Tampering with Universal Product Code labels could represent trademark infringement, warns a federal court.

A recent federal court decision upheld a lower court’s view that UPC labels provide important quality-control protections for consumer-product manufacturers—and sent a message that retailers who sell products with altered or missing codes could be liable for trademark infringement.

“The warning was clear enough: If you sell goods that lack their original UPC labels, you could end up fighting a trademark-infringement case in court,” said attorney Tara A. Branscom, a partner in LeClairRyan (Richmond, Va.), who handles a broad range of intellectual property issues and offered an outside observer’s perspective on the case.

In 2006, manufacturer Zino Davidoff sued drugstore chain CVS for selling allegedly counterfeit Davidoff products. In the course of that action, Davidoff discovered that the UPCs on approximately 16,600 items in CVS’s inventory had been removed by cutting the box, chemically removing the print or grinding the bottles. Davidoff amended its suit to include claims for the sale of goods with the UPC labels removed. The Court of the Southern District of New York granted Davidoff’s motion to stop CVS from selling these “decoded” products.

CVS appealed, arguing that the sale of the decoded goods, which were in their original packaging with the Davidoff trademarks visible and unaltered, did not negate their genuineness or constitute infringement. It also argued that Davidoff used the UPCs for commercial rather than quality-control purposes. The U.S. Court of Appeals for the Second Circuit rejected those arguments. “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,” the court ruled.

CVS’s argument that Davidoff had not shown that any of the chain’s sales involved inferior products was also 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.”

The case serves as a warning to manufacturers and retailers alike, said Branscom. “Anti-counterfeiting devices like UPC labels serve both commercial and quality-control functions. They should not be removed or tampered with.” [October 2009 PET AGE]