EGL Court Fight Ends in a Draw

The decade-long court fight between EGL USA and the global European Gemological Laboratory network has ended with both sides losing.

In September, more than two years after the bench trial ended, New York federal Judge Paul A. Crotty issued a ruling that denied motions from both parties.

The court case began in 2004 and has seen several notable twists and turns during its 11-year odyssey through the court system, including the death of EGL founder Guy Margel in 2012.

The European Gemological Laboratory network and Margel first filed suit against EGL USA in February 2004, claiming breach of contract related to royalties stemming from the two sides’ 1986 licensing agreement. In his ruling, Crotty denied that claim, saying the network failed to prove a breach occurred.

(In its original filing, the overseas EGL network also disputed EGL USA’s attempt to enforce a border ban that would prevent other EGL reports from entering the United States. It eventually dropped those claims.)

EGL USA also countersued, charging that overseas EGLs were soliciting and doing business in the United States, despite EGL USA’s exclusive American rights to the EGL mark. It contended that the overseas’ network’s “inferior” product tarnished its reputation.

But Crotty ruled that “[the global network’s] use of their own trademarks on grading certificates produced outside the United States is in good faith. That these certificates ultimately make their way into the United States where they may conflict with Defendants’ certificates cannot form the basis of a Lanham act violation.”

He further noted there was little chance of “confusion” over the two marks. While the overseas network did run some U.S. trade magazine ads in 2003, it had not advertised in U.S. publications since then. In addition, EGL USA had no firm evidence of consumer “confusion,” as it had not conducted a consumer survey.

Crotty also ruled that EGL USA “offer[ed] no evidence that they lost consumers due to [the network’s] alleged inflated grading.” (The trial took place before RapNet banned all EGL reports from its network last year. That was followed by a reorganization of the overseas EGL network.)

In the sole aspect of the ruling that specifically addressed diamond-grading disparities, Crotty wrote: “As [is] custom in the industry, diamond-grading certificates normally contain a disclaimer warning purchasers that ‘grading is not a precise science [and] is subjective.’ ”

However, the industry should not look at that as a judicial ruling on diamond grading issues, says Jewelers Vigilance Committee president and CEO Cecilia Gardner.

“The judge’s quotation of language from a grading report does not rise to the level of a legal finding on diamond grading standards,” she says.

EGL USA director Mitch Jakubovic issued the following comment: “Given the time and expense invested in the proceeding, we would have preferred a different outcome. At this point, the decision doesn’t have any material impact on EGL USA. While the judge was deliberating, life and work moved on.”

EGL USA does not plan to continue the case, he added.

The European Gemological Laboratory network declined comment.

JCK News Director