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I'm too tired to give this proper thought, but the resale element is surely the key here.
With your own property you are free to do as you please, but when you sell something it changes. I can't remember if there is a specific offence on counterfeiting in the UK, but on the general IP infringement it would seem unlikely to fly in the UK as someone with a clear brand identity based on offering modified watches isn't likely to make a consumer believe they're buying an authorised limited ed Rolex.
Taking a step back though, it makes you wonder, when viewed in conjunction with the rainbow Daytona, if Rolex are going to start some gash bespoke limited edition customisation service. They're probably hired Supreme's lead designer.
Rolex takes legal action against a firm that customises Rolex, claiming they are now counterfeit
Interesting take on counterfeiting, I understand the voiding of warranties, but classing them as fakes? I'm not sure.
Does using a £6 strap class it as counterfeit?