Court Opinion

ID: 75552
Source: CourtListenerOpinion
Date Created: 2010-04-26 23:12:30+00
Date Added: 2024-06-11T17:20:59.460592
License: Public Domain

263 F.3d 1297 (11th Cir. 2001)
DAVIDOFF & CIE, SA, a Swiss Corporation, and  LANCASTER GROUP US LLC, a Delaware  Limited Liability Corporation, Plaintiffs-Appellees,v.PLD INTERNATIONAL CORPORATION, a Florida  Corporation, and PHILLIPE L. DRAY,  an individual Florida resident, Defendants-Appellants.
No. 00-14368
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
August 28, 2001

Appeal from the United States District Court for the Southern District of Florida. D. C. Docket No. 00-02635-CV-DMM
Before ANDERSON, Chief Judge, FAY and BRIGHT*, Circuit Judges.
ANDERSON, Chief Judge:

1
This case appears to be the first time that this circuit has  addressed the circumstances under which the resale of a genuine  product with a registered trademark can be considered  infringement. We recognize the general rule that a trademark  owner's authorized initial sale of its product exhausts the  trademark owner's right to maintain control over who thereafter resells the product; subsequent sales of the product by others  do not constitute infringement even though such sales are not  authorized by the trademark owner. However, we adopt from our  sister circuits their exception to this general rule-i.e., the  unauthorized resale of a materially different product  constitutes infringement. Because we conclude that the resold  products in the instant case are materially different, we  affirm.

I.  BACKGROUND

2
Davidoff & Cie, S.A., a Swiss corporation, is the manufacturer  of DAVIDOFF COOL WATER fragrance products and owns the U.S.  trademark. Davidoff & Cie, S.A. exclusively licenses Lancaster  Group US LLC (collectively "Davidoff") to distribute its  products to retailers in the United States. Working outside of  this arrangement, PLD International Corporation ("PLD") acquires  DAVIDOFF fragrances that are intended for overseas sale or that  are sold in duty-free sales. PLD then distributes them to  discount retail stores in the United States.

3
At the time that PLD acquires the product, the original codes on  the bottom of the boxes are covered by white stickers, and batch  codes on the bottles themselves have been obliterated with an  etching tool. The etching leaves a mark on the bottle near its  base on the side opposite the DAVIDOFF COOL WATER printing. The  mark is approximately one and one-eighth inches in length and  one-eighth of an inch wide. The batch codes are removed,  according to PLD, to prevent Davidoff from discovering who sold  the fragrances to PLD because Davidoff would stop selling to  those vendors.

II. DISTRICT COURT PROCEEDINGS

4
Davidoff filed a complaint seeking, inter alia, a preliminary  injunction against PLD1 for infringement of its  trademark under the Lanham Trade-Mark Act, 15 U.S.C. § 1051 et  seq.2 Davidoff alleged that PLD's distribution of the  fragrances with the batch codes removed and obliterated  constituted infringement. The district court held that PLD's distribution of DAVIDOFF  fragrances constituted infringement by creating a likelihood of  consumer confusion. In reaching this conclusion, the district  court found that the product distributed by PLD differed from  the genuine DAVIDOFF product because the removal of the batch  code from the bottle by etching the glass "constitutes  alteration of a product,"3 which would create a  likelihood of consumer confusion. A consumer might believe that  a product had been harmed or tampered with.4 Based on  the infringement finding, the district court granted a  preliminary injunction, prohibiting PLD from selling,  repackaging or altering any product with the name "DAVIDOFF"  and/or "COOL WATER" with an obliterated batch code. This appeal  followed.

III.  CONTENTIONS

5
PLD argues that it is selling genuine DAVIDOFF fragrances and  that as a result no consumer can be confused. Therefore, it  claims that it cannot be considered an infringer under the  Lanham Act. PLD asserts that "[w]ith or without a manufacturer  or batch code on its packaging, the product is absolutely the  same." PLD states that the district court incorrectly relied on  cases where the product itself and not just the packaging was  altered.

6
Davidoff urges us to adopt a material difference test whereby a  material difference between goods sold under the same trademark  warrants a finding of consumer confusion. Davidoff argues that  the obliteration of batch codes by PLD transforms the appearance  of its product into a materially different, infringing product,  which is likely to confuse consumers.

IV.  PRELIMINARY INJUNCTION POSTURE

7
We review a district court's order granting or denying a  preliminary injunction for abuse of discretion. McDonald's Corp.  v. Robertson, 147 F.3d 1301, 1306 (11th Cir. 1998). A party  seeking a preliminary injunction for trademark infringement must  establish four elements: (1) substantial likelihood of success  on the merits; (2) that it would be irreparably harmed if  injunctive relief were denied; (3) that the threatened injury to  the trademark owner outweighs the whatever damage the injunction  may cause to the alleged infringer; (4) that the injunction, if  issued, would not be adverse to the public interest. See id. It  is well established in this circuit that "[a] preliminary  injunction is an extraordinary and drastic remedy not to be  granted unless the movant clearly established the `burden of  persuasion'" as to all four elements. Siegel v. LePore, 234 F.3d  1163, 1176 (11th Cir. 2000) (en banc) (internal citation  omitted). The issues raised by PLD in this case primarily  address the first element: substantial likelihood of success on  the merits.

V. TRADEMARK INFRINGEMENT: LAW

8
In order to succeed on the merits of a trademark infringement  claim, a plaintiff must show that the defendant used the mark in  commerce without its consent and "that the unauthorized use was  likely to deceive, cause confusion, or result in mistake."  McDonald's Corp., 147 F.3d at 1307. Generally speaking, the  determination boils down to the existence vel non of "likelihood  of confusion."  AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531, 1538  (11th Cir. 1986).

A.Purpose

9
To understand what type of consumer confusion is actionable  under the Lanham Trade-Mark Act, it is useful to review  Congress' purposes for enacting trademark legislation. Congress  sought to protect two groups: consumers and registered trademark  owners. See S. Rep. No. 1333, 19th Cong. 2d Sess., reprinted in  1946 U.S. Code Cong. Serv. 1274. In protecting these groups  lawmakers recognized that "[e]very product is composed of a  bundle of special characteristics." Societe Des Produits Nestle,  S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 636 (1st Cir. 1992)  ("Nestle"). Consumers who purchase a particular product expect  to receive the same special characteristics every time. See id.  The Lanham Act protects these expectations by excluding others  from using a particular mark and making consumers confident that  they can purchase brands without being confused or misled. See  15 U.S.C. § 1114(1); S. Rep. No. 100-515, at 4 (1988), reprinted  in 1988 U.S.C.C.A.N. 5577, 5580. Thus trademark law ensures  consistency for the benefit of consumers. See Nestle, 982 F.2d  at 636; Original Appalachian Artworks, Inc. v. Granada  Electronics, Inc., 816 F.2d 68, 75 (2d Cir. 1987) (Cardamone,  J., concurring).

10
The Lanham Act also protects trademark owners. See S. Rep. No.  100-515 at 4. A trademark owner has spent time, energy and money  in presenting a product to the public and building a reputation  for that product. See Mishawaka Rubber & Woolen Mfg. Co. v. S.S.  Kresge Co., 316 U.S. 203, 205 , 62 S.Ct. 1022, 1024 (1942); S.  Rep. No. 1333, reprinted in 1946 U.S. Code Cong. Serv. 1274.  The Act prevents another vendor from acquiring a product that  has a different set of characteristics and passing it off as the  trademark owner's product. See Two Pesos, Inc. v. Taco Cabana,  Inc., 505 U.S. 763, 778 , 112 S. Ct. 2753, 2762 (1992) (Stevens,  J., concurring) (noting that passing off is a form of  infringement prohibited by the Lanham Act). This would  potentially confuse consumers about the quality and nature of  the trademarked product and erode consumer goodwill. See Iberia  Foods Corp. v. Romeo, 150 F.3d 298, 303 (3d Cir. 1998); Nestle,  982 F.2d at 638.

11
B.Resale of a Genuine Trademarked Product and the Material Difference Exception

12
The resale of genuine trademarked goods generally does not  constitute infringement. See, e.g., Matrix Essentials, Inc. v.  Emporium Drug Mart, Inc., 988 F.2d 587, 590 (5th Cir. 1993); NEC  Electronics v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir.  1987). This is for the simple reason that consumers are not  confused as to the origin of the goods: the origin has not  changed as a result of the resale. See Enesco Corp v.  Price/Costco Inc., 146 F.3d 1083, 1085 (9th Cir. 1998) (quoting  NEC, 810 F.2d at 1509). Under what has been sometime been called  the "first sale" or "exhaustion" doctrine, the trademark  protections of the Lanham Act are exhausted after the trademark  owner's first authorized sale of that product. See Iberia Foods,  150 F.3d at 301 n.4; Enesco, 146 F.3d at 1085; Allison v.  Vintage Sports Plaques, 136 F.3d 1443, 1447-48 (11th Cir. 1998).  Therefore, even though a subsequent sale is without a trademark  owner's consent, the resale of a genuine good does not violate  the Act.

13
This doctrine does not hold true, however, when an alleged  infringer sells trademarked goods that are materially different  than those sold by the trademark owner.  Our sister circuits  have held that a materially different product is not genuine and  therefore its unauthorized sale constitutes trademark  infringement. See Nestle, 982 F.2d at 644 (1st Cir.); Original  Appalachian Artworks, 816 F.2d at 73 (2d Cir.); Iberia Foods,  150 F.3d at 302-3 (3d Cir.); Martin's Herend Imports, Inc. v.  Diamond & Gem Trading USA, Co., 112 F.3d 1296, 1302 (5th Cir.  1997); cf. Enesco, 146 F.3d at 1087 (9th Cir.) (quoting Warner-  Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6 (2d Cir.  1996)) (noting that a non-conforming product is not genuine and  "its distribution constitutes trademark infringement"). We  follow our sister circuits and hold that the resale of a  trademarked product that is materially different can constitute  a trademark infringement.5 This rule is consistent  with the purposes behind the Lanham Act, because materially  different products that have the same trademark may confuse  consumers and erode consumer goodwill toward the mark. See  Iberia Foods, 150 F.3d at 303; Nestle, 982 F.2d at 638.

14
Not just any difference will cause consumer confusion. A  material difference is one that consumers consider relevant to a  decision about whether to purchase a product. See Martin's  Herend Imports, 112 F.3d at 1302; Nestle, 982 F.2d at 641.  Because a myriad of considerations may influence consumer  preferences, the threshold of materiality must be kept low to  include even subtle differences between products. See Iberia  Foods, 150 F.3d at 304; Nestle, 982 F.2d at 641.

15
The caselaw supports the proposition that the resale of a  trademarked product that has been altered, resulting in physical  differences in the product, can create a likelihood of consumer  confusion. Such alteration satisfies the material difference  exception and gives rise to a trademark infringement claim.  Nestle, 982 F.2d at 643-44 (applying the material difference  exception, e.g., differences in the composition, presentation  and shape of premium chocolates); Original Appalachian Artworks,  816 F.2d at 73 (applying the material difference exception where  the infringing Cabbage Patch Kids dolls had Spanish language  adoption papers and birth certificates, rather than English).

16
VI.  APPLICATION OF THE EXCEPTION IN THIS CASE

17
The district court found that etching the glass to remove the  batch code degrades the appearance of the product and creates a  likelihood of confusion. In addition, the court credited  testimony of the marketing vice-president that the etching may  make a consumer think that the product had been harmed or  tampered with. We defer to the district court's finding that the  etching degrades the appearance of the bottle. This finding is  not clearly erroneous in light of the stylized nature of the  fragrance bottle, which has an otherwise unblemished surface.  Indeed, based on our own examination and comparison of the  genuine fragrance bottle and the bottle sold by PLD, we agree  with the district court that a consumer could very likely  believe that the bottle had been tampered with. We agree with  the district court that this alteration of the product could  adversely affect Davidoff's goodwill, creates a likelihood of  consumer confusion, satisfies the material difference exception  to the first sale doctrine, and thus constitutes a trademark  infringement. We believe that the material difference in this  case is comparable to, or more pronounced than, the product  differences in Nestle and Original Appalachian Artworks where  the First and Second Circuits applied the material difference  exception and found trademark infringement.

18
PLD directs us to two cases, Graham Webb International Ltd.  Partnership v. Emporium Drug Mart, Inc., 916 F. Supp. 909 (E.D.  Ark. 1995), and John Paul Mitchell Systems v. Randalls Food  Markets, Inc., 17 S.W.3d 721 (Tex. App. 2000), where courts have  held that the removal of batch codes on hair care products does  not constitute infringement. They are both distinguishable from  the instant case. Neither court found that the removal affected  the overall appearance of the product to the extent that it  might be material to a consumer decision to purchase the  product. In Graham Webb, the court noted that the removal of  batch codes resulted in "almost imperceptible scratches" that  were not likely to confuse consumers. 916 F. Supp. at 916. And  in Randalls Food Markets, the court stated that "there was no  evidence that removal of the batch codes defaced the bottles."  17 S.W.3d at 736. In the instant case, the etching on the  fragrance bottle is more than almost imperceptible scratches.  Indeed, the district court credited testimony that consumers may  regard the bottles as harmed or tampered with. We agree with the  district court that the physical difference created by the  obliteration of the batch code on PLD's product constitutes a  material difference. See John Paul Mitchell Systems v. Pete-N-  Larry's Inc., 862 F. Supp. 1020, 1027 (W.D.N.Y. 1994)  (concluding that removal of batch codes from bottles of hair  care products, leaving noticeable scars on the bottles and  erasing some of the information printed, constitutes a material  difference).

19
PLD also attempts to cast the effect of the etching as minimal.  PLD argues that the etching is on the back side of the bottle  beneath several lines of printing that identifies the  manufacturer and distributor, country of origin and volume,  while the front side contains the trademarks in gold and black  script letters. This may be true, but the etching is clearly  noticeable to a consumer who examines the bottle. At oral  argument, PLD argued that only the packaging but not the product  itself-i.e., the liquid fragrance inside the bottle-had been  altered by the etching. In marketing a fragrance, however, a  vendor is not only selling the product inside the bottle, it is  also selling the "commercial magnetism" of the trademark that is  affixed to the bottle. Mishawaka Rubber, 316 U.S. at 205 , 62 S.  Ct. at 1024. The appearance of the product, which is associated  with the trademark, is important to establishing this image.  This makes the appearance of the bottle material to the consumer  decision to purchase it. Because the etching degrades the  appearance of the bottles, the DAVIDOFF fragrance that PLD  distributes is materially different from that originally sold by  Davidoff. Therefore, we agree with the district court that PLD's  sale of this materially different product creates a likelihood  of confusion, and satisfies Davidoff's burden of establishing a  likelihood of success on the merits.

20
VII. OTHER ELEMENTS OF A PRELIMINARY INJUNCTION

21
Next, we examine the remaining three elements required for a  preliminary injunction. On the irreparable injury element, we  note that our circuit has stated that "`a sufficiently strong  showing of likelihood of confusion [caused by trademark  infringement] may by itself constitute a showing of . . . [a]  substantial threat of irreparable harm.'" McDonald's Corp., 147  F.3d at 1310 (quoting E. Remy Martin & Co. v. Shaw-Ross Int'l  Imports, 756 F.2d 1525, 1530 (11th Cir. 1985)). PLD's only  argument against a finding of irreparable injury is that  Davidoff cannot show a likelihood of confusion. Because we found  a likelihood of consumer confusion and thus reject PLD's only  argument against a finding of irreparable harm, and because the  likelihood of confusion is substantial, we will not overturn the  district court's finding of irreparable injury.

22
Regarding the balancing of potential harms, we agree with the  district court that the probable loss of consumer goodwill for  Davidoff outweighs the costs of delay that PLD will incur in not  being able to sell DAVIDOFF fragrances without the batch codes  until a decision on the merits. As the district court found, PLD  is able to continue selling other products and Davidoff products  where the batch codes have not been removed. Lastly, the  injunction is not adverse to the public interest, because the  public interest is served by preventing consumer confusion in  the marketplace. See SunAmerica Corp. v. Sun Life Assurance Co.  of Canada, 77 F.3d 1325, 1334 (11th Cir. 1996).

VIII.  CONCLUSION

23
The district court correctly decided that Davidoff demonstrated  a substantial likelihood of success on the merits by showing a  likelihood of consumer confusion. Davidoff has also met the  other three elements necessary for a preliminary injunction.  Accordingly, the district court's order granting a preliminary  injunction is   AFFIRMED.

NOTES:

*
  Honorable Myron H. Bright, U.S. Circuit Judge for the Eighth Circuit, sitting by designation.

1
  PLD and its principle, Phillipe L. Dray, were sued. We refer to them collectively as "PLD."

2
  Section 32 of the Lanham Act provides:
(1) Any person who shall, without consent of the registrant--
(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; . . .
shall be liable in a civil action by the registrant . . . .
15 U.S.C. § 1114(1). Similarly, section 43(a)(1) of the Lanham Act provides:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce, any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which--
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection or association of such person with another person, or as to the origin, sponsorship or approval of his or her goods, services, or commercial activities by another person, . . .
shall be liable in a civil action . . . .
15 U.S.C. § 1125(a)(1).

3
  Record 3:63 (August 10, 2000, evidentiary hearing on the  preliminary injunction).

4
  The district court also based its finding of infringement on  the fact that the removal of the batch code interfered with DAVIDOFF's  quality control system. Although the lack of quality control can rise to  the level of a material difference from the trademark owner's product and  create a likelihood of confusion, see Warner-Lambert Co. v. Northside Dev.  Corp., 86 F.3d 3, 7 (2d Cir. 1996), we need not address the district  court's findings in this regard because we conclude that the physical  differences in PLD's product create a likelihood of consumer confusion and  support the district court's infringement finding. See infra Part VI.

5
  PLD argues that the material difference test only applies to  so-called gray-market goods: foreign made goods bearing a trademark and  intended for sale in a foreign country, but that are subsequently imported  into the United States without the consent of the U.S. trademark owner. We  reject this argument and join the Third Circuit in noting that infringement  by materially different products "is not limited to gray goods cases . . .  . The same theory has been used to enjoin the sale of domestic products in  conditions materially different from those offered by the trademark owner."  Iberia Foods Corp. v. Romeo, 150 F.3d 298, 302 (3d Cir. 1998). Indeed,  several courts have held that the purchase and resale of goods solely  within the United States may constitute infringement when differences exist  in quality control or the products themselves. See Enesco Corp. v.  Price/Costco Inc., 146 F.3d 1083 (9th Cir. 1998); Warner-Lambert Co. v.  Northside Dev. Corp., 86 F.3d 3 (2d Cir. 1996); Matrix Essentials, Inc. v.  Emporium Drug Mart, Inc., 988 F.2d 587 (5th Cir. 1993); Shell Oil Co. v.  Commercial Petroleum Inc., 928 F.2d 104 (4th Cir. 1991).