Second Circuit Holds Unauthorized Removal of UPC Labels May Be Trademark Infringement

A defendant may be held liable for trademark infringement - even though it may be selling genuine goods manufactured under the authority of the trademark owner - if those goods are sold with altered or removed UPC labels. Recently, in Zino Davidoff, SA v. CVS Corporation, No., 07-2872-cv (June 19, 2009), the United States Court of Appeals for the Second Circuit upheld a preliminary injunction issued by the Southern District of New York enjoining the defendant, CVS Corporation ("CVS"), from selling the plaintiff Zino Davidoff, SA's ("Davidoff") fragrances with the unique production codes ("UPC") removed.

This case serves as a warning to manufacturers and retailers alike: the Second Circuit's decision in Zino Davidoff appears to recognize that an action for trademark infringement will lie when a defendant sells otherwise genuine product from which an anti-counterfeiting device has been removed, regardless of whether consumers are aware of the quality control device, so long as the trademark holder takes certain precautions.

In today's global market, trademarks function as more than a mere indicator of the source of goods; they serve as quality control devices, guaranteeing to the consuming public that goods bearing a particular trademark will be of the same quality regardless of the retailer's location. Anti-counterfeiting devices like UPC labels and product packaging often serve both commercial and quality control functions, and should therefore not be removed or tampered with by retailers. Further, trademark owners seeking to protect the quality of their goods should establish and consistently follow substantive quality control measures.

During the pendency of Davidoff's 2006 suit seeking relief as to CVS's alleged marketing of counterfeit Davidoff products, including its popular COOL WATER fragrances, Davidoff discovered that on approximately 16,600 items in CVS's inventory, the UPC's on the packages and labels affixed to the bottle had been removed by cutting the box, chemically removing the print or grinding the bottles. Thereafter, the trial court granted Davidoff's motion to enjoin CVS from selling these "decoded" products.

CVS appealed, arguing that the sale of the "decoded" goods, sold in their original packaging with the Davidoff trademarks clearly visible and unaltered, did not negate the goods' genuineness or constitute infringement. The Secord Circuit rejected this argument and affirmed the entry of the preliminary injunction.

UPC labels, in the Second Circuit's view, serve as a quality control device and a trademark holder such as Davidoff is entitled to an injunction against one who would subvert its quality control measures if certain conditions are met: (i) the procedures are established, legitimate, substantial and nonpretextual; (ii) the trademark holder abides by the procedures; and (iii) sales of products that fail to conform will diminish the value of the mark.

The Second Circuit was not persuaded by CVS's argument that Davidoff's stated quality control measures were pretextual and that the UPC's were used by Davidoff for other, more commercial purposes. According to the Second Circuit, "the 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."

CVS's argument that Davidoff had not shown that any of CVS's sales involved inferior product was equally unsuccessful - in the Court's view, "the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain."