Written by: Nicholas Holmes

An Appeals Court in the fifth circuit ruled earlier last month on a case involving the marketing and sale of Rolex watches by a third-party seller. The Court held that a district court in the Northern District of Texas applied the appropriate test and analysis for determining whether the reseller infringed on Rolex’s trademarks when it sold watches that comprised both genuine Rolex parts and aftermarket parts.

The appeal stems from a 2020 lawsuit filed by Rolex against BeckerTime, a well-known reseller of pre-owned Rolex watches. Rolex alleged that BeckerTime engaged in both counterfeiting and trademark infringement when it advertised and sold watches with aftermarket bezels, diamonds, bands and straps under the Rolex mark, without sufficiently disclosing the extent of the modifications to the watches, thereby creating consumer confusion. Rolex asserted that these watches were not authorized or sponsored by Rolex and they are not genuine Rolex products. The District Court, after a bench trial, held that BeckerTime infringed on Rolex’s trademark protection by counterfeiting Rolex watches. An appeal followed.

By way of background, under the “First Sale Doctrine,” a reseller is able to sell goods bearing a trademark without being liable for infringement. There are limitations, however, such as if the reseller’s product is “materially different” form the trademark owner’s product. That is the issue on appeal here. BeckerTime argued that “a modified test for infringement involving ‘decades’ old’ products arises from the Supreme Court’s decision in Champion Spark Plug Co. v. Sanders” and that the district court “improperly applied the traditional likelihood of confusion factors without any discussion of Champion.” Rolex Watch USA, Inc. v. BeckerTime LLC, 91 F.4th, 776, 782 (5th Cir. 2024).  Rolex countered, claiming that the district court applied the correct framework, as it “appropriately followed Rolex Watch USA, Inc. v. Meece, and other established precedent involving altered watches.” Id

Champion’s legal nugget is that “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.” Champion Spark Plug Co. v. Sanders, 331 U.S. 125, 130 (1947). Champion also contains an exception to the above legal rule, specifically, 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.’” Id. at 126.

The Court here explained that although the District Court did not expressly cite “Champion,” the Court’s review of the record indicates that the District Court properly considered and applied Champion. Rolex Watch USA F.4th at 782-83. The Court compared the facts from Champion to the present case, and concluded that BeckerTime does more than recondition or repair Rolex watches. As the District Court found, BeckerTime produced “modified watches,” with “added diamonds,” “aftermarket bezels,” and “aftermarket bracelets or straps.” It further found that the watches sold by BeckerTime were “materially different than those sold by Rolex.” In fact, the District Court found that Rolex has never sold watches matching the descriptions provided by BeckerTime. Id. at 783. Further, BeckerTime describes its modification process as “customization,” rather than “restoration.” Id. The Court agreed with the District Court’s holding that this “customization” transformed the authentic Rolex watches into watches “of another make” so much so that they “cannot be properly be called genuine Rolex watches” anymore. Id. Accordingly, although BeckerTime includes disclaimers regarding the above modifications, these were considered insufficient because the disclosures mislead purchasers into thinking there is a comparable genuine Rolex, when this is not always the case. Id. at 784. The Court affirmed the District Court’s ruling that BeckerTime infringed on Rolex’s trademarks.

While trademark law authorizes the reselling of a product bearing the trademark of another, the extent to which the reseller “restores” the product will determine if trademark infringement and counterfeiting occurs. Extensive modifying or replacement of parts other than from the original manufacturing could lead to infringement, especially if consumers are to believe that the modified product is genuine. So, the next time you are at a reseller looking to enhance your jewelry collection, make sure to do your research and ask, “Is that a Rolex?”

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