Vortic is a watch company. But in 2015, that description was overly generous. It was more like two guys working out of a storage closet with $40,000 from a Kickstarter. To make ends meet, one of those guys also had a corporate job at Walmart. They aspired to make watches, sure, but they’d never actually done it.
That’s why when a cease-and-desist letter arrived from one of the largest watch companies in the world, they thought it was a joke.
The sender was Swatch Group. “I had to google it,” Vortic cofounder R.T. Custer admits. He learned that the Swiss conglomerate was doing $9 billion in net sales largely through its 18 brands, which included Breguet, Longines, Omega, Harry Winston, and— oh, now it made sense—Hamilton. “I was like, Holy crap.” He knew it had to be the ad they’d just run in WatchTime magazine.
Vortic’s plan was to build modern wristwatches but to build them with salvaged parts from vintage American pocket watches (as well as some new bits from a 3D metal printer). The ad featured a prototype of the kind of pieces they’d be selling, and the elegant face on that prototype was…an antique Hamilton.
A legal question was being raised here. If Vortic takes a piece of an old watch and then combines it into a new product, is that trademark infringement? Swatch obviously thought so. Custer thought not—and was willing to bet his company and life savings on it. Some might say his fight was insane; some might call it Custer’s Last Stand (particularly apt because, yes, he shares a bloodline with the general). And now, nearly six years later, the lawsuit known as Hamilton International Ltd. v. Vortic LLC is still unresolved.
What happens next may impact founders across the country, because Custer is fighting an uncomfortably gray and unsettled area of trademark law that’s becoming increasingly contested. His case isn’t a dispute over something simple, like a label or a logo. Entrepreneurs like Custer are instead propelled by a culture that loves to drop brand names, recycle, and share everything, the way sampling has become common in the music industry. Given the proliferation of DIY manufacturing tools, Kickstarter fundraising, and easy selling on eBay and Etsy, a kind of remix economy is booming— which hasn’t gone unnoticed by large companies. “Mark holders have been pushing to acquire more rights to protect the value of their brands,” says Andres Sawicki, a professor at the University of Miami School of Law who specializes in intellectual property (IP). Between the two colliding trends, he says, courts are struggling to set the rules.
You can see that going on, case by case, in a number of recent upcycling disputes in which established luxury brands are suing startups that, in one way or another, are engaging with their trademarks. Chanel is suing The RealReal and What Goes Around Comes Around; Ralph Lauren has gone after VNDS in Los Angeles; and Rolex, somewhat ominously, just won a case against La Californienne. And then there’s Vortic versus Swatch.
“You have to ask yourself, as an entrepreneur, Do I ever want to be a test case?” says Joseph Gioconda, a New York IP attorney who has represented both small startups and large companies like Hermès and Tiffany & Co. “The answer is generally no because over time, they’re going to outspend you in a war of attrition. Even if you’re in the right, it’s going to be very hard to stay in the game and to fight tooth and nail for the next 10 years. So when it does happen, like in the Hamilton case, it’s very interesting.”
Especially because, for the moment, the little guy is winning.
Trademark law, which is spelled out in the Lanham Act of 1946, hinges in large part on a simple question: Is the consumer confused?
When you see a swoosh on a sneaker, for example, you know it’s made by Nike. And you’ll likely assume it will fit exactly like the last 29 pairs of Nike you bought. This is the reward of intellectual property rights. If a brand builds trust in the marketplace, it should be able to own that trust. So when Company B puts something swoosh-like on its product—say, a tennis racket—then the question for the courts is clearcut: Do people think this other brand is Nike (that’s “infringement”), or is it whittling away at Nike’s distinctiveness (that’s “dilution”)? If the answer to either is yes, then Company B has a problem.
Although this system is fair in theory, it has been the subject of great debate and heartache. Some claim that it stifles innovation. Others say that it empowers deep-pocketed brands to squash every little competitor. But for the most part, legal experts say, the problem is in the system itself.
Trademark law makes clear that registering a mark—a word, a name, a symbol, or a device that identifies the company’s goods and distinguishes it from others—is not a one-and-done deal. Brands must continually enforce it to keep it. If they don’t, a court may eventually decide that a trademarked name has become generic—which is how the original creators of the escalator (introduced in 1900 by Otis Elevator Company) and heroin (once a Bayer cough suppressant) lost their marks. Often, defendants in trademark cases will point out that a brand has been lax and say, Hey, why are you picking on me and not the other guys who are infringing? Judges can be receptive to that argument, Gioconda says, so companies (and, full disclosure, that includes Entrepreneur Media) remain diligent in protecting their mark.
These battles may be what the legal system demands, but too often, the casualties are small businesses that intended no harm. A few years after starting a healthy snack company called Quinn in Colorado, Kristy Lewis discovered there was a Quin in Oregon, which made all-natural candy. She’d heard from a buyer who confused the two and, in an effort to protect her brand, asked Quin candy to change its name.
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