Coty Inc. v. Cosmopolitan Cosmetics Inc.

Background

Coty Inc., Calvin Klein Trademark Trust, Calvin Klein, Inc., Calvin Klein Cosmetic Corporation, HUGO BOSS Trade Mark Management GmbH & Co. KG, and Marc Jacobs Trademarks, LLC sued Cosmopolitan Cosmetics Inc., Eugene Abraham, and William Gold. The plaintiffs asserted claims under the Lanham Act, the federal trademark statute, for trademark infringement, trademark counterfeiting, unfair competition, and false designation of origin, along with New York common-law unfair competition.

Coty manufactures, distributes, and sells luxury fragrance products under its own marks and under licensed Calvin Klein, HUGO BOSS, and Marc Jacobs marks. The plaintiffs alleged that each relevant product unit received a production code showing its production date and supporting quality assurance, anti-counterfeiting, anti-theft, corrective-action, and recall efforts. They alleged that Cosmopolitan sold products after the codes were removed, obscured, covered with stickers, or otherwise mutilated. The plaintiffs said they had not authorized those sales and that the changes concealed diversion outside authorized distribution channels. The complaint alleged that Abraham was Cosmopolitan’s Chief Executive Officer and Gold was its President, and that both controlled Cosmopolitan’s conduct.

Motion to dismiss

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court treated the complaint’s well-pleaded factual allegations as true and did not weigh the defendants’ photographs or other factual materials concerning products allegedly lacking production codes.

The court explained that trademark law generally permits the resale of genuine goods bearing a true mark, even without the trademark owner’s authorization. That principle is known as the First Sale Doctrine. The court identified exceptions for goods that do not meet the trademark holder’s legitimate quality-control procedures and for goods with material differences—differences consumers would likely consider relevant when deciding whether to buy.

Claims against Cosmopolitan

The court held that the plaintiffs plausibly alleged the quality-control exception. They alleged that the production-code system was legitimate, substantial, and not merely a pretext; that the plaintiffs followed the system by applying codes to each unit of the relevant fragrances; and that removing the codes and damaging the packaging diminished the marks’ value. The court rejected the defendants’ arguments that the exception could not apply because Coty, a licensee, implemented the measure or because the plaintiffs allegedly did not use codes on every product. Those disputes could not defeat the complaint at the pleading stage.

The court also held that the plaintiffs plausibly alleged a material difference based on physical damage to the packaging. In the court’s view, consumers could consider the damaged appearance of luxury fragrance packaging relevant, particularly where the products might be purchased as gifts. The court did not accept the plaintiffs’ separate argument that the absence of visible production codes, or differences in quality-control procedures alone, established a material difference. The plaintiffs had not alleged enough non-conclusory facts showing that consumers would consider those unseen differences relevant to their purchasing decisions.

The court further held that the plaintiffs plausibly alleged counterfeiting. Although the products were originally manufactured by the trademark holders, the alleged material differences, unauthorized resale, use of registered marks, and alleged effort to trick consumers into believing they were buying genuine products were sufficient to support the claim at this stage.

Claims against Abraham and Gold

The court dismissed the claims against Abraham and Gold. It explained that a corporate officer can be personally liable for trademark infringement or unfair competition only if the officer was an active, conscious force behind the corporation’s violation or authorized and approved the relevant conduct. The complaint alleged only generally that Abraham and Gold controlled Cosmopolitan’s acts and were responsible for or orchestrated the infringement. It did not identify specific actions by either individual that supported personal liability.

Disposition

The court denied the defendants’ motion to dismiss as to all claims against Cosmopolitan Cosmetics Inc. and granted the motion as to all claims against Abraham and Gold. The plaintiffs were permitted to file a motion by January 24, 2020, seeking leave to file a Second Amended Complaint with repleaded claims against Abraham and Gold. The case otherwise remained referred to Magistrate Judge Cave for general pretrial management.