On Monday 24th August 2020, a US federal appeals court overturned a $21 million judgement against Costco over their sale of unbranded diamond engagement rings bearing the “Tiffany” name.
The dispute first arose in 2013 when Tiffany sued the warehouse club chain for trade mark infringement, accusing the chain of counterfeiting.
Upon being contacted by Tiffany, Costco removed all “Tiffany” store signage and argued that Tiffany had become a generic term for a type of diamond set ring. It was estimated that over 3000 customers bought Tiffany-set rings at Costco during the relevant period.
In 2015, the District Court granted Tiffany’s motion for summary judgment (a judgement entered by the court without a full trial). The District Court dismissed Costco’s counterclaim and held the chain liable for trade mark infringement and counterfeiting. A jury subsequently awarded Tiffany $13.8 million, which was increased to $21 million by the court. This included $8.25 million in punitive damages, and $11.1 million being three times Tiffany’s lost profit from the alleged infringement plus interest.
However, in 2017, Costco appealed the decision claiming that they had been deprived of the opportunity to present their case fully to a jury. Costco maintained that their use of “Tiffany” was to describe a certain style of ring rather than imitation Tiffany & Co rings and was therefore non-infringing.
Last week, three appeal judges of the Second Circuit ruled unanimously in favour of Costco. The judges acknowledged that in the late 19th century, Charles Lewis Tiffany developed and sold a six-prong diamond-set engagement ring. However, since then, numerous advertisements, dictionaries, trade publications and other documents have referred to this type of diamond setting style as a “Tiffany setting”.
The evidence submitted by Costco was considered to raise genuine questions whether potential buyers of Costco’s diamond rings would actually be confused by the use of “Tiffany”. In addition, judges noted that consumers would be capable of recognising that Costco’s rings were not manufactured by Tiffany & Co, particularly in light of their price, packaging, paperwork and place of purchase.
The appeal judges held that a factual dispute still exists in terms of whether the use of “Tiffany” by Costco was merely descriptive of the type of ring set or if it was in fact infringing and held that the case should not have been decided without a jury reviewing the evidence and full merits.
The case has now been returned to a Federal District Court for retrial where issues surrounding Costco’s descriptive or non-descriptive use of Tiffany will be considered. Whilst the question remains open for now, the case serves as a reminder of the risks faced by well-known brands potentially becoming generic terms within a particular sector and the importance of seeking specialist legal advice to help combat the issue from the outset.
