The Rolex IP Cases Prove That Time IS Money
It is important for courts to safeguard the intellectual property rights of brands which are at risk of dilution due to the proliferation of inauthentic modifications.
Rolex is ticking off resellers as it takes legal action to safeguard its trademark rights. As one of the largest luxury watch brands, Rolex has created some of the most desired watches. The most poplar models, including the Daytona, the Submariner, and the GMT Master II are notorious for selling above MSRP. Part of the hype behind the brand stems from its exclusivity. With the scarcity of Rolex watches in the world, obtaining one feels like a major accomplishment. Enthusiasts have resorted to paying premiums to resellers to put a Rolex on their wrist. Some even seek out resellers that have modified the watches with aftermarket diamonds, bezels, or straps. Two recent court cases provide guidance for resellers making aftermarket modifications.
Rolex filed two back-to-back lawsuits for trademark infringement — one in the United States and one in Switzerland — against Rolex dealers making aftermarket modifications.
The Fifth Circuit issued a decision on January 26 in the case titled Rolex Watch USA, Inc. v. BeckerTime LLC. The watches at issue in this case are identified as “Genuine Rolex,” but contain both Rolex and non-Rolex parts. Specifically, BeckerTime added diamonds “as hour markers to the refinished dials by drilling holes in the dials and placing aftermarket diamonds or other stones and settings in the holes.” To do this, BeckerTime “strips the dial down to bare metal, then, after the refurbishing process is complete, reapplies Rolex’s trademarks.”
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Following a bench trial in October 2021, the district court held that “BeckerTime infringed Rolex’s trademark protection by counterfeiting Rolex watches,” and enjoined BeckerTime from using Rolex’s trademark in specific applications. The district court also found that Rolex was not entitled to disgorge BeckerTime’s profits because laches applied.
In reviewing the district court’s finding of infringing, the Fifth Circuit addressed whether the correct legal standard was applied. BeckerTime argued that the district court “improperly applied the traditional digits of confusion factors without any discussion of Champion [Spark Plug Co. v. Sanders, 331 U.S. 125 (1947)],” a case describing a modified test for infringement involving “decades’ old” products. BeckerTime urged the court to consider additional factors, including “(1) the extent and nature of changes made to the product, (2) the clarity and distinctiveness of the labeling on the rebuilt product, and (3) the degree to which any inferior qualities associated with the reconditioned product would likely be identified by the typical purchaser with the manufacturer.” The Fifth Circuit declined to consider these additional factors, reasoning that while the district court did not expressly cite Champion, it properly considered and applied the standard in the case.
According to Champion, “a reseller may utilize the trademark of another, so long as it involves nothing more than a restoration to the original condition, and not a new design,” and if that is the case, “[f]ull disclosure gives the manufacturer all the protection to which he is entitled.” The court carved out a “misnomer exception” in “[c]ases … 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 ‘repaired’ were added.”
The Fifth Circuit found that the misnomer exception applied to the facts of the case and thus the district court did not err by conducting a traditional likelihood of confusion analysis. The court reasoned that unlike the spark plugs in Champion that simply involved a restoration to their original condition, according to the findings of the district court BeckerTime produced “modified watches” with “added diamonds,” “aftermarket bezels,” and aftermarket bracelets or straps that were “materially different than those sold by Rolex.”
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After holding that the district court applied the correct standard, the Fifth Circuit upheld the district court’s determination that “the digits of confusion point towards a likelihood of confusion,” noting the following supporting facts: customers were confused if the watch is a genuine Rolex and inquired about its authenticity; BeckerTime received complaints about quality; BeckerTime received complaints that the watch was not composed of exclusively genuine Rolex parts; BeckerTime’s disclaimers may not reach subsequent potential purchasers; and BeckerTime’s disclaimers mislead purchasers into thinking there is a comparable genuine Rolex, when there is not always one.
In addressing Rolex’s arguments about the scope of relief granted by the district court, the Fifth Circuit upheld the district court’s findings that the laches defense precludes disgorgement of BeckerTime’s profits and an award of treble profits and attorneys’ fees. A laches defense cannot be asserted by a defendant with unclean hands. For example, “[a] defendant who intentionally infringes a trademark with the bad faith intent to capitalize on the markholder’s good will lacks the clean hands necessary to assert the equitable defense.” The appeals court said that emails between BeckerTime and its customers showing it goes to great lengths to clarify which parts are original Rolex and which are aftermarket support the district court’s conclusion that BeckerTime did not intentionally infringe Rolex’s mark. The court also found that the district court’s finding of laches was supported since Rolex’s agents should have known about BeckerTime at least 10 years prior to filing the lawsuit and “BeckerTime relied on Rolex’s cooperation in building this valuable business.”
Regarding the scope of injunction, the Fifth Circuit “agree[d] with Rolex that the district court should have enjoined the sale of Rolex watches with non-genuine bezels,” noting that “the district court specifically found that ‘advertisements labeling watches with a non-genuine bezel as a Rolex are likely to confuse customers’ and that, like dials and bracelets, bezels ‘are integral and necessary to the at-issue watches.’” While the district court prohibited BeckerTime from displaying the “GENUINE ROLEX” trademark for watches including a non-genuine bezel, the appellate court found that its failure to enjoin the sale of such watches was inconsistent with the district court’s other findings and did not treat all “integral and necessary” watch parts the same.
However, in a small win for BeckerTime, the Fifth Circuit said that “[w]ith the right disclosures, as required by the injunction, BeckerTime is free to customize watches for customers upon request.” Rolex argued that the district court erred by enjoining BeckerTime’s sale of “dials where the dial is stripped of the original paint/coating and markings, then repainted/recoated … or to which other words have been added,” but not the sale of “customized dials that do not involve the removal or reapplication of Rolex’s trademarks, and which may have added diamonds, stones, or other embellishments.” However, under Champion, the Fifth Circuit specified that “there is a different between adding diamonds to a dial and refinishing a dial — the former is customization, the latter is restoration.” The Fifth Circuit also highlighted that “with the required disclosures, no customer requesting a customized watch by BeckerTime would confuse it with a genuine Rolex watch,” and thus rejected Rolex’s argument that the district court improperly permitted BeckerTime to sell counterfeit watches upon customer request.
In a January 19 decision, the Swiss Federal Supreme Court delved deeper into the legality of watch customization. The court addressed whether the customization of watches bearing the Rolex trademark without authorization violates Swiss trademark and unfair competition law. At its core, the holding was consistent with that of the Fifth Circuit: while the general marketing of modified Rolex watches violates Rolex’s intellectual property rights, the customization of Rolex watches already-owned by clients, at the request of the client, is acceptable.
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The defendant in this case, an unnamed Geneva-based company, “personalizes mass-produced luxury watches, mainly by Rolex,” involving the removal and reapplication of original Rolex trademarks. After being warned of its infringement, the defendant stopped marketing its customized watches and only engaged in customizing watches at the request of private clients.
The lower court enjoined the defendant from selling any customized watches with the Rolex trademark. In its review of the lower court’s decision, the Swiss Federal Supreme Court emphasized that the lower court’s findings show a “profound misunderstanding of the difference between two distinct commercial activities,” customizing watches at the request of the watch owner and marketing customized watches. The Supreme Court reasoned that “[w]hen it personalizes a branded item at the request of its owner, the company concerned is not … using the brand of a third party on the market to offer its own services, but is only modifying an item for specific, private purposes.”
As such, the Supreme Court held that while the defendant’s marketing and sale of a customized Daytona, which Rolex was able to acquire, constitutes infringement, the defendant’s new business model of customizing watches at the request of the owner does not constitute infringement. The Supreme Court also found that the defendant’s new business model does not violate the Swiss Federal Law Against Unfair Competition because the defendant no longer places the watches on the market after they have been modified.
Lastly, the Supreme Court addressed whether the use of Rolex’s trademark in the marketing of the defendant’s customization services violates trademark or unfair competition law. The Supreme Court stated that the lower court carried out an “incomplete analysis … both on a factual level and a legal level” when finding that the defendant’s marketing activities are likely to cause consumer confusion. For example, the lower court did not assess the disclaimers on the defendant’s website informing customers that the company’s customization services are not affiliated with Rolex. The Supreme Court emphasized that a company’s use of another’s trademark could be lawful to inform potential customers about its products and services if it does not create the false impression of affiliation. The Supreme Court remanded the issue back to the lower court.
It’s in fashion to customize branded goods. This trend extends beyond watches to encompass other industries like fashion and automotive, as highlighted by the Swiss Supreme Court in its decision. Customers may want to express their individuality by driving an Aston Martin in a wrap that is one of a kind. Or they may want to add diamonds to their Cartier love bracelet without succumbing to the insane premium typically associated with the brand’s diamond offerings. In any case, many companies have created thriving business models centered around customization services.
It is important for courts to safeguard the intellectual property rights of brands which are at risk of dilution due to the proliferation of inauthentic modifications. The recent decisions by the Fifth Circuit and the Swiss Federal Supreme Court offer valuable guidance on how these companies can navigate the provision of customization services within legal boundaries, ensuring both consumer satisfaction and brand protection.
Nicolette Shamsian joined Above the Law as a fashion law columnist in 2023. Nicolette earned her B.A., summa cum laude, in Political Science and minor in Entrepreneurship from the University of California, Los Angeles and her Juris Doctor from UCLA School of Law. Nicolette is an attorney whose work focuses on intellectual property litigation. As a fashion law aficionado, Nicolette enjoys leading discussions to keep attorneys up to date on noteworthy fashion law cases.
