Image: Tiffany & Co.

A federal judge in Monday has ruled that Tiffany & Co may recover at least $19.4 million in damages from Costco Wholesale Corp over the warehouse club chain’s illegal sale of counterfeit diamond engagement rings bearing the “Tiffany” name. U.S. District Judge Laura Taylor Swain said Tiffany deserves $11.1 million, plus interest, for Costco’s trademark infringement, plus the $8.25 million in punitive damages awarded by a jury last October. 

The federal judge also permanently barred Costco from selling anything that Tiffany did not make as “Tiffany” products, unless it uses modifying language suggesting that the products have, for example, a Tiffany “setting” or “style.” 

New York-based Tiffany & Co. filed its original lawsuit in February 2013 in the U.S. District Court for 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 an early ruling, Judge 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. Judge Swain 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.

Thereafter, in a decision in September 2016, 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. (On Monday, Judge Swain found the lower – $3.7 million – sum to be sufficient). 

A month later, in October 2016, the jury decided that Costco would pay Tiffany $8.25 million in punitive damages for selling the counterfeit diamond rings. 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. 

And most recently, in Monday’s ruling, in addition to finalizing the damages amount and awarding Tiffany & Co. a permanent injunction barring Costco from using its trademark-protected name, Judge Swain spoke to the damage that Costco is doing to the Tiffany brand by selling roughly 2,500 rings using the “Tiffany” name. 

Costco had argued that “Tiffany” had become a generic term, excusing its use on a standalone basis.  But the judge found Costco’s defenses “not credible,” given evidence that displays of fine jewelry were a key part of the Issaquah, Washington-based company’s marketing strategy. 

Costco sales associates “described such rings as ‘Tiffany’ rings in response to customer inquiries, and were not perturbed when customers who then realized that the rings were not actually manufactured by Tiffany expressed anger or upset,” Judge Swain wrote. She further noted that Costco’s upper management, meanwhile, “displayed, at best, a cavalier attitude toward Costco’s use of the Tiffany name in conjunction with ring sales and marketing. 

Costco said it intends to appeal the ruling, calling the decision “a product of multiple errors” by Judge Swain. “This was not a case about counterfeiting in the common understanding of that word – Costco was not selling imitation Tiffany & Co rings,” Costco said. 

* The case is Tiffany and Co. et al v. Costco Wholesale Corp, 13-01041 (SDNY).