IP Law Daily Tiffany awarded nearly $20M for Costco’s infringement of TIFFANY marks
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Tuesday, August 15, 2017

Tiffany awarded nearly $20M for Costco’s infringement of TIFFANY marks

By Mark Engstrom, J.D.

In its lawsuit against Costco, jewelry retailer Tiffany and Company was entitled to $19.45 million in damages ($3.7 million in profits trebled to $11.1 million, plus $8.25 million in punitive damages)—plus pre-judgment interest and reasonable attorney fees—for Costco’s infringement of its TIFFANY marks, the federal district court in New York City has ruled. In determining damages, the court treated a jury verdict on the recovery of profits as "advisory," but found that the jury’s award of $3.7 million in profits was "just and appropriate." In addition, the court permanently enjoined Costco from using TIFFANY as a "standalone term" in connection with the sale or advertisement of any product that was not manufactured by Tiffany or its affiliates (Tiffany and Company v. Costco Wholesale Corp., August 14, 2017, Swain, L.).

Profits damages. Based on credible evidence, the court found that the word "Tiffany" was used within the jewelry industry—in combination with terms like "setting"—to denote a certain type of "multipronged solitaire ring setting." The court acknowledged that Costco used the terms "Tiffany style" and "Tiffany setting" in a large proportion of its diamond ring signs, but it also found that Costco used the word "Tiffany" as a "standalone" term, in signage, to a significant degree.

The court found that Tiffany was entitled to recover Costco’s profits from rings sales that were derived from the use of "Tiffany" as a standalone term in signage (i.e., when the word "set," "setting," or "style" did not follow the word "Tiffany" on the same line of a given sign), and also found that profits were recoverable for sales derived from signs that used the word "set" as the first word of a line that followed a previous line ending with "Tiffany."

According to the court, Costco used Tiffany’s trademark to attract customer attention to fine jewelry items, and it did so by indicating that the items accompanied by the infringing signage were Tiffany’s products, even though they were actually generic items. The fact that the generic rings included a marking that was not Tiffany’s actual marking was insufficient to show that Costco’s use of the Tiffany mark was not an intentionally deceptive marketing ploy, the court noted. Significantly, the inside markings were not visible to customers who looked into Costco’s case displays, and Costco’s signs and salespeople both referred to the rings as "Tiffany" rings.

The advisory jury verdict regarding profits, which appeared to have taken into account all of Costco’s infringing sales (i.e., sales that used infringing signage that placed the word "Tiffany" without a trailing modifier on a single line)—was consistent with the court’s findings.

The court could not determine from Costco’s records the precise form of signage that Costco had used with each ring sale, but the court found that, based on credible information in the trial record, Tiffany had carried its burden of proving that Costco’s sales revenue from the infringing signage was approximately $7.2 million (net of returns).

The court further found that Costco did not prove that its profits on ring sales under the infringing signs should be limited to a 10.31-percent margin. That margin was artificially small, the court explained, and was made possible chiefly by the "subsidizing impact" of Costco’s membership fees, which were themselves enhanced by a "pull of the ‘treasure hunt’ tactic," in which Costco had used extraordinary bargains on brand-name merchandise to pull customers into its stores.

In light of the role that membership fees played in Costco’s business model, and in light of Costco’s use of Tiffany’s mark in selling fine jewelry through prominent displays at store entrances, the court concluded that, as an equitable matter, it was "necessary and appropriate" to impute a sufficient portion of Costco’s membership revenues to the sales of "Tiffany" rings. Doing so would bring the recoverable profit margin on those rings into the profit-margin range of a "typical run-of-the-mill jewelry store" (i.e., approximately 50 to 100 percent), the court explained.

In addition, the court found that the advisory jury award of $3.7 million in profits on the infringing sales—a figure that was slightly more than 50 percent of the proven sales revenue—constituted a "just and appropriate" award of profits that were attributable to the infringing sales. However, the court did not concur in the jury’s finding that an additional award of $1.8 million was necessary. Tiffany was thus entitled to $3.7 million in profits from Costco’s infringing sales of diamond rings under the "standalone" signage.

Treble damages, attorney fees. Costco failed to establish any "extenuating circumstances" that would warrant the denial of treble damages. According to the court, Costco was a large corporation with billions of dollars in annual sales and profits, and its arguments against treble damages relied on "good faith and genericism," assertions that were clearly rejected by the jury. The jury also found that Costco was liable for substantial punitive damages. Ultimately, Costco’s arguments against treble damages were rejected by the court. Because no extenuating circumstances warranted the denial of treble damages, Tiffany was entitled to recover three times the amount of Costco’s profits, or $11.1 million. For the same reasons, the court concluded that Tiffany was entitled to reasonable attorney fees.

Punitive damages. The jury awarded $8.25 million in punitive damages, but Costco argued that Tiffany was not entitled to punitive damages because Tiffany had sought an accounting of profits, not "actual damages." The court acknowledged that some courts in the Second Circuit distinguished actual damages and profits for purposes of the Lanham Act, but it also noted that other courts had characterized both remedies as "actual damages" under the Lanham Act.

Furthermore, the Lanham Act contemplated the possibility of statutory damages—which Tiffany sought in this case—and thus allowed courts to consider both punitive and compensatory factors "without the need to establish profits or actual damages in the recognition that such measures of monetary relief may be difficult to prove in these cases." Therefore, the Lanham Act’s statutory damages provision "explicitly provided a mechanism to compensate plaintiffs," even in the absence of proof of actual damages or profits.

For those reasons, the court concluded that punitive damages were not preluded by Tiffany’s pursuit of statutory damages and an accounting of profits, rather than "actual damages." Further, the court found that the jury could properly determine: (1) whether punitive damages were warranted and (2) the size of any punitive damages award. Moreover, those findings could not be set aside unless the jury’s decision was result of "sheer surmise and conjecture" and no evidence supported it, or the evidence in favor of the movant was "so overwhelming" that reasonable and fair minded persons could not arrive at a verdict against it.

Because the record evidence was "plainly" sufficient to support the jury’s award of punitive damages, the court refused to disturb the jury’s finding that punitive damages were warranted. In addition, the court found that the amount of punitive damages—$8.25 million—was neither unconstitutional nor otherwise excessive. Significantly, $8.25 million was comfortably within the Supreme Court’s four-to-one benchmark for punitive damages.

Injunctive relief. The court decided that a permanent injunction was necessary to deter Costco from pursuing further illegitimate efforts to trade on the fame and reputation of Tiffany’s marks and goods. According to the court, Tiffany showed that: (1) it was likely to suffer irreparable harm to its name and goodwill in the absence of a permanent injunction; (2) it had no adequate remedy at law; (3) the balance of hardships favored Tiffany; and (4) the public interest would not be disserved by the issuance of a permanent injunction. The court thus permanently enjoined Costco from using TIFFANY as a standalone term (i.e., when not combined with "immediately following modifiers" such as "setting," "set" or "style") in connection with the sale or advertisement of any products not manufactured by Tiffany or its affiliates.

The case is No. 3CV1041-LTS-DCF.

Attorneys: Brett David Katz (Browne George Ross LLP) for Tiffany and Company and Tiffany [NJ] LLC. Emma Leigh Baratta (Hughes, Hubbard & Reed, LLP) for Costco Wholesale Corp.

Companies: Tiffany and Company; Tiffany [NJ] LLC; Costco Wholesale Corp.

MainStory: TopStory Trademark NewYorkNews

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