Existing case law proves post-sale confusion can shut down repair and upcycling

Perhaps the strongest iteration of post-sale confusion without counterfeiting is the Ninth Circuit’s decision in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc.[213] That case concerned Au-Tomotive Gold, a maker of custom, “marquee” license plates for cars that sold products alleged to have infringed Volkswagen’s logo.[214] Strikingly, the logos in question were physical Volkswagen badges sold by authentic Volkswagen dealers to be used as replacements for damaged car parts.[215] Au-Tomotive Gold purchased the legitimate badges, gold plated them, and affixed them to blank decorative license plates.[216] Despite the fact that Au-Tomotive Gold disclosed the fact that its license plates were not produced by Volkswagen and initial purchasers were not confused, the German auto giant accused the small company of trademark infringement on the basis that potential consumers seeing the plates could believe Volkswagen was a sponsor.[217] The court found for Volkswagen, determining that Au-Tomotive Gold’s first-sale rights did not extend to “observers.”[218] In fact, the court did not even ground its ruling in the likelihood that future consumer purchases could be impacted, calling post-sale confusion “a free rider problem.”[219] According to the court, purchasers never gain any rights to trademarks of the goods they purchase, and “[i]f a producer profits from a trademark because of post-purchase confusion about the product’s origin, the producer is, to that degree, a free rider.”[220]

Although the Au-Tomotive Gold decision received its share of criticism,[221] the underlying theory of liability for the facts of the case—that is, the creation of a modified, genuine good as opposed to a counterfeit producing post-sale confusion—remains viable, and subsequent courts have applied it.[222] A recent example is an upcycling case that, in part, included allegations of post-sale confusion: Hamilton International Ltd. v. Vortic LLC.[223] This case involved an entrepreneurial firm that created a business model of acquiring movements from old pocket watches (i.e., pocket watches with the cases removed), repairing the movements, 3D printing a new case, and selling the modified timepiece as an upcycled wristwatch.[224] Far from a cheap repair for budget-minded consumers, the modified Vortic watches are sold for thousands of dollars to watch aficionados.[225] Each watch retains the face from the original pocket, which in the litigated case was one crafted by the Hamilton Watch Company when it was an American firm in the early part of the last century.[226] The current owner of the Hamilton brand, Swiss conglomerate Swatch Group, Ltd., sued Vortic for trademark infringement.[227]

According to Swatch, Vortic’s watches were highly modified products that created a likelihood of confusion.[228] Although purchasers received disclosures through advertising and other product materials that may have made clear what modifications Vortic made, such disclosers could not eliminate the confusion from third parties viewing the watches.[229] Ultimately the Second Circuit dismissed Swatch’s arguments on the basis that there was insufficient evidence that consumers could or would be confused by the tiny Hamilton mark on the wrist watches.[230] But this litigation was extremely burdensome on the small firm and involved a multiyear odyssey that might have discouraged a less tenacious owner.[231] Vortic remains in business following the litigation, but its founder has lamented the lost revenue and lost business potential the company suffered.[232]

The broad application of the post-sale doctrine is a threat to those who repair or upcycle. It is the rather lax infringement standard that creates a special problem in this context, allowing at least a viable case to be alleged in relatively weak circumstances.[233] Small firms may be unlikely to undertake such risks, and as a result, more products may be directed to landfills rather than placed back into the stream of commerce.[234]