In today's global economy, with the ease of round-the-world transportation, fighting off counterfeit goods is tougher than ever. Product-makers must also fend off "gray-market goods", which are genuine goods that are sold in a country other than the one authorized by the product-maker. The Zino v. CVS decision highlights how UPC codes can be an important tool in this battle.
In Zino Davidoff SA v. CVS Corp., 571 F.3d 238 (2d Cir. 2009), the Second Circuit affirmed the district court's grant of Zino's motion for a preliminary injunction prohibiting CVS's sale of goods bearing Zino's trademark COOL WATERŪ without Zino's UPC code. The court affirmed the district court's holding.
Zino provides high-end fragrances under the federally registered mark COOL WATERŪ. To help facilitate quality control and prevent counterfeiting, Zino placed unique UPC codes on each fragrance bottle and packaging. These UPC codes included coded information regarding the production of that particular unit.
Counterfeiters often omitted these codes or used the same UPC code on a large group of counterfeit goods because of the cost of developing and adding these unique UPC codes. Knowing this, Zino could look for products with missing UPC codes or codes that had previously been used by counterfeiters. The specific information in the codes also aided Zino's quality control efforts.
Zino discovered that CVS was selling counterfeit COOL WATERŪ products. Despite CVS's assurances that it would stop, CVS continued selling these products; Zino filed suit. The district court granted a temporary restraining order against CVS and allowed Zino to inspect CVS's entire inventory bearing the COOL WATERŪ mark. During this inspection, Zino found over 16,000 products where the UPC code had been removed from both the product and its packaging. While CVS agreed to stop selling counterfeit products, CVS refused to stop selling products with the UPC codes removed. As a result, Zino amended its complaint to include products with the UPC removed, and expanded its preliminary injunction to cover such products. The district court found that the sale of products with UPC codes removed constituted trademark infringement. CVS appealed.
CVS argued that regardless of whether the UPC codes were removed, the COOL WATERŪ products CVS was selling were genuine (albeit gray-market) Zino goods, sold without alteration to the Zino trademarks, and thus did not infringe. The court disagreed, noting that the issue wasn't whether gray-market goods infringe; rather, it was whether the removal of UPC codes interfered with Zino's trademark rights. The court found that the removal of UPC codes interfered with Zino's ability to control the quality of its products. Citing its holding in Warner-Lambert v. Northside, the court stated:
[A] trademark holder is entitled to an injunction against one who would subvert its quality control measures upon a showing that (i) the asserted quality control procedures are established, legitimate, substantial, and nonpretextual, (ii) it abides by these procedures, and (iii) sales of products that fail to conform to these procedures will diminish the value of the mark. Warner-Lambert, 86 F.3d at 6.
After reviewing the facts of the case before it, the Second Circuit agreed with the district court that these requirements had indeed been met.
CVS argued that Zino's use of the UPC codes for quality control purposes was secondary, and that the primary purpose of these codes was to hunt down gray-market goods. The court was unconvinced, holding that the use of UPC codes as a legitimate quality control tool was not negated by the fact that the codes provided added benefits such as gray-market good control.
CVS also argued that the sale of gray-market products did not involve inferior products, as they were genuine Zino products. The court countered that (1) "the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain," Zino, 571 F.3d at 246, and (2) CVS's products were inferior. Specifically, the removal of the UPC codes damaged the product and its packaging, which took away from the product's value. This was particularly true for goods such as luxury fragrances that are frequently given as romantic gifts; the purchaser of such mutilated products "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." Id.
The court concluded that because the removal of UPC codes both interfered with Zino's quality control and materially altered the products themselves, Zino was likely to succeed in its trademark infringement claim. As such, the court found the district court's grant of the preliminary injunction to be proper. In so finding, the court underscored the importance UPC codes can have in a product-maker's constant battle against counterfeit and gray-market goods.
Jonathan Holda is a principal with the firm Ober | Kaler and an attorney with its Intellectual Property Group.