A federal court in New York recently ruled that Costco Wholesale Corp. (“Costco”) owes Tiffany & Co. approximately $19.4 million dollars for selling diamond rings falsely advertised as “Tiffany” rings.

Tiffany & Co. is a well-known provider of rings and other luxury goods. The company owns multiple federal registrations for the trademark TIFFANY for use in connection with jewelry. However, in the jewelry industry, a “Tiffany setting” is a term used to denote a certain type of multipronged solitaire ring setting.

Costco is well-known provider of a wide range of retail goods. Starting before 2007, Costco sold rings under signage that referenced the term “Tiffany.” In some instances, Costco used the terms “Tiffany set,” “Tiffany style” or “Tiffany setting.” In other instances, Costco used the term “Tiffany” as a standalone term without any modifier.

Tiffany & Co. sued Costco, asserting that Costco infringed Tiffany’s trademark, engaged in unfair competition, and counterfeited the TIFFANY mark. Trademark law protects words, designs, and other indicia of the source of goods and services. Here, the mark TIFFANY, when used with jewelry, informs customers that the jewelry is sourced from Tiffany & Co. A mark is infringed when another party uses a mark so similar as to be likely to cause confusion, to cause mistake, or to deceive. A mark is counterfeited when another party uses the identical mark without authorization.

The court determined that Tiffany & Co. was entitled to recover Costco’s profits derived from the sale of rings under signage displaying “Tiffany” without the words “set,” “setting,” or “style” immediately following on the line. Interestingly, Tiffany & Co. was entitled to recover Costco’s profits from rings sold under signage displaying the phrase “Tiffany set” where the word “set” was the first word of the line below one ending with the word “Tiffany.” Those profits were calculated to be $3.7 million dollars. Since the case involved use of a counterfeit mark, and Costco was unable to prove extenuating circumstances, the judgment was tripled to $11.1 million. The court further ordered that Costco pay punitive damages of $8.25 million as well as Tiffany & Co.’s attorneys fees. The court also issued a permanent injunction from using the mark “Tiffany” as a standalone term, not combined with any immediately following modifiers such as “setting,” “set,” or “style” in connection with its advertisement or sale of any products not manufactured by Tiffany & Co.

For trademark owners, this decision shows the value of owning a federal registration for a mark. Ownership of a federal registration allowed Tiffany & Co. to bring claims under federal law as well as state law, and it was a federal statute which provided for tripling of Tiffany & Co.’s recovery of Costco’s profits. This decision also shows the value of policing the activities of competitors in the marketplace. If Tiffany & Co. did not learn of Costco’s infringing activities and take action to prevent them, Costco could have continued benefiting from the goodwill associated with Tiffany & Co.’s mark in perpetuity. Furthermore, if Tiffany & Co. had allowed the infringing activity to continue without objection, it would be in a weaker position to object if another company began infringing its mark, and could eventually lose its trademark rights altogether.

For those considering using another’s mark or adopting a mark similar to another’s mark, this decision shows that the penalties for doing so may be severe. It also shows that relatively minor aspects of advertisement and marketing, such as whether the phrase “Tiffany set” is displayed on a single line or split between two lines, can be determinative of whether one’s actions are infringing or justified.