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Swatch v. Samsung – A Lesson in App Store Trademark Infringement

On February 22, 2019, the Swatch Group – owner of such famous watch and jewelry brands as Harry Winston®, Omega® and Breguet® – filed a lawsuit in the Southern District of New York against Samsung alleging, inter alia, trademark infringement and unfair competition.

According to the Swatch Group, Samsung infringed numerous trademark rights in connection with Samsung’s smartwatches including the Samsung GEAR SPORT, GEAR S3 FRONTIER, GEAR S3 CLASSIC and GALAXY WATCH. More specifically, the Swatch Group has alleged that Samsung has offered “numerous watch faces that bear identical (or virtually identical) marks” to the Swatch Group’s various federally registered trademarks.

Understanding the Dispute:

Samsung’s smartwatches feature a screen (typically a touchscreen) which can be used to display the time, i.e., acting as a substitute for a watch. Samsung smartwatch owners are able to select the appearance of this digital “watch face” by choosing from  a variety of pre-loaded “watch faces.” Alternatively, Samsung smartwatch owners are able to download additional “watch faces” from a catalogue available through the Samsung Galaxy App Store. Such watch faces are highly realistic so much so that Samsung markets its smartwatches as “offer[ing] stylish watch faces so realistic they hardly look digital.”

For example, the Samsung Gear S3 classic is depicted on Samsung’s website as shown below – appearing so realistic that it is virtually indistinguishable from a mechanical watch.

Third Party App Developers:

In the same way as the Apple App Store and the Google Play App Store allow third party software developers to create and upload apps, so too the Samsung Galaxy Apps Store allows for third-party app development. Developers first download a “Software Development Kit” (commonly called an “SDK”) which Samsung provides.

In order for a third party app developer to upload an app for distribution on the Samsung Galaxy Apps Store, the app developer must agree to Samsung’s “Developer Agreement.” Many apps – including many “watch face” apps – are only available for a fee. According to Samsung’s Developer Agreement, app developers must pay 30% of app sales revenue to Samsung (or 20% if they are a “Galaxy Store Partner”).

Bottom line: there are a multitude of third-party app developers who produce and sell “watch face” apps through the Samsung Galaxy Apps Store.

Alleged Trademark Infringement:

According to the Swatch Group, numerous third party “watch face” apps infringe upon various Swatch Group trademarks. For example, Swatch Group’s Complaint includes a side-by-side comparison chart depicting screenshots of allegedly infringing “watch face” app designs adjacent to authentic Swatch Group watches, including the images shown in the chart below:

App Store Trademark Infringement:

Direct trademark infringement occurs when a party uses another’s valid, protectable trademark without consent in a manner that is likely to cause confusion among ordinary consumers as to the source, sponsorship, affiliation, or approval of the goods. The Second Circuit’s decision in Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2010) is illuminating (especially since, inter alia, it is binding authority on the Southern District of New York where the Swatch v. Samsung case is pending).

In Tiffany, the Court held that eBay could not be held liable for direct infringement of the TIFFANY® trademark where:

• use of the TIFFANY® mark was lawful to advertise the resale of genuine TIFFANY® brand goods; and

• eBay “promptly removed all listings that Tiffany challenged as counterfeit and took affirmative steps to identify and remove illegitimate Tiffany goods.” Id. at 103.

Importantly, we believe that the Tiffany case can be distinguished here since there are fundamental differences between:

• selling physical products; and

• selling digital products such as apps.

With respect to selling physical products, the Court’s “logic” in the Tiffany case may be summarized as follows.

First, lawful purchasers of a trademarked product have a right to re-sell that product to others (which is called the “first sale doctrine”). Second, since lawful purchasers of a trademarked product have such a right, they should be allowed to use such trademark in connection with product listings on online marketplaces such as eBay.com.

Put another way, just because online marketplaces such as eBay.com might facilitate the sale of some counterfeit products is not justification to impose liability on such online marketplaces – so long as counterfeit products are swiftly delisted once the online marketplace learns of their true origin.

This entire argument is predicated upon the uncertainty inherent in the source of physical products, namely, that it is often impossible to know whether an individual vendor possesses legitimately or illegitimately branded goods.

With respect to digital products, however, such logic is inapplicable. Digital products such as apps cannot be “resold” after their initial purchase. First, users never “own” the apps. Rather, they generally acquire a non-assignable and non-sublicensable license to use the app on a single device. Second, there would be technological problems in transferring apps. Companies such as Samsung purposefully design their hardware and software to make it impossible to “transfer” apps from one device to another.

Because of this, platforms like the Samsung Galaxy Apps Store could far more easily determine whether a third-party app developer is lawfully using trademark rights than a physical marketplace such as eBay.com.

By way of example, the Swatch Group’s Complaint alleges that its trademarks were even “used in titles and in descriptions of specific infringing watch faces offered for sale on the Samsung Galaxy Apps Store.” In the United States, Samsung could easily cross-reference the titles of its apps with the U.S. PTO’s online trademark database – “triggering” a warning whenever a registered mark appears in the title of an app. Samsung could even go a step further by cross-referencing only those marks which cover International Trademark Class 14 which covers watches and watch parts.

In our opinion, this is a case which Samsung should try to quickly settle. We feel that the Swatch Group has strong arguments and could ultimately prevail. Moreover, an adverse decision would have far-reaching consequences for both Samsung and other app providers. Rather than risk such an outcome, we believe that Samsung’s best option is to find a “business solution” with the Swatch Group, e.g., agreeing to take certain specific measures to police potential infringement of the Swatch Group’s brands on the Samsung Galaxy Apps Store.

No Copyright or Patent Claims:

It is worth noting that the Swatch Group did not raise any copyright or patent claims in its complaint.

With respect to potential copyright claims, the Swatch Group likely did not raise a copyright claim – even though some of the allegedly infringed watches contain designs which would likely be protectable under copyright law – since the Digital Millennium Copyright Act (“DMCA”) includes a safe harbor provision for service providers. More specifically, 17 U.S.C.A. § 512(1), provides that:

“In general.–A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider, if the service provider–

(A)

(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;

(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or

(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;”

In our opinion, a company running an app store likely qualifies as such a “service provider.” In other words, so long as Samsung promptly takes down allegedly infringing content, rights holders likely cannot sue Samsung for copyright infringement.

With respect to potential patent claims, we see this as a “missed opportunity” for the Swatch Group. According to our firm’s quick “knock-out” search of the U.S. PTO’s patent database, the Swatch Group owns several design patents including, for example, patents covering certain watch face designs. For example, U.S. D778,197 covers one particular watch face design. Such patents are relatively common amongst high-end watch manufacturers (e.g., Swatch Group’s competitor, Rolex, owns design patents such as U.S. D777,596 for a watch face design).

It is currently unknown whether the Swatch Group had design patent rights for any of the watch faces allegedly infringed upon by Samsung. That being said, the lack of a patent claim seems to indicate that such designs were never patented.

35 U.S.C. § 271(a) provides that direct patent infringement occurs when a person “makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor….” Importantly, direct patent infringement is a strict liability offense, i.e., zero actual knowledge of infringement is required.

This helps illustrate the importance of securing overlapping intellectual property rights for new products. While the Swatch Group has raised trademark infringement claims (upon which, in our opinion, the Swatch Group has a fair change of prevailing), the Swatch Group would likely be in a stronger position had it also sought design patent protection. By having overlapping layers of rights, manufacturers can best ensure the protection of their products.

If you have been accused of intellectual property infringement, or are a manufacturer concerned with protecting your products, contact us today for a free consultation.