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Filing delay costs trademark holder infringement damages
A federal appellate court recently upheld a lower court’s finding of trademark infringement. So far, so good for the trademark holder. But that wasn’t the end of the story. The court also ruled that the holder’s delay in pursuing its infringement claim barred it from recovering disgorgement damages.
Trial time
Rolex Watch USA is a well-known seller of luxury watches with legally protectable interests in many trademarks. BeckerTime primarily sells decades-old preowned watches with Rolex-branded parts. The watches at issue in the case were sold by BeckerTime as “Genuine Rolex” and had at least one Rolex trademark. But they also contained both Rolex and non-Rolex parts as well as diamonds, bezels and bands not authorized by Rolex.
Rolex sued BeckerTime for trademark infringement and sought to recover, or “disgorge,” BeckerTime’s profits from the infringement as damages. After a bench trial (a trial decided by a judge, rather than a jury), the court held that BeckerTime infringed Rolex’s trademark by counterfeiting Rolex watches and blocked the defendant from using Rolex’s trademark in certain applications.
The court, however, concluded that Rolex wasn’t entitled to disgorgement of profits because the “laches doctrine” applied. Both parties appealed.
A second look
The U.S. Court of Appeals for the Fifth Circuit first considered whether the trial court had applied the correct legal framework when determining that BeckerTime infringed Rolex’s trademarks. It held that the court hadn’t erred in finding that infringement occurred because BeckerTime’s watches lacked sufficient disclosures and therefore created a likelihood of confusion in consumers.
Next, the appeals court weighed Rolex’s arguments regarding the applicability of the laches defense. To prevail on a laches defense in a trademark case, a defendant must show:
- The plaintiff’s delay in asserting trademark rights,
- Lack of excuse for the delay, and
- Undue prejudice to the alleged infringer because of the delay.
Laches may not be available where the party asserting the defense has “unclean hands.” A defendant who intentionally infringed with the bad faith intent to capitalize on the trademark’s goodwill has unclean hands and therefore can’t wield the laches defense.
The appellate court acknowledged an “inherent” aspect of reselling luxury goods — that the sellers wish to benefit from the brand name’s goodwill and reputation. But it also cited emails between BeckerTime and its customers showing that the company went to great lengths to clarify which parts were original Rolex, which were customized or modified, and which were “aftermarket.” This indicated that BeckerTime didn’t intentionally infringe Rolex’s mark, so the unclean hands analysis didn’t apply and the laches defense was allowed.
The court found that, while Rolex didn’t sue until 2020, Rolex’s agent should have known about BeckerTime in 2010, at a minimum, and no later than 2013, when a Rolex employee wrote that BeckerTime watches were junk. BeckerTime probably wouldn’t have shifted its business model to be reliant on the sale of altered Rolex watches if Rolex had sued promptly.
Rolex offered no justification for the delay, instead simply arguing that BeckerTime didn’t establish that it suffered the requisite undue prejudice. The appeals court, however, found that the 10 years of “permitted sales” allowed the company to build up a successful business that it otherwise wouldn’t have invested in, and this was “clear prejudice.”
Watch your mark
By dragging its feet when it came to asserting its trademark, Rolex forfeited its right to significant disgorgement damages. If you suspect that your trademark has been infringed, seek legal advice as soon as possible to preserve your rights.
From the August/September 2024 Cantor Colburn IP Newsletter © 2024
