Actionable Trademark Infringement

The U.S. Court of Appeals for the Second Circuit has held that the sale of products lacking a unique serial number applied by a brand owner for anticounterfeiting and quality control purposes constitutes trademark infringement under federal law. This is so even if the removal of the code does not cause physical damage to an otherwise genuine product and consumers are not aware that the code has been removed.

In Zino Davidoff SA v. CVS Corp., 2009 WL 1862462, No. 07-2872-CV (2d Cir. June 19, 2009), the Second Circuit affirmed the district court's entry of a preliminary injunction against CVS Corp., barring defendant's sale of DAVIDOFF COOL WATER fragrances that lack the unique production code applied at the time of manufacture to the bottle and box of genuine fragrances. Zino Davidoff uses the code both to identify counterfeits and to control the quality of genuine fragrances. The Second Circuit agreed that the products from which the code had been removed were no longer subject to the brand owner's quality assurances, were materially different from genuine products, and thus the sale of these goods constitutes trademark infringement.

Zino Davidoff and Its Unique Production Code

Zino Davidoff owns the well-known DAVIDOFF brand for various luxury goods, including fragrances. Among Zino Davidoff's fragrances are DAVIDOFF COOL WATER, available for both men and women. The DAVIDOFF COOL WATER fragrances are manufactured and marketed by Coty Inc., Zino Davidoff's exclusive fragrance licensee.

As part of its effort to assure the high quality of DAVIDOFF fragrances and to combat counterfeiting, Zino Davidoff and Coty place a unique code on the box and bottle of each unit. The code contains information specific to that unit, including the date and time the unit was produced and the particular production line. This information enables Zino Davidoff and Coty to rectify any quality control issues that may arise and to effect isolated and targeted product recalls, although such issues are rare and a recall has never occurred.

The coding system is also critical to Zino Davidoff's anticounterfeiting efforts. Due to the high expense associated with placing a unique number on each unit, counterfeiters will generally omit such codes, or repeat the same number on multiple units. As a result, Zino Davidoff's investigators and others can easily identify counterfeit goods through the presence of a non-unique, bogus code, or the absence of any code whatsoever. Indeed, Coty regularly trains U.S. Customs, law enforcement, and private investigators to detect counterfeits based on this product coding system.

Counterfeit and Decoded Fragrances Found at CVS

To maintain its reputation as a luxury brand, Zino Davidoff sells its products through select retailers, and has declined to sell to the pharmacy chain CVS. CVS has nevertheless been able to obtain DAVIDOFF fragrances from outside of Zino Davidoff's authorized distribution channels.

In 1998, and again in 2005, Zino Davidoff learned that counterfeit DAVIDOFF COOL WATER fragrances were being sold at CVS. In each instance, CVS promised to review its inventory and eliminate counterfeit products. In 2006, however, Zino Davidoff discovered counterfeit fragrances for sale at CVS for the third time. Zino Davidoff then brought suit against CVS in the Southern District of New York with respect to the counterfeit products alleging, among other things, trademark infringement, unfair competition, and trademark dilution under the Lanham Act.

The District Court Proceedings

At the outset, the district court granted Zino Davidoff's request for a temporary restraining order, and allowed Zino Davidoff to inspect all DAVIDOFF products then within CVS's inventory. This inspection revealed additional counterfeits, as well as 16,600 DAVIDOFF COOL WATER units from which the codes had been removed by cutting away a portion of the box, chemically wiping away the code, or grinding the bottom of the bottle to remove the code.

Zino Davidoff amended its complaint to add claims based on CVS's sale of these decoded products. Although CVS voluntarily agreed to discontinue its sale of counterfeit fragrances, it refused to stop selling products without codes. Zino Davidoff then moved for a preliminary injunction against the sale of these decoded products. The district court granted the preliminary injunction, finding that Zino Davidoff was likely to prevail on its trademark infringement claims because the removal of the product codes impairs legitimate anticounterfeiting and quality assurance efforts. CVS appealed this decision.

The Second Circuit's Opinion

In an opinion written by Judge Pierre Leval, the Second Circuit affirmed the entry of the preliminary injunction. The court found that DAVIDOFF fragrances lacking their product codes are not genuine, as they do not conform to Zino Davidoff's quality control standards and, when the packaging has been damaged, are materially different from the products Zino Davidoff has authorized for sale. CVS maintained that because the decoded fragrances are DAVIDOFF fragrances manufactured by Coty, sold in their original packaging, with the trademark clearly visible, there is no risk of consumer confusion, and the sale of such products cannot constitute trademark infringement. The court, noting that “CVS's argument misses the point,” observed that brand owners invest time and money in building a reputation for quality goods, and that consumers pay more for products sold under a brand they associate with high quality. As the court stated, “interference with the trademark holder's legitimate steps to control quality unreasonably subjects the trademark holder to the risk of injury to the reputation of its mark.”

The court recognized that Zino Davidoff's product coding system is a legitimate, substantial, and non-pretextual anticounterfeiting measure. The loss of this protection increases the likelihood of inferior, non-conforming counterfeit goods in the marketplace, which harms Zino Davidoff's reputation and weakens its valuable brand. The court noted that “removal of the codes makes it more difficult to detect counterfeits. Regardless of whether the presence or absence of a code on an individual unit of [Zino] Davidoff product establishes the authenticity of that unit, the removal of the codes exposes [Zino] Davidoff to an increased risk that any given unit sold at retail will be counterfeit.”

The court also found the codes were a legitimate routine quality control device. CVS argued that the coding system is merely a pretext because consumers are not aware of the code's purpose and Zino Davidoff has never had a product recall. The court rejected these arguments. It noted that Coty had on several occasions used serial numbers to resolve quality issues with its fragrances, and that “an important benefit of the [coding] system is that it permits [Zino] Davidoff to keep recalls small and targeted.”

CVS also argued that the true purpose of Zino Davidoff's codes is not quality assurance, but rather to retaliate against approved distributors who sell DAVIDOFF fragrances outside the authorized distribution chain. The court held that although the codes may enable Zino Davidoff to control its distribution channels, this does not detract from the legitimacy and utility of the codes in maintaining quality and identifying counterfeit goods.

Finally, the court found that decoded DAVIDOFF COOL WATER fragrances are inferior to and materially different from genuine goods where the removal causes physical damage to the packaging. Visible tampering may cause consumers to doubt the quality or the authenticity of the trademarked goods. As the court noted, “fragrances are often purchased to be offered as romantic gifts. Mutilated packaging makes the item less appealing to such a purchaser, who runs the risk that the gift will be viewed by the recipient as a sketchy, cheap purchase from an illicit source or of the sort given by Tony Soprano to Carmela.”

In recognizing that the sale of goods lacking a device used for quality control and anticounterfeiting purposes constitutes trademark infringement ' even if the goods are otherwise genuine and the consumer may be unaware of the difference ' the Second Circuit confirmed that trademarks do more than simply identify the source of a particular product. Rather, trademarks encapsulate a brand owner's reputation, earned over time, as to quality, authenticity, and prestige, and the trademark laws protect the public's resultant expectations. The removal of an anticounterfeiting and quality control device from a trademarked good interferes with those expectations, threatens to harm both consumers and brand owners, and properly supports a claim for trademark infringement under the Lanham Act.

Robert N. Potter and W. Andrew Pequignot are associates in Kilpatrick Stockton LLP's Intellectual Property Group, practicing in the areas of copyright, trademark, and entertainment law. Kilpatrick Stockton represented plaintiff-appellee Zino Davidoff in the litigation discussed in this article.

The U.S. Court of Appeals for the Second Circuit has held that the sale of products lacking a unique serial number applied by a brand owner for anticounterfeiting and quality control purposes constitutes trademark infringement under federal law. This is so even if the removal of the code does not cause physical damage to an otherwise genuine product and consumers are not aware that the code has been removed.

In Zino Davidoff SA v. CVS Corp., 2009 WL 1862462, No. 07-2872-CV (2d Cir. June 19, 2009), the Second Circuit affirmed the district court's entry of a preliminary injunction against CVS Corp., barring defendant's sale of DAVIDOFF COOL WATER fragrances that lack the unique production code applied at the time of manufacture to the bottle and box of genuine fragrances. Zino Davidoff uses the code both to identify counterfeits and to control the quality of genuine fragrances. The Second Circuit agreed that the products from which the code had been removed were no longer subject to the brand owner's quality assurances, were materially different from genuine products, and thus the sale of these goods constitutes trademark infringement.

Zino Davidoff and Its Unique Production Code

Zino Davidoff owns the well-known DAVIDOFF brand for various luxury goods, including fragrances. Among Zino Davidoff's fragrances are DAVIDOFF COOL WATER, available for both men and women. The DAVIDOFF COOL WATER fragrances are manufactured and marketed by Coty Inc., Zino Davidoff's exclusive fragrance licensee.

As part of its effort to assure the high quality of DAVIDOFF fragrances and to combat counterfeiting, Zino Davidoff and Coty place a unique code on the box and bottle of each unit. The code contains information specific to that unit, including the date and time the unit was produced and the particular production line. This information enables Zino Davidoff and Coty to rectify any quality control issues that may arise and to effect isolated and targeted product recalls, although such issues are rare and a recall has never occurred.

The coding system is also critical to Zino Davidoff's anticounterfeiting efforts. Due to the high expense associated with placing a unique number on each unit, counterfeiters will generally omit such codes, or repeat the same number on multiple units. As a result, Zino Davidoff's investigators and others can easily identify counterfeit goods through the presence of a non-unique, bogus code, or the absence of any code whatsoever. Indeed, Coty regularly trains U.S. Customs, law enforcement, and private investigators to detect counterfeits based on this product coding system.

Counterfeit and Decoded Fragrances Found at CVS

To maintain its reputation as a luxury brand, Zino Davidoff sells its products through select retailers, and has declined to sell to the pharmacy chain CVS. CVS has nevertheless been able to obtain DAVIDOFF fragrances from outside of Zino Davidoff's authorized distribution channels.

In 1998, and again in 2005, Zino Davidoff learned that counterfeit DAVIDOFF COOL WATER fragrances were being sold at CVS. In each instance, CVS promised to review its inventory and eliminate counterfeit products. In 2006, however, Zino Davidoff discovered counterfeit fragrances for sale at CVS for the third time. Zino Davidoff then brought suit against CVS in the Southern District of New York with respect to the counterfeit products alleging, among other things, trademark infringement, unfair competition, and trademark dilution under the Lanham Act.

The District Court Proceedings

At the outset, the district court granted Zino Davidoff's request for a temporary restraining order, and allowed Zino Davidoff to inspect all DAVIDOFF products then within CVS's inventory. This inspection revealed additional counterfeits, as well as 16,600 DAVIDOFF COOL WATER units from which the codes had been removed by cutting away a portion of the box, chemically wiping away the code, or grinding the bottom of the bottle to remove the code.

Zino Davidoff amended its complaint to add claims based on CVS's sale of these decoded products. Although CVS voluntarily agreed to discontinue its sale of counterfeit fragrances, it refused to stop selling products without codes. Zino Davidoff then moved for a preliminary injunction against the sale of these decoded products. The district court granted the preliminary injunction, finding that Zino Davidoff was likely to prevail on its trademark infringement claims because the removal of the product codes impairs legitimate anticounterfeiting and quality assurance efforts. CVS appealed this decision.

The Second Circuit's Opinion

In an opinion written by Judge Pierre Leval, the Second Circuit affirmed the entry of the preliminary injunction. The court found that DAVIDOFF fragrances lacking their product codes are not genuine, as they do not conform to Zino Davidoff's quality control standards and, when the packaging has been damaged, are materially different from the products Zino Davidoff has authorized for sale. CVS maintained that because the decoded fragrances are DAVIDOFF fragrances manufactured by Coty, sold in their original packaging, with the trademark clearly visible, there is no risk of consumer confusion, and the sale of such products cannot constitute trademark infringement. The court, noting that “CVS's argument misses the point,” observed that brand owners invest time and money in building a reputation for quality goods, and that consumers pay more for products sold under a brand they associate with high quality. As the court stated, “interference with the trademark holder's legitimate steps to control quality unreasonably subjects the trademark holder to the risk of injury to the reputation of its mark.”

The court recognized that Zino Davidoff's product coding system is a legitimate, substantial, and non-pretextual anticounterfeiting measure. The loss of this protection increases the likelihood of inferior, non-conforming counterfeit goods in the marketplace, which harms Zino Davidoff's reputation and weakens its valuable brand. The court noted that “removal of the codes makes it more difficult to detect counterfeits. Regardless of whether the presence or absence of a code on an individual unit of [Zino] Davidoff product establishes the authenticity of that unit, the removal of the codes exposes [Zino] Davidoff to an increased risk that any given unit sold at retail will be counterfeit.”

The court also found the codes were a legitimate routine quality control device. CVS argued that the coding system is merely a pretext because consumers are not aware of the code's purpose and Zino Davidoff has never had a product recall. The court rejected these arguments. It noted that Coty had on several occasions used serial numbers to resolve quality issues with its fragrances, and that “an important benefit of the [coding] system is that it permits [Zino] Davidoff to keep recalls small and targeted.”

CVS also argued that the true purpose of Zino Davidoff's codes is not quality assurance, but rather to retaliate against approved distributors who sell DAVIDOFF fragrances outside the authorized distribution chain. The court held that although the codes may enable Zino Davidoff to control its distribution channels, this does not detract from the legitimacy and utility of the codes in maintaining quality and identifying counterfeit goods.

Finally, the court found that decoded DAVIDOFF COOL WATER fragrances are inferior to and materially different from genuine goods where the removal causes physical damage to the packaging. Visible tampering may cause consumers to doubt the quality or the authenticity of the trademarked goods. As the court noted, “fragrances are often purchased to be offered as romantic gifts. Mutilated packaging makes the item less appealing to such a purchaser, who runs the risk that the gift will be viewed by the recipient as a sketchy, cheap purchase from an illicit source or of the sort given by Tony Soprano to Carmela.”

In recognizing that the sale of goods lacking a device used for quality control and anticounterfeiting purposes constitutes trademark infringement ' even if the goods are otherwise genuine and the consumer may be unaware of the difference ' the Second Circuit confirmed that trademarks do more than simply identify the source of a particular product. Rather, trademarks encapsulate a brand owner's reputation, earned over time, as to quality, authenticity, and prestige, and the trademark laws protect the public's resultant expectations. The removal of an anticounterfeiting and quality control device from a trademarked good interferes with those expectations, threatens to harm both consumers and brand owners, and properly supports a claim for trademark infringement under the Lanham Act.

Robert N. Potter and W. Andrew Pequignot are associates in Kilpatrick Stockton LLP's Intellectual Property Group, practicing in the areas of copyright, trademark, and entertainment law. Kilpatrick Stockton represented plaintiff-appellee Zino Davidoff in the litigation discussed in this article.