Tiffany & Co., a world-renowned jeweler and specialty retailer, successfully won a judgment that Costco was appropriating its Tiffany® trademark. Federal Judge Laura T. Swain ordered Costco to pay Tiffany & Co. $19.4 million for trademark infringement and trademark counterfeiting under the Lanham Act, as well as unfair competition under New York state law, in the latest round in a long-running legal battle over the sale of engagement rings bearing the mark “Tiffany” as a standalone term. The decision reaffirms the strength of the Tiffany® trademark and will likely have a drastic effect on the way Costco and other wholesalers conduct business.

The world-famous Tiffany® mark has been used in commerce in the United States since 1868. In 1886, Tiffany & Co. designed an engagement ring that highlights the diamonds by lifting the stone off the band. This famous ring was named the Tiffany®. This configuration has been called the “Tiffany setting” by other jewelers.

Costco displayed its diamond rings with signage using “Tiffany” as a standalone term, not combined with any modifier such as “setting,” “set” or “style.” Over the past seven years, Costco has sold thousands of these mislabeled rings.

Costco argued that it used “Tiffany” as a generic term to describe a ring setting – not to imply that the rings were Tiffany & Co. branded rings. Costco provided evidence of the practice of using the terms “Tiffany setting” and “Tiffany style” generically throughout the jewelry industry. However, in many instances Costco did not use the terms “Tiffany setting” and “Tiffany style,” only the standalone word “Tiffany,” which misled consumers into believing that the rings were made by Tiffany & Co. rather than an imitation of its famous ring setting.

The Court rejected Costco’s argument that the word “Tiffany,” with reference to a ring’s setting, had become a generic term. As a result of the judgment, Costco is barred from using the standalone word “Tiffany” to describe any products that are not connected to Tiffany & Co.

Costco said in a statement that it planned to appeal the decision.

TAKE-AWAYS FROM THIS RULING

Though in many ways a predictable result, Judge Swain’s latest ruling supplies a number of useful take-aways for market participants, from both a brand protection and a competitive perspective.

First, the decision highlights the importance of understanding how generic terms function in the marketplace. Here, while it is undisputed that the phrase “Tiffany setting” remains a generic term within the jewelry industry, Costco’s use of the term “Tiffany” alone was found to be actionable trademark infringement. Though Costco argued that this use was merely a “shorthand” version of the valid, generic description, the court found that the use of “Tiffany” alone indicated a brand and not a setting.

The distinction between these two usages, while subtle, should be noted by brand owners and their competitors alike. For brands, this ruling highlights the importance of parsing protectable marks from generic terms. This distinction, and an understanding of where to draw the line between these terms, will inform a more targeted and successful brand-maintenance regime. For brand competitors, on the other hand, this ruling demonstrates the importance of understanding how generic terms can be used and the degree to which they can (or cannot) be changed in advertising. For instance, Costco’s deletion of one word in its signage, allegedly done merely to shorten a proper, generic term, completely changed the impact of its advertising and transformed its product into a counterfeit item. Given this example, advertisers should be aware of the fine line that exists between generic and branded terms in their industries and should vet their advertising accordingly.

This ruling also provides a reminder that jurisdiction matters in trademark infringement cases. Here, the Court held that Tiffany was entitled to recover $19.4 million for its claims — a notably high figure in a federal trademark infringement case. In fact, a significant portion of Tiffany’s recovery in this case was obtained as punitive damages, a form of recovery not available under the Lanham Act and thus not typically awarded in federal trademark litigation. In this case, however, punitive damages were available under New York state unfair competition law – namely, New York common law and General Business Law §§ 349, 360 (m). As such, this decision should serve as a reminder that it is often helpful to look outside the strictures of federal law to litigate trademark infringement claims, and that it certainly does matter where these claims are filed. It should also remind competitors that trademark infringement can be quite costly depending on the jurisdiction, and that some infringements may end up being significantly more expensive than others.