Note: An Addendum has been added to this previously published article.
In February of 2013, high-end jeweler Tiffany & Co. sued Costco Wholesale Corp. in the federal court for the Southern District of New York for using the designation “Tiffany setting” since 2007 in the sale of two styles of engagement rings. According to the complaint, a sign in a Costco store in Huntington Beach, California stated: “605880 – PLATINUM TIFFANY VS2.1 1.00CT ROUND BRILLIANT SOLITAIRE RING 6399.99.” Costco did not use the “Tiffany” designation in connection with any of its online advertising. Costco initially argued that its use of “Tiffany setting” was a generic reference to the six-prong setting that Tiffany had first introduced in 1886. While this argument was sufficient to defeat Tiffany’s motion for summary judgment, it ultimately did not prevail, and Costco was found liable for infringement. After two days of deliberations, a jury of five men and three women found that Costco owed Tiffany $13.75 million dollars ($5.5 million dollars in profits and $8.25 million dollars in punitive damages).
One of the curious aspects of this trademark litigation is the award of punitive damages. Under Federal Trademark Law (the Lanham Act), punitive damages are not recoverable for violations of the Act. Section 35 (15 U.S.C. §1117) provides that plaintiffs are entitled to profits, damages, and costs, subject to the principles of equity. Treble and statutory damages may be awarded for use of a counterfeit mark, and statutory damages are available for cyber piracy. Punitive damages must be recovered under state unfair competition laws. In this case, Tiffany was awarded punitive damages under New York’s General Business Law § 360-m, which provides that the court “may enter judgment for an amount not to exceed three times such profits and damages and/or reasonable attorneys' fees of the prevailing party in such cases where the court finds the other party committed such wrongful acts with knowledge or in bad faith or otherwise as according to the circumstances of [the] case.” The jury’s reasons for awarding punitive damages appear to be partially motivated by the contentiousness of the litigation between two major corporations. One juror reported that the award should go to charity. U.S. District Judge Laura Taylor Swain will decide whether to accept the jury’s findings and most likely Costco will file post-trial motions and appeal to the Second Circuit.
Another important aspect to take away from this case is the issue of preventing a brand name from becoming a generic term. Costco argued that it was using TIFFANY as a generic term for a jewel setting. Judge Swain ultimately found that Costco infringed Tiffany’s trademark rights because it used the term TIFFANY with no qualifying terms in its signage, and expert testimony demonstrated that consumers recognize TIFFANY as a brand identifier. Yet, Tiffany’s motion for summary judgment regarding Costco’s claim that TIFFANY was a generic name was denied. This must have been a tense moment for Tiffany.
Even though Tiffany’s TIFFANY registrations are over a century old and are incontestable, they are vulnerable to cancellation at any time, if the mark becomes the generic name for the goods in the registration. (See Section 14, 15 U.S.C. § 1604). The test for determining whether the registered mark has become generic is its significance to the relevant public. If Costco had prevailed in proving that TIFFANY had become a generic term among jewelry purchasers, manufacturers, and sellers for a style of setting, the TIFFANY registrations for jewelry could be cancelled, and everyone would be free to use the word TIFFANY to refer to jewelry settings.
Brand owners, especially those whose brands are old and well-known, should continuously monitor for uses of their mark that could lead to the mark becoming a generic term, either by their own marketing team or by third-parties. Although Tiffany was able to prove that consumers recognize TIFFANY as a brand identifier, this case should serve as a reminder to brand owners not to rest easy on their registrations.
Update: U.S. District Court Judge Laura Taylor Swain has awarded Tiffany & Co. $11.1 million in treble profits and $8.25 million in punitive damages. Judge Taylor Swain wrote in her opinion that Costco’s management “displayed at best a cavalier attitude toward Costco’s use of the Tiffany name in conjunction with ring sales and marketing.” Under trademark law, the court has discretion to award profits at a higher amount than the defendant’s actual profits if the court finds that recovery based on profits is inadequate. As we discussed in our article, punitive damages are not recoverable under federal trademark law. Instead, punitive damages are awarded under state unfair competition laws. This case demonstrates that when filing a complaint based on trademark infringement, plaintiffs should also plead any viable state unfair competition claims and argue that the defendant’s approach to the infringing use of the mark warrants a higher recovery.
Editors: Catherine Holland and Loni L. Morrow