Major win for Tiffany as court finds that 'Tiffany' is not generic term for ring setting
In what is undeniably a major win for Tiffany, the US District Court for the Southern District of New York has held in Tiffany and Co v Costco Wholesale Corp (No 13-CV-1041-LTS-DCF (SDNY), September 8 2015) that TIFFANY is a protectable mark and not merely a generic term for a type of ring setting.
At issue was Tiffany’s ownership of the TIFFANY mark and an engagement ring setting – a solitaire diamond set with six prongs – that Tiffany calls the “Tiffany® Setting” ring. Tiffany’s internal investigation of Costco found that the wholesale retailer was advertising for sale engagement rings, none of which were manufactured or licensed by Tiffany, next to signs advertising them as platinum 'Tiffany' rings.
Tiffany brought suit against Costco alleging, 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 trademarks were invalid because Tiffany aimed to exclude others from using the word 'Tiffany' to describe a widely-used ring setting. In deciding the parties’ cross summary judgment motions, the Southern District of New York ruled decisively in favour of Tiffany, finding that Costco had infringed and counterfeited the jeweller’s mark when it sold diamond rings described as 'Tiffany' rings. Moreover, the court also found that Costco’s behaviour rose to the level of “wanton dishonesty” warranting punitive damages under state law.
This ruling is undoubtedly a significant achievement for Tiffany and a capstone of its recent enforcement strategy, which includes actions against the online marketplace eBay Inc and foreign counterfeiters. A ruling against the jeweller would have nullified many of its trademarks, which are extremely valuable. One study by Bain & Co found, for instance, that “Tiffany ‘claims the largest share of the female mind in the US’ with respect to name recognition in jewellery brands”. What is more, 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, regardless of the product’s origin.
The difference is that the case came down to the evidence submitted by both sides. The case particularly highlighted the importance of survey evidence. Tiffany relied 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 & Co was the source of the rings”. Tiffany argued that this survey, along with deposition testimony from six actual Costco customers who believed that they bought a genuine Tiffany ring from the wholesale retailer, conclusively established the existence of customer confusion.
Costco arguments to the contrary were poorly received by the court. It alleged that Tiffany’s expert should have only surveyed consumers who demonstrated a present interest in buying a diamond ring rather than those who would consider purchasing a diamond ring from Costco at any time in the future. This critical oversight, it argued, rendered Tiffany’s survey unreliable because it failed to reflect the market attitude of actual ring purchasers, who tend to be a highly informed and discriminating group.
The court did not buy it, finding that Costco’s arguments went to the weight afforded Tiffany’s survey results but not their admissibility under Federal Rules of Evidence 702. Likewise, the court seized on several key pieces of evidence that Tiffany proffered to demonstrate that Costco operated with bad-faith intent to deceive customers as to the source of its rings; notably:
(1) an email from a Costco employee noting her desire that Costco ring boxes have “more of the Tiffany upscale look”;
(2) deposition testimony from Costco’s jewellery buyer, admitting that she knew of at least one instance of customer confusion as to the source of the Costco engagement ring but took no action to rectify the problem; and
(3) photographs demonstrating that Costco displayed the word 'Tiffany' on the display case signs in a fashion similar to the way that it would display the manufacturer of the goods.
The court described this evidence as “compelling” and ultimately reached the conclusion that “no rational fact finder could conclude that Costco acted in good faith in adopting the Tiffany mark”.
While the court recognised that New York state law sets an “exceptionally high bar” for the award of punitive damages, permitting them for only the most “wanton dishonesty as to imply a criminal indifference to civil obligations”, the court nonetheless concluded that Costco’s behaviour met this standard. The court pointed to the same evidence that Tiffany proffered to establish Costco’s bad-faith intent - namely, that Costco not only directed its vendors to copy Tiffany’s designs, but also knew of actual consumer confusion and yet did nothing to remedy the problem. However, the court did not any provide further explanation on how Costco’s behaviour evinced a higher degree of “wanton dishonesty” than any other intentional trademark counterfeiting. It has yet to be seen whether New York courts will default to punitive damages in future as a means to further penalise trademark infringement given a finding of bad-faith intent.
In the end, however, the court did grant some relief to Costco with regard to compensatory damages. It held that Tiffany cannot seek restitution based on Costco’s membership sales nor any non-ring sales. It also agreed with Costco’s position that Tiffany cannot seek damages for any rings sold before February 2007 because the applicable statute of limitations for Lanham Act claims in New York is six years as it is for other claims sounding in fraud.
Finally, the court granted Tiffany’s request for a trial by jury, finding that the award of punitive damages takes Tiffany’s claim into the realm of legal damages, which are triable by a jury. Accordingly, the parties head next to a jury trial to determine the appropriate amount of punitive damages.
Roxanne Elings and Danielle Toaltoan, Davis Wright Tremaine LLP, New York
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