Post Authored by Tony Traina, Originally Posted Here
It’s been a long couple of years for Vortic since the megabrand Hamilton International filed a trademark infringement and counterfeiting lawsuit against it back in July of 2017 (see the original complaint here). But the suit finally came to a head, when a bench trial (i.e., non-jury) began on February 19th in the Southern District of New York. Hamilton International Ltd. v. Vortic LLC, 17-CV-5575 (AJN) (OTW) (S.D.N.Y. 2017).
Case Background and Complaint
In 2017, Hamilton, a historically American watch brand now owned by Swiss conglomerate Swatch Group, filed suit against Vortic and its founder R.T. Custer (“Custer”). The complaint alleges trademark infringement and counterfeiting. It also includes false designation and unfair competition claims under the Lanham Act, the federal statute governing trademarks and unfair competition.
Vortic Watches is an engineering and manufacturing company based in Fort Collins, Colorado. The company uses 3D printing to create new, custom-built wristwatch cases. To create bespoke wristwatches, it drops mechanical movements and dials it sources from old, American-made pocket watches. In addition to manufacturing the case, Vortic also restores the original mechanical watch movement, which, in some cases, means using movement parts from multiple antique watches.
In building these watches, Vortic maintains and restores the original dials and movements. As a result, the branding of the original timepiece is kept. Website visitors can see watches with dials from historic American watch brands, like Illinois, Waltham, among others. Before Hamilton filed its complaint, Vortic’s offerings also included wristwatches with dials and movements bearing the Hamilton name.
In addition to bringing claims regarding Vortic’s watches, Hamilton also asserts that Vortic’s advertising materials—including its website—improperly suggest an affiliation with Hamilton. Hamilton alleges that the advertisements and watches are “likely to cause confusion” in the market, thus infringing on Hamilton’s trademarks. Additionally, using the Hamilton name will wrongly cause consumers to believe Vortic’s watches are endorsed by or associated with Hamilton.
In its original complaint, Hamilton sought damages including: (i) a court order permanently preventing Vortic from using the Hamilton name in its products or advertising, (ii) returning any materials (e.g., products, computer code, molds, advertising materials) bearing the Hamilton name, and (iii) monetary damages (including attorneys’ fees for the cost of the suit), along, with a finding of willful conduct, in order to triple the damages.
That’s Just Mean
There are court records from 2018 showing Hamilton, at first glance, blatantly shirking a settlement conference. The court scheduled two meetings between the parties in New York to discuss a potential settlement. However, a Hamilton representative neglected to attend both meetings, even after the court said the representative could attend via phone. This happened after Custer came to New York to attend the conference in person. The court sanctioned Hamilton for its bad-faith actions and ordered Hamilton to pay Custer’s travel and expenses.
In September 2019, the court ruled on Hamilton’s motion for summary judgment—essentially, a request for the court to decide the case in Hamilton’s favor before a full trial—and provided a glimpse about the case’s status. The court denied Hamilton’s motion on all counts, setting up the trial. When a court denies a motion for summary judgment, it says that “a reasonable jury could find for Vortic in this case.” In other words, there are genuine disputes of material facts that need to be resolved through trial.
In denying the motion, the court illustrated its reasoning below and forecasted what will be discussed at trial.
Trademark infringement claims
The only element of trademark infringement subject in dispute is whether Vortic’s use of the Hamilton name could cause a “likelihood of confusion” among consumers. Notably, the standard for proving trademark infringement is a likelihood of confusion. In determining whether there is a likelihood of confusion, the court looks to (i) actual confusion of consumers, (ii) the defendant’s good faith in adopting its own mark, and (iii) the buyers’ sophistication, among other factors. That’s right folks, watch collectors’ sophistication as buyers are partially on trial here! Additionally, Hamilton must show there is a probability of confusion, not a mere possibility.
In addition to these factors, the court pointed out that in cases involving genuinely modified products, adequate disclosure of the origin of the product is enough to decide the case in the defendant’s favor. For example, the court pointed to a case in which a defendant selling reused spark plugs was found to not infringe a trademark, as long as the spark plugs had “used” or “repaired” conspicuously stamped on them. As a result, the court heavily weighs this “disclosure” factor when determining whether there is a likelihood of confusion.
First, the court analyzed whether Vortic made adequate disclosures about the products’ origin in its advertisements. Looking at the Vortic website first, the court pointed out that the branding Vortic gave the watch, including “The Lancaster” and “American Artisan Series,” appeared in large bold letters. Then, in smaller print, the ad explained that the movement, dial, and hands came from an antique pocket watch “made by Hamilton Watch Company.” It then detailed how Vortic builds its watches. The court held that a reasonable jury could find this advertisement a “full disclosure” that Vortic makes watches from old Hamilton components. As a result, a genuine issue of material fact was found to be in dispute. The court applied the same reasoning and analysis to a similar print advertisement and a tweet by Vortic, sending all three claims to trial.
Similar to its analysis for the advertisements, the court also ruled that a reasonable jury could look at the Vortic watch itself and conclude that the source of Vortic’s components was fully disclosed. It noted that Vortic’s wristwatches looked like obviously modified pocket watches. As a result, it concluded that the Vortic name, serial number, and “Lancaster” branding might predominate over the original Hamilton marks. This could lead a consumer to believe the Vortic product is a Hamilton pocket watch that Vortic restored and re-cased as a wristwatch.
The other factors in the likelihood of confusion test, the court analyzed included actual confusion, the defendant’s good faith, and the sophistication of buyers. However, the court did not find enough evidence in these factors to grant summary judgment.
To prove actual confusion, Hamilton relied on an email that a potential customer sent to Hamilton. That email had images of Vortic products attached, and the customer asked Hamilton where it could find a Vortic product. From a legal perspective, that didn’t prove much. All it showed was that some consumer, somewhere, was interested in buying a vintage Hamilton watch, thanks to Vortic.
Finally, looking at the sophistication of consumers (that’s us!), “the average consumer spending hundreds of dollars on a watch that will be worn for years is likely to give close attention to the type of watch he or she is buying.” Swatch Group (U.S.) Inc. v. Movado Corp., No. 01 Civ. 0286, 2003 U.S. Dist. LEXIS 6015, at *14 (S.D.N.Y. Apr. 9, 2003). So, consumers are only considered sophisticated because they’re spending ridiculous amounts of money on these things.
With that in mind, the court sent the trademark infringement claims about the advertisements and the watches to trial.
Counterfeiting and Unfair Competition
The standard to prove a counterfeiting and unfair competition claim is identical to trademark infringement: Hamilton must show that Vortic’s use of the mark is likely to cause confusion. Since the court found a genuine issue of material fact as to whether there is a likelihood of confusion in the trademark infringement count, it also found genuine issues of material fact for the counterfeiting and unfair competition claims.
You’re the Bad Guy
While this case gets to the heart of many fundamental issues in the watch industry (and even the U.S. legal system), this analysis focuses on the legal framework used by the court. While courts contemplate the broader implications of any decision they hand down, they must do so within the bounds of legal precedent. It’s fair to say that Vortic’s founders are “good kids” or that Swatch Group is a malicious luxury conglomerate (or not), but these statements have no direct implications for the legal arguments and decisions that will be made in court.
Endnote: Nominative fair use and Rolex v. laCalifornienne?
So that’s where Hamilton v. Vortic stands. Another lawsuit that the watch industry is closely following also involves alleged trademark infringement and counterfeiting. The case is called Rolex Watch U.S.A., Inc. v. Reference Watch LLC et al., 2:2019-cv-09796 (C.D. Cal. 2019). Because the complaint in this lawsuit was filed in California, any decision made in Hamilton v. Vortic will not be binding for California courts. Reference Watch (doing business as laCaliforienne) complaint was filed in California, so the New York court’s decision has no binding effect on what California courts might do.
In its initial response to Rolex’s suit, Reference Watch (doing business as “laCalifornienne”) raised an interesting affirmative defense that Vortic did not use: nominative fair use.
As I wrote when I covered laCalifornienne’s response to Rolex’s trademark infringement and counterfeiting claims, California’s Ninth Circuit views nominative fair use as a separate test from the typical likelihood of confusion trademark infringement test. When nominative fair use is invoked, the defendant’s use of the trademark is considered fair use if three requirements are met: (1) the product in question can’t be readily identified without using the trademark; (2) the mark is only used as reasonably necessary to identify the product; and (3) the defendant must do nothing that would suggest sponsorship or endorsement by the trademark holder. This nominative fair use test is used instead of a more intense factors-based analysis of trademark using, increasing laCalifornienne’s chances of a win in court.
However, New York’s Second Circuit, where Hamilton v. Vortic is taking place, handles nominative fair use differently. Instead of using the more lenient standard in the Ninth Circuit, the Second Circuit has decided that the nominative fair use factors must be analyzed in addition to the other traditional likelihood of confusion factors. As a result, Vortic didn’t have as much to gain by invoking nominative fair use in New York. This may seem like procedural mumbo-jumbo, but it may ultimately impact how each of these cases turns out.
About the Author:
Tony is an attorney in Chicago, advising on a wide range of technology, advertising and media transactions.