As Chanel is in the midst of a fight over “counterfeit” and allegedly modified bags with luxury reseller What Goes Around Comes Around, and on the heel of Rolex and La Californienne settling their differences over the legality of the latter’s sale of altered-but-otherwise authentic watches, a new decision brings the issue back to the forefront. In a decision from the U.S. District Court for the Southern District of New York on September 11, 2020, Judge Alison Nathan sounded off on a 5-year fight between Swatch subsidiary Hamilton International and Vortic LLC, a watch company that converts antique pocket watches into wrist watches.
The case got its start back in July 2017 when Hamilton filed suit against Vortic in a New York federal court, accusing Vortic of engaging in trademark infringement and counterfeiting by selling a restored and modified watch consisting of original Hamilton parts and parts produced by Vortic, itself, and which bore the branding of the original Hamilton watch. Because Vortic’s revamped watch and its marketing of the watch made use of Hamilton’s trademark-protected name, the company alleged that it was likely to cause confusion among consumers, thereby, giving rise to claims of trademark infringement, as well as false designation of origin and unfair competition, among others.
In September 2019, Judge Nathan denied Hamilton’s motion for summary judgment. Refusing the watch company’s request for an early victory, the court pointed to the Supreme Court’s 1947 decision in Champion Spark Plug Co. v. Sanders, a case in which the defendant sold repaired and reconditioned Champion spark plugs. She stated that in that case, the court determined that “the defendant could continue to display the plaintiff’s trademark on the sparkplugs, so long as the sparkplugs also had ‘Repaired’ or ‘Used’ conspicuously stamped on them, and their packaging indicated that the defendant had done the restoration.”
Assuming that the products contained such “full disclosure,” the Supreme Court held that “it was otherwise permissible for the goods to retain the Champion trademark even if it means that the defendant benefits from the plaintiff’s goodwill or ‘gets some advantage from’ the plaintiff’s mark,” per Nathan. (In that case, the court also determined that since the sparkplugs were second-hand goods and consumers would naturally expect a used or repaired good to be inferior, conspicuously labeling the goods as used or repaired constituted full disclosure).
As a result, Judge Nathan held that there was a genuine issue of material fact as to whether consumers would be confused by the Vortic watch and its advertisements, and thus, set the matter up for bench trial, which took place in February.
Fast forward to September 11, and Judge Nathan issued her findings of fact and conclusions of law in the case, siding with Vortic on the basis that “the product at issue was unlikely to cause confusion,” the central element in a trademark infringement cause of action. Why are consumers unlikely to be confused as to the source or Hamilton’s association with the modified Vortic watch? According to the court, “Vortic’s advertisements and marketing materials, as well as the watch itself, provided full disclosure under Champion.”
Specifically, Judge Nathan states: “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 its 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.”
The judge held that “while the Hamilton mark is visible” in such 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.’”
“This is full disclosure that would prevent substantial numbers of ordinary prudent purchasers from being confused.”
As for the watch, itself, the court determined that when “viewed in isolation, [the watch] provides full disclosure by the standard elucidated in Champion,” as it “obviously presents to a viewer as restored antique pocket watch movement, face, and hands that have been reincorporated into a new wristwatch.”
More than that, though, the court found that the watch on its own conveys “to any ordinary prudent purchaser that [it] was made by Vortic and that the Hamilton mark is only displayed because Hamilton created the original movement, face, and hands, which have subsequently been restored.” It is significant, according to the court, that “Vortic,” “Lancaster,” and the serial number are “all prominently engraved on the case, while the Hamilton mark is only visible inside the glass case, on a movement and face that appear obviously antique.”
No Likelihood of Confusion
Against that background, the court turned to the “relevant” Polaroid factors, noting that such full disclosure by Vortic weighed in its favor, as did the lack of actual confusion and the demonstration by Vortic that it acted in good faith in making and selling the allegedly infringing watch.
Testifying at trial, Vortic co-founder R.T. Custer told the court that he “viewed himself as ‘upcycling,’ restoring previously nonfunctional antique watch movements and parts, and making them into something of ‘much greater value.’” The court noted that while “Mr. Custer did intend to gain some benefit from displaying the Hamilton mark,” any gain would come “more from Hamilton’s historical significance rather than its modern-day reputation.”
The court also emphasized the fact that “the customer base at issue is highly sophisticated,” in part because the Vortic watch is “very expensive.” Citing the Court of Appeals for the Second Circuit, Judge Nathan stated that “[t]he greater the value of an article the more careful the typical consumer can be expected to be,” noting that “the sophistication of the buyers is important in this case,” as the “potential customer base for the Lancaster would be particularly attuned to the disclosure provided and would almost certainly seek out easily accessible information about the watch before making this substantial investment.”
Ultimately, Judge Nathan held that “it is true that the Hamilton mark is relatively strong and the Lancaster undoubtedly displays the Hamilton mark.” Nonetheless, “The adequacy of the disclosure as detailed in the above factual findings, combined with the sophistication of the customer base, eliminates any likelihood that a significant number of ordinary prudent purchasers would be confused as to the Lancaster’s origins.” As such, she sided with Vortic on the infringement claim and the others, as well, due to the lack of the necessary (and common) element of likelihood of confusion.
Speaking on the heels of the court’s decision, Vortic’s attorney Robert Lantz said, “We’re happy with the precedent that’s been set in this historic case. We demonstrated that the business model of upcycling antique pocket watches into wristwatches is fair and legal.” Moreover, he stated that “the Court’s ruling protects thousands of American small businesses that preserve history, and enhance or find new uses for antique products.”
Chanel v. WGACA
As for whether the case will be of any use for others in the burgeoning resale economy, that will certainly prove interesting to see. The outcome could prove particularly telling for the likes of What Goes Around Comes Around (“WGACA”), which is currently on the opposite end of a trademark infringement suit from Chanel after the Paris-based brand accused the luxury reseller of selling “counterfeit” handbags – and duping “consumers into falsely believing [that it] has some kind of approval of or relationship or affiliation with Chanel.”
The issue of modification and both the Hamilton and Champion cases have come up in that increasingly ugly battle Chanel and WGACA. In fact, in connection with a discovery dispute this spring, 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.”
Refreshment is at issue in the case, as WGACA has revealed that it subjected some of its bags to slight modifications by a third-party. While the well-known reseller has claimed that the modifications at issue – i.e., “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,” Chanel disagreed, arguing that that “the critical focus of this case is not about counterfeiting.” Instead, it is about “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.”
That case is underway in the U.S. District Court for the Southern District of New York.
*The case is Hamilton International Ltd. v. Vortic LLC, 1:17-CV-5575 (SDNY).