THQ 2008 Annual Report Download - page 22

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 through a variety of techniques. Preventing unauthorized use or infringement of
our rights is difficult. Unauthorized production occurs in the computer software industry generally, and if a
significant amount of unauthorized production of our products were 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 which imposes 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.
Third parties may claim we infringe their intellectual property rights.
Although we believe that we make reasonable efforts to ensure that our products do not violate the
intellectual property rights of others, from time to time we receive notices from others claiming we have
infringed their intellectual property rights. The number of these claims may grow. Responding to these
claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to
stop selling or to redesign affected products, or pay damages or satisfy indemnification commitments
including contractual provisions under various license arrangements. If we are required to enter into such
agreements or take such actions, our operating margins may decline as a result.
We cannot be certain of the future effectiveness of our internal controls over financial reporting or the
impact of the same on our operations or the market price for our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual
Report on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting.
Furthermore, our independent registered public accounting firm is required to report on whether it
believes we maintain, in all material respects, effective internal controls over financial reporting. Although
we believe that we currently have adequate internal controls procedures in place, we cannot be certain that
future material changes to our internal controls over financial reporting will be effective. If we cannot
adequately maintain the effectiveness of our internal controls over financial reporting, we might be subject
to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission.
Any such action could adversely affect our financial results and the market price of our common stock.
Fluctuations in our quarterly operating results due to seasonality in the interactive software
entertainment industry and other factors related to our business operations could result in substantial
losses to investors.
We have experienced, and may continue to experience, significant quarterly fluctuations in sales and
operating results. The interactive software entertainment market is highly seasonal, with sales typically
significantly higher during the year-end holiday buying season. Other factors that cause fluctuations in our
sales and operating results include:
• the timing of our release of new titles as well as the release of our competitors’ products;
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