A recent decision from a federal appeals court brings the issue of upcycling back into focus, an enduringly relevant topic in fashion and luxury in recent years, in particular. On the heels of a New York federal district court siding with Vortic LLC, a watch company that converts antique pocket watches into wrist watches, which landed on the receiving end of a trademark infringement and counterfeiting filed by Swatch subsidiary Hamilton International in 2017, the U.S. Court of Appeals for the Second Circuit has upheld the lower court’s findings that Vortic did not run afoul of trademark law by selling a restored and modified watch consisting of original Hamilton parts and parts produced by Vortic, itself, and which bears the branding of the original Hamilton watch, as its use of the Hamilton trademark is not likely to confuse consumers.
In its decision on Tuesday, a panel for the Second Circuit shot down Hamilton International’s arguments that the lower court erred in applying the decision from the Champion Spark Plug Co. v. Sanders case, which centered on trademark infringement in the context of used goods, in order to assess the sufficiency of Vortic’s disclosures about the modified nature of its watches.
Unlike in the Champion case where the defendant repaired and reconditioned Champion spark plugs and used the Champion trademark in connection with its subsequent resale of the products, Hamilton claimed that “the ‘reconditioning or repair’ that went into The Lancaster [by Vortic] was so extensive” that the decision from the Champion case should never have been applied in the first place.” Essentially, Hamilton argued that Vortic had modified the watches so extensively that they resulted in new entirely goods, and thus, should not bear the trademark-protected Hamilton name.
(The “takeaway” from Champion, the Second Circuit stated, “is that, when a used ‘genuine product’ is resold after being refurbished, the seller’s disclosures and the extent of a product’s modifications are significant factors to consider in whether that seller is liable for trademark infringement.”)
The Second Circuit was unpersuaded by Hamilton’s attempt to distinguish the case at hand from the Champion case, and stated that the lower court properly determined, “with ample support from the evidence adduced at trial,” that Vortic not only “used genuine, original parts from pocket watches made by Hamilton, refurbished and repaired them, and modified them into a wristwatch,” but that Hamilton “failed to put forth any reason why such a modification would have been ‘particularly significant to consumers or . . . somehow material to a likelihood of confusion.’”
The lower court determined – and the Second Circuit agreed – that “a consumer would view The Lancaster,” which Vortic sold 58 of between 2014 and 2018, as “an antique pocket watch modified into a wristwatch rather than an entirely new product.” As a result, the lower court “properly analyzed Hamilton’s federal trademark infringement claim under the framework laid out inChampion,” per Judge John P. Cronan, writing for the Second Circuit.
Against the background, the Second Circuit further upheld Judge Nathan’s findings that “Vortic’s advertisements and marketing materials, as well as the watch itself, provided full disclosure under Champion.” Specifically, Judge Nathan stated, “All of Vortic’s advertising and marketing materials … accurately convey to the ordinary prudent purchaser that the only connection of any kind between Hamilton and Vortic is that Vortic used antique Hamilton watch movements and parts for The Lancaster watch.
For example, the Vortic website’s description of the watch clearly stated that the Lancaster was one of ‘Vortic’s flagship line of watches’ and that ‘[a]ll of the components (movement, dial, hands) … [were] made by the Hamilton Watch Company.”
Judge Nathan held that “while the Hamilton mark is visible” in the company’s marketing materials, “Vortic’s logos predominate.” As a result, “any viewer of this advertisement [can] come away with an accurate understanding of the relationship between Vortic and Hamilton,” especially since she found that neither Vortic’s website nor its marketing materials “suggest any affiliation or sponsorship between Vortic and Hamilton.” Instead, they “accurately convey that the restored Hamilton movements and parts are only ‘constituent[s] in the article now offered as new and changed.’”
Ultimately, the Second Circuit, reflecting on the bench trial before the lower court, held that “Hamilton, which bore the burden of establishing confusion, failed to come forward with any reliable evidence showing that consumers were likely to be misled.” With that in mind, the Second Circuit stated, “We find no clear error in the District Court’s factual findings in connection with its analysis under Champion or in connection with the Polaroid factors, [and] we further conclude that the District Court correctly applied Champion and Polaroid to these factual findings to conclude that there was no likelihood of consumer confusion.
As I noted in a previous article about this case, the impact could be far-reaching, particularly in light of a handful of recent cases that have raised modification/refurbishment issues. For instance, the issue of modification and both the Hamilton and Champion cases have been noted in the ongoing trademark infringement case that Chanel filed against luxury reseller What Goes Around Comes Around (“WGACA”). In fact, in connection with a discovery dispute in the case last year, counsel for Chanel asserted in a letter to the court that WGACA “mistakenly cited Champion Sparkplug Co. v. Sanders to hold that ‘a refurbished product only becomes counterfeit if the product is fundamentally transformed.”
Chanel pointed to Judge Nathan’s September 2019 decision in the Hamilton case, namely, that “it would be possible to imagine a case ‘where the reconditioning or repair would be so extensive or so basic that it would be a misnomer to call the article by its original name, even if the words ‘used’ or ‘repair’ were added.”
In the case, WGACA claims that the “limited ‘sprucing up’ that [was carried out by Rago Brothers Shoe & Leather Repair] … never resulted in a Chanel product [being] ‘so repaired, reconditioned, or altered to have lost its identity as a genuine Chanel item.” Meanwhile, Chanel has argued that “the critical focus … is whether WGACA is misrepresenting to the consuming public the nature, condition and quality of its Chanel-branded products … by failing to disclose that products were refurbished, repaired and refinished (and that such work was not authorized or done by Chanel), and its relationship and association with Chanel.”
Some of the same issues – as well as First Sale ones – have arisen in other recent cases, including – but not limited to – the since-settled one that Rolex filed against custom watch co. La Californienne for modifying and then selling otherwise authentic Rolex watches. These cases come as part of a larger string of matters in which brands are seemingly looking to test the bounds of their rights in order to have a stronger hand in controlling where, how, and by whom even their pre-owned products are sold, something that they have grappled with as a result of the rise of the robust resale market and in light of e-commerce more generally.
The case is Hamilton International Ltd. v. Vortic LLC, 1:17-CV-5575 (SDNY).