As first reported by Dave Dawsey over at GolfPatents.com, Costco is suing Titleist's parent company, Acushnet, for wrongfully accusing Costco of patent infringement and false advertising.
Costco has asked for a declaratory judgment that states, for unwant of more delicate language, Acushnet's claims are total bullshit.
I highly recommend you read Dawsey's post, but here's what we see as the key points.
Acushnet Sent A Letter
As we discussed in an earlier story, Acushnet's legal counsel did, in fact, send Costco a letter accusing Costco of infringing on 11 of its patents and engaging in false advertising based on the Kirkland Signature guarantee that such products meet or exceed the quality of leading national brands.
This is significant for a number of reasons. First, it unequivocally dismisses any suggestion that Titleist sells so many balls it isn't concerned about Costco's market penetration. It's been clear from day one that golf companies are watching the K-Sig closely, and here's your proof that the biggest of them all is feeling the impact.
Titleist's ball business was down nearly 5% last year, and while the company was content to blame the decline on the second year of a Pro V1 release cycle and the closures of Golfsmith and Sports Authority, the reality is that competitors, including Costco, are starting to chip away at Titleist's dominance in the category.
Presumably, Acushnet thought the threat of legal action might be enough to end the K-Sig as it did Monsta, 3-Up, and some of the other smaller ball companies it sued a couple of years ago. While it's rumored that Acushnet's letter played a role in the K-Sig's sudden disappearance from store shelves, it appears Costco has been busy readying its response. Unlike those smaller brands, Costco is refusing to be bullied.
The fact that Acushnet sent Costco a letter shouldn't surprise anyone. Golf companies bounce letters around all the time, and Acushnet is particularly notorious for its participation in the tradition. It's not the least bit surprising it targeted Costco. Costco's response, however, is a bit of a surprise.
My early sense of things is that bulk of the golf industry will be quietly supportive of Costco's pushback.
In its complaint, Costco states that its ball "does not infringe any valid patent rights owned by Acushnet, including any valid patent claims identified by Acushnet in its correspondence." Patent infringement is used as a catch-all for these types of cases. That doesn't mean it's true. As we've said in the past, we support any company's efforts to protect its intellectual property, but if this proves to be nothing more than posturing to protect market position, the declaratory judgment Costco is seeking would be warranted.
Quality is a Central Issue
As you may recall, as the K-Sig was gaining momentum, Titleist launched a marketing campaign focused on its superior quality assurance standards. While Titleist didn't question the quality of the K-Sig directly, some of its surrogates definitely did.
The question the judge will have to consider is how does one define quality?
If it's performance, the tests performed by MyGolfSpy and others support the Costco cause.
If it's durability, well...that's fair, but it's a function of the type of urethane cover used in the Costco ball, and it's hardly unique within the industry. What's true of Costco's durability is inherently true for many other premium balls. One could argue, and easily so, that Costco's ball meets any industry durability standard.
If it's something else entirely, roundness, manufacturing consistency, etc., then it's potentially interesting, but given that the same factory manufacturers balls for TaylorMade, Snell, and other reputable ball brands, I suspect proving any quality issues will be difficult for Titleist.
Additionally, Acushnet has claimed that Costco falsely advertised the K-Sig. As noted above, this stems from the Kirkland Signature guarantee which states that Kirkland Signature products “meet or exceed the quality standards of leading national brands.” It goes without saying that the guarantee isn't unique to the golf ball, but Titleist has questioned its application specifically as it relates to the K-Sig golf ball.
Apparently, Acushnet has asserted that, because of the above-mentioned quality issues, any statements that the K-Sig is of the same or better quality than the Pro V1 (quality again) amount to false advertising. Part of Costco's counter argument stems from the fact that it has never publicly compared the K-Sig to the Pro V1. The company further argues that "a reasonable consumer would not interpret the Kirkland Signature guarantee as intended to convey a statement of fact about any specific comparisons of quality between the KS ball and any specific manufacturer or ball, including Acushnet and its Pro V1 ball."
Costco's complaint goes on to state that "many individual golfers and golf ball testers and experts have used and/or tested the KS ball and concluded that it is at least comparable to balls sold by other leading national brands, including Acushnet."
Presumably, the tests done by MyGolfSpy and others are central to that argument.
In the hopes of putting this all to bed, Costco's complaint claims that it "is entitled to a declaratory judgment that it has not engaged in any false advertising in connection with the KS golf ball."
Simply put, like many others in the golf industry have done at one time or another, Costco is taking a position that a letter from Acushnet's legal department has no basis in reality.
What Happens Next
First, we need to wait and see if the court will agree with Costco, and issues the declaratory judgment. That would presumably end this, though it could drag out for quite some time.
How will Acushnet respond? What about the other ball manufacturers?
The longer this drags on, the more it will raise awareness of the Costco ball. As the news spreads, Acushnet risks being painted as a desperate bully trying to protect its space, and that's a space where the consumer pays $50/dozen for a product similar to what Costco delivers for $15.
That's not going to cast Acushnet in a positive light - especially if the court rules in Costco's favor.
The legal wrangling comes at a time when sources are telling us that Costco is ready to begin shipping K-Sig balls to its retail stores. Coupled with the lawsuit, the clear suggestion is that, letters be damned, Costco is going to sell its golf balls and make Acushnet fight publicly to stop it.
To reiterate what Dave Dawsey said, "This should get real interesting real fast."