In Zino Davidoff SA v. CVS Corp., No. 07-2872-CV (June 19, 2009) , the Court of Appeals for the Second Circuit held that the sale of branded products from which a serial number applied for anticounterfeiting and quality control purposes has been removed constitutes trademark infringement under the Lanham Act. This is so even though consumers may not be aware of the difference. Kilpatrick Stockton represented the successful plaintiff.

The decision is an important one in the fight against counterfeiting because it upholds the right of a trademark owner to safeguard the integrity of an anticounterfeiting system not visible to the public and insure a clean market by controlling channels of distribution. Further, the Court explicitly recognized that “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 Second Circuit affirmed the entry of a preliminary injunction by the U.S. District Court for the Southern District of New York (Karas, J.) barring the sale of counterfeit and so-called “decoded” DAVIDOFF fragrance products. “Decoded” products lack a unique production code (“UPC”) applied on the bottle and box of genuine DAVIDOFF fragrances at the time of manufacture. The UPC system facilitates Zino Davidoff’s identification of counterfeit fragrances because counterfeits typically bear a bogus code or no code at all. In addition, the coding system enables Zino Davidoff to pinpoint and rectify any quality issues with genuine fragrances in the unlikely event that they occur.

In an opinion written by Judge Pierre Leval, the Second Circuit ruled that CVS’s sale of decoded goods is actionable as trademark infringement because those products are not backed by Zino Davidoff’s on-going quality assurance. In so holding, the Court explained: “Where the alleged infringer has interfered with the trademark holder’s ability to control quality, the trademark holder’s claim is not defeated because of failure to show that the goods sold were defective.”

The Court specifically rejected CVS’s argument that the product coding employed by Zino Davidoff is not a legitimate quality control because it enables Zino Davidoff to control its sales channels. The Court explained: “[T]he mere fact that the UPC system provides Davidoff additional benefits that may be unrelated to quality control does not negate its legitimate function in protecting Davidoff’s marks from quality defects and counterfeiting.”

In addition to confirming that the removal of anticounterfeiting devices supports a finding of trademark infringement, the decision also confirms that, particularly with regard to luxury goods, any mutilation in packaging may constitute a material difference transforming genuine into infringing product. As the Court noted, “fragances 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 a defendant may be held liable for trademark infringement even though it may be selling goods manufactured under the authority of the trademark owner, this case reaffirms that a trademark is more than a mere indicator of manufacturing source. Rather, a trademark functions as a seal of approval from the brand owner, guaranteeing the public's quality expectations of the brand.

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