Professor of Law, William S. Boyd School of Law, University of Nevada Las Vegas
In Zino Davidoff SA v. CVS Corp., 571 F.3d 238 (2d Cir. N.Y. 2009), the Second Circuit held that gray market goods are materially different, and thus, infringing under the Lanham Act, when the packaging has been altered. These holdings mark a significant broadening of the concept of material differences, strengthening the rights of trademark owners to prevent their products from being sold outside of their authorized U.S. distribution networks. In this Analysis, Mary LaFrance discusses Zino Davidoff and examines the material differences test. She writes:
Zino Davidoff is noteworthy because it is the first appellate opinion to hold that "material differences" relating to quality control may arise from the removal of a quality control measure that does not prevent product defects from occurring, but merely helps the manufacturer to identify and recall those defective products after the defects have occurred. Prior case law has considered quality control measures that prevent defective goods from leaving the factory or which prevent damage during the distribution process. In contrast, Davidoff's UPC codes did not prevent defects from arising during the manufacturing or packaging process or during the shipping and handling of the product; instead, they merely made it easier for defective products to be identified and removed from the marketplace after the defects had already arisen. Although Davidoff thereby extends the concept of quality control beyond what has been recognized in prior cases, this extension of the law is consistent with the consumer protection goal of the Lanham Act.
In the precedent that is factually the most similar to Zino Davidoff, the same plaintiff brought an infringement action in the Eleventh Circuit against a different reseller that had removed the batch codes from COOL WATER packaging. Although the district court in that case found that the batch codes were essential to the plaintiff's quality control measures, the Eleventh Circuit found it unnecessary to reach the quality control question, because it was able to affirm the district court based solely on the finding that the alteration of the packaging gave rise to a "material difference."
However, the Zino Davidoff court's second basis for treating the UPC codes as quality control measures -- the fact that they facilitated the detection of counterfeit goods is completely unprecedented. The novelty of this holding was openly acknowledged by the district court, but not by the Second Circuit. It is impossible to predict whether other circuits will endorse such a broad concept of quality control.
B. Material Differences in Packaging
Although the Zino Davidoff court could have affirmed the preliminary injunction solely on the ground that removing the UPC codes interfered with the plaintiff's quality control measures, the court offered a second justification. Perhaps because its ruling on quality control was so unprecedented, the Second Circuit went on to hold that a second type of material difference the damage to the product's packaging also gave rise to infringement liability.
(citations omitted)