Rolex loses out on disgorgement of profits from laches defence in Fifth Circuit ruling

In a dispute involving allegedly counterfeit luxury watches, the US Court of Appeals for the Fifth Circuit affirmed a district court’s finding of trademark infringement, maintaining that the laches defence prevented disgorgement of profits (Rolex Watch USA Inc v BeckerTime LLC, case 22/10866, 26 January 2024, Douglas, King, Willett, JJ).

Case background

Rolex is a luxury watch designer and manufacturer. BeckerTime modifies Rolex-branded watches by adding diamonds, aftermarket bezels and bands – unauthorised by Rolex – and then sells them as genuine Rolex products.

Rolex filed a lawsuit against BeckerTime alleging trademark infringement, and sought an injunction and disgorgement of profits. After a bench trial, the district court concluded that BeckerTime had infringed Rolex’s trademark, but refused to order disgorgement of profits based on BeckerTime’s laches defence. Rolex appealed.

The appeal

On the issue of infringement, BeckerTime argued that the district court had erroneously applied the traditional likelihood-of-confusion analysis without considering the Supreme Court’s decision in Champion Spark Plug v Sanders. In Champion, the Supreme Court held that the defendant was not obligated to remove trademarks from repaired or reconditioned products. This was grounded in the distinction that the products were distinctly marketed as “repaired or reconditioned” as opposed to brand new items.

The Supreme Court clarified that a misnomer exception would only be applicable if the extent or nature of modification was so profound that using the original name would be misleading, even if terms such as “used” or “repaired” were added to describe the product.

Drawing a comparison with Champion, the Fifth Circuit differentiated BeckerTime’s actions from mere repairs or reconditioning. Unlike the defendant in Champion, BeckerTime went beyond restoration, actively modifying the Rolex watches by incorporating diamonds, aftermarket bezels and bracelets or straps. Therefore, BeckerTime’s watches were materially distinct from those offered by Rolex.

The court reasoned that BeckerTime’s alterations amounted to customisation rather than restoration, as was the case in Champion. Applying the misnomer exception from that case, the Fifth Circuit affirmed the district court’s decision, asserting that BeckerTime’s customised watches created a likelihood of confusion among consumers and therefore infringed upon Rolex’s trademark.

The laches defence

On the issue of disgorgement of profits, the Fifth Circuit also affirmed the district court’s laches application to deny an award of disgorgement. Rolex argued that BeckerTime’s deliberate counterfeiting precluded laches, while BeckerTime contested that Rolex had failed to prove malicious intent, which is required to justify disgorgement.

The Fifth Circuit agreed with the district court that Rolex had failed to show BeckerTime’s malicious intent, as the evidence did not indicate intentional infringement. The court also agreed that the delay in filing the suit caused undue prejudice to BeckerTime by enabling it to build a successful business.

Rolex sought a complete ban on BeckerTime’s use of non-genuine bezels and dials on its modified Rolex watches, but the Fifth Circuit only partially agreed to this request. Recognising the potential for consumer confusion, the court ordered BeckerTime to cease using non-genuine bezels. However, the court deemed Rolex’s objection to the inscription “Customized by BeckerTime” to be unreasonable, considering it a clear and accurate disclosure to avoid confusion. Similarly, the court rejected Rolex’s claim regarding non-genuine dials. It differentiated mere customisation from restoration and highlighted BeckerTime’s compliance with mandated disclosure requirements.

Further, Rolex contested the court’s denial of treble profits and attorneys’ fees. Although Section 1117 of the Lanham Act allows for such awards, the Fifth Circuit, citing Champion, explained that treble profits are denied in situations where an injunction suffices. Since the amended injunction addressed Rolex’s infringement concerns, its claim for treble profits fell flat. Rolex had also waived its request for attorneys’ fees by failing to formally move for such relief.

Key takeaways

The Fifth Circuit’s decision suggests that rights holders should pursue infringement charges in a timely manner and with evidence of malicious intent if they are to be successful in their request to disgorge profits. Further, where modified consumer goods are concerned, brand owners should understand the differences between restoration and customisation and how this can determine the outcome of an infringement suit.