Friday, October 13, 2006

Swatch watches claims come close to success

Swatch S.A. v. New City Inc., -- F. Supp. 2d --, 2006 WL 2854400 (S.D. Fla.)

Swatch has an exclusive US distributor for its watches. Defendant is not that distributor, but still sells (or sold; see website) Swatches imported from abroad. The packages are altered (missing product reference numbers, stock keeping units, bar codes and batch codes) and the warranties are invalid, though Swatch has, as a business practice designed to maintain customer goodwill, routinely honored warranties on such imported watches.

The court found that Swatch had not shown that the package alterations made the goods “materially different” in consumer perception from genuine Swatches, which would take them outside the first sale doctrine, for purposes of summary judgment. The warranty was a slightly different matter: A warranty Swatch is bound to honor is distinct from a warranty that Swatch honors only as a matter of business practice. However, Swatch submitted no evidence that this intangible difference is material to a consumer’s purchasing decision. Thus, summary judgment was denied on the trademark claims.

Swatch’s copyright claims fared better – because the goods were not reimported but imported, they were not covered by first sale, and unauthorized sale in the US counted as infringement.

So, too, did one of Swatch’s false advertising claims get close to success: Defendant’s website FAQ included the question “Do the watches have a warranty?” The answer was, “Yes, [t]he warranty is handled directly by the manufacturer.” Because an invalid warranty isn’t a warranty, the court found this claim false. Materiality is determined by whether defendants misrepresented an inherent quality or characteristic of the product. Whether a warranty is in fact material was a disputed factual issue. Swatch provided statements from company representatives that warranties provide additional value to consumers, and pointed out that defendants thought it important enough to put in the FAQ; the court found this argument compelling but insufficient to entitle Swatch to judgment as a matter of law.

Some courts hold, with the FTC, that making a claim explicitly in advertising is evidence that the advertiser considered the claim material, and advertisers can be presumed to know their customers’ preferences. Whether that doctrine still applies in an age where a website can answer any question, from the serious to the trivial, has yet to be addressed. I’ve seen some pretty trivial FAQs. That said, my instinct lies with Swatch on this one.

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