Trevor Little

A US District Court judge has found that Tiffany & Co is entitled to recover $11.1 million in lost profit (plus interest), as well as $8.25 million in punitive damages, from Costco over the sale of counterfeit Tiffany rings. In response, the wholesale giant has pledged to appeal, contending that the case is not about counterfeiting “in the common understanding of that word”.

As we reported previously, in 2014 Tiffany launched its action against Costco after finding out that the retailer was selling engagement rings – which were not manufactured or licensed by Tiffany – next to signs advertising them as ‘Tiffany’ rings. Tiffany alleged, among other things, trademark infringement under the Lanham Act and New York state law, and trademark counterfeiting under the Lanham Act. Costco counterclaimed, requesting a declaratory judgment that Tiffany’s mark was generic.

Tiffany provided a survey of 464 respondents showing that, “regardless of whether used in isolation or shown the way it appeared on the tags affixed to diamond engagement rings sold by Costco, the term ‘Tiffany’ is understood and used by the relevant consuming public not as a descriptive or generic term, but as a brand or source identifier”. In response, Costco challenged Tiffany’s survey methodology and provided expert opinions that the term ‘Tiffany’ had long been used in a generic manner to describe such ring settings.

In September 2015, in Tiffany and Co v Costco Wholesale Corp (No 13-CV-1041-LTS-DCF (SDNY)) a New York district court granted summary judgment to Tiffany on its trademark infringement claim, holding that TIFFANY is a protectable mark. The district court found that Costco had infringed and counterfeited the jeweller’s mark by selling diamond rings as ‘Tiffany’ rings. Moreover, it held that Tiffany had demonstrated that Costco’s behaviour satisfied the ‘gross, wanton or wilful’ standard warranting punitive damages under state law. The court concluded that, based on the evidence, Costco had not acted in good faith when it used the TIFFANY mark in its display case signs.

At the time of the decision, Roxanne Elings, partner at Davis Wright Tremaine, told World Trademark Review that the ruling was “a significant achievement for Tiffany”, noting: “A ruling against the jeweller would have nullified many of its trademarks, which are extremely valuable. This ruling arms Tiffany with greater ammunition to fight back against those who seek to use the TIFFANY mark to describe any multi-pronged solitaire setting”. Taking her analysis further, she observed that the 2015 decision also “highlighted the importance of survey evidence, with Tiffany relying heavily on the results of its consumer confusion survey that demonstrated that ‘more than two out of five prospective purchasers of diamond engagement rings at Costco were likely confused into believing that Tiffany was the source of the rings’”.

In 2016, at subsequent district court trial, the jury held in Tiffany’s favour, finding that it was entitled to recover punitive damages of $8,250,000 and calculating lost profits from Costco’s trademark infringement at $3,700,000. In terms of monetary recovery as an award of profits, though, the jury set this at $5,500,000.

However, in this week’s decision, Judge Laura Taylor Swain – treating the jury’s previous verdict as advisory – found that Tiffany was entitled to recover trebled profits of $11.1 million, “plus prejudgment interest at the annual rate set under 26 USC § 6621(a)(2) for the period from February 15 2013, through the date of judgment and punitive damages of $8.25 million”. The court also permanently enjoined Costco from using the mark TIFFANY “as a standalone term, not combined with any immediately following modifiers such as ‘setting’, ‘set’ or ‘style’ in connection with its advisement and/or sale of any products that were not manufactured by plaintiffs or their affiliates”.

This latest development is not the end of the dispute; Costco has announced it will appeal the decision, which it states is "is a product of multiple errors in pre-trial, trial, and post-trial rulings." A company statement contends that “this was not a case about counterfeiting in the common understanding of that word – Costco was not selling imitation Tiffany & Co rings”, adding: “the rings in question were not stamped or otherwise marked with the Tiffany & Co name… they were sold in plain beige and brown wooden boxes (rather than with blue boxes or bags that said Tiffany & Co); they were accompanied by appraisal documents that did not mention Tiffany & Co, and with sales receipts that did not say Tiffany or Tiffany & Co”.

Speaking to Reuters, Leigh Harlan, Tiffany's general counsel, said that the decision "sends a clear and powerful message" to potential infringers, adding that this case was specifically initiated “to protect the value of our customers' purchases and to ensure that Costco's customers were not misled".

The fight will go on, but this week’s decision is a big win for Tiffany – both financially and with respect the message it sends about the strength of the company’s marks.  

Fighting counterfeits on a finite budget is the focus of discussion at this year’s Managing Trademark Assets, held in Chicago on October 17. For more information, including details on how to save $100 on the standard delegate rate, visit the event website here.

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