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Audemars Piguet Holding S.A. v. Swiss Watch Int'l, Inc.

United States District Court, S.D. New York

January 7, 2014

AUDEMARS PIGUET HOLDING S.A., AUDEMARS PIGUET (NORTH AMERICA) INC., Plaintiffs,
v.
SWISS WATCH INTERNATIONAL, INC. d/b/a SWISS LEGEND d/b/a SWI GROUP; ILS HOLDINGS, LLC d/b/a WORLDOFWATCHES.COM, and LIOR BEN-SHMUEL, Defendants

Decided: January 6, 2014.

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For Audemars Piguet Holding S.A., Audemars Piguet (North America) Inc., Plaintiffs: Milton Springut, Tal S. Benschar, Springut Law PC, New York, NY.

For Swiss Watch International, Inc., doing business as Swiss Legend, doing business as SWI Group, Defendant: Amaury Cruz, PRO HAC VICE, Amaury Cruz & Associates, Miami Beach, Fl; Avram Solomon Turkel, Borstein & Sheinbaum, New York, NY; James Barnett Sheinbaum, Bernstein & Sheinbaum, New York, NY; Lisa N. Neal, PRO HAC VICE, Rutan & Tucker LLP, Costa Mesa, Ca.

For ILS Holdings, LLC, doing business as Worldofwatches.com, Defendant: Amaury Cruz, PRO HAC VICE, Amaury Cruz & Associates, Miami Beach, Fl.

For Lior Ben-Shmuel, Defendant: Amaury Cruz, PRO HAC VICE, Amaury Cruz & Associates, Miami Beach, Fl; Lisa N. Neal, Rutan & Tucker LLP, Costa Mesa, Ca.

For Swiss Watch International, Inc., Counter Claimant, Counter Defendant: Amaury Cruz, PRO HAC VICE, Amaury Cruz & Associates, Miami Beach, Fl; Avram Solomon Turkel, Borstein & Sheinbaum, New York, NY; James Barnett Sheinbaum, Bernstein & Sheinbaum, New York, NY.

For Lior Ben-Shmuel, ILS Holdings, LLC, Lior Ben-Shmuel, Counter Defendants: Amaury Cruz, PRO HAC VICE, Amaury Cruz & Associates, Miami Beach, Fl.

For Audemars Piguet (North America) Inc., Audemars Piguet Holding S.A., Counter Defendants: Milton Springut, Tal S. Benschar, Springut Law PC, New York, NY.

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OPINION & ORDER

Hon. HAROLD BAER, JR., Unites District Judge.

Plaintiffs Audemars Piguet Holding S.A. (" APSA" ) and Audemars Piguet (North America) Inc. (" APNA" ) (collectively " Plaintiffs" ) bring this action against Defendants Swiss Watch International Inc. (" SWI" ), ILS Holdings, and Lior Ben-Shmuel (collectively " Defendants" ) alleging trade dress infringement under Sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. § § 1114(1) & 1125(a), New York common law, and N.Y. Gen. Bus. Law § 360-l. Defendants bring counterclaims for cancellation of Plaintiffs' federal trademark registrations Nos. 2,866,069 and 3,480,826. The Court conducted a four-day bench trial beginning on June 17, 2013 and concluding on June 26, 2013. Below are the Court's findings of fact and conclusions of law as required under Fed.R.Civ.P. 52(a)(1).

FINDINGS OF FACT

A. The Parties

Plaintiff APSA, a holding company organized under the laws of Switzerland, owns all trademarks and trade dress rights concerning all Audemars Piguet brand watches. Ex. P101-P104. Plaintiff APNA, a Delaware Corporation, is a licensee of those rights and the exclusive U.S. distributor of all Audemars Piguet brand watches. Id.

Defendant SWI is a Delaware corporation that has acquired all assets of Defendant ILS Holdings through a merger after they were both acquired by Clearlake Capital

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Group L.P. Tr. 196:12-197:24. SWI operates the website WorldofWatches.com. Tr. 199:3-5. Defendant Lior Ben-Shmuel was a Co-Chief Executive of SWI until recently, when his title became Senior Advisor and Board Member. Tr. 196:5-7; 197:1-12.

B. Plaintiffs' Royal Oak Watch

1. The Royal Oak Design and Trademark Rights

In 1972, Plaintiffs introduced the " Royal Oak" line of luxury watches, bearing a design of an octagonal shaped bezel with eight hexagonal screw-heads. Nolot Decl. ¶ 9. A variation of the line bearing the same design elements had been introduced in 1993 as the " Royal Oak Offshore." Tr. 45:16-18.

APSA owns four trademark registrations for various aspects of the Royal Oak Design. U.S. Trademark Registration No. 2,866,069, registered on July 27, 2004, is for the design of an octagonal bezel with eight screws for watches and other watch-related items. Ex. P-102. U.S. Trademark Registration No. 3,480,826, registered on August 5, 2008, is for an octagonal bezel with eight screws for watches and other jewelry items. Ex. P-101. U.S. Trademark Registration Nos. 4,232,239 and 4,232,240, both issued on October 30, 2012, are for the full design of the Royal Oak watch, respectively with and without a metallic bracelet. Exs. P-103, P-104.

2. Functionality of the Royal Oak Design

Plaintiffs argue that the Royal Oak design does not give Royal Oak watches any competitive advantage over any alternative designs. Nolot Decl. ¶ 39. Royal Oak watches are neither more effective than watches of other designs nor do they have an advantage in terms of utility or manufacturing costs. Id. Indeed, both Defendants and Plaintiffs produce and market watches of other designs. See Ex. P-30, attaching Defendants' catalogue of watches from the 2011 BaselWorld fair. Defendants sell many different watch collections and the allegedly infringing watches make up only 1.5% of Defendants sales. Tr. 270: 13-18. Defendants' own sales substantiate the argument that effective and competitive watches can be made without utilizing the design at issue.

Defendants argue that the octagonal shape is one of the few shapes available for a watch face, and thus is functional. See Christian Louboutin S.A. v. Yves Saint Laurent Am. Holding, Inc., 696 F.3d 206, 218-19 (2d Cir. 2012)(" A product feature is considered to be 'functional' in a utilitarian sense if it is (1) essential to the use or purpose of the article, or if it (2) affects the cost or quality of the article. A feature is essential if [it] is dictated by the functions to be performed by the article," and observing that features deemed " functional" may not be protected as trademarks.) However, it is not the octagonal shape alone that Plaintiffs seek to protect, it is the trademarked design in its entirety, including the octagonal bezel with eight hexagonal flat screws placed around the bezel. Indeed, Defendants have manufactured another watch with an octagonal face, see Tr. 85:11-25; 86: 7-10, that Plaintiffs do not allege infringes their trademark rights. Based on the evidence presented, I find that Plaintiffs' Royal Oak design is not functional.

3. Sales

The Plaintiffs' least expensive Royal Oak watches start at around $15,000 per watch and escalate to over $1 million. Ex. P-212. From 2010 through the first 11 months of 2012, total sales of Royal Oak watches were in excess of 9,350 units, with revenue in excess of $167 million. Ex. P-213. Royal

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Oak watches constitute approximately 75%-80% of Audemars Piguet's U.S. sales. Nolot Decl. ¶ 17; Tr: 42:11-44:23. Audemars Piguet is frequently among the top three watch brands in revenue sold by authorized retailers, behind brands such as Cartier and Rolex. Nolot Decl. ¶ 17.

4. Advertising and Promotional Efforts

In the United States, Plaintiffs have advertised Royal Oak watches in widely read newspapers and magazines such as The New York Times, The Wall Street Journal, and Vanity Fair, and in industry magazines, such as WatchTime and W. Nolot Decl. ¶ 22. Ex. P-215; Rule 1006 Summary of P-217 to P-227. Plaintiffs also advertise their brand through sponsorship of charity and recreational events, including the Tony Awards, and yachting and golf tournaments. Nolot Decl. ¶ 28; P-210, P-21 1, P-228. Plaintiffs have undertaken a number of other advertising and sponsorship endeavors to target high-end consumers. Nolot Decl. T¶ 29, 30; see Exs. P-230 through P-235. Between 2010 and 2012, Plaintiffs spent $881,787 promoting Royal Oak watches in American magazines and newspapers. See Ex. P-215.

5. Recognition of the Royal Oak design in the Press and Among Consumers

a. Press Commentary

The Royal Oak watch has been featured in both general media and specialty watch press. See Rule 1006 Summary of P-239 to P-250. One example is a December 2011 New York Times article, placing the Royal Oak on " [t]he list of truly classic watches," one of a very few " timeless icons of the watchmaker's art," and comparing it to other well-known watch brands such as Rolex and Cartier. Ex. P-253. Plaintiffs' submissions also include comments from specialty magazines including Wallpaper, WatchTime and Barrons, each of which observe that the Royal Oak is a " classic" or an " icon." See Rule 1006 Summary of P-239 to P-250 and attachments.

b. Similarity of Third Party Watch Designs to the Royal Oak Design

Defendants have presented evidence of other watch designs that utilize an octagonal shape, some of which also include screws. Tr. 62:10-12; 81:8-9; Ben-Shmuel Decl. ¶ 38; see also Exs. D-104, D-129, D-132, D-130, D-130A, D-131, D-132, D-133. Defendants observe that the Cartier Santos watch includes an octagonal bezel with flat head screws and was sold during the 1980s and 1990s. Tr. 62:13-18; D-17 at 31; D-78. Although the Cartier Santos does resemble the Royal Oak design, in that it includes an octagonal bezel with eight screw heads, no evidence has been submitted regarding when and how many of these watches were sold. While there are other watches that appear to imitate the Royal Oak trade dress -- notably Michael Kors and Tommy Hilfiger watches, see Exs. D-130 & D-132 -- Plaintiffs are addressing these infringements and are in negotiations with both companies. Tr. 176:1-19, 177: 21-178:16. Indeed, at the time of trial, Michael Kors had already withdrawn its inventory of allegedly infringing items. Tr. 176: 1-19. Furthermore, the examples Defendants present do not resemble the Royal Oak design as closely as Defendants' watches at issue here. For example, Defendants point out that their own Octomatic watch, while it utilized an octagonal bezel, was not targeted for trademark infringement by Plaintiffs. See Tr. 85:11-25; 86: 7-10. However, the Octomatic only features an octagonal bezel, and does not include the

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flat, evenly-spaced screws that the Royal Oak and the Trimix have in common.

6. Consumer Recognition: Expert Reports

Plaintiffs and Defendants both retained experts, each of whom submitted reports considering the extent, if any, of post-sale confusion caused by the similarity of Defendants' Trimix Watches to the Royal Oak design.

a. Plaintiffs' Expert: Dr. Sidney Lirtzman

Plaintiff's retained Dr. Sidney Lirtzman, President of Fairfield Consulting Associates, a consumer survey consulting company. Dr. Lirtzman conducted a consumer survey and prepared a report based on the survey. The Lirtzman Report was created by intercepting consumers at jewelry and watch stores in New York, Chicago, Los Angeles and Webster, Texas (a suburb of Houston). Lirtzman Report at 4. Shoppers were screened on their eligibility to participate in the study, and were only permitted to participate if they either owned a watch worth at least $15,000 or were " very likely" to consider buying a watch of that value in the next year. Id. at 8. Interviews were conducted by market research workers supplied by four different independent market research fieldwork companies. Id. at 4.

Respondents were shown life size, color photographs of either men's and women's wrists with different watches, including the Swiss Legend Trimix Diver Chronograph Watch or the Swiss Legend Trimix Diver Ladies Watch. Id. at 2-3. They were asked to identify the maker of the watch and the basis for that belief after viewing photographs of the men's or women's watches, along with Timex and Movado watches, which served as controls, for 10 seconds. Id. at 2-4. Of the respondents who viewed the men's Trimix, 37% of respondents believed it was an Audemars watch; for the women's version, 32% stated it was an Audemars watch. Id. at 4. In addition, 5% of respondents who viewed the men's Trimix and 6% who viewed the women's Trimix believed that the watch was an imitation or " knockoff' of an Audemars watch. Id.

b. Defendants' Expert: Mr. James Berger

Defendants retained expert James Berger, a faculty member at Roosevelt University and Principal of James T. Berger/Market Strategies, a marketing and consulting firm. Mr. Berger criticized several aspects of the Lirtzman Report, including the location of the surveys, eligibility screening, the manner in which the watches were displayed and several methodological aspects of the survey.

Mr. Berger first argues that the location of the survey interviews in jewelry stores in which Audemars watches were on display biased the respondents. Berger Report ¶ 10. However, Defendants do not dispute that these stores displayed many different brands of watches and jewelry. Tr. 318: 1-319:12. Indeed, similar surveys have been credited by other courts in this district. Cartier, Inc. v. Four Star Jewelry Creations, Inc., 348 F.Supp.2d 217, 231 (S.D.N.Y. 2004) (crediting Dr. Lirtzman's report on secondary meaning despite the fact that surveys were conducted in stores that sold Plaintiffs' brand watches because influence of Plaintiffs' trade dress in stores selling many brands, including Plaintiffs' brand " is so minimal as to have little to no effect on the probative value of Lirtzman's report." ) Here, as in Cartier, Audemars Piguet was one of 15-25 brands sold and displayed at the stores where the surveys were conducted, and Audemars Piguet watches were neither more prominently displayed than other watches, nor were surveys conducted

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near Audemars Piguet's displays. Nolot Decl. ¶ ¶ 19-20.

In his report, Mr. Berger also criticizes the eligibility screening for participants because those that already owned $15,000 watches and those very likely to consider buying a watch in that price range were included. However, these are exactly the type of consumers that are appropriate for this survey -- individuals who have or would consider purchasing Audemars watches in this price range. Indeed, Mr. Berger testified to this effect despite the contrary conclusions in his report. Tr. 326:5-19.

In addition, Mr. Berger criticizes the way the watches were presented to survey participants -- in life size color photographs on a man or woman's wrist -- because " [n]obody would ever look at a watch in this manner." Berger Report at 9. While it is true that these conditions do not exactly replicate real life conditions, I agree with the court in Cartier that consumer surveys " cannot be conducted in a vacuum." Cartier, 348 F.Supp.2d 217, 231 (S.D.N.Y. 2004). I find that the size and color presentation of the photos created satisfactory conditions for a consumer survey that is sought to shed light upon the likelihood of post-sale confusion. Indeed, the ability of consumers to identify the Movado and Timex controls supports this conclusion.

Finally, in his testimony, Mr. Berger criticized the survey method, including the use of controls and market research companies. However, neither of these criticisms is cause for alarm as Dr. Lirtzman explains that the use of Timex and Movado control watches sufficiently demonstrated that the survey protocol -- 10-second viewings of life-size color photographs -- permitted survey respondents to view and assess the watch brands. Lirtzman Supp. Decl. ¶ 12. Indeed, by using both the Timex watch, with its brand name prominently displayed on the face, in addition to the Movado watch, with a well-known design and a barely visible brand name, the controls demonstrate that survey participants could see and assess both brand name and design. Id. With respect to the use of market research surveys and Dr. Lirtzman's survey in particular, his use of market research companies and control watches was appropriate and his testimony credible with respect to the likelihood of post-sale confusion.

C. Plaintiffs' Efforts to Protect Its Trade Dress

1. Generally

Plaintiff Audemars Piguet Holding S.A. (" APSA" ) is a holding company organized under the laws of Switzerland. APSA owns all trademarks and trade dress rights concerning all Audemars Piguet brand watches. Ex. P 101-P104. Plaintiff Audemars Piguet (North America) Inc. (" APNA" ), a Delaware Corporation, is a licensee of those rights and the exclusive U.S. distributor of all Audemars Piguet brand watches. APSA enforces its intellectual property rights by participation in the Swiss Watch Federation (the " Federation" ). Among other enforcement efforts, the Federation coordinates collective legal actions against counterfeiters, cooperates with local customs agents to stop counterfeit imports, and monitors websites for infringing and counterfeit items. Burgener Decl. ΒΆ 16. The Federation's legal actions have resulted in the removal of more than 100 counterfeiting websites in the U.S., and future litigation targeting 200 websites is planned. Burgener Decl. ...


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