United States: Is Tiffany's Major Victory Short-Lived

Last Updated: October 1 2015
Article by Brent Lorentz

On September 8, Judge Laura Taylor Swain ruled on summary judgment that Costco Wholesale Corp. had willfully infringed Tiffany & Co.'s trademark by selling engagement rings using the Tiffany name.  (Opinion here)  Frankly, the infringement ruling was not especially surprising, but the willfulness holding may raise an eyebrow or two.

Costco attempted to justify its use of the Tiffany mark by claiming that "Tiffany" was a generic descriptor for a particular type of ring mount.  A quick Google search turns up numerous examples of the mount, many of which appear to have no relationship to Tiffany & Co.  Costco also presented evidence supporting its belief that "Tiffany" could properly be understood as a generic descriptor:

"Costco responds with the argument that it has not adopted the Tiffany mark at all, but simply utilized the generic term "Tiffany" to describe a particular type of pronged diamond setting on the unbranded rings that it sells. (See Costco Opp. Memo at p. 21.) To that end, Costco has submitted multiple dictionary entries, as well as an entry from a publication called The Jeweler's Manual, which purport to show the viability of "Tiffany" as a descriptive term.  (See Costco Opp. Memo, Exs. 1-3.) Further, Costco has submitted a sworn affidavit from Harjit Grewall, a Costco diamond buyer, in which he indicates that "[i]n communications with wholesale vendors of diamonds and diamond rings, the word Tiffany is routinely used in its dictionary definition sense to refer to a type or style of pronged ring setting." (Declaration of Harjit Grewall ¶ 2.) Mr. Grewall also states that "[i]nformation presented in signs . . .  including setting style information, is generally taken from vendor quote sheets that Costco receives from vendors." (Id.¶ 7.) Costco has also proffered the Declaration of Megghan Haruff, an Assistant General Merchandise Manager at Costco, who also states that "the content of Costco in-store jewelry case display signs was prepared . . .based on item descriptions received from Costco vendors." (See Declaration of Megghan Haruff ¶ 9.) By asserting that it extracts the word "Tiffany" from vendor-supplied information where it is used in a purely descriptive sense, Costco attempts to raise an issue of fact with regard to its intent to adopt "Tiffany" as a mark, which in turn would raise an issue of fact regarding Costco's intent to mislead consumers and whether it has exhibited bad faith in adopting the Tiffany mark."

Despite this evidence, the Court held that "no rational finder of fact could conclude that Costco acted in good faith" in the way it used the Tiffany mark, and denied Costco the right to try this issue to the jury.  This holding seemed like a significant stretch to me.

Based on the opinion and the Complaint filed in the case, it appears Costco's only actual use of "Tiffany" was in point of sale signs stating "639911 - PLATINUM TIFFANY .70 VS2, 1 ROUND DIAMOND RING - 3199.99" and "605880 - PLATINUM TIFFANY VS2.1 1.00CT ROUND BRILLIANT SOLITAIRE RING - 6399.99."

If a jury were to find Costco's evidence persuasive regarding the industry understanding of "Tiffany" as a particular setting, then it seems likely that a reasonable fact finder could conclude that Costco's use was not bad faith.  The fact that they are not highlighting the word Tiffany in the description would be entirely consistent with a good faith descriptive use.

Now, to be fair, Tiffany did have additional evidence of some Costco employees suggesting an effort to copy Tiffany's designs, but the Court isn't allowed to weigh the evidence at summary judgment.  I think Costco presented enough to get past summary judgment on bad faith and willfulness.

Notably, the willfulness and bad faith holding is very significant.  It opens the door to a claim for Costco's profits by Tiffany & Co.  In trademark cases, this generally is the best damages measure a plaintiff can hope for.  In addition, the judge parlayed the willfulness holding into a right for Tiffany & Co. to seek punitive damages from a jury.  And that's just the problems in this case.  A willfulness and bad faith holding in this case could potentially open the door for consumer fraud actions under various state law theories, although Costco appears to have taken steps to avoid that risk by offering refunds to anyone that purchased the rings.

Ultimately, September 8 was a very bad day for Costco.  However, if I was a gambling man (and with the qualifier that I've read little more than the Court's opinion on summary judgment), I'd bet that the summary judgment ruling of bad faith gets reversed on appeal.

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