"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.