Zino Davidoff SA v. CVS Corp.
2009 WL 1862462, 571 F.3d 238 (2009)
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Rule of Law:
The sale of genuine trademarked goods constitutes trademark infringement if the goods have been altered in a way that interferes with the trademark holder's established, legitimate, and nonpretextual quality control measures, as this interference impairs the value of the mark and subverts the holder's right to control quality.
Facts:
- Zino Davidoff SA (Davidoff), a luxury brand, manufactures fragrances like 'COOL WATER' and holds valid trademarks for these products.
- As part of a comprehensive quality control program, Davidoff affixes a unique production code (UPC) to each individual fragrance bottle and its corresponding package.
- This UPC system is used to identify and intercept counterfeit products and to trace the origin of defective genuine products to facilitate targeted recalls.
- Davidoff restricts its sales to authorized luxury retailers and has declined to sell its products to CVS Corporation (CVS).
- CVS, an unauthorized retailer, obtained and sold Davidoff products, some of which were sourced from the gray market.
- On two occasions, in 1998 and 2005, Davidoff discovered counterfeit products being sold at CVS.
- In 2006, after discovering continued sales of counterfeits, an inspection of CVS's inventory revealed 16,600 Davidoff items where the UPCs had been physically removed by cutting, grinding, or using chemicals.
- The process of removing the UPCs often resulted in visible damage to the product packaging.
Procedural Posture:
- Davidoff filed a lawsuit against CVS in the U.S. District Court for the Southern District of New York for trademark infringement related to the sale of counterfeit products.
- The district court granted a temporary restraining order and authorized Davidoff to inspect CVS's inventory.
- After discovering products with removed UPCs, Davidoff amended its complaint to add claims based on these 'decoded' products.
- CVS voluntarily agreed to cease selling counterfeit products but refused to stop selling the decoded products.
- Davidoff moved for a preliminary injunction to prohibit CVS from selling Davidoff products with the UPCs removed.
- The district court granted the preliminary injunction, finding that Davidoff was likely to succeed on the merits of its trademark infringement claim.
- CVS, as appellant, appealed the district court's grant of the preliminary injunction to the United States Court of Appeals for the Second Circuit; Davidoff was the appellee.
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Issue:
Does a retailer's sale of genuine trademarked goods, after the manufacturer's unique production codes have been removed, constitute trademark infringement under the Lanham Act by interfering with the trademark holder's quality control measures?
Opinions:
Majority - Leval, Circuit Judge
Yes. The sale of trademarked goods with their quality control codes removed constitutes trademark infringement because it unlawfully interferes with the trademark holder's rights. While the sale of genuine goods is generally permissible, goods are not considered genuine if they fail to conform to the trademark holder's legitimate quality control standards. Davidoff's UPC system is an established, substantial, and nonpretextual quality control procedure used to detect counterfeits and manage product defects. By selling products with these codes removed, CVS subverts Davidoff's ability to control quality, thereby exposing the brand to the risk of reputational harm from undetected counterfeits or defective products. Furthermore, the physical mutilation of the packaging required to remove the codes renders the products 'materially different' from those authorized for sale, which is an independent basis for trademark infringement.
Analysis:
This decision significantly strengthens trademark law by affirming that infringement can occur even when the goods sold are genuine. It establishes that a seller's interference with a manufacturer's legitimate quality control system is actionable under the Lanham Act, as the core right protected by a trademark is the ability to control product quality and brand reputation. The ruling provides a powerful tool for brand owners, particularly in the luxury goods sector, to combat the gray market and unauthorized sellers who obscure product origins by tampering with packaging. The court's emphasis on packaging damage as a 'material difference' further broadens the scope of what constitutes an infringing good.
