THQ 2007 Annual Report Download - page 22

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Themarketsfor our applications are also characterized by frequent newmobile phonemodel
introductions and shortening mobile phonemodel life cycles. The development of new, technologically
advancedapplications to match the advancements in mobile phone technology is a complex process
requiring significant research anddevelopment expense, as well as the accurateanticipation of
technological and market trends. As the life cycleof mobile phone models and other wirelessdevices
shortens, we will be required to develop and adapt our existing applications and create new applications
morequickly. These efforts may not be successful. Any failure or delay in anticipating technological
advances or developing and marketingnew applications that respond to any significant change in
technology or customer demand could limit the availablechannels for our applications and limit or reduce
our sales.
Asignificant portion of ourrevenue is derived from ourinternational operations, which maysubject us to
economic, political, regulatory and other risks.
In fiscal 2007we derived 42% of our revenues from our international operations, up from 39% in fiscal
2006. We intend to continue expanding our international operations, which may subject us to many risks,
including: different consumer preferences, unexpected changes in regulatory requirements, tariffs and
other barriers, difficulties in staffing and managing foreign operations, and possibledifficulties collecting
foreign accounts receivable. These factors or others could have an adverse effect on our futureforeign
sales or the profits generated from thesesales.
Salesgenerated by our internationalofficeswill generally be denominatedinthe currency of thecountry in
which the salesare made. To the extent our foreign sales arenot denominated in U.S. dollars, our sales
and profits could be materiallyandadversely affected by foreign currency fluctuations.
We may not be able to protect our intellectual property rights against piracy, infringement of our patents
by third parties, or declining legal protection for intellectual property.
We defend our intellectual property rights and combat unlicensed copying and use of software and
intellectual property rights througha variety of techniques. Preventingunauthorized use or infringement
of our rights is difficult.Unauthorized production occursin thecomputersoftwareindustrygenerally,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 theproducts, manuals, advertising and
othermaterials owned by us and we maintain certaintrademarkrights. We regard ourtitles, including the
underlying software, as proprietary and rely on acombinationof 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 uncertainto what extent these agreements and
limitations are enforceable, especially in foreign countries. Policing unauthorized use of our products is
difficult, and softwarepiracy is apersistent problem, especially in some international markets. Further, the
laws of some countries where our products areor may be distributed either do not protect our products
and intellectual property rights to thesame extent as thelaws of the United States, or are poorly enforced.
Legal protection of ourrights may be ineffective in such countries. We cannot be certain that existing
intellectual property laws will provide adequate protection for our products.
Thirdparties may claim we infringe their intellectual property rights.
Although we believe that we make reasonableeffortsto ensure thatourproducts do notviolate the
intellectual property rights of others, from time to time we receive notices from others claiming we infringe
their intellectualproperty rights. Thenumber of these claims maygrow. Responding to theseclaims may
require us to enter into royalty and licensing agreements on less favorableterms, require us to stop selling
or to redesign affectedproducts, or to paydamages or to satisfy indemnification commitments with our