety of bills that could
affect certain accounting principles. TheFinancial Accounting Standards Board and other regulatory
accounting agencies have recently introduced several new or proposed accounting standards, suchas
accounting for stock options, some of which represent a significant change from current practices. Changes
in our accounting for stock options could materially increase our reported expenses.