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Image: Tiffany

Tiffany & Co. and Costco have settled their long-running lawsuit over the warehouse chain’s sale of “Tiffany” rings that were not made or authorized by the famed New York jewelry company. Monday’s settlement, as first reported by Reuters, follows from a win for Costco last summer when the U.S. Court of Appeals for the Second Circuit vacated a lower court’s summary judgment decision – in which it held that Costco was liable to Tiffany & Co. for willful trademark infringement and counterfeiting – and remanded the case back to the district court for a new trial. In contrast with the trial court judge’s finding, the appeals court held that reasonable jurors could have found that “discriminating” Costco customers would not be confused about the source of the rings and that Costco’s use of the “Tiffany” name was not meant to mislead customers. 

The case got its start on February 14, 2013 when Tiffany & Co. filed suit against Costco in a New York federal court, accusing the Issaquah, Washington-headquartered retail chain of trademark infringement, counterfeiting, and unfair business practices, among other causes of action, and seeking tens of millions of dollars in damages. According to Tiffany, Costco had sold engagement rings – some costing upwards of $6,000 – using the “Tiffany” name to thousands of Costco members, who snatched up the sparklers under the false impression that they were authentic Tiffany products. According to Tiffany’s estimates, some 3,349 customers purchased “Tiffany” rings at Costco during the relevant period.

In response the Tiffany’s headline-making complaint, Costco argued that “Tiffany” is not a legally-protected trademark but instead, a generic term short for “Tiffany setting,” which describes a specific ring setting, and sought to have Tiffany’s federal registration for the mark invalidated.

The lower court sided with Tiffany & Co. in a decision in September 2015, with Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York finding that Costco was liable for trademark infringement and counterfeiting for using signage bearing the word “Tiffany” to identify certain rings in its stores, and confusing consumers as a result. “Based on the record evidence, and despite [its] arguments to the contrary,” Judge Swain held that “no rational finder of fact could conclude that Costco acted in good faith in adopting the Tiffany mark.” With that in mind, she left it the a jury to determine the damages that Costco should pay to the now-LVMH-owned Tiffany & Co. The jury awarded Tiffany a sum of $21 million.

At the same time, Judge Swain also dismissed Costco’s trademark invalidation counterclaim and its defenses, including its claim of fair use.

Fast forward to August 2020 and a panel of judges for the Second Circuit sided with Costco, holding that the lower court erred in its treatment of the case. Writing for the Second Circuit, Judge Debra Ann Livingston held that it is reasonable that jurors could conclude that Costco’s use of the “Tiffany” name in connection with the sale of six-pronged diamond rings was not likely to confuse consumers or lead them to believe that Tiffany & Co. endorsed or was in some way connected to the sale of the rings. In vacating the lower court’s decision, the Second Circuit concluded that the evidence presented by Costco “has, when considered in the aggregate, created a genuine question as to the likelihood of customer confusion,” namely due to “the combination of (1) Costco’s evidence that ‘Tiffany’ is a broadly recognized term denoting a particular style of pronged ring setting and (2) its further indications, backed by prior pronouncements of this court, that purchasers of diamond engagement rings educate themselves so as to become discerning consumers.”

In other words, “A jury could reasonably conclude that consumers of diamond engagement rings would know or learn that ‘Tiffany’ describes a style of setting not unique to rings manufactured by Tiffany, and [could] recognize that Costco used the term only in that descriptive sense.” Moreover, the court held that “such consumers may also be distinctly capable of recognizing that Costco’s rings were not manufactured by Tiffany – based, for example, on their price, place of purchase, packaging, or paperwork – and consequently be particularly unlikely to be confused by any aspect of Costco’s point-of-sale signs.” 

The Second Circuit also asserted that a jury could reasonably conclude that Costco did not use the term ‘Tiffany’ as a trademark.” After all, “Tiffany’s own evidence indicates that Costco typically identifies the trademark associated with its branded products as the first word on the product label,” while Costco provided evidence that by way of “over a century’s worth of documents [that] suggest that ‘Tiffany’ – both alone and in conjunction with words like ‘ring,’ ‘setting,’ ‘style,’ or ‘mounting’ – is widely understood to refer to a particular type of pronged diamond setting.”

The appeals court found that a factual dispute did exist in terms of whether Costco’s use of the word “Tiffany” was merely descriptive and used to refer to a type of ring setting, thereby, falling within the bounds of fair use … or whether its use was infringing, and thus, held that the case should not have been decided without a jury trial on the merits. “Key to the Second Circuit’s decision was its holding that, while factual determinations made by the district court should be given ‘considerable deference,’ this deference does not expand the district court’s authority to make factual findings at the summary judgment stage,” McGuire Woods attorneys Andriana Shultz Daly and Stephanie Martinez stated in a client note at the time.” Instead, the Second Circuit “emphasized that district courts should make factual determinations on summary judgment only where ‘the uncontroverted evidence and the reasonable inferences to be drawn in the nonmoving party’s favor’ support only a single conclusion.'”

Ultimately, the matter was remanded to the district court for a new trial.

In the same August 2020 decision, the 3-0 panel of judges for the Second Circuit also vacated the district court’s determination on Tiffany’s counterfeiting claim, holding that it was inappropriate of the lower court to hold Costco liable for trademark infringement at the summary judgment stage, and because counterfeiting is “merely an aggravated form of infringement,” it vacated the court’s judgment as to counterfeiting. The court also determined that liability for counterfeiting is inappropriate where the defendant can show “that it used a term identical to the registered mark otherwise than as a mark.” Costco had argued on appeal that its use of “Tiffany” was descriptive of the diamond setting – a diamond solitaire situated among six prongs – and thus, did not constitute use as a mark. 

Reflecting on the Second Circuit’s decision, Shultz Daly and Martinez asserted that it “may have important implications for brand owners, alleged infringers, and practitioners,” alike, going forward. Primarily, they highlighted “the court’s finding that a given term can both serve as a trademark and lawfully serve a separate descriptive purpose within the same industry,” which they say “may spur further disputes regarding the protectability of descriptive terms.” Beyond that, the appeals court’s decision “highlights a relationship between counterfeiting claims and descriptive fair use defenses, noting that liability for counterfeiting is likely inappropriate where the defendant can show ‘that it used a term identical to the registered mark otherwise than as a mark.'”

And still yet, they contend that “the court’s opinion reinforces that merely emulating unprotected product features does not conclusively establish bad faith,” encouraging “litigants to take care to distinguish protected elements from non-protected elements in their infringement analyses.”

The case is Tiffany & Co. v. Costco Wholesale Corp, 1:13-cv-01041 (SDNY).