Tiffany and Co. v. Costco Wholesale Corp.: TIFFANY Mark Infringed by Costco’s Sales of “Tiffany” Rings

In a recent decision,^[1] Judge Swain of the U.S. District Court of the Southern District of New York ruled in favor of the luxury retailer Tiffany and Co. (“Tiffany”), deciding that Costco Wholesale Corp. (“Costco”), the largest U.S. warehouse club chain, willfully infringed Tiffany’s trademark. According to the court, Costco sold counterfeit diamond engagement rings bearing the Tiffany name and confused relevant consumers by using the word “Tiffany” in display case signage. The court rejected Costco’s fair use defense and assertion that Tiffany’s trademarks were invalid because they sought to prevent others from using the word “Tiffany” as a generic description of a type of ring setting. Under the ruling, Tiffany can now take Costco before a jury to seek damages, including recovery of Costco’s profits from the sale of the diamond rings and punitive damages. In this follow-up article,^[2] we discuss the details of the decision as well as its practical implications.

Facts

Tiffany discovered that Costco was using the TIFFANY mark to sell diamond engagement rings in November 2012, after a customer shopping at a Costco store in Huntington Beach, California saw signs in a jewelry display case and complained to Tiffany.^[3] The signs included the word Tiffany in the description and read, for example: “PLATINUM TIFFANY .70 VS2, 1 ROUND DIAMOND RING.”^[4] The rings being sold by Costco, however, were not Tiffany rings.^[5] Costco had allegedly used the TIFFANY mark to sell diamond engagement rings in its stores nationwide for years.^[6] Costco avoided detection from Tiffany’s trademark policing procedures because Costco did not use the TIFFANY mark to sell the same diamond rings online.^[7] According to Tiffany, “[t]here are now hundreds if not thousands of people who mistakenly believe they purchased and own a Tiffany engagement ring from Costco.”^[8]

On February 14, 2013, Tiffany filed its complaint against Costco, alleging eight causes of action including trademark infringement, federal false designation of origin and unfair competition, dilution, and counterfeiting under the Lanham Act, as well as violations of New York General Business Law and New York common law trademark infringement.^[9] Tiffany also asserted that its marks have achieved incontestable status.^[10] Costco responded by denying infringement and seeking a judgment to declare Tiffany’s mark invalid.^[11] Costco also counterclaimed with three affirmative defenses: i) the TIFFANY mark was only used to describe the products under 15 U.S.C. § 1115(b)(4) (i.e., not used as a trademark), ii) the TIFFANY mark has become generic for a multi-prong, solitaire ring setting, and iii) Tiffany is barred by the New York statute of limitations for complaining of acts that occurred before February 14, 2007.^[12] Costco sought dismissal of Tiffany’s complaint with prejudice.

Tiffany filed a reply and clarified that its original complaint alleged that defendants illegally used the TIFFANY mark, not the term “Tiffany Setting.”^[13] Tiffany noted that Costco’s point of sale signs contained the term “Tiffany” and not “Tiffany Setting.”^[14] Tiffany argued that Costco’s counterclaim improperly focused on the phrase “Tiffany Setting” for the “purpose of deflecting public attention from what it was that defendant actually did.”^[15]

Ultimately, the parties filed cross-motions for summary judgement and responsive motions in opposition to the respective motions for summary judgment. Tiffany sought summary judgment with respect to (i) Costco’s liability for trademark infringement and counterfeiting, (ii) dismissal of Costco’s fair use affirmative defense, and (iii) dismissal of Costco’s counterclaim that the TIFFANY mark had become generic. Costco sought summary judgment striking (i) Tiffany’s claims for an accounting of profits earned on the sales of various categories of goods, (ii) Tiffany’s punitive damages claim, (iii) any claims arising from certain sales that Costco alleges are time-barred, (iv) Tiffany’s claim for monetary recovery based on its trademark dilution claim, and (v) Tiffany’s demand for a jury trial.

Trademark Infringement

The court first considered Tiffany’s Lanham Act infringement claim. In analyzing the claim, the court applied a two-prong infringement test, requiring Tiffany to demonstrate: (1) that its TIFFANY mark is entitled to protection; and (2) that Costco’s use of the TIFFANY mark is likely to cause consumer confusion.^[16]

Tiffany proffered evidence of a listing of 97 separate trademark registrations related to its name, including Registration No. 1,228,409 for the TIFFANY mark which was first used in commerce in 1868, in support of validity of its mark. Costco argued that the word Tiffany had become generic but, according to the court, Costco did not provide admissible evidence to challenge the validity and ownership of the registrations. The court concluded that Tiffany made a prima facie showing of the mark’s validity, thus satisfying the first prong of the infringement test.

Under the second prong of the test, the court considered the Second Circuit’s “Polaroid” factors which include: (1) the strength of the TIFFANY mark, (2) the degree of similarity between Tiffany’s mark and Costco’s mark, (3) the proximity of the parties, products, or services in the marketplace, (4) evidence of actual confusion, (5) Costco’s good faith in adopting its own mark, (6) the quality of Costco’s product, and (7) the sophistication of the relevant consumers.^[17] With respect to many of these factors, the court concluded that Costco failed to offer any evidence that raised a disputed issue of material fact.

With respect to the “strength of the mark,” Costco offered dictionary entries to support its argument that the word Tiffany is used in a descriptive manner. The court was not persuaded, stating that Costco failed to provide evidence that “Tiffany,” when used as a mark, is not strong and that any potential generic use of “Tiffany” has undermined the strength of the TIFFANY mark.

In support of the Polaroid “actual confusion” factor, Tiffany provided portions of depositions from six Costco customers and results of a consumer confusion survey report created by one of its experts. In response, Costco submitted evidence that attacked the reliability of Tiffany’s expert and survey report but did not refute the deposition testimony of the six customers, did not offer its own survey, and did not provide evidence demonstrating that consumers were not confused.

With respect to the Polaroid “good faith” factor, Tiffany proffered evidence to demonstrate Costco’s bad faith and intent to deceive the relevant purchasing public. This evidence included an email from a Costco employee wanting Costco’s jewelry boxes to have a more Tiffany or upscale look, and a deposition of Costco’s jewelry buyer acknowledging actual confusion of a Costco customer confused over the source of Costco’s ring and admitting that no changes were made to alleviate the confusion. Costco countered that it had not adopted the Tiffany mark at all but simply used the generic term “Tiffany” to describe a particular type of pronged diamond setting on its unbranded rings, proffering evidence of multiple dictionary entries, an excerpt of a publication, an affidavit from a Costco diamond buyer, and a declaration from an Assistant General Merchandise Manager at Costco purporting that “Tiffany” is a descriptive term. While the court noted that Costco’s evidence did attempt to raise an issue of fact regarding Costco’s intent and good faith, the court ultimately found that “no reasonable finder of fact could reach the conclusion that Costco acted in good faith when it used the Tiffany mark in its display case signs.”^[18]

In light of those conclusions, the court found that Tiffany had shown a likelihood of consumer confusion and granted Tiffany’s motion for summary judgment with respect to Costco’s liability for trademark infringement.

Counterfeiting

The court then considered Tiffany’s counterfeiting claim. Under the Lanham Act, a counterfeit mark is defined as “a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.”^[19] The use of such a mark must be “likely to cause confusion, to cause mistake, or to deceive.”^[20]

Tiffany proffered evidence in support of its counterfeiting claim, including Costco employee emails, photographs of Costco’s signage showing the strategic placement of the word “Tiffany,” as well as deposition testimony of Costco’s Executive Vice President stating “generally we like to have the brand name of the product on the first line of the sign….”^[21]

Costco denied that its use of the word Tiffany was “spurious” or “fake” or deceptively suggested an “erroneous origin,” and submitted evidence in the form of a Declaration from the president (Donald Palmieri) of the Gem Certification and Assurance Lab. The Palmieri declaration noted that the Costco rings had non-Tiffany trademarks, were delivered in non-Tiffany packaging with non-Tiffany paperwork, and therefore the Costco rings could not be considered counterfeits.^[22]

The court was unpersuaded, stating that Tiffany had already established actual confusion, that Costco used a word mark identical to Tiffany’s registered mark, and that Costco was not acting in good faith when it adopted the TIFFANY mark, which established Costco’s intent to confuse customers. The fact that the TIFFANY mark was not on the rings was not dispositive, according to the court, because there is no statutory requirement that the counterfeit mark be placed on the product itself.^[23] Furthermore, the court observed that Costco failed to provide any evidence showing that stamping the rings with generic marks did anything to alleviate consumer confusion. For these reasons, the court granted Tiffany’s motion for summary judgment with respect to finding liability for Costco’s trademark counterfeiting.

Dilution

The court noted that to recover damages based on dilution of its mark under the Lanham Act, Tiffany must have used its mark in commerce for the first time after October 6, 2006.^[24] Tiffany, however, had asserted that its TIFFANY mark was first used in commerce in 1868. Thus, the court granted Costco’s summary judgement motion on this issue.

Costco’s Fair Use Defense

In adjudicating the fair use affirmative defense, the court analyzed whether the use of the mark was “(1) other than as a mark, (2) in a descriptive sense, and (3) in good faith.”^[25] Because the court found that Costco failed to establish it acted in good faith, the court granted Tiffany’s Motion for Summary Judgement to strike Costco’s affirmative Fair Use Defense as a matter of law.

Costco’s Genericism Counterclaim

Tiffany sought summary judgment on Costco’s counterclaim that the TIFFANY mark had become generic. The court noted that: (1) to be deemed generic, the principal significance of a word must be its indication of the nature or class of an article, rather than an indication of its origin, and (2) when considering whether a mark is generic, the key determination to be made is the primary significance of the registered mark to the relevant public.^[26]

Tiffany proffered an expert report based on a survey of consumers who said that they would consider purchasing jewelry in the next two years, and who considered the term Tiffany as a brand or source identifier. On the basis of the report, Tiffany urged that its mark cannot be considered generic. Costco countered with its own expert report attacking the methodology used in generating Tiffany’s expert report, and providing a lexicographical study of the word Tiffany to support the argument that “Tiffany” can exist as a brand name, as well as a generic name.

The court was not persuaded by Costco’s arguments, stating that Costco offered no legal authority that “Tiffany” can exist as both a registered mark and as a generic word. Significantly, the court noted that the Second Circuit recognized the “dual usage” doctrine in trademark law, where a mark can begin as a proprietary word but then become generic to some segments of the public.^[27] However, the court observed that Costco did not address this line of authority and failed to make any factual demonstration to support dual usage. The court declined to explore this dual useage argument sua sponte.

Furthermore, the court observed that Costco did not provide any evidence raising an issue of material fact with respect to whether the primary significance of the TIFFANY mark was as a “generic descriptor” or a “brand identifier”. According to the court, the question of “primary significance” was key to a determination of genericism.^[28]

For these reasons, the court decided that Costco did not raise an issue of material fact with respect to the generic character of the TIFFANY mark, and granted summary judgment in favor of Tiffany on Costco’s genericism counterclaim.

Punitive Damages

Tiffany sought punitive damages in light of Costco’s alleged infringement under both Federal and State law. Under Federal law, the court held that the Lanham Act prevents the collection of punitive damages. Under State law, the court noted that New York state law sets an exceptionally high bar for awarding punitive damages. However, the court also noted that Tiffany proffered evidence upon which a finder of fact could conclude that Costco’s behavior satisfied the New York state law standard. As a result, the court granted Costco’s motion for summary judgment insofar as it sought dismissal of Tiffany’s claim for punitive damages based on Costco’s Lanham Act violations, but denied the motion seeking to dismiss Tiffany’s punitive damages claim based on state law violations.

Statute of Limitations

Costco sought to bar Tiffany from seeking damages prior to February 14, 2007 (i.e., 6 years prior to Tiffany filing suit) based on New York’s statute of limitations. The court granted Costco’s motion for summary judgment on this issue finding that, as a matter of law, Tiffany is barred from recovery based on sales earlier than 6 years before filing suit.

Demand for Jury Trial

Tiffany demanded a jury trial, which Costco sought to prevent. Costco argued that Tiffany’s claims were entirely equitable, meaning they do not fall within the province of a jury. However, the court disagreed, noting that Tiffany’s punitive damages claim is triable to a jury because it involves questions of willfulness. As such, the court denied Costco’s motion for summary judgment on this issue.

Accounting of Profits

Tiffany sought an accounting of profits based on the sale of both non-subject goods (e.g., Costco memberships and goods other than diamond rings) as well as subject goods (e.g., diamond rings). The Second Circuit has held that in calculating “defendant’s profits,” a court is to base its analysis on “infringing sales,” or on sales that can in some way be tied to the alleged Lanham Act violation.^[29] The court held that Tiffany presented no evidence tying the non-subject goods to Costco’s alleged infringement of the Tiffany mark, and therefore granted Costco’s motion to strike the demand for an accounting on non-subject goods. Regarding the subject goods, however, the court held that Costco did not act in good faith, and therefore Tiffany would be allowed to seek an accounting for profits from the sale of subject goods.^[30]

Practical Implications

Throughout this case, Costco argued that the phase “Tiffany setting” has become generic, and therefore it had the right to use the word Tiffany generally. The main problem with this argument was that Costco’s jewelry case signage used the word “Tiffany” rather than “Tiffany setting.” It was Costco’s use of the word Tiffany in conjunction with its engagement rings that was at issue in this case, and which resulted in Costco’s liability.

The court acknowledged that a registered mark can become generic, and that courts have recognized a “dual usage” doctrine in trademark law where a mark may begin as proprietary and gradually can become generic to some segments of the public.^[31] That is, a “dual usage” mark may have trademark significance to a class of customers but serve as a generic word to another class of customers.^[32] Unfortunately for Costco and as the court observed, Costco failed to address the “dual usage” line of authority and did not present any evidence to support trademark dual usage. However, it seems unlikely that Costco could have presented evidence to support “dual usage” of the TIFFANY mark since much of the evidence that Costco provided in this case to support its fair use defense and genericism counterclaim were related to the use of the expression “Tiffany setting,” not to the word “Tiffany” alone.

Costco’s evidence, as well as other evidence,^[33] has shown that the expression “Tiffany setting” was generically used in the jewelry business for many years to indicate a style of ring setting. Tiffany has not been diligent in policing the use of their trademark in conjunction with a distinguishing modifier such as “Tiffany setting” in the jewelry industry. In fact, in their reply brief, Tiffany did not object to the use of the expression “Tiffany setting” but only to the use of “Tiffany” alone in conjunction with engagement rings.^[34] Therefore, jewelers can arguably still use the expression “Tiffany setting” or other distinguishing modifiers such as Tiffany-style or Tiffany-inspired to describe a style of ring setting. However, jewelers cannot use “Tiffany” alone in any way to imply that a ring is made by Tiffany & Co. when it is not. Finally, it behooves jewelers to train employees or at least actively oversee how their products are labeled and described in their stores and online to avoid becoming embroiled in similar trademark disputes.

The legal drama is not quite over yet.^[35] Judge Swain set a pre-trial conference for November 3, 2015, and directed Tiffany and Costco to “make good faith efforts to settle the outstanding issues.” Because of the high stakes, it remains to be seen whether the parties will settle anytime soon. After the court granted partial summary judgment to Tiffany on infringement and counterfeiting, Costco filed an appeal and an emergency motion for expedited briefing and argument.^[36] Tiffany filed a motion to dismiss, and memorandum in opposition to the motion for expedited appeal.^[37] On November 10, Tiffany’s motion to dismiss was granted because no final order or appealable interlocutory order had been issued by the district court.[38] Stay tuned for further updates.

© 2015 McDonnell Boehnen Hulbert & Berghoff LLP

snippets is a trademark of McDonnell Boehnen Hulbert & Berghoff LLP. All rights reserved. The information contained in this newsletter reflects the understanding and opinions of the author(s) and is provided to you for informational purposes only. It is not intended to and does not represent legal advice. MBHB LLP does not intend to create an attorney–client relationship by providing this information to you. The information in this publication is not a substitute for obtaining legal advice from an attorney licensed in your particular state. snippets may be considered attorney advertising in some states.