*** The writing does not, and is not intended to, constitute legal advice by any means*** |
Back to the world of trademark law! Today's topic is a trademark infringement lawsuit Coty, an American multinational beauty conglomerate, brought against Cosmopolitan Cosmetics back in 2020. Cosmopolitan Cosmetics is a Brooklyn-based wholesaler that distributes fragrance products from famous brands. Coty has been in the fragrance licensing market for decades. As a trusted licensee,
Coty has successfully secured and renewed long-term fragrance licensing agreements, or partnerships (as Coty likes to call them), with brands such Marc Jacobs, Calvin Klein and Hugo Boss. Coty discovered that Cosmopolitan Cosmetics had been selling Coty's licensed fragrance products after "removing, obscuring, stickering, or otherwise mutilating" Coty's production codes that it uses for the purposes of quality control and anti-counterfeiting.
Coty Inc. v. Cosmopolitan Cosmetics Inc., 432 F. Supp. 3d 345, 349 (S.D.N.Y. 2020). As I heavily emphasized in
an earlier post, quality control is paramount to the success of any licensing agreement. As a responsible licensee, Coty was rightfully infuriated when the tempering of production codes effectively degraded products and their packagings. The situation, left unaddressed, would surely disappoint Coty's consumers who expect consistency in terms of high quality. So Coty went on to file a complaint in the United States District Court for the Southern District of New York to hold Cosmopolitan Cosmetics liable for violating the Lanham Act because no authorization was issued to the sale of the decoded products outside Coty's selective distribution channels.
Cosmopolitan Cosmetics attempted to dismiss the lawsuit in its entirety by invoking the first sale doctrine as a shield. The doctrine is a limitation on the exclusive rights of trademark owners that they can otherwise validly exercise, offering a carve-out for the resale of "genuine goods bearing a true mark even though the sale is not authorized by the mark owner." Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 61 (2d Cir. 1992). However, even then, in the Second Circuit, there's an exception to the applicability of the first sale doctrine. Under the so-called "Quality Control Exception", a trademark owner can defeat the first sale doctrine defense if the trademark owner can demonstrate only: (i) that it has established legitimate, substantial, and nonpretextual quality control procedures, (ii) that it abides by these procedures, and (iii) that the non-conforming sales will diminish the value of the mark. See Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6 (2d Cir. 1996). Judge Swain then elucidated the basis for why Coty has successfully pleaded every element of the exception. The first element is satisfied because Coty implements legitimate, substantial, and nonpretextual quality control measures by means of production codes because there is a "realistic risk of increased incidence of counterfeits with resultant damage to the reputation of its mark". Coty, Inc., 432 F. Supp at 351. As for the second element, Judge Swain found that Coty provided uncontroverted facts to show that the above-mentioned measures are dutifully followed in practice. Id. The last element is also met because the consuming public of Coty deeply care about the quality of products bearing the Coty mark, so the harm to reputation is real and concrete. Id.
The true gem of Judge Swain's opinion is the following observation, which I urge everyone of you to take a moment to read it out loud:
"In the context of luxury fragrances that are often purchased as gifts, damage to the physical appearance of the packaging damages the allure of the product."
It seems to me that Judge Swain knew and recognized that tremendous resources are being expended to imbue each luxury beauty fragrance with marketable aesthetic appeal. Even for the purposes of trademark protection, packaging and bottle have been used by the public for identifying the source of a product. No wonder Dior is endeavoring to trademark its J'adore fragrance bottle in China. Judge Swain thus held that all Lanham Act claims should not be dismissed at this stage of the litigation because Coty has met the requisite pleading standards. I always feel joyous when I read an opinion that's not only legally sound but also perceptive policy-wise. Here, the judge is taking into account real-life implications his decision would have on the industry. I think a capable lawyer in the service of the fashion industry should have this background knowledge to serve as an interpreter between the legal world and the sartorial world. I haven't heard of a settlement in this case yet, so let's wait and see what happens.
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