When Imitation Goes Way Beyond Flattery: Know Your Intellectual Property Rights

October 5, 2017

Picture a Titleist golf ball in your hand.

Millions of Americans probably can. Titleist is an iconic brand, bought by golfers and Father’s Day shoppers for decades.

So, when Costco recently started selling a cheaper version that became a fast hit, Titleist filed suit, claiming its intellectual property rights were violated.

There’s a lot to be learned from the case for all kinds of businesses. Intellectual property is not limited to the physical looks and appearances of tangible products. In 2015 alone, there were over 14,000 intellectual property cases filed in U.S. district courts.

With the help of counsel, a company can argue that a broad range of items and processes are intellectual property. Customer lists, a misleading competitor’s advertising that invokes your name or likeness, and procedures and know-how can all be considered intellectual property and subject to legal protection. Almost every company has some tangible or intangible intellectual property.

Remember David Letterman’s “Stupid Pet Tricks” on his original NBC show? He argued the segment was his intellectual property when he moved to CBS. More recently, Viacom threatened suit against CBS in 2016, claiming ownership of the intellectual property rights to the name, or at least the persona, of Stephen Colbert from “The Colbert Report” on Comedy Central.

Titleist vs. Costco

In the fall of 2016, Costco began to sell a “tour caliber” golf ball that was immediately popular. Many in the golf community felt as if Costco had just shifted the game, selling high-quality balls at a third of the price of most “equivalent” balls.

Titleist sent a “cease and desist” letter that December. In August 2017, Titleist filed a suit against Costco stating that the Kirkland Signature balls infringed on 10 Pro V1 patents and the “Kirkland Signature Guarantee” created false advertising. Titleist sought a cease-and-desist order and unspecified monetary restitution.

Not the First Time

Costco’s action should not be viewed in a vacuum.

In early August 2017, a judge in New York ruled in favor of jewelry giant Tiffany & Co. in a lawsuit against Costco. In this instance, Costco sold rings using the name “Tiffany,” saying it had a universal connotation to mean a certain type of setting.

The ruling stated that Costco made a profit of $3.7 million from these rings, awarded Tiffany $19.3 million in a monetary award, known as damages (direct and punitive), and tacked on a cease-and-desist order. According to the ruling, Costco’s management “displayed at best a cavalier attitude toward Costco’s use of the Tiffany name in conjunction with ring sales and marketing.”

How Much Money?

So how did the judge arrive at that amount? In intellectual property rights cases, compensatory damages (typically viewed as lost profits) can be calculated using three theories: unjust enrichment, disgorgement and reasonable royalty. In a nutshell, the theories are formulaic to determine what net profits were earned by the infringing party.

In addition to the net profits, Titleist objected to text on the box of Kirkland Signature balls stating “[e]very Kirkland Signature product is guaranteed to meet or exceed the quality standards of the leading national brands.” Titleist says that is an indirect reference to its Pro V1 and Pro V1x balls. The additional damages that Titleist is seeking for harm to its name are punitive damages.

“Cease and Desist”

Ultimately, it is up to the court’s discretion to determine if, and to what extent, Costco has harmed Titleist’s name and reputation, and how much Titleist should be compensated for that.

Titleist’s main goal might be just to have Costco stop making and selling the Kirkland Signature balls.

Work with your counsel if you have a dispute. You might be entitled to damages, or at least a cease-and-desist order to keep someone else from cashing in on your intellectual property.

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