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Image: Rolex

What constitutes a counterfeit? The law has a definition for that and Rolex does, too. Looking beyond the traditional set of factors laid out by the Lanham Act, which defines a counterfeit good as one that bears a “spurious mark [that] is identical with, or substantially indistinguishable from, a registered trademark” that is used on the same types of goods as the ones for which the mark is registered, Rolex has something of a notorious take of its own.

Rolex’s system of distinguishing between authentic and counterfeit products is an interesting one, and in at least one respect, it is relatively unique. Sure, the 114-year old Swiss watchmaker looks at the origin of a Rolex trademark-bearing watch in order to determine its authenticity, since timepieces manufactured by unauthorized third parties that use Rolex’s trademark-protected name and/or crown logo are outright fakes. The same goes for Hermès-branded bags made by parties other than Hermès, or Cartier trademark-bearing jewelry not made by (or otherwise authorized by) the famed jewelry company.

But Rolex, unlike most other companies, goes a step further: it looks at authorized watches that have come from its very own workshops, and considers whether any changes have been made to the original components of authentic Rolex timepieces that would impact their aesthetic and/or their functionality. If changes have been made, an otherwise perfectly authentic watch becomes a counterfeit in the company’s eyes.

In short: Rolex considers the alteration of its timepieces to include non-authentic Rolex parts (or parts that are not approved by Rolex) to transform an authentic watch into a fake.

This at-times controversial rule – which does not appear to fit neatly within the most traditional definition of a counterfeit as set forth by the federal statute that governs trademarks in the U.S., and the does not mirror the use of the term “counterfeit” by most other brands – is not without reason from Rolex. The company has long held that swapping its authentic watch parts for non-Rolex parts “renders [the] warranty [on its watches] null and void,” in large part because the swapping of parts makes it so that “Rolex can no longer assure the quality or performance of such watches.”

But just because Rolex opts to classify its watches this way, which is significant when it comes to their warranties, servicing (it will not service “counterfeit” watches), and potential buy-backs by some of its authorized retail partners, such as Tourneau, which will not buy and resell counterfeits, does that mean that courts are willing to accept the privately-held watch company’s definition of what constitutes a fake?

That is almost certainly part of what will be up for debate in the case that Rolex recently filed against laCalifornienne for allegedly dealing in fake watches. According to the complaint that Rolex filed in a California federal court last month, the custom watch company takes pre-owned Rolex watches, puts a twist on them by way of a combination of colorful – but non-Rolex approved – parts, such as dials, crystals (i.e., the cover located between the dial and the hands), etc., and then sells them with Rolex’s trademarks still largely in tact.

In doing so, Rolex claims that laCalifornienne transforms the formerly “100 percent authentic” watches into counterfeits, namely because the customized versions allegedly “no longer maintain the aesthetic of original pre-owned Rolex watches” and more significantly, they allegedly “no longer perform or function to the same quality standards as unaltered pre-owned Rolex watches” even though they still bear various Rolex trademarks.

Interestingly, the laCalifornienne case is hardly the first time that Rolex has initiated litigation over the issues presented by the customization and/or refurbishment and subsequent sale of its watches, and in the past, it has experienced quite a bit of success.

For instance, in 1998, the U.S. District Court for the Fifth Circuit took on a trademark infringement and counterfeiting case that Rolex filed, which centered on the sale of authentic Rolex watches – both new and pre-owned – that had been “enhanced” with non-Rolex parts, such as diamond bezels, bracelets, and diamonds inserted into the original dial by Robert Meece, an individual doing business as American Wholesale Jewelry.

In that case, Rolex argued that Meece’s watches did not “copy or imitate [its] trademarks,” such as in the case of entirely inauthentic Rolex watches manufactured by unaffiliated entities in China. Instead, Meece’s watches – which were crafted from either brand new authentic Rolex products or genuine pre-owned ones – came with the “original Rolex trademarks.” As such, the Fifth Circuit stated that “because Meece’s items in question bore original Rolex trademarks, rather than imitations or copies of those trademarks, they would not seem to be ‘counterfeit’ in the literal sense.”

Nonetheless, the court still sided with Rolex and barred Meece from adding non-genuine parts to genuine Rolex watches bearing original Rolex trademarks, and selling them. In its decision, the court pointed to rulings from “other courts [that] have found that similar uses of genuine trademarks constitute counterfeiting.” For instance, the court cited a 1964 decision from the Seventh Circuit, which found that the unauthorized “recasing” of Bulova watches resulted in the creation of “a different product,” and so, the sale of that different product along with the Bulova trademark amounted to infringement and counterfeiting.

The Fifth Circuit also noted a decision from fellow federal appeals court, the Ninth Circuit, which held (in a case about circuit breakers, not watches) that “when an original mark is attached to a [reconditioned] product in such a way as to deceive the public [as to the source of the product], the product itself becomes a ‘counterfeit’ just as it would if an imitation of the trademark were attached.”

Ultimately, the court held that because “the bezel on a Rolex watch is a necessary and integral part of the watch and serves a water-proofing function,” while “bracelets and dials are also [obviously] necessary, integral parts:  a watch cannot be worn without a bracelet;  and, the watch cannot serve its purpose of timekeeping without a dial,” the unauthorized changes to the watches were significant enough to create a “different” product. As such, it determined that the injunction previously ordered by the lower court was valid, thereby barring Meece’s “sale of enhanced new watches and converted used watches” with the Rolex trademark.

Fast forward a year and the U.S. District Court for the Ninth Circuit was faced with a very similar case, holding that jewelry company Michel Co. was liable for selling counterfeit Rolex watches as a result of its use of “parts that [were] not provided or authorized by Rolex” in furtherance of its “reconditioning” and/or “customizing” efforts of authentic pre-owned watches. Such efforts by   Michel Co. included the addition of “diamonds into their dials,” which Rolex argued could impact “the basic performance and durability of the watch.”

Barring Michel from selling any altered Rolex watches, the Ninth Circuit’s panel of judges shot down the lower court’s decision, which enabled Michel to sell the watches but only if it added “permanent independent marks [of its own] on the non-Rolex parts, and included a written disclosure concerning the generic replacement parts on tags, invoices, promotions, and advertising.”

On appeal, the lower court’s finding prompted the Ninth Circuit to essentially say, “Not so fast!” In its own decision, the Nine Circuit held that in reality, “the district court’s requirement that [Michel] put an independent mark, such as ‘Michel Co.,’ on the non-Rolex parts” in order to prevent consumer confusion as to the authenticity of the watch and its parts – and thus, not run afoul of trademark law – was “not adequate.”

At the heart of the Ninth Circuit’s decision – which ordered Michel to permanently refrain from selling altered Rolex watches with non-Rolex parts even if it were to put its own trademark on them – was its determination that counterfeiting may occur without the duplication of a trademark. It may occur even if an original trademark is retained on a product that has been reconditioned or altered to the point that it becomes a different product that would require a different trademark to accurately indicate the source of the product.

Ultimately, it appears that based on these cases (and backed by other courts’ similar views in separate cases involving other companies’ trademarks and their watch and non-watch products), courts are willing to consider that the addition of non-genuine parts to genuine Rolex watches that continue to bear original Rolex trademarks falls within the bounds of the technical definition of a counterfeit as set out by U.S. trademark law since “the watches on which those trademarks appear are no longer Rolex’s product.”

As for the Rolex brand, itself, looking beyond its concerns over the functionality of its watches (at least some of which center on the ability of the many of watch models’ ability to be waterproof to at least 100 meters), its seemingly unconventional approach to defining what is real and what is not makes more sense given what is at stake: a hold on approximately 22.2 percent of the global luxury watch market, per Morgan Stanley, and an estimated $11.6 billion in annual retail sales. Even more than that, though, it maintains a strong emotional hold on consumers.

As New York-based marketing agency MBLM asserted in its 2019 Brand Intimacy Study, Rolex is the luxury brand that has highest overall emotional connection with its customers. In order to measure “the intensity of the relationship between consumers and brands,” MBLM in conjunction with Praxis Research Partners surveyed 12,400 consumers across the U.S., Mexico, and United Arab Emirates about their “emotional connections with brands across 15 industries,” including luxury.

In landing at the top of the list in the luxury category, above Louis Vuitton, Chanel, Gucci, and Prada, among others, Rolex proved to score more favorably in terms of the surveyed consumers’ “usage and satisfaction levels,” brand loyalty, and likelihood of recommending the brand. This is almost certainly a large part of what it is trying to protect by way of such suits.