U.S. District Judge Laura Taylor Swain ruled that Costco Wholesale Corp. must pay more than $19 million for infringing trademarks owned by Tiffany & Co following a counterfeit ring lawsuit. The judgement includes $11.1 million plus interest, which is three times Tiffany’s lost profit, as well as $8.25 million in punitive damages.

Allegations of Trademark Infringement

Tiffany’s lawsuit alleged that Costco profited by selling “counterfeit” diamond engagement rings falsely bearing the "Tiffany" name. Its complaint included claims for trademark infringement, dilution, counterfeiting, unfair competition, injury to business reputation, false and deceptive business practices and false advertising.

According to Tiffany’s complaint, the jeweler discovered the counterfeit rings via a Costco customer. She saw a display of diamond rings at her local store with a sign that read "Platinum Tiffany." A Costco staff member also "referred to each of the rings as a Tiffany ring and said the store generally carries one of each item.” The customer contacted Tiffany to determine if the rings were genuine.

They were not. "Neither of the rings identified in the Huntington Beach store as 'Tiffany' was, in fact, a Tiffany ring, nor was it manufactured by, approved by, licensed by, or otherwise in any way properly associated with Tiffany," Tiffany stated in its complaint. After first sending a cease-and-desist letter to Costco, Tiffany filed suit. It maintained that Costco has been using the Tiffany trademark to sell diamond engagement rings for several years and avoided using the Tiffany name in online advertising in order to avoid detection.

In defending the suit, Costco argued that “Tiffany” is a generic term commonly used to describe a specific type of diamond ring setting. The retailer further maintained that its rings do not feature the engraved brand name or come in a blue box. Costco also filed a counterclaim alleging that Tiffany filed the suit strictly to limit competition, citing its lower cost for the same quality diamond.

Court Rules Costco Infringed Tiffany Mark

In 2015, the district court granted Tiffany summary judgement on the issue of trademark infringement and counterfeiting, concluding that consumers were likely to be confused by the way Costco marketed the rings in its stores. The court also rejected the notion that Tiffany’s trademark had become a generic term to describe a ring setting.

A jury subsequently awarded Tiffany $5.5 million in compensatory damages under the Lanham Act. Relying on New York’s state laws governing unfair competition and deceptive acts, it also awarded the jewelry company $8.25 million in punitive damages for willful and bad faith infringement.

In her recent ruling, Judge Swain concluded that Tiffany’s lost profits were $3.7 million. However, she also determined that Costco was liable for treble damages under the Lanham Act, which provides that the court "may" award three times the actual damages. She also affirmed the jury’s award of punitive damages.

In her opinion, Judge Swain highlighted that Costco employees "described such rings as 'Tiffany' rings in response to customer inquiries, and were not perturbed when customers who then realized that the rings were not actually manufactured by Tiffany expressed anger or upset.” She also noted that the company’s management “displayed at best a cavalier attitude toward Costco’s use of the Tiffany name in conjunction with ring sales and marketing.”

In addition to the monetary damages, Judge Swain’s order prohibits Costco from selling anything that is not manufactured by Tiffany as "Tiffany" products, unless it uses modifiers suggesting that the products have, for example, a Tiffany "setting," "set" or "style."

Costco has already announced that it plans to appeal. “This was not a case about counterfeiting in the common understanding of that word — Costco was not selling imitation Tiffany & Co rings,” Costco said in a press statement. The rings “in question were not stamped or otherwise marked with the Tiffany & Co. name (but rather were stamped with the name of the company that manufactured them); they were accompanied by appraisal documents that did not mention Tiffany & Co., and with sales receipts that did not say Tiffany or Tiffany & Co. Notably,” the company added.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Brent “Giles” Davis, at 201-806-3364.