New York Federal Court Rejects Watch Manufacturer’s Defamation Claim
 
October 2, 2006
 

An article reporting that a watch manufacturer “won a trademark infringement case” – when the parties had entered into a consent judgment – did not defame the manufacturer’s competitor, a federal district court has ruled.

Croton Watch Co. v. National Jeweler Magazine, Inc., stems from an article published in the magazine National Jeweler about the resolution of a lawsuit between two watch designers and manufacturers, Croton Watch Co. and Teslar Inside Corporation. In the lawsuit reported on by the magazine, Teslar sued Croton and ShopNBC.com on a claim of trademark infringement regarding a watch Croton sold through ShopNBC.com. The parties entered into a settlement agreement, which the court adopted in a consent judgment and permanent injunction. The agreement foreclosed Croton from continuing to sell the allegedly infringing watch.

As an issue of interest to its readers, National Jeweler published an article “Philip Stein Teslar wins trademark case” which reported that Teslar “has won a trademark infringement case” against Croton and that the “judge ruled” that Croton’s watch “violated Philip Stein Teslar’s trade dress protection.” Croton objected to both the title and content of the article, contending that the characterization that Teslar “won” the lawsuit was false as no party admitted to any wrongdoing in the settlement agreement.

Croton alleged that the article damaged its business reputation by suggesting that it manufactures illegal “knock-offs” and has weak trademark protection. Croton further contended that it encountered difficulty finding a market for its watches and experienced a decline in sales following publication of the article. Croton sued Teslar and National Jeweler in the U.S. District Court for the Southern District of New York alleging defamation per se, tortious interference with prospective economic advantage and violations of the federal Lanham Act.

To support its claims, Croton alleged that Teslar contributed to the article in two material ways. First, Croton claimed, the article was published following a discussion in which Teslar allegedly misled National Jeweler regarding the results of the lawsuit. Second, Teslar issued a press release which National Jeweler interpreted as stating that Teslar “won” the lawsuit.

Teslar moved to dismiss. In an August 7, 2006, decision, Judge George B. Daniels issued the opinion rejecting all three of Croton’s legal theories. As to the defamation per se claim:

• Even though there was no finding or admission of fault in the earlier trademark litigation, Judge Daniels in the defamation suit determined that Teslar could reasonably be considered to have “won” the trademark dispute because it achieved its desired ends in filing the lawsuit, i.e., Croton ceased selling the allegedly infringing watches.

• Judge Daniels further held the language “the judge ruled” was substantially true because the consent judgment was a judicial act in which the court ordered destruction of the watches and permanently barred Croton from further marketing or selling them.

• The court next held that Croton’s opposition to National Jeweler’s characterization of the claim as a “trademark infringement” action, when in fact it was a trade dress action, was insubstantial as both claims involve allegations of infringement on protected exclusive rights.

• Finally, the court ruled that even if the article disparaged Croton, New York’s “single instance rule” provides that a single reference to a judicial ruling is not tantamount to charging a company with general incompetence or an illegal or unprofessional course of conduct.

The court also rejected Croton’s claim of tortious interference with prospective economic advantage, noting that the cause of action requires that the defendant’s conduct be criminal, independently tortious, or otherwise solely intended to inflict intentional harm on the plaintiffs. Since the statements were not defamatory, and there was no basis for finding Teslar’s actions to be otherwise criminal, tortious, or malicious, the claim was dismissed.

Finally, the court rejected Croton’s allegations pursuant to the Lanham Act’s prohibitions against false advertising and unfair competition. Lanham Act claims are limited to commercial speech which does no more than propose a commercial transaction. The National Jeweler article, by contrast, concerned a matter of interest to the magazine’s readers and clearly did not qualify as commercial speech.

The court’s holding in this case continues to uphold the protection of “substantial truth” for members of the media, i.e., that something more than minor inaccuracies or less than literal characterizations of facts are required to support a defamation claim.

For more information, e-mail Stephanie L. Hogan at stephanie.hogan@hklaw.com or call toll free, 1-888-688-8500.