TIFFANY diamond engagement rings enjoy worldwide fame and recognition as the quintessential engagement ring. In 1886, Tiffany created the famous Tiffany setting, a simple six-prong open symmetrical arrangement that elevates the diamond above the ring’s band, which maximizes the amount of light let into the diamond to enhance its brilliance and beauty. This setting is one of the most popular engagement ring designs in the world today; nearly all jewelers today offer some variety of Tiffany-style setting for engagement rings.
On February 14, 2013, Tiffany filed a lawsuit against Costco Wholesale Corporation (“Costco”), alleging that Costco was engaging in the sale of counterfeit TIFFANY diamond engagement rings. Tiffany’s complaint against Costco alleged violations of federal and New York law, including counterfeiting, trademark infringement, dilution, unfair competition, injury to business reputation, false and deceptive business practices, and false advertising. In its defense and in support of its counterclaims, Costco mainly argued that “[t]he word Tiffany is a generic term for ring settings comprising multiple slender prongs extending upward from a base to hold a single gemstone.” In this paper, we discuss the relative strengths/weaknesses of the main arguments presented by the parties and provide our assessment of which party is more likely to prevail based on the strength of these arguments.
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 the signs and complained to Tiffany. The signs in the jewelry display case at the Huntington Beach Costco included TIFFANY in the description and read, for example: “PLATINUM TIFFANY .70 VS2, 1 ROUND DIAMOND RING.” The rings being sold by Costco were not Tiffany rings. Costco had allegedly used the TIFFANY mark to sell diamond engagement rings in its stores nationwide for years. Costco avoided detection from Tiffany’s trademark policing procedures because Costco did not use the TIFFANY mark to sell the same diamond rings online. 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.”
On February 14, 2013, Valentine’s Day, Tiffany filed its complaint against Costco, alleging eight causes of action including trademark infringement, federal false designation or 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. Tiffany also noted that its marks have achieved incontestable status.
Costco answered on March 8, 2013, denying infringement and seeking a judgment to declare Tiffany’s mark invalid. Costco counterclaimed with three affirmative defenses: 1) the TIFFANY mark was only used to describe the products under 15 U.S.C. § 1115(b)(4); 2) the TIFFANY mark has become generic for a multi-prong, solitaire ring setting; and 3) Tiffany is barred by the New York statute of limitations for complaining of acts that occurred before February 14, 2007. To support its primary affirmative defense that TIFFANY is generic for a multi-prong solitaire ring, Costco submitted an exhibit with its answer that contained descriptions from various sources to demonstrate the pervasiveness of the use of the TIFFANY mark throughout the jewelry industry. Costco submitted another exhibit to further demonstrate that it did not infringe the TIFFANY mark because it sold unbranded rings in plain beige gift boxes, instead of Tiffany’s blue boxes, and also provided the customer with a Costco appraisal sales documents that did not bear the Tiffany mark. Although Costco denies infringing Tiffany’s mark, Costco did not specifically address Tiffany’s other causes of action, such as counterfeiting, and asserted genericism as a blanket defense to the other claims as well.
Tiffany replied on March 14, 2013, and clarified that its original complaint alleged that defendants illegally used the TIFFANY mark, not the term “Tiffany Setting.” Tiffany noted that Costco’s point of sale signs contained the term TIFFANY and not TIFFANY SETTING. 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.” Furthermore, Tiffany argued that the color boxes that Costco customer’s received the rings in was irrelevant to a finding of infringement because Costco customers are used to purchasing repackaged goods and the boxes were only given to the customer after the ring had been purchased.
Tiffany also argued that Costco’s Exhibit 1, which contained various definitions for the term “Tiffany Setting,” was internally inconsistent and not accurate in light of the definition of the TIFFANY SETTING provided on Tiffany’s website. Although Tiffany did not specifically address Costco’s generic defense, Tiffany reasserted that the TIFFANY mark is incontestable. However, in an affirmative defense to Costco’s counterclaim, Tiffany’s asserted that the term “Tiffany Setting” is not generic. Ultimately, Tiffany argued that because it was opposed to Costco’s use of the TIFFANY mark, and not the phrase “Tiffany Setting,” the case should be dismissed for lack of a case or controversy.
In its Complaint, Tiffany asserted that Costco used the TIFFANY mark without permission and on Costco’s diamond engagement rings when in fact the rings were not TIFFANY. Tiffany also asserted that Costco falsely identified its rings as TIFFANY in order to benefit from Tiffany’s goodwill and establish itself as a high-end jewelry seller. As a result, Tiffany argued that Costco falsely led its consumers to believe that it was a source of reduced-priced, authentic TIFFANY diamond engagement rings.
Tiffany also asserted that it is the owner of the TIFFANY trademark registration and that this registration has become incontestable. An “incontestable” trademark registration is “conclusive evidence of the validity of the registered mark and of the registration of the mark, of the registrant’s ownership of the mark, and the registrant’s exclusive right to use the registered mark in commerce.” Incontestability status may be achieved after five years of consecutive use following the date of registration, provided that no adverse decision had been issued regarding the registrant’s right to ownership and there is no pending proceeding on such rights. In order for a trademark to obtain the incontestable status, the owner must file a petition between the 5th and 6th year from the date of trademark registration.
However, obtaining incontestable status does not prevent a trademark from being challenged. While the grounds for challenging an incontestable trademark are significantly reduced, a registered trademark can be challenged if: (a) the trademark has become a generic name for the goods or services; (b) the trademark is functional; (c) the trademark was abandoned; or (d) the registration of the trademark was obtained fraudulently.
As it may be difficult to demonstrate that the TIFFANY mark is functional, abandoned, or that the registration was obtained fraudulently, Costco’s only defense option in this case may be to allege that the TIFFANY mark is generic.
A valid trademark may lose its protection if a mark becomes generic. Generic marks describe the kinds of goods as opposed to acting as a source indicator of the goods. Trademarks that become generic may be canceled anytime. To determine whether a trademark has become generic, courts will assess the primary significance of the mark in the minds of the public. A mark can become generic when the trademark holder fails to police the mark, resulting in the public perceiving the mark being used by many different sources to describe the product. Likewise, a mark may become generic when the public adopts a name that the seller intends to be a trademark because the public cannot come up with another name to describe the new good.
Costco’s Defense Arguments
In its Answer, Costco mainly argued that the TIFFANY mark has become synonymous with a certain type of ring setting. In other words, the TIFFANY mark no longer operates as a source identifier. Therefore, Costco has the right to sell rings having a Tiffany setting. The chief problem with Costco’s argument is that it used the term TIFFANY, not the phrase “Tiffany Setting,” on its point-of-sale label.
While arguing that the TIFFANY mark is a generic term for describing a particular mount may be Costco’s sole defense, there are other descriptive terms that Costco could have used instead of TIFFANY, such as a claw, raised pronged, or multi-pronged setting, to describe its diamond engagement rings. Therefore, it is uncertain how effective Costco’s affirmative defense will be with respect to the trademark infringement claim.
Interestingly, in its Reply to Costco’s counterclaims, Tiffany stated that it was not complaining about the phrase “Tiffany Setting” in the Complaint but instead complaining that the engagement rings being sold in Costco’s stores were labeled as TIFFANY when the rings are not actually TIFFANY rings. Tiffany’s cautiously worded response suggests that it would not object to the use of the term “Tiffany Setting” to distinguish over real TIFFANY rings and for good reason. The phrase “Tiffany Setting” is used colloquially in the jewelry industry as a description for any multi-pronged solitaire ring setting, driven in part by the immense popularity of Tiffany’s original design.
Furthermore, even if Costco prevails on its genericism defense, genericism may not be an affirmative defense or relevant to Tiffany’s unfair competition claims. If a trademark is found to be generic, a party may still be liable for passing off its own products for the products from another source. Courts may therefore require a competitor to take measures to distinguish its product bearing the generic name from the original source of the product.
Finally, Costco apparently used TIFFANY for their in-store sales, which are limited to Costco’s members, but did not use the TIFFANY mark to sell rings online, which would be easily detected by the general public, further undermining Costco’s defense position.
This is an interesting case between two reputable companies. Costco did not directly address Tiffany’s trademark infringement and counterfeiting claims asserted in the original Complaint, focusing instead on the alleged genericism of the TIFFANY mark in its Reply. Likewise, Tiffany did not address the generic counterclaim in detail, focusing instead on the original infringement and counterfeiting charges. Given the high stakes, both companies are expected to fight hard.
In order to prevent a ruling that the TIFFANY mark is generic, Tiffany will need to show that it actively polices the TIFFANY mark in order to prevent unauthorized use. This will not be difficult for Tiffany to do since Tiffany already has a process in place to police their marks. Furthermore, Tiffany has a history of aggressively enforcing its TIFFANY mark for certain goods such as its jewelry, blue gift boxes, cufflinks, and money clips, but not for engagement rings, until now. As the facts in this case are straight forward and favorable to Tiffany, it is unlikely that Tiffany would lose. If Tiffany loses this case, there will be inherent confusion that Tiffany will need to deal with respect to the TIFFANY mark as applied to diamond rings and the term Tiffany as applied to ring settings. Such a result would be contrary to one of the purposes of trademark protection, which is to avoid consumer confusion.
Furthermore, given the fact that the TIFFANY mark for diamond engagement rings is well-known and the phrase “Tiffany Setting” is used to refer to a type of ring setting, companies like Costco and others should take care to use distinguishing phases such as, for instance, Tiffany-style, -inspired, or – setting to distinguish their products from actual TIFFANY products. In addition, it behooves companies to train employees or at least actively oversee how their products are labeled and described in their stores and on-line to avoid becoming entrenched in a similar trademark dispute in the future.
© 2013 McDonnell Boehnen Hulbert & Berghoff LLP
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 See infra note 48.
 Complaint at ¶ 1, Tiffany & Co. v. Costco Wholesale Corp., No. 13-CV-1041 (S.D.N.Y. Feb. 14, 2013) [hereinafter “Complaint”].
 Id. Tiffany sought both treble damages and a permanent injunction against Costco. Id. at ¶¶ 9–10.
 Answer and Counterclaim at p. 1, Tiffany & Co. v. Costco Wholesale Corp., No. 13-CV-1041 (S.D.N.Y. March 8, 2013) [hereinafter “Counterclaim”].
 Complaint at ¶ 4.
 Id. at ¶ 5.
 Id. at ¶ 6.
 Id. at ¶¶ 6–7.
 Id. at ¶ 8.
 Id. at ¶¶ 45–96.
 Id. at ¶ 21. See infra notes 29–32.
 Counterclaim at p. 2
 Id. at pp. 6–7.
 Id. at Exhibit 1. Exhibit 1 included excerpts from a reference guide for jewelers, a gemology dictionary, a diamond buyers guide, the “Wedding Planning for Dummies” book, Wikipedia, About.com, and Amazon.com.
 Id. at p. 2, Exhibit 2.
 See id. at p. 2.
 Reply to Counterclaim at p. 2, ¶ 2, Tiffany & Co. v. Costco Wholesale Corp., No. 13-CV-1041 (S.D.N.Y. March 14, 2013) [hereinafter “Reply”].
 Id. at p. 4, ¶ 8.
 Id. at p. 4, ¶ 9.
 Id. at p. 3, ¶ 4–5.
 Id. at p. 3, ¶ 6.
 See id. at p. 7, ¶ 21.
 Id. at p. 6, ¶ 15.
 Complaint at ¶ 8.
 Id. at ¶ 2; Reply at p. 3, ¶ 6.
 15 U.S.C. § 1115(b) (2012).
 Id. at § 1065(1)-(2) (2010).
 Id. at § 1065(3).
 See Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 195 (1985) (stating that “[a]n incontestable mark that becomes generic may be canceled at any time pursuant to § 14(c).”); KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 408 F.3d 596, 600 (9th Cir. 2005) (challenging Lasting Impression’s incontestable trademark for the term “micro color” for being generic in defense to an infringement claim); Monster, Inc. v. Dolby Labs. Licensing Corp., 12-CV-2488, 2013 WL 367160 (N.D. Cal. Jan. 29, 2013) (challenging Dolby’s incontestable headphone mark for being generic as an affirmative defense to Dolby’s trademark infringement claim). See also 15 U.S.C. § 1065(4).
 See Park ‘N Fly, Inc., 469 U.S. at 196 (holding that incontestable marks cannot be challenged on the grounds that the mark is merely descriptive).
 See 15 U.S.C. § 1064 (2006).
 The four general types of trademarks in the order of weakest to strongest protection are: 1) generic; 2) descriptive; 3) suggestive; and 4) arbitrary or fanciful. See Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d. Cir. 1976). Generic marks are ineligible for trademark protection. See id. On the other hand, suggestive and arbitrary or fanciful marks are considered “inherently distinctive” and do not require a showing of secondary meaning for trademark protection. See id. at 11. Secondary meaning refers to when “most consumers have come to think of the word not as descriptive at all but as the name of the product.” Int’l Kennel Club of Chicago, Inc. v. Mighty Star, Inc., 846 F.2d 1079, 1085 (7th Cir. 1988) (citations omitted). Descriptive marks that have acquired secondary meaning are also eligible for federal trademark protection. 15 U.S.C. § 1052(f) (2006). See Abercrombie & Fitch Co., 537 F.2d at 9. However, demonstrating that a generic mark has secondary meaning is not sufficient for federal trademark protection. See id.
 See 15 U.S.C. § 1064(3).
 See Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985) (“A generic term is one that refers to the genus of which the particular product is a species.”).
 See 15 U.S.C. § 1064.
 See Kellogg Co. v. Nat’l Biscuit Co., 305 U.S. 111, 118 (1938) (noting that to demonstrate non-genericism of a mark, the party “must show that the primary significance of the term in the minds of the consuming public is not the product but the producer.”); see also 15 U.S.C. § 1064(3).
 See King-Seeley Thermos Co. v. Aladdin Indus., Inc., 321 F.2d 577, 579 (2d Cir. 1963) (finding that the mark “Thermos” had become generic because of King-Seeley Thermos Co.’s failure to rescue the term from descriptive or generic use).
 See DuPont Cellophane Co. v. Waxed Products Co., 85 F.2d 75, 82 (2d Cir. 1936) (finding the term “cellophane” had become generic); Bayer Co. v. United Drug Co., 272 F. 505, 516 (S.D.N.Y. 1921) (holding that the mark “Aspirin” was generic).
 See Counterclaim at p. 1, ¶¶ 6–7.
 See, e.g., Counterclaim, Exhibit 1, at p. 12 (describing the Tiffany setting as “Tiffany mount”).
 See, e.g., Q-Tips, Inc. v. Johnson & Johnson, 108 F. Supp. 845, 863 (D.N.J. 1952), aff’d, 206 F.2d 144 (3d Cir. 1953) (finding in part that the mark “tip” in “Q-Tip” were not generic because there was alternative descriptive words for the product, such as “applicator, swab or cotton-tipped applicator”).
 Reply at p. 2, ¶ 2.
 See id. at ¶ 4–5 (noting that Costco’s definition of the Tiffany® Setting varied and was inconsistent with the description on Tiffany’s website). Presumably, if Tiffany objected to the use of “Tiffany Setting” it would have raised this issue in the original complaint.
 See Jane Lee, Deconstructing The Tiffany Setting, The World’s Most Popular Engagement Ring, Forbes.com (Oct. 2, 2012, 5:58 PM), http://www.forbes.com/sites/janelee/2012/10/02/deconstructing-the-tiffany-setting-the-worlds-most-popular-engagement-ring-style/.
 See Murphy Door Bed Co., Inc. v. Interior Sleep Sys., Inc., 874 F.2d 95, 102 (2d Cir. 1989) (noting that “while the mark Murphy bed may be generic and not entitled to trademark protection, Murphy’s claim of unfair competition is not foreclosed”). However, genericism is a defense to a federal trademark counterfeiting claim. Under 15 U.S.C. § 1116(d)(1)(B), counterfeit mark is defined as “a counterfeit of a mark that is registered on the principle register in the United States Patent and Trademark Office.” See also MRC Golf, Inc. v. Hippo Golf Co., Inc., 91 U.S.P.Q.2d 1285, 1286 (S.D. Cal. 2009) (finding that the plaintiff failed to show that it had a federally registered mark, so it could not sustain its counterfeiting claim under 15 U.S.C. § 1116(d)(1)(B)).
 Murphy Door Bed Co., Inc., 874 F.2d at 102.
 See Blinded Veterans Ass’n v. Blinded Am. Veterans Found., 872 F.2d 1035, 1045 (D.C. Cir. 1989) (stating “[o]nly when there is a likelihood that the newcomer might thus pass its product off as the original manufacturer’s may a court require the newcomer to distinguish its product or to notify consumers explicitly that its product does not come from the original manufacturer.”). See, e.g., King-Seeley Thermos Co., 321 F.2d at 581 (regarding use of the generic term “thermos,” the court noted that “[t]he purchasing public is entitled to know the source of the article it desires to purchase. … Any doubt about plaintiff’s position in the field is removed by the prohibition against the use by defendant in labeling, advertising or publication of the words ‘genuine’ or ‘original’ in referring to the word ‘thermos’.”).
 Complaint at ¶¶ 5–7.
 For example, in 2006, Tiffany had an employee dedicated to monitoring listings on the eBay website for counterfeits and reporting any violations to eBay on a daily basis. See Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 484 (S.D.N.Y. 2008), aff’d in part, rev’d in part, Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) (holding that eBay did not infringe Tiffany’s marks). See also Complaint at ¶ 17 (describing other brand protection strategies).
 See Tiffany (NJ) Inc. v. Luban, 282 F. Supp. 2d 123, 124 (S.D.N.Y. 2003) (finding the operator of a website that sold counterfeit Tiffany jewelry liable for willful infringement).
 See Tiffany (NJ), LLC v. 925ly.com, No. 2:11-CV-00590, 2011 WL 2118634 (D. Nev. May 25, 2011) (issuing a preliminary injunction in favor of Tiffany).
 See A.J. Canfield Co. v. Honickman, 808 F.2d 291, 304 (3d Cir. 1986).