“upcycling” isn’t infringement/counterfeiting when full disclosure is present

Hamilton International Ltd. v. Vortic LLC, No. 17-CV-5575
(AJN)(OTW) (S.D.N.Y. Sept. 11, 2020)

Champion Spark Plug still matters sometimes!
Hamilton, a Swiss watchmaker, sued Vortic for making watches incorporating
vintage Hamilton parts, alleging that this constituted trademark infringement,
counterfeiting, dilution, and unfair competition. After a bench trial, the
court found Vortic’s conduct unlikely to cause confusion and entered judgment
for defendants.

“Vortic is a watchmaker that specializes in restoring
antique pocket watches and converting them into wristwatches.”  It sold a watch called “The Lancaster,” named
after Lancaster, PA, where the Hamilton Watch Co. was originally located, that
was made with a historic, restored movement (here, internal mechanism with
hands and face attached) produced by the Hamilton Watch Company.

The “Hamilton” mark remains visible
on the antique face of the watch. The Lancaster has a Gorilla Glass back which
makes the internal workings visible, and “Hamilton” can also be seen on one
part of the movement. Around the ring in the rear of the watch is engraved
“Vortic,” along with “The Lancaster” and a serial number. In total, 58 watches
were either sold or gifted.

From Vortic’s website

Infringement: The Polaroid factors shouldn’t be
applied mechanically. “In cases such as this one, involving modified genuine
products, the Supreme Court has found whether the defendant adequately
disclosed the origins of the product to be dispositive.” In Champion, as
long as the repaired sparkplugs had “Repaired” or “Used” conspicuously stamped
on them and their packaging indicated that the defendant had done the
restoration, “[f]ull disclosure” of the products’ origins was “all the
protection to which [the plaintiff] was entitled.”

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. It was otherwise permissible for the goods to retain the Champion
trademark even if it means that the defendant benefits from plaintiff’s
goodwill or “gets some advantage from” plaintiff’s mark.  The Court cautioned 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 though the words ‘used’ or ‘repair’ were added.” Outside those rare
circumstances, however, a refurbished product may bear the original maker’s
mark.

Thus, the court focused on “adequacy of disclosure,”
treating the Champion rule “as a substitute or crucial supplemental
factor to a traditional Polaroid likelihood of confusion analysis.”
Subtle twist, though: “Full disclosure” matters if it prevents “numerous
ordinary prudent purchasers” from being “misled or confused as to the source of
the product.” That’s a twist because Champion didn’t suggest that
evidence of confusion was relevant; it was a rule about what the defendant
should do, not a rule about what consumers perceive. Is it now a presumption?
Is it only rebuttable with evidence of substantial consumer confusion?
Smuggling the rule into the definition of “ordinary prudent purchasers” is one
way to resolve these tensions—but then it’s hard to see why any evidence could
rebut the presumption, if reasonable consumer is a normative concept rather
than an empirical one.

Anyhow, the court gave “strong weight” to the “full
disclosure” factor while also running through the Polaroid factors, as
guided by the Second Circuit’s awful treatment of nominative fair use, sigh.

First, there was “full disclosure” per Champion, in
the ads and marketing materials, as well as the watch itself. All of the
advertising and marketing in the record “would 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.” E.g, the website “clearly stated that the
Lancaster was one of ‘Vortic’s flagship line of watches’ and that ‘[a]ll of the
components (movement, dial, hands) between the two Gorilla Glass crystals ~100
years old and started their life in a Railroad-era pocket watch made by the
Hamilton Watch Company.’” The website stated that Vortic “meticulously restores
the inner workings in order to build a completely custom watch around” vintage
elements. “While the Hamilton mark is visible in a picture, Vortic’s logos
predominate.”  

A magazine ad likewise stated that “[e]ach piece is custom
fabricated using railroad era, American made pocket watch movements to create a
timeless one of a kind wristwatches.” “Any viewer of this advertisement would
come away with an accurate understanding of the relationship between Vortic and
Hamilton.”

The watch itself, “in isolation,” also provided full
disclosure. “[T]he watch obviously presents to a viewer as restored antique
pocket watch movement, face, and hands that have been reincorporated into a new
wristwatch. This would be true even if the watch was viewed only from the  front or only from the back, and even if the
viewer did not have any prior knowledge about the watch.” [Shades of what
happened after the initial reversal in the LV v. Dooney & Bourke case,
which prompted Judge Scheindlin on remand
to find no confusion even when “viewed ‘in public from a distance, in a store
window, from across a room, from a passing car, [ ] while walking in the
street,’ in an advertisement, or hanging off of a woman’s shoulder, by way of
examples.”]

The court ponted out that “the watch is much larger than the
typical wristwatch and that there is a large knob at the 12 o’clock position
which is immediately recognizable as being from a pocket watch, rather than a
wristwatch which usually has the movement at 3 o’clock.  Additionally, the hands, face, and movement
have a patina, style, and look that convey that they are restored antiques.”
Plus, the placement of the respective marks “would convey to any ordinary
prudent purchaser that the watch was made by Vortic and that the Hamilton mark
is only displayed because Hamilton created the original movement, face, and
hands that have subsequently been restored.” 
“Vortic,” “Lancaster,” and the serial number were 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.”

Nicely, the court pointed out that complete disclosure about
the production process on the product itself isn’t required by Champion.
“ It was sufficient in that case that the sparkplugs clearly conveyed that they
were ‘used’ or ‘repaired.’  While the
watches in this case have been modified to a greater extent than the sparkplugs
in Champion, the Court finds that the Lancaster itself provides more disclosure
as to the extent of the modification and restoration.”

Since the Hamilton components had been restored, it was not
a misnomer to call the components bearing the Hamilton trademark by their
original name, and the disclosure “prevents undue interference with the ability
of Plaintiff to control its reputation.” Stamping “used” or “repaired” on the
watch wasn’t required as long as there was “full disclosure with sufficient
clarity and conspicuousness,” which was done here by overall design and the
engravings. (Citing Ford Motor Co. v. Ultra Coachbuilders, Inc., Case No. EDCV
00-00243-VAP, 2000 U.S. Dist. LEXIS 20173 (C.D. Cal. July 11, 2000) (stretch
limousine version of Ford automobile did not infringe on Ford’s trademark
because the modifications were “apparent”).)

Hamilton argued that the burden was on Vortic to show that
the disclosure worked. First, Vortic’s principal’s testimony “to the effect
that neither he nor his company encountered individuals who were confused about
the relationship or lack thereof between Vortic and Hamilton would seem to meet
this burden, particularly given Vortic’s small size.” But second, the case law
Hamilton cited wasn’t about modified genuine products. (Citing Home Box Office,
Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1316 (2d Cir. 1987).)
Champion, which did involve a modified genuine product, did not place
such a burden on the defendants and neither have courts in this circuit that
have applied Champion.”

Second, Hamilton argued that the disclosure was insufficient
“because it fails to disclose particular modifications to the movement or that
Vortic sometimes uses parts from other antique Hamilton watch movements in its
restorations.” The uncontroverted evidence was that the modifications were
minor and didn’t alter the function of the movement; there was no reason to
believe that this was “particularly significant to consumers” or “somehow
material to a likelihood of confusion.” In terms of using parts from other
watches, “this is a technique that virtually anyone would expect in the
restoration of an antique watch movement.” (Citing Champion, 331 U.S. at 129
(“inferiority is expected in most second-hand articles.”).) Nor was it material
to likely confusion: “the watch still contains an antique Hamilton watch
movement with antique Hamilton watch parts.”

Third, Hamilton argued that post-sale confusion could occur.
A member of the general public, seeing a Lancaster on someone’s wrist, “would
not know that it was Vortic rather than Hamilton that had done the restoration
and modification.”  But third-party
confusion is “only relevant if their views are somehow related to the goodwill
of the aggrieved manufacturer.” There was no reason to conclude that the
appearance of the Hamilton mark “on the inner workings of the watch—visible
only upon close inspection—would result in initial interest confusion among
members of the public.” [Also, so what?]

With that out of the way, the Polaroid analysis
didn’t favor a finding of likely confusion. A number of the Polaroid factors weren’t
helpful: strength of mark and similarity doesn’t matter where there is a
modified genuine product with full disclosure. “Likewise, proximity of the
products, bridging the gap, and the quality of the product are all also
unhelpful, because application of these factors would penalize defendants who
have only lightly modified a genuine product. Yet, under Champion, these
are the defendants who have the lowest burden to meet the full disclosure
standard.”  Thus, only actual confusion,
the defendant’s good faith, and the sophistication of the buyers were relevant Polaroid
factors.

Even if the court considered all the Polaroid
factors, the result would be the same. The mark is relatively conceptually
strong (the court calls it “fanciful,” even though that’s clearly wrong), but
there was limited evidence of market strength, especially of such a kind as to
make the views of non-purchaser members of the public important to its
goodwill. Similarity, likewise, isn’t assessed in a vacuum, and so the context pointed
to dissimilarity. Proximity of the products was “a wash,” because of
presumptive variation within the watch market; Hamilton didn’t show that it
sold any watch similar to the Lancaster, “such as a wristwatch that looks like
a pocket watch or any kind of restored watches,” and bridging the gap was
irrelevant/Hamilton submitted no evidence. [Beautiful example of stampeding the
factors.] Product quality: There was no evidence about the quality of either
party’s actual watches.

Actual confusion: Hamilton relied on a single email sent to
a Canadian brand manager in 2015: “my friend is looking for a vintage hamilton
as per attached,” but Hamilton failed to establish that the attached was a
Vortic ad (as claimed), and anyway the email wasn’t clear about whether the
sender’s friend actually thought that Vortic’s product was made by/affiliated
with Hamilton.

The court found that Vortic acted in good faith, seeking to
“preserve American history” by salvaging and restoring the hearts of antique
pocket watches rather than to cause confusion. Its principal

viewed himself as “upcycling,”
restoring previously nonfunctional antique watch movements and parts, and
making them into something of “much greater value.” To be sure, Mr. Custer did
intend to gain some benefit from displaying the Hamilton mark, albeit more from
Hamilton’s historical significance rather than its modern-day reputation. But
the benefit Mr. Custer sought was no more than what he fairly believed he was
entitled to by including restored, genuine antique Hamilton movements, hands,
and faces. 

Finally, the customer base was highly sophisticated. The
Lancaster was “very expensive” and expensive-watch consumers are typically
discerning.

Counterfeiting: This requires that use of a counterfeit mark
is “likely to cause confusion, or to cause mistake, or to deceive.” That wasn’t
shown here. [Courts are of course super inconsistent about this. If there were
no genuine goods involved, even full disclosure “these are counterfeit” wouldn’t
work, but the ways that courts distinguish these situations are opaque at best.
Overall, we might be better off talking more openly about “unfair competition”
and what constitutes fairness.]

State dilution: Only blurring was claimed; the factors are
similar to the confusion factors; so Vortic wins.

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