15+ min read
This story appears in the
Entrepreneur. Subscribe »
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 (below) 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.
Image Credit: Darren Squashic
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.
Related: Why Your Brand Plan Is More Important Than Your Business Plan
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 clear-cut: 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.
Related: This New Kind of Expensive Lawsuit Could Easily Bankrupt Your Small Business
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.
Quin’s founder, Jami Curl, said no. Curl had gone to a lot of trouble to hire an IP lawyer to trademark her name, which was spelled differently, anyway. Their lawyers went back and forth, racking up fees. “It was so emotionally disturbing that it took everything out of me,” says Curl, who couldn’t afford to rebrand. Ultimately she decided to close her business, which Lewis maintains wasn’t her intention. “Looking back at it now,” Lewis says, “I probably would’ve done things differently.”
And this is when trademark disputes are straightforward.
Related: Make a Name for Yourself: 4 Expert Tips for Choosing a Name and Trademark
In cases like Vortic’s, in which a company intentionally uses another brand’s trademark, or upcycles its goods, to create an entirely new product, things get trickier. It’s a trademark issue, for sure, and generally falls under an exclusion called “nominative fair use,” which permits the use of another brand’s mark under certain conditions, says Connie Powell Nichols, a professor who teaches IP at Baylor Law. Whether a defendant meets these conditions can be debated, but the conclusion still often comes back to that central question: Is the customer confused? Upcycling also touches on a legal concept called the “first-sale doctrine.” That means that once a mark holder puts a product on the market, others are free to resell it, unless they materially alter it. Honda, for example, can’t demand money when someone sells an old Honda.
But if you’ve got a business making hats out of old Gucci bags? Or new watches out of heirloom Hamiltons? That’s not so clear. And that’s when lawyers get involved.
R.T. Custer never aspired to be in the watch business, let alone fighting to shape a murky area of trademark law. Like so many entrepreneurs, his journey simply began with a problem. During his junior year at Penn State, he was playing golf with his buddy Tyler Wolfe, who took a shot and totally shanked it. “He’s like, ‘Oh, it’s because of this darn watch. It’s too loose,’ ” says Custer. “I was like, ‘That’s bullshit.’ ” But then they got obsessed with finding a solution. They imagined a watch where you twist the bezel and it tightens the wristband. It seemed like a cool idea, so they decided to start a company and call it Vortic — vortex plus ticktock.
After college, Custer moved to Fort Collins, Colo., and got a logistics job at Walmart, and he and Wolfe started figuring out how to make watches. They patented the twist-to-fit technology but learned it was prohibitively expensive to actually produce. Meanwhile they discovered all these old American-made pocket watches collecting dust in the back of pawn shops. Their cases had been scrapped for the gold or silver, but the movements and faces were still splendid. Custer and Wolfe wondered if they could combine them with modern parts and leather straps and, using software and 3D printing, fashion one-of-a-kind wristwatches. “We thought, Let’s create a brand around that,” says Custer. The twist-to-fit stuff could wait.
With the $40,000 they raised on Kickstarter, they spent $5,000 on the WatchTime ad to grab people’s attention. The prototype with the Hamilton face? They called it the Lancaster. Swatch saw it immediately.
Related: 5 Tips and Tricks to Improve Your Brand Strength and Equity
Assuming the cease-and-desist letter was a misunderstanding, Custer trawled LinkedIn for C-level executives at the company and sent messages, hoping to sort things out. Instead, on July 21, 2017, Swatch sued for trademark infringement, dilution, counterfeiting, and unfair competition, asking the court to award it triple damages and attorneys’ fees.
Custer’s first son had just been born, and he didn’t have the money to fight this. But he saw it as an existential threat to Vortic’s business. If he caved to not using Hamilton parts, then every other watch brand they used would come after him, too. So he tried to reason with Swatch, which declined to comment for this story. He emailed its CEO and suggested licensing the trademark. The answer was no. He flew twice to New York City for a settlement conference, but Swatch barely engaged, and the court forced the company to pay Custer $445.93 for his travel. As a last Hail Mary, in February 2019, he sent a handwritten letter to Swatch’s CEO offering to meet him in person anytime, anyplace to work it out without lawyers. In response, he got a snippy email from Swatch’s lawyers that chided him for wasting “the postage of your letter.”
By the end of all this, Custer was ready to fight in court. He was confident that Vortic had a right to be its own brand and that no one was confused about who made its watches.
In some ways, this case is very typical. Roughly 4,000 trademark lawsuits are filed a year, according to Lex Machina, a legal analytics branch of LexisNexis. The most prolific plaintiffs tend to be luxury brands and large pharmaceutical firms, although the No. 1 litigant, filing 811 cases in the past five years, is Sream, Inc. It makes bongs.
What happened next to Vortic was also typical: The cost of litigation nearly broke it.
The court will entertain basically any case that’s brought to it, but the arena is hardly open to all. Legal fees mount fast, and IP lawyers are pricey; Vortic’s attorneys estimated that a trial would cost $10,000 a month. That’s a massive strain on any startup’s budget, and in Vortic’s case, the cofounders were not on the same page. Wolfe was pretty opposed to fighting the lawsuit — to the point where he sold a large portion of his equity to reduce his liability. “Things were just super stressful,” he says. Even if they won, he thought, what shape would their business be left in?
Related: Creating a Brand Identity That Competes and Compels
Several states away, Tara Martin was about to learn the answer to that question for herself. Her company, too, used an iconic brand to define a new product. And while Vortic was going head-to-head with Swatch, she was nearing the end of a five-year legal battle with Louis Vuitton.
Martin’s journey began in 2012, when her hometown of Santa Monica, Calif., banned plastic bags. She designed a line of canvas grocery totes with cartoonish drawings of iconic fancy purses on them — Hermès, Chanel, Louis Vuitton—along with the phrase “My Other Bag,” which was also the name of her company. It was a nod to the popular “my other car” bumper sticker, and a poke at the luxury market and those who couldn’t afford it. Customers loved the bags, but Louis Vuitton did not. It sued. She fought back, won, and then kept winning despite Louis Vuitton’s multiple appeals. The court decided that her bags met the strict definition of parody, which is protected under the nominative fair use exception.
But outside the court system, the ultimate result favored Louis Vuitton. “They sent letters to all my distributors saying that My Other Bag was trademark infringing, even though we were still in the lawsuit,” Martin told Entrepreneur. “They crushed my business.” (Louis Vuitton declined to comment.) She sued for attorneys’ fees, which climbed to nearly $1 million, but the court denied her. A trademark lawsuit must be extraordinarily egregious for a judge to award fees, and that rarely happens.
So in the end: An entrepreneur won in court but lost her company and her money, and the legal system offered little more than a gigantic shrug. “I’m glad I stood my ground,” says Martin, who closed the business and focused on her fashion design firm, DTLA Custom, “because there definitely needs to be some reform in the law.”
Back in Colorado, as Vortic faced the question of whether it could withstand a trial, Custer’s girlfriend was pregnant with their second son.
It was now late February 2019, and he wanted to keep fighting but was at a loss for how. Later he would kick himself for not asking for help — it would turn out that one of his investors, who’d gone to Harvard Law School, loved trademark cases. But at the time, he felt ashamed and scared of what people might think. So one day, sitting in a leased Jeep parked outside the Vortic manufacturing facility, he started googling “best Colorado bankruptcy attorney.”
“I’m literally crying because I was about to give up everything I’d worked for and try to get my job back at Walmart,” he remembers. He called one of the numbers.
Related: Remember the Endless Taco Bell Chihuahua Lawsuit? Kamala Harris’ Husband Won It.
The woman who answered got Rob Lantz on the phone. They talked for a long time. Lantz said he had good news and bad news. The bad news was he did litigation; he wasn’t the type of bankruptcy attorney Custer needed. The good news was he could help with Swatch. “He told me I just needed an attorney who would fight on my behalf, because I hadn’t done a single thing wrong,” Custer recalls. “I lost it because he believed in me.”
For the next year, they prepared for trial. “All that time, I did not pay Rob a single dollar,” says Custer. “He was keeping track, but he told me, ‘You’ll make plenty of money to pay me back.’ ”
And then it was time. On the morning of February 19, 2020, Custer arrived at Thurgood Marshall Courthouse in Manhattan with a Vortic watch on his wrist — a Lancaster 001 he’d made with a Hamilton face — and passed a crowd of reporters that had gathered to cover the Harvey Weinstein trial in court next door. Custer’s mother, meanwhile, lay dying in Pennsylvania, and the world was about to explode into a life-altering pandemic.
It was a bench trial, so there was no jury, and the room seemed cavernous. “I was shaking when they put my hand on the Bible,” says Custer. “But as soon as I sat down and looked up at the judge, I was like, We’re both just here doing our jobs.”
Swatch’s attorney grilled Custer, trying to trip him up into admitting Vortic watches were inferior. By then Custer had found his stride. When a question was tricky, he asked for clarification, as Lantz had taught him, to give himself more time to answer. When he was pressed about profiting off Hamilton’s name, he testified that they’d mispriced the Lancasters — and for the 58 sold, they’d actually lost $5,483.43. At one point he took off the watch he was wearing and handed it to the judge to inspect. It became Exhibit I.
Swatch needed to prove that central trademark issue — that customers were confused. But they hadn’t done a consumer survey, as is standard in these cases. They simply produced a single email received by a Hamilton executive in Canada from a woman asking about Vortic’s Lancaster. The U.S. brand manager of Hamilton, who’d been brought in as a witness, didn’t know much about it, including whether anyone had spoken to the sender to see why she was inquiring. Lantz asked, “To the best of your knowledge, this is the only instance where somebody might have had some confusion?” She said, “Yes.”
Afterward he and Custer went to a bar to crack a beer and celebrate. From there Custer took a train to see his mother for the last time. Then he came down with what had to have been COVID-19. “It’s the sickest I’ve ever been,” he says.
Seven months passed. Back in Fort Collins, Custer and Wolfe were, again, playing golf on September 11, 2020, when they learned that they’d won. U.S. district judge Alison Nathan ruled in favor of Vortic on all claims. She said the company made it clear on both its products and website that it, not Hamilton, made the watches from salvaged parts.
Related: 4 Branding Tips From Gary Vaynerchuk and Entrepreneurs Who Built Brands the World Can’t Ignore
Custer’s relief was torrential. This, it seemed, would be one of the lawsuit stories that people hear less often — the one where the small company wins. He and Wolfe threw themselves into the holiday season, and for the first time, they broke $1 million in revenue. The two are in a better place than ever and now in the process of buying an 8,400-square-foot building and working on launching a sister company next year — this time a fully modern watch, with no other brand’s trademarks involved.
“There was something about getting kind of to that rock-bottom point and just being super honest with each other that really turned things around in a pretty amazing way,” says Wolfe. He’s since changed his mind about the lawsuit. “The fact that it forced some strife early on may have been beneficial in the long run. Would we have grown faster and invested in different things? Probably, but who knows? And it affected R.T. in a really positive way. He’s more confident and has more competence in his own decision-making. And that’s a good thing.”
A month after the victory, to no one’s surprise, Swatch appealed.
What will the Vortic guys do? They’ll fight, they say. And if they win at the circuit court level, it will set precedent in New York, Connecticut, and Vermont, and help build a body of law that more clearly defines how new companies can use old brands’ products. Even if they go broke, they reason, the lawsuit has become about more than just them.
Leave a Reply