Costco Appeals $19M Tiffany Win, May Have Big Consequences on Trademark Law

  • Oct 29 2018

Recently, Costco was hit with a $19.3 million judgment, with the court finding that it willfully deceived its customers into thinking that they were purchasing Tiffany Rings. This case may create a new precedent regarding the definition of counterfeiting and how trademark infringement damages are calculated.

Due to the fact that most cases of counterfeiting involve quickly disappearing bad actors and not large, established businesses (such as Costco), case law is minimal and appeals are a rarity. This case provides the federal appeals court an opportunity to differentiate between what is considered trademark infringement and what is considered its more serious form, counterfeiting.

The Original Case

In 2013, Tiffany brought suit against Costco regarding its ring sales, arguing that by only displaying the name “Tiffany” on display cases and signs, Costco is responsible for confusing its customers that the rings were actually from the luxury brand. Costco defended itself against Tiffany’s argument by claiming that the signs only referred to the rings’ “Tiffany” setting, which is a generic term within the jewelry industry.

The District Court’s Finding

The U.S. District Court for the Southern District of New York found for the luxury jeweler calculated Tiffany’s lost profits and tripled them as required by counterfeiting law, which equated to $11.1 million. Additionally, the court added an award for punitive damages in the amount of $8.25 million. The court found that Costco’s actions of asking vendors to copy the designs of the luxury brand’s rings and then place them next to signs showing the same name of an existing luxury jeweler, demonstrated bad faith, due to the combination of look and name.

Some lawyers, including Trademark attorney Jeffrey Van Hoosear, agree that the tactics executed by Costco, including avoiding online ads (since Tiffany is vigilant of its online presence) seemed to be evasive in nature.

However, many lawyers and legal academics have questioned the ruling, seeing as neither Costco’s rings nor their packaging included any Tiffany trademarks. That would make the 2015 summary judgment ruling that Costco was responsible for counterfeiting undeserving.

Costco Files an Appeal

In September 2017, Costco filed an appeal with the U.S. Court of Appeals for the Second Circuit, requesting that the court change the decision. Tiffany presented evidence during trial that the signs intentionally created consumer confusion, the definition of trademark infringement. However, in order to determine whether the infringement reaches the level of counterfeiting, the product must be “substantially indistinguishable” from another. In this case, the court found that this was the case, entitling the Appellee (Tiffany) to triple damages.

Costco’s Argument Moving Forward

Costco believes that no new evidence was justification for the judge to reverse her 2015 summary judgment, that dues could not count as lost profits. During the trial she found that Tiffany had failed to demonstrate that Costco’s ring sales were in any way linked to its membership fees; they couldn’t count as lost profits. Additionally, Costco believes that Tiffany should be barred from receiving any punitive damages since it had wanted an accounting of profits and not actual damages.

Posted in: Trademarks