IP Law Daily Trademark infringement judgment affirmed, injunction narrowed, in Swiss Army knife case
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Wednesday, September 20, 2017

Trademark infringement judgment affirmed, injunction narrowed, in Swiss Army knife case

By Peter Reap, J.D., LL.M.

On appeal after the federal district court in New York City found The B&F System, Inc., and its president, John D. Meyer (B&F) liable for treble damages for infringing plaintiffs Victorinox 21 AG, Victorinox Swiss Army, and Wenger NA’s (together, Victorinox’s) iconic Swiss Army Knife trademark, B&F failed to demonstrate that Victorinox procured its mark through fraud or that the mark was functional, the U.S. Court of Appeals in New York City determined. Further, Victorinox produced overwhelming evidence of a likelihood of consumer confusion caused by the defendants’ counterfeits, and that B&F willfully infringed. However, the scope of the lower court’s injunction against B&F was overbroad and the dispute was remanded with instructions to narrow its scope (Victorinox AG v. B&F System, Inc., September 19, 2017, per curiam).

In 2015, the district court in New York City ordered B&F to pay $1,751,490 as trebled damages for sales of counterfeit Swiss Army Knives over a six year period instead of $7,987,977, the amount the originally awarded for total infringing sales dating back to 1983. It also had awarded Victorinox attorney fees and a permanent injunction. B&F appealed.

Fraud. B&F argued that Victorinox (1) deliberately omitted information about other companies’ use of the now-registered mark in its application to the USPTO; and (2) selectively quoted from the Forschner litigation, cases about red multifunction pocketknives. See Forschner Grp. v. Arrow Trading Co., 124 F.3d 402, 404 (2d Cir. 1997) ("Forschner II"); Forschner Grp. v. Arrow Trading Co., 30 F.3d 348, 350 (2d Cir. 1994) ("Forschner I").

As the district court stated, other companies’ use of the mark alone did not establish that Victorinox’s use was not "substantially exclusive." Moreover, B&F failed to make any showing of the materiality of the alleged misstatements to the USPTO’s decision to register the mark. Thus, B&F could not obtain cancellation of Victorinox’s trademark on fraud grounds, the Second Circuit held.

Functionality. B&F argued that the red handles at issue have utilitarian functionality because they allegedly increase the visibility of the knives and warn the user of the need to maintain vigilance when using a knife. However, as the district court noted, B&F submitted no admissible evidence in support of these allegations. Even assuming arguendo that Forschner II characterized the red handles as aesthetically functional, Victorinox acquired a registered trademark for them after Forschner II. B&F submitted no admissible evidence to rebut the presumption that the mark is not functional.

Infringement. Applying the eight Polaroid factors, the appellate court agreed with the district court that Victorinox proffered "overwhelming evidence of the likelihood of consumer confusion." Given the similarities between the two products at issue—silver-colored tools folded between oblong red scales, a white cross-and-shield logo on one of the scales, and notches for a toothpick and tweezers at one end—the average consumer (who would not have the opportunity to compare the knives side-by-side) was unlikely to notice any differences. Indeed, at least one consumer mistakenly returned B&F’s knife to Victorinox.

Further, as to bad faith, B&F claimed that it relied upon Forschner II (without advice of counsel) in producing red multifunction pocketknives. That contention failed to raise a genuine issue of material fact as to B&F’s bad faith. Accordingly, and given that B&F otherwise submitted insufficient evidence to raise a genuine issue of material fact as to any of the other Polaroid factors, B&F knowingly and willfully infringed Victorinox’s trademark, the court ruled.

B&F also argued that Victorinox was collaterally estopped from asserting its claims because of Forschner II. Victorinox was not party to the prior action, Forschner II. B&F argued—for the first time on appeal—that Victorinox was in privity with The Forschner Group, a party to the prior action, because Forschner later became Victorinox Swiss Army, Inc. ("VSAI"), and Victorinox eventually acquired VSAI. B&F did not allege—let alone proffer evidence—that Victorinox directed, controlled, or participated in Forschner’s involvement in the Forschner cases. Therefore, collateral estoppel did not apply here, the appellate court decided.

Damages. B&F argued that the district court erred in awarding its profits to Victorinox based upon gross revenues without any deduction for costs. The district court excluded B&F’s evidence of costs because it was offered through an expert witness whose identity was not previously disclosed. Therefore, there was no reason to disturb the district court’s decision not to estimate damages.

Injunction. B&F contended that the district court’s injunction was overbroad, in that it prevents it from conducting legitimate business outside the scope of Victorinox’s pocketknife-based claims. The Second Circuit agreed.

Specifically, the injunction enjoined B&F from "engaging in any activity constituting unfair competition" with Victorinox including "the use of design elements" and "indicia associated with [Victorinox], such as the cross and shield device." The injunction could thus fairly be read as prohibiting (a) arguably legal conduct, namely the production of multifunction pocketknives that do not include the trademarked red scales or resemble Victorinox’s products in any way except for the inclusion of one element of the Swiss Army Trade Dress, e.g., a grey notch for tweezers, and (b) conduct outside the scope of this litigation, e.g., the production of other products (like kitchen utensils) that bear B&F’s "Royal Crest" logo. Therefore, the case was remanded with instructions to amend the injunction so as to narrow its scope.

Rule 60. B&F maintained that it erred in refusing to vacate the judgment pursuant to Federal Rule of Civil Procedure 60(b)(2) based on "newly discovered evidence." B&F failed to demonstrate that its mistake in failing to timely discover certain evidence constituted justifiable ignorance. Therefore, the district court did not abuse its discretion in denying the Rule 60 motion.

Disqualification of Locke Lord. In a separate appeal, B&F argued that Locke Lord, Victorinox’s counsel, should have been disqualified from representing Victorinox based on a period between January 12, 2015 and December 18, 2015 when it simultaneously represented Victorinox in this case and B&F on other matters. The district court correctly concluded that there was no actual or apparent conflict justifying disqualification, according to the appellate court.

The case is Nos. 15-4032-cv(L), 16-386-cv(CON), 16-2757-cv(Con), and 16-2690-cv.

Attorneys: David Weild, III (Locke Lord LLP) for Victorinox AG, Victorinox Swiss Army, Inc. and Wenger NA, Inc. Joseph H. Lessem (Graubard Miller) for B&F System, Inc.

Companies: Victorinox AG; Victorinox Swiss Army, Inc.; Wenger NA, Inc.; B&F System, Inc.

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