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A Beleaguered Callaway Wins a Round -- in Court

A jury awards the maker of golf gear $2.2 million in a false-advertising suit against rival Dunlop.

August 13, 2004|Julie Tamaki | Times Staff Writer

A federal jury teed off on Dunlop Slazenger on Thursday, awarding $2.2 million to rival Callaway Golf Co. in a dispute over whose golf ball goes farthest.

Dunlop Slazenger Group Americas Inc. began using the slogan "The Longest Ball on Tour" for its Maxfli A-10 in 2001. Callaway sued, arguing that the claim was demonstrably false based on Dunlop's own internal testing of the A-10 versus Callaway's CTU 30 and HX golf balls.

Callaway sought $1.1 million to recoup its cost of additional advertising needed to counter Dunlop's claim and another $1.1 million to cover what it said was its rival's "unjust" profit.

The jury in Wilmington, Del., sided with Callaway, awarding it all it sought.

"This verdict demonstrates that false statements in advertising simply will not be tolerated," William Baker, Callaway's chief executive, said in a statement.

A lawyer for Dunlop said the company would pursue post-trial motions and appeal if necessary. "We think the verdict is legally wrong," John P. Kelly said, declining to comment further.

Dunlop doesn't sell the Maxfli A-10 balls itself but manufactures them for another of Callaway's rivals, Carlsbad-based TaylorMade-adidas Golf Co.

In a counterclaim it filed in the case, Dunlop accused Callaway of acquiring, using and disclosing Dunlop trade secrets. According to the claim, the secrets, relating to golf ball core formulations, were obtained from a former Dunlop employee hired by Callaway. Dunlop had sought more than $10 million in damages, according to Kelly.

The Delaware jury decided that Callaway had indeed obtained Dunlop trade secrets -- but it also decided that the misappropriated materials hadn't been used and awarded no damages. Callaway spokesman Larry Dorman said the jury's verdict demonstrated that his company, "did not use any of Dunlop's trade secrets in the creation of our golf balls."

The battle of the balls has been unfolding amid a golf slump that has produced lackluster demand for new equipment in recent years. During the trial, Kelly told the jury that demand for golfing gear had been shrinking over the last decade. He said the annual market for golf balls was now about $800 million, with some high-performance balls selling for $3 or more apiece.

The jury's finding marked a rare bright spot for Callaway, which has watched its profit shrink in the last year in part because of fierce competition and charges related to its 2003 purchase of Top-Flite Golf Co. The developments put pressure on the company's CEO, Ron Drapeau, who abruptly resigned last week and was replaced by board member Baker.

The courtroom victory may not change Wall Street's view of Callaway, however.

Casey Alexander, an analyst with Gilford Securities Inc., said the damages would amount only to a small, one-time gain.

"Forget the jury verdict," said analyst Dennis McAlpine of McAlpine Associates. "They still have to get the customers to think they want a Top-Flite or a Callaway ball. It's been getting better, but they aren't there yet."

Callaway shares ended the day at $10.97, down 3 cents, on the New York Stock Exchange.

Bloomberg news was used in compiling this report.

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