Wholesaler Costco gets relief in appeal against jewelry manufacturer Tiffany over alleged trademark infringement
Date Published: Jun 21, 2021
Tiffany and Company and Tiffany (NJ) LLC (collectively, “Tiffany”) is a major manufacturer of fine jewelry, including diamond engagement rings. Having a substantial market in the jewelry industry, Tiffany holds 97 separate trademarks related to the company’s name. Out of those, Tiffany has also registered the word “Tiffany” under the description of “Decorative Art Objects Made in Whole or in Part of Precious or Semiprecious Metals.” Costco Wholesale Corporation (“Costco”) operates a chain of membership-only warehouse stores where consumers can purchase various products from different brand names. Some products with the brand “Tiffany Rings” were advertised at the Costco stores. Tiffany filed a suit in the United States District Court for the Southern District of New York (“District Court”) (Tiffany & Co. v. Costco Wholesale Corp. 274 F. Supp. 3d 216 (S.D.N.Y. 2017)) alleging trademark infringement against Costco. The District Court held Costco liable for trademark infringement and awarded Tiffany trebled profits, prejudgment interest, and punitive damages totaling $21,010,438.35. Aggrieved by this, Costco appealed to the United States Court Of Appeals for the Second Circuit (“Second Circuit”) (Tiffany & Co. v. Costco Wholesale Corp. 971 F.3d 74 (2d Cir. 2020)). The Second Circuit vacated the order of the District Court and returned the case to the District court for ascertaining the descriptive and non-descriptive use of the word “Tiffany.”
Tiffany was founded in 1937 by Charles Lewis Tiffany. Tiffany has trademarks all over the word wherein, “Tiffany” Registration No. 1,228,409, and the stylized word mark “Tiffany” in connection with “Jewelry for Personal Wear,” Registration No. 133,063 has been registered as well. In the late nineteenth century, Tiffany developed an engagement ring incorporating a particular style of six-prong diamond setting. With such development, Tiffany marketed the ring in numerous advertisements, trade publication referring such style as “Tiffany settings.” Costco only deals in warehouse stores and purchases various brand named, store-branded and generic goods from multiple brands, and sells them in its own store. There are also products of diamond engagement rings which it displays in its store. These engagement rings are produced by a supplier called R.B. Diamond Inc., to which Costco refers to as “unbranded.” Selling multiple engagement rings with a variety of setting style, this also includes a bezel setting, cathedral setting, channel setting, and the so-called Tiffany Setting.
The identification of each of its engagement rings by Costco was using a small, white point of sale sign which also displayed certain information about the ring in black text. All these descriptions of the rings were directly being supplied by vendors like R.B. Diamond as contended by Costco. There were rings which identified with Tiffany using the phrase “Tiffany Setting”,” “Tiffany set,” or “Tiffany style,” and at other times used only the word “Tiffany” for that purpose. The issue arose in 2012, where a customer alerted Tiffany regarding the similarity with the ring of Tiffany Setting seen at the Costco stores. With this, Tiffany engaged in investigation where it visited the stores and observed the similarity. Few similarities which it noticed were; one engagement ring displayed next to a sign reading “639911 / PLATINUM TIFFANY / .70 VS2,I ROUND / DIAMOND RING / 3199.99” and a second ring displayed next to a sign reading “605880 / PLATINUM TIFFANY VS2,I / 1.00CT ROUND BRILLIANT / DIAMOND SOLITAIRE RING / 6399.99.”
With these similarities being noticed, Tiffany contacted Costco asserting that “[t]he designation of the ring[s] by Costco as ‘Tiffany’ was not only a misrepresentation of the product, but it also constitutes infringement and counterfeiting.” With this assertion, Costco voluntary removed the use of “Tiffany” from the signs. Moreover, further it has not listed or represented any setting styles as Tiffany settings. After a few months, Tiffany filed a complaint at the District Court. Consequently, Costco sent a letter to their entire customer base that purchased the rings with Tiffany settings, and alerted them regarding the suit. It moreover noted that it “used the word ‘Tiffany’ to indicate that [the associated] ring had a Tiffany-style pronged setting,” and asserted that Costco “do[es] not believe [its] signs were inaccurate,” and reminded buyers that Costco’s return policy entitled them to return their rings for a full refund at any time. Costco noted that 1.3% of the customer returned the rings.
The action was commenced against Costco at the District Court, where Tiffany alleged that that Costco was liable for trademark infringement, dilution, counterfeiting, unfair competition, false and deceptive business practices, and false advertising in violation of the Lanham Act and New York law. Responding to the allegation, Costco contended that the word “Tiffany” was only used to describe the setting style which is a “fair use” affirmative defense under the Lanham Act, asserting that it used the term “otherwise than as a mark, . . . in good faith only to describe” its ring settings. Not only this, Costco further filed a counterclaim for partially cancelling any federal trademark which might prevent the retailers from using the word “Tiffany” to indicate that a ring has a Tiffany setting. After this case proceeded to discovery, Tiffany was unsuccessful in getting a summary judgment against this counterclaim. The discovery resulted in producing voluminous evidentiary record including “declarations and deposition testimony of Costco customers and employees, expert declarations, sales records, and physical specimens of both parties’ engagement rings and ring packaging.” Both parties moved for a summary judgment. Tiffany sought to dismiss the counterclaim and held Costco liable for trademark infringement and on the other hand, Costco cross-moved for dismissing Tiffany’s counterfeiting and punitive damages claims.
The District Court issued an opinion and an order granting Tiffany’s summary judgment motion in its entirety. The District Court was of the opinion that Costco failed to provide the relevant factors for infringement analysis. No such strong and genuine issues were raised as a matter of law. The punitive damages to Tiffany would be available under New York Law but not under the Lanham Act. Having a month long trial on the entitlement of recovery for Tiffany, the jury awarded Tiffany $3.7 million in an accounting of Costco’s profits, and a further award for $1.8 million on the grounds that the award of profits was inadequate compensation, and an additional $8.25 million in punitive damages. The district court awarded Tiffany trebled profits to the tune of $11.1 million (based on the advisory jury’s award of $3.7 million), along with the additional $8.25 million in punitive damages awarded by the jury, whereby the final award ran to $21,010,438.35.
Costco appealed this judgment to the “Second Circuit.” The Second Circuit ruled unanimously in favor of Costco. The Second Circuit did acknowledge the fact that Tiffany developed the six-prong diamond-set engagement ring and with its extensive advertisement, this setting has been named as “Tiffany setting.” Not affirming with that of the District Court’s ruling, the Second Circuit agreed that the evidence submitted by Costco raised genuine questions about whether the potential buyers of Costco would be confused with the use of the word “Tiffany.” The judge noted that a consumer will easily be capable of recognizing the Costco ring, not being manufactured by Tiffany because both the product have different packaging, paperwork and place of purchase.
The court even noted that despite the fact that a consumer would not be confused; there still remains the factual dispute in terms of “Tiffany” being merely descriptive with the type of ring set and also noted that it should be decided after reviewing the evidence in full merits. With all these observation, the Second Circuit concluded that the District Court had not taken relevant factors into consideration while arriving at the decision and vacated the judgment of the District Court and remanded the same for trial, returning it again, to the District Court.
Tiffany & Co. v. Costco Wholesale Corp. 971 F.3d 74 (2d Cir. 2020)