District Court Affirms Sporting Good Manufacturer’s Liability for False Advertisement

Oct 7, 2005

A federal court in the District of Delaware has upheld a jury verdict that found Dunlop Slazenger, a sporting goods manufacturer, liable for false advertising. However, the district judge did minimize the damages that were awarded to plaintiff Callaway Golf Company.
Callaway initially sued Dunlop, claiming that Dunlop’s advertisement for the A10 golf ball misrepresented the ball’s capability. Dunlop counter sued Callaway for misappropriation of trade secrets, claiming Callaway used Dunlop technology in manufacturing its own golf balls.
Callaway’s charges against Dunlop for false advertising centered on an advertisement for Dunlop’s A10 golf ball. In the advertisement, Dunlop had falsely stated that the A10 golf ball was the “longest ball on the pro tour.” Evidence showed that, in fact, the reverse was true. In Dunlop’s internal testing, Callaway’s golf ball proved superior.
Dunlop claimed that their internal tests should not have “any bearing whatsoever” on the finding of false advertisement. According to Dunlop, the tests were invalid because of a low statistical significance and paint problems with the A10 balls at that time.
The Lanham Act, codified in 1946, defines the scope of U.S. Trademark law and also defines the elements necessary to a false advertising claim. The Act requires that a false advertisement be found literally false, and not merely unpersuasive. Under the Lanham Act, a company’s own tests can be used as scientific proof that the challenged advertisement was literally false. According to the District Court, the jury felt that Dunlop knew, based on its own test results, that Callaway’s balls were in fact longer, and therefore, its claim to be “the longest ball on tour” was literally false.
Under the Lanham Act, a successful false advertising claimant may recover damages, defendant profits, and trial costs. The jury allowed Callaway to recover on lost profits and damages, as well as an unjust enrichment claim, totaling $2.2 million. Dunlop sought to overturn the jury’s verdict on the false advertising claim, asserting the award constituted a windfall double recovery. According to the court, Dunlop felt that the award of $1.1 million for corrective advertising and the identical award for unjust enrichment were both based on Callaway’s $1.1 media advertising expenditure.
The court upheld the $1.1 million for unjust enrichment since Callaway had spent a significant amount of money promoting the golf balls that Dunlop’s advertisement claimed did not go as far as its A10 golf balls. To establish unjust enrichment under the Lanham Act, a claimant must establish the elements of bad faith and willfulness. In its appeal, Dunlop argued that evidence at trial failed to establish willfulness and bad faith because the advertisement did not deliberately encroach on Callaway’s rights. Other golf ball manufacturers on the tour were also affected by the advertisement, and a third-party, the public relations firm hired to promote the A10 golf ball, was actually responsible for the advertisement. The court, however, allowed Callaway compensation for sales lost to Dunlop, and dismissed Dunlop’s appeal on the false advertising claim.
The court, however, did agree with Dunlop’s appeal that the $1.1 million for corrective damages constituted double recovery. The court reasoned that there was no economic rationale to support prospective corrective advertising damages. Dunlop stopped all sales of the A10 golf ball in August 2002, and Callaway stopped sales of the competing golf ball in Dunlop’s advertisement by 2004. The court then felt that it was unnecessary to correct a public misunderstanding on golf balls because they had been removed from the market. The court also believed, based on expert testimony at trial, that the jury had actually only intended to award an unjust enrichment award damages, and not corrective advertising damages. On appeal, the court vacated the portion of the jury award for corrective damages, decreasing total award damages to $1.1 million.
In its counterclaim, Dunlop had brought charges of misappropriation of trade secrets. In the original trial, the jury had found that Callaway had wrongly acquired Dunlop’s trade secrets, but to prove misappropriation, the claimant must also prove that the wrong-doer actually made use of the trade secret at issue. At trial, the jury had found that Dunlop did not actually use the wrongfully acquired information in the production of its golf balls since the core technology of Callaway’s balls was sufficiently different. The court refused to grant a new trial on the trade secrets counterclaim, finding the jury verdict was supported by substantial evidence.
Since neither party had shown the other had acted in bad faith by clear and convincing evidence, the court declined to award attorney’s fees to either party.
Callaway Golf Co. v. Dunlop Slazenger, 2005 U.S. Dist. LEXIS 18212 (D. Del. 2005).
Attorneys of Record for Plaintiff: Jack B. Blumenfeld, Esq., Morris Nichols Arsht & Tunnell, Wilmington, Delaware. Of Counsel: Robert E. Cooper, Esq., Gibson Dunn & Crutcher, Los Angeles, California; Jeffrey T. Thomas. Esq., Gibson Dunn & Crutcher, Irvine, California.
Attorneys of Record for Defendant: Rick S. Miller, Esq., Ferry, Joseph & Pearce, P.A., Wilmington, Delaware. Of Counsel: John P. Kelly, Esq., Lorusso Loud & Kelty, LLP, Fort Lauderdale, Florida; Richard M. Husband, Esq., Mark D. Lorusso, Esq., Lorusso Loud & Kelly, LLP, Portsmouth, New Hampshire; David P. Tulchin, Esq., Robin D. Fessel, Esq., Sullivan & Cromwell, LLP, New York, New York.


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