Clash of the Titans

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While Callaway is opening a big present, Titleist is opening a new front in the golf ball patent wars.
 
Delivered with a bow Tuesday was Callaways gift, a ruling by a federal appeals court upholding an order compelling Titleist to stop U.S. sales of models of its Pro V1 golf balls that violated patents held by Callaway. But Titleist continues to insist that it will eventually prevail in the suit, which began in 2006 and turned dramatically in November, when Callaway won the order to stop Pro V1 sales.
 
But Acushnet Co., Titleists parent (which also owns the Cobra and FootJoy golf brands), fears no fallout from the decision. The company says that since September, it has been making Pro V1 balls with manufacturing methods that do not violate the patents involved in the lawsuit. Also, even newer Pro V1 models are due out in the first quarter of 2009.
 
'This decision will not interfere with Titleists ability to continue to manufacture, distribute and sell Pro V1 golf balls, said Joe Nauman, executive vice president, corporate and legal of Acushnet. Acushnet does not believe that the injunction order requires Acushnet to recall any Pro V1 golf balls from retailers, or that retailers are required to return any golf balls to Acushnet. However, Acushnet is prepared to accept returns of non-converted retail inventory if requested by retailers.
 
By non-converted, Nauman meant balls that had been made with the old manufacturing methods, as opposed to the new way. A limited number of non-converted balls may still be on retailers shelves in 2009, a company statement said. (Converted balls can be identified by a small black or red circular marking or sticker on dozen boxes and sleeves, Acushnet says.)
 
But Callaway wants to make sure no old balls are still available.
 
Callaway Golf believes it is time for Acushnet to accept its losses in court and get on with the task of helping retailers clean up their inventories over the next week, said Steve McCracken, senior executive vice president and chief administrative officer of Callaway.
 
The case, Callaway Golf Co. v. Acushnet Co., filed in 2006, arose from Callaways contention that Titleists Pro V1 balls infringed on a number of golf ball patents. After a December 2007 trial, the jury found all but one of Callaways patent claims to be valid. Callaway owns the patents through its ownership of the Spalding family of golf brands. Spalding filed for the patents in 1999 and 2001; they were granted in 2001 and 2003.
 
In November, the trial court denied Acushnets motion for new trial and granted Callaway an injunction stopping sales of the patent-violating Pro V1s in the United States as of January 1, 2009. Acushnet appealed the central merits of the case, and asked the federal appeals court to hold up the operation of the no-further-sales injunction pending the outcome of that appeal. A three-judge panel of the appeals court said no in the order that issued Tuesday. The appeal on the meat of the case ' involving the validity of the patents, and whether they should have been issued in the first place ' will continue.
 
If either party wants to continue to the next level after this appeal, the only court left is the highest ' the Supreme Court of the United States. As of Christmas Eve, neither party will predict its desire to continue should the appeal go wrong for them.
 
Beyond the exchange of legal artillery shells, some industry insiders (all speaking on condition of anonymity) see the real conflict as an effort to flatten the steeply tilted golf ball battlefield. Depending on how you measure it, and whether domestic or global, Titleist owns as much as 70 percent of the golf ball market, or at least 60 percent.
 
Callaway, which got into the business as the century turned, has worked its way into golfer consciousness by focusing on brand-building and innovation ' all the while chased by powerhouses Nike and Bridgestone, both of whom have similar goals. Still, neither Callaway nor those competitors has been able to displace Titleist, even though some of the chasers have at times managed to push their market share into double-digit percentages.
 
The patent conflict may be the best example of the best offense being a good defense. A bedrock principle of patent law is that a holder of intellectual property must defend it thoroughly, not selectively ' otherwise, the holder could lose or suffer diminishment of those hard-won rights. Callaway no doubt concluded it had no choice but to defend the Spalding patents. Its defense, which has taken on all the attributes of an attack against the market leaders marquee product, may change that market ' if not so much in percentage points, then perhaps in perception. After all, if the leading players leading innovation can be found susceptible to a legal attack in a tight patent universe ' is there any room left for anyone to innovate in golf balls?
 
The golf equipment industry ' particularly its strongest brands ' has always found a way to reinvigorate its products, and therefore its brand-loyal public. How it will do so when the smoke has cleared from this battle of the titans, will be one of the big stories of 2009.