Have you ever seen a Labor Day sale at Tiffany & Co.? A discount code? A coupon? Imagine the surprise when it appeared that Tiffany & Co. was selling its diamond engagement rings at Costco.
In late 2012, a surprised customer contacted Tiffany & Co.wondering why the exclusive, high-end jewelry retailer had started selling their rings at warehouse retailer, Costco, better known for bulk discount purchases. Was it a counterfeit? Was it real? Why was Tiffany discounting its high-end jewelry?
Tiffany wondered the same thing and immediately commenced an investigation. Tiffany discovered that Costco had been selling diamond solitaire rings in a six-pronged setting and labeling them as “Tiffany” rings.
They were not Tiffany’s rings.
It’s not unusual for Costco to sell branded jewelry in their stores. Costco has had partnerships with Cartier and other higher-end jewelry and watch companies. However, Tiffany has a reputation for having a fixed direct-to-consumer channel. Part of Tiffany’s brand identity is that it is a luxurious and exclusive jeweler, and could never be purchased through a warehouse retailer.
Tiffany & Co. commenced a trademark infringement and counterfeiting suit against Costco in the Southern District of New York. Costco filed a counterclaim, arguing that the word “Tiffany” had become generic for a particular style of setting: the six-pronged diamond solitaire setting. Costco said that “Tiffany-style” was being used to identify that specific setting throughout the jewelry industry, so “Tiffany” was no longer a brand name. According to Costco, because the term is generic, it was using “Tiffany” in a descriptive sense – not claiming that the rings it sold were Tiffany-branded rings.
After a few years of hotly contested litigation and a ruling that Costco had infringed, in August of 2017, the judge ruled that Costco must pay $19 million to Tiffany & Co. — an amount three times the $3.7 million in profits that Costco made from selling the infringing rings, plus $8.25 million in punitive damages under the counterfeiting statute. The judge also ruled that Costco was on the hook for Tiffany’s legal expenses, bringing the total amount assessed against Costco to more than $25 million. Costco appealed the ruling and the damages award, which will be ruled on later this year.
Could “Tiffany” Be Generic?
A trademark or brand name indeed can become generic through widespread use. There are many examples, including aspirin (originally owned by Bayer, but generic in the U.S.), flip phone (originally owned by Motorola), escalator (originally owned by the Otis Elevator Company), and teleprompter (originally owned by the TelePrompTer Corp.). Trademark policing is critical when a trademark or brand name becomes widely used. For example, the word “Kleenex” has become so widely used for tissues in the United States that someone may say, “Would you hand me a Kleenex?” or “can you pick up Kleenex at the store?” when what they really mean is a Kleenex brand tissue.
Xerox has run advertising campaigns over the years to bring awareness to their trademark rights and to try to avoid “genericide.” In the campaigns, Xerox encourages people to use the word “Xerox” as an adjective (“Xerox copier”), never as a verb (replacement for “to copy”) or as a noun (replacement for “copies”).
Tiffany has argued that Costco has presented “no proof that ‘Tiffany’… is generic,” nor did Costco show that using the word Tiffany was “the only way to identify this particular ring style.”
If the Second Circuit determines on appeal that the term is generic and Costco fairly used it to describe its ring style, it could have far-ranging implications for the Tiffany brand.
Related: Beyoncé, Blue Ivy, and the Kardashians: The (Big) Business of Trademarks
Did Costco Sell Counterfeit Rings?
Costco claimed that they just used the word “Tiffany” on the placard to denote a Tiffany-style ring. The rings themselves were not stamped with “Tiffany,” and they were not sold in a Tiffany blue box. In fact, the rings sold at Costco were stamped with the name of the actual manufacturer and sold in a brown box.
The judge called Costco’s attitude towards the Tiffany brand “cavalier.” Costo presented the word “Tiffany” on the placard, not “Tiffany-style,” and didn’t try to present the ring as anything other than a Tiffany product. The judge also found it suspicious that Costco didn’t sell their “Tiffany” rings online: they were only available in-store, so the only way Tiffany found out about the use was through a customer inquiry.
If the Second Circuit determines on appeal that Costco did not engage in counterfeiting, the damages award assessed against Costco will be dramatically reduced.
I’m keeping my eyes on this case. It will be interesting to see what the Second Circuit decides, and I’ll keep you updated.