Saturday, October 1, 2016

Fed. Jury Orders Costco to Pay $5.5M for Counterfeit Tiffany Rings

On September 29, 2016, a federal jury of five men and two women in the U.S. District Court for the Southern District of New York ordered Costco to pay Tiffany $5.5 million in damages for selling about 2,500 diamond engagement rings with Tiffany brand name on them.

This case started back in 2012, when a customer informed Tiffany that she saw “Tiffany” branded rings that had nothing to do with Tiffany & Co. for sale at Costco.  Tiffany filed a trademark infringement claim.  Costco tried defending itself on the grounds that is used the word “Tiffany” is a generic name to describe a type of diamond ring setting.

Trademark infringement law makes it an infraction to sell goods when there is a high likelihood of consumer confusion as to the origin of goods. In other words, it’s illegal if a significant portion of buyers think that they are buying an original luxury item and not a discount imitation.

So, were the consumers led to think they were buying an actual Tiffany ring? Since Costco does sell discounted name-brand merchandise, customers could very well assume they were only getting a great deal on an original ring from Tiffany & Co., not some random generic “Tiffany-style” setting. One couple testified that they learned, to their great disappointment, that their engagement ring wasn’t original Tiffany only after the ring’s stone fell out. On Sept. 8, U.S. District Judge Laura Taylor Swain ruled for the jeweler, citing a study that found nine out of ten consumers view Tiffany as a brand identifier rather than a generic term.

Tiffany's attorney pointed out to jurors that Costco uses its in-house label on most generic products, but not jewelry. "Costco wouldn't dare call its own painkillers Tylenol or Advil. Why would Tiffany be any different? It shows callous disregard for Tiffany's trademark rights."

Therefore, in September 2015, the court ruled that Costco was liable for willfully infringing Tiffany trademarks.  Where trademark infringement is willful, a court may award enhanced damages, attorney fees, interest and punitive damages. That’s exactly what it did on September 29, 2016. The $5.5M award breaks down as follows: $3.7M  Costco's profits from the counterfeit sales + $1.8M to account for the benefits Costco derived from the sales. Jury has yet to decide on punitive damages.

-- The case is Tiffany & Company et al v. Costco Wholesale Corp, in the U.S. District Court for the Southern District of New York, No. 13-1041.