By Steven Abreu.
The UPC code–a collection of random black lines set on a white background and found on the bottom or the back of a product’s packaging—is known for facilitating checkout at the supermarket. But a UPC (Universal Product Code) conveys more information than just a product’s price. In fact, when it conveys quality control information, a UPC code may have trademark infringement implications.
In Zino Davidoff SA v. CVS Corporation, the U.S. Court of Appeals for the Second Circuit held that the unauthorized removal of a product’s UPC code could justify a finding of trademark infringement, even if the customer is not confused about the source of the product which he is purchasing.
Davidoff is the maker of the COOL WATER brand of fragrances. It uses the UPC code, which appears on the bottom of its fragrance bottles as well as on the packaging, to embed a large quantity of information about the particular bottle of fragrance, including its price, the time and place of production, the production line, the ingredients used, the distributor and the intended customer.
Davidoff discovered that counterfeit COOL WATER products were being sold at CVS stores and sought permission from the court to inspect CVS’s inventory. The inspection revealed that, in the case of over 16,000 units of COOL WATER in CVS inventory, the UPCs had been removed from the packages or the labels affixed to the bottles. In some cases the UPC code had been rubbed off the bottom of the fragrance bottle.
After the inspection, CVS assured Davidoff that it would discontinue sales of products proven to be counterfeit products, but not the products where only the UPC code was removed.
Davidoff argued that the existence of the UPC codes on the bottles and packaging is important because of the embedded information each code contains. The embedded information acts as a quality control mechanism because it plays two important roles in fighting counterfeits.
First, Davidoff instructs the U.S. Customs and Border Protection Service and its authorized retailers to read the bar codes to make sure that the product is legitimate before accepting delivery. Second, the mere inclusion of a unique bar code is its own signal that the product is authentic because embedding information in bar codes is an expensive process, which counterfeiters usually skip altogether, or they produce multiple batches of the product with the same bar code. Removal of the code makes it more difficult to detect counterfeits.
The Second Circuit held that CVS could be liable for trademark infringement because the removal of the UPC codes from the packaging impaired Davidoff’s ability to identify counterfeit goods and to control the quality of its legitimate products because it could not as easily identify and recall defective products.
Applying earlier precedent, the Second Circuit stated that “as a general rule the Lanham Act does not impose liability for ‘the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner’ because such a sale does not inherently cause confusion.”
However, the court held that “goods are not genuine if they do not conform to the trademark holder’s quality control standards or if they differ materially from the product authorized by the trademark holder for sale.” Interfering with the ability to control quality is tantamount to trademark infringement because it “unreasonably subjects the trademark holder to the risk of injury to the reputation of its mark.”
The traditional theory of trademark protection is that trademark rights are granted so that consumers will be protected. Under this theory, mark owners enforce their rights against marks that are likely to be confused so that consumers can avoid the consequences of the confusion. A UPC code, however, is incapable of distinguishing products or manufacturers from one another in the minds of a consumer because it contains no distinguishing characteristics to the naked eye.
The court in Davidoff expands the zone of trademark protection to the UPC code, an altogether undistinctive marking, on a different theory. The trademark of the overall product, in this case COOL WATER, is violated when its owner is hindered from carrying out its quality control provisions, even if the specific products in which the hindrance occurred are genuine, and have no quality control defects.
Without the ability to maintain its quality control procedures, the goodwill inherent in any trademark may be damaged. The injury is not done directly to consumers, but to the mark owner, who, in this case, without the information contained in the UPC code, would lose the ability to correct deficiencies in the supply chain or enforce its rights against counterfeiters. The mark owner is directly harmed because, if the deficiencies are not corrected, over time consumers will associate the product with a lessened degree of quality.
The Davidoff case expands the ability of the trademark owner to protect its mark not only from those who infringe by adopting a similar mark, but also from those who interfere with the mark owner’s ability to control the quality of his own product. In the coming years it will be interesting to see if this theory of trademark protection expands to encompass other means of quality control employed by a mark owner.