image: Tiffany & Co.

image: Tiffany & Co.

After being found to have infringed Tiffany & Co. (“Tiffany”) trademarks by selling counterfeit diamond engagement rings bearing the iconic jeweler’s brand name in September 2015, Costco is back in court, this time facing a jury trial to assess damages in connection with the Tiffany ruling. Despite the New York-based jewelry company’s push for damages, including a recovery of Costco’s profits from the sale of the diamond rings and punitive damages, Costco told a federal jury in the U.S. District Court for the Southern District of New York this week that it owes Tiffany no more than $781,000 in connection with the sale of counterfeit versions of the jeweler’s diamond engagement rings in its warehouse stores.

Tiffany filed the original lawsuit in February 2013 in the Southern District of New York, a federal court in Manhattan, alleging that hundreds – if not thousands – of Costco members bought engagement rings under the false impression that they were authentic Tiffany products. In her ruling last year, U.S. District Judge Laura Taylor Swain ruled against Costco and shot down claims that Tiffany’s trademarks were invalid because they sought to prevent others from using “Tiffany” as a generic description of a type of ring setting. Swain ultimately held that Costco, the largest U.S. warehouse chain, had, in fact, infringed Tiffany’s trademarks by selling engagement rings that caused confusion among consumers due to Costco’s use of the word “Tiffany” in display case signs.

Swain found that Tiffany had met its burden in proving willfulness (where the plaintiff can show that the infringement is willful, a court may award enhanced damages, attorney fees, and prejudgment interest) by showing that Costco’s jewelry buyers asked vendors to copy Tiffany designs, and that Costco employees were aware of customer confusion but did nothing to remedy it.  She further held that Tiffany should get Costco’s profits from the sale of the counterfeit rings, and that it could seek punitive damages (due to its satisfaction of the willfulness requirement), under New York state law.

At the outset of the damages trial this week, in which a jury will determine Costco’s monetary liability for selling rings under the “Tiffany” name, Costco attorney James Dabney of Hughes Hubbard & Reed told the court that Costco has determined that it sold about 2,500 units of the infringing rings. Moreover, he asserted the retailer’s infringement relates to a problem managing certain display case signs, which has since been corrected.

To this, Tiffany’s attorney Jeffrey Mitchell of Browne George Ross argued that the jeweler believes that Costco’s records are erroneous, and that the number of rings sold could be as high as 11,000. He said Costco’s gross profit for the rings falls somewhere between $1.8 million and $6.3 million. He also asked jurors to consider why 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.”

UPDATE (9/29/16): The jury has awarded Tiffany $5.5 million in damages. It put wholesaler Costco’s profits from the infringing sales at $3.7 million but held that figure was inadequate to account for the benefits the defendant derived from the sales, adding $1.8 million on top to come up with the $5.5 million figure. Still to be determined: punitives. 

UPDATE (10/6/16): The jury has ruled that Costco must pay Tiffany $8.25 million in punitive damages for selling counterfeit diamond rings, bringing the discount retailer’s total damages amount to $13.75 million. Punitive damages are awarded in addition to actual damages, and as a special form of damages, they are awarded only when the defendant’s behavior is found to be especially harmful. 

“The award validates the strength of the Tiffany trademark, the value of our brand, and most importantly, sends a clear and powerful message to Costco and others who infringe the Tiffany mark,” said Leigh Harlan, Tiffany’s general counsel. “It is critically important that the Tiffany name not be used to sell any engagement ring that is not its own.” Costco did not immediately return a request for comment.

* 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.