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Two companies that produced knockoffs of an expensive handbag intentionally traded off the trademark owner’s name and products, and should not have been entitled to invoke the doctrine of laches as a defense against the trademark owner’s claims for relief, the 2nd U.S. Circuit Court of Appeals ruled July 10, reversing the district court below ( Herm�s International v. Lederer de Paris Fifth Ave., 2nd Cir., Nos. 99-9283(l), 99-9365(XAP), July 10, 2000). Herm�s International, which manufactures and sells high-quality handbags and accessories, claims that its products incorporate distinctive design characteristics that constitute its “famous mark and trade dress.” Among the Herm�s products is the “Kelly bag,” a handcrafted purse with an average selling price of over $5,000, although some models sell for over $30,000. Lederer de Paris Fifth Avenue Inc. and Artbag Creations, the appellees in this action, sell knockoff Herm�s products, including some bags that sell for as much as $27,000. Herm�s was aware that Lederer and Artbag were selling knockoff Kelly bags since at least 1979 and 1989, respectively. Herm�s claimed, however, that it was unaware of the scope of the infringement until 1996, when an investigation revealed that the appellees were selling entire lines of knockoff Herm�s products. In 1998, Herm�s brought suit against the appellees for violation of the Lanham Act and New York law, seeking monetary and injunctive relief for violation of its trademark and trade dress. The appellees moved for summary judgment, claiming that Herm�s had abandoned its trademark and trade dress rights, or, alternatively, that Herm�s was estopped from obtaining relief under the doctrine of laches. The district court rejected the assertion that Herm�s abandoned its rights. However, it found that Herm�s had unreasonably delayed bringing an infringement suit against the appellees and thus was barred by the doctrine of laches from obtaining relief. Herm�s appealed. LACHES MISAPPLIED The district court determined that, because the appellees did not use the name “Herm�s” on their products, and because they openly acknowledged that their products were knockoffs, they had not deceptively attempted to pass off their products as genuine Herm�s. However, the court also found that, by informing their customers that the style and workmanship were such that no third-party observer would be able to tell they were not genuine Herm�s bags, the appellees had “attempted to encourage consumer confusion in the post-sale context.” Nonetheless, the court went on to hold that the appellees’ behavior did not harm the public in the post-sale context and therefore did not compel rejection of the laches defense. “In so holding, the district court misapplied the law governing the doctrine of laches,” the 2nd Circuit wrote in an opinion by Judge Michael A. Telesca. Laches, the court explained, is not a defense against injunctive relief when the defendant intended the infringement. “Thus, the appellees’ intentional infringement is a dispositive, threshold inquiry that bars further consideration of the laches defense, not a mere factor to be weighed in balancing the equities, as the district court did in this case.” The court found it clear that the appellees intentionally copied Herm�s’ designs. “Appellees thus intentionally traded off the Herm�s name and protected products and should not have been entitled to invoke the doctrine of laches as a defense against Herm�s’ claims for relief,” it said. The district court’s ruling that Herm�s’ claims were barred by laches was based, the court said, on the “erroneous conclusion that the appellees’ conduct did not create confusion among consumers or harm the public.” Confusion in the post-sale context can be harmful, it said, in that if there are too many knockoffs, sales of originals may decline because potential purchasers are fearful that they are not purchasing an original. Further, the purchaser of an original is harmed because the high value of originals — derived in part from their scarcity — is lessened. The district court also failed to properly consider the issue of post-sale confusion. Confusion can occur when a buyer acquires the prestige of owning what appears to be the more expensive product. Thus, the practice of selling a knockoff can create an actionable harm despite the fact that customers know they are buying a knockoff. The district court dismissed the importance of post-sale confusion, stating that it was not convinced that the activity harmed the public in the post-sale context. Highly sophisticated potential Herm�s purchasers, the district court said, will not be confused at the point of sale. The 2nd Circuit disagreed. “Such a practice does harm the public, however, by creating post-sale confusion, not just among high-end consumers, but among the general public, which may believe that the knockoff is actually the genuine article.” Accordingly, the court held that the district court erred in finding no harm to the public in the continued sale of knockoff goods, and remanded the case back to the district court.

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