Majors

Analysis: Why Tiffany Won $15M from Costco

MajorsOct 12, 2016

Analysis: Why Tiffany Won $15M from Costco

Attorneys Emily Miao and Daniel Organ dissect the jury’s verdict in Tiffany’s trademark lawsuit against wholesale club Costco.

20161012_Tiffany-analysis.jpg
Emily Miao, Ph.D., is a partner at the law firm of McDonnell Boehnen Hulbert & Berghoff LLP in Chicago. She has more than 20 years’ experience in all aspects of intellectual property practice. MBHB associate Daniel L. Organ has experience preparing and prosecuting U.S. and foreign patents in a variety of technical fields.

In a highly publicized decision last year1,  federal Judge Laura Taylor Swain of the Southern District of New York ruled in favor of the luxury retailer Tiffany & Co. (“Tiffany”), deciding that Costco Wholesale Corp. (“Costco”), the largest U.S. warehouse club chain, willfully infringed Tiffany’s trademark.

According to the court, Costco sold counterfeit diamond engagement rings bearing the Tiffany name and confused relevant consumers by using the word “Tiffany” in display case signage.  Judge Swain’s initial ruling against Costco allowed Tiffany to take Costco before a jury to seek damages, including profits from Costco’s sale of diamond rings, statutory damages, and punitive damages.

After several delays, the jury met in September for “Phase I” of the trial to decide (1) the amount of Costco’s profits and statutory damages under the Federal Lanham Act, and (2) whether Tiffany was entitled to punitive damages under New York General Business Law §349 and New York Common Law. “Phase II” was triggered when the jury found Costco liable for punitive damages. In their Phase I verdict, the Jury determined that Costco profited by $3.7 million from the infringing sales, and added an additional $1.8 million to fully compensate Tiffany, bringing the total award for profits to $5.5 million.2 The jury also awarded $2 million for statutory damages.3 The jury further held that Tiffany was entitled to punitive damages, and in the Phase II verdict awarded Tiffany another $8.25 million.4 

Analysis of Costco’s Profits
Tiffany sought an accounting of profits based on the sale of both “non-subject goods” (e.g., Costco memberships and goods other than diamond rings) and “subject goods” (e.g., diamond rings). Under Second Circuit law, in calculating “defendant’s profits,” a court should base its analysis on “infringing sales,” or sales that can be tied to the Lanham Act violation alleged.5 The court held that Tiffany presented no evidence tying the “non-subject goods” to Costco’s alleged infringement, and therefore removed the “non-subject goods” from the analysis. Regarding the “subject goods,” however, the court held that Costco did not act in good faith and therefore Tiffany was allowed to seek an accounting for profits from their sale.6 The court’s decision allowed the jury to decide, in the damages phase of the trial, how much Tiffany was entitled to for damages from Costco’s unlawful use of Tiffany’s mark.

During the damages trial, Tiffany argued that it was entitled to millions in damages from
profits realized by Costco, while Costco asserted the amount based on actual sales would be no more than $382,000.7 The jury disagreed with Costco, and awarded Tiffany $5.5 million based on Costco’s profits.

Analysis of Statutory Damages
In addition to awarding Tiffany Costco’s profits, the jury awarded Tiffany $2 million in statutory damages. The Federal Lanham Act states that when a counterfeit mark is used, up to $2 million may be awarded for a willful violation.8 In Judge Swain’s initial ruling, the court held that, as a matter of law, Costco used a counterfeit mark and that Tiffany satisfied the willfulness requirement.9 Then, to decide the exact amount of damages, the jury was instructed to consider factors such as Costco’s profits, Tiffany’s lost revenue, and the value of the mark.10 As a result, the jury determined that the maximum $2 million in statutory damages was justified.

Analysis of Punitive Damage
Tiffany sought punitive damages under both federal and state law. Under federal law, the court held that the Lanham Act prevents the collection of punitive damages.11  Under state law, however, the court noted that New York General Business Law §349 and New York Common Law allow punitive damages, albeit with an exceptionally high bar.12 Under these laws, “punitive damages are available where a defendant’s conduct has constituted gross, wanton or willful fraud or other morally culpable conduct to an extreme degree.”13 The court listed evidence in Tiffany’s favor, including emails from Costco jewelry buyers asking vendors to copy Tiffany designs and testimony that Costco employees were aware of customer confusion but did nothing to remedy it.14  

The jury ultimately agreed with Tiffany and in “Phase II” of the damages trial awarded Tiffany $8.25 million.

Conclusion
After the initial ruling, Judge Swain directed Tiffany and Costco to attempt to settle the outstanding issues. But since no settlement occurred, the damages phase proceeded and the jury handed Tiffany a sweeping victory, awarding nearly $16 million in damages.

Tiffany has been involved for many years in lawsuits regarding its intellectual property. A recent PACER search (PACER is a service for publically accessing court records electronically) returned 28 lawsuits since 1991 involving Tiffany copyrights, patents and trademarks. While the award of nearly $16 million against Costco is one of Tiffany’s largest, Tiffany previously won a default judgment of $26.5 million against numerous defendants for infringing on Tiffany trademarks and using infringing domain names.  

Costco is also no stranger to lawsuits regarding intellectual property issues, both as a plaintiff and (more often) as a defendant. A recent PACER search returned 190 lawsuits over intellectual property issues since 1991, comprising 47 trademark suits of which Costco was a defendant in 36; 119 patent suits of which Costco was a defendant in 102; and 24 copyright suits of which Costco was a defendant in 22.    

Tiffany has a history of policing its trademarks,15 in particular regarding goods such as its jewelry16,  blue gift boxes, cufflinks, and money clips17. But Tiffany has not policed its marks with respect to engagement rings--until now. The facts here were straight forward and favorable to Tiffany, so it is unsurprising that Tiffany won. Had Tiffany lost, there would have been inherent confusion around the use of the “TIFFANY” mark as applied to diamond rings and ring settings. Such a result would have been contrary to one of the purposes of trademark protection, which is to avoid consumer confusion.18  

With the conclusion of the damages trial, and assuming Judge Swain accepts the jury’s findings, Costco will likely file an appeal against Judge Swain’s ruling and the damages award. Stay tuned for further developments.

©2016 McDonnell Boehnen Hulbert & Berghoff LLP. The information contained in this article reflects the understanding and opinions of the authors and is provided for informational purposes only. It is not intended to and does not represent legal advice. No attorney-client relationship is created by providing this information to you. The information in this article is not a substitute for obtaining legal advice from an attorney licensed in your particular state.


 1 Tiffany and Co. v. Costco Wholesale Corp., 127 F. Supp. 3d 241 (S.D.N.Y. Sept. 8, 2015).
 2 Jury Verdict Form at 1, Tiffany and Co. v. Costco Wholesale Corp., No. 13CV1041 (S.D.N.Y. Sept. 30, 2016), ECF No. 353.
 Id. at 2.
 4 Jury Verdict Form at 1, Tiffany and Co. v. Costco Wholesale Corp., No. 13CV1041 (S.D.N.Y. Oct. 5, 2016), ECF No. 357.
 5 Tiffany and Co. v. Costco Wholesale Corp., 127 F. Supp. 3d at 259 (referencing Am. Honda Motor Co. v. Two Wheel Corp., 918 F.2d 1060, 1063-64 (2d Cir. 1990)).
 6 Id. at *261.
 7 Tiffany's Damages Case A Publicity Stunt, Costco Tells Jury, Law360 (Sept. 28, 2016), http://www.law360.com/articles/845762/tiffany-s-damages-case-a-publicity-stunt-costco-tells-jury.
 8 15 U.S.C.S. § 1117(c)(2).
 9 Tiffany and Co. v. Costco Wholesale Corp., 127 F. Supp. 3d at 255.
10 Jury Instructions at 23-24, Tiffany and Co. v. Costco Wholesale Corp., No. 13CV1041 (S.D.N.Y. Sept. 30, 2016), ECF No. 345.
11 Tiffany and Co. v. Costco Wholesale Corp., 127 F. Supp. 3d at 261.
12 Id.
13 Id., (citing Altadis U.S.A., Inc. v. Monte Cristi de Tabacos, c.x.a., No. 96CV4209-BSJ, 2001 U.S. Dist. LEXIS 6892 (S.D.N.Y. May 17, 2001)).
14 Id. at 262.
15 For example, in 2006, Tiffany had an employee dedicate to monitoring listings on the eBay website for counterfeits and report any violations to eBay on a daily basis. See Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 484 (S.D.N.Y. 2008) aff'd in part, rev'd in part sub nom. Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) (holding that eBay did not infringe Tiffany’s marks). See also Complaint at ¶ 17 (describing other brand protection strategies).
16 See Tiffany (NJ) Inc. v. Luban, 282 F. Supp. 2d 123, 124 (S.D.N.Y. 2003) (finding the operator of a website that sold counterfeit Tiffany jewelry liable for willful infringement).
17 See Tiffany (NJ), LLC v. 925LY.Com, 2:11-CV-00590-LDG, 2011 WL 2118634 (D. Nev. May 25, 2011) (issuing a preliminary injunction in favor of Tiffany).
18 See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 774 (1992).
Michelle Graffis the editor-in-chief at National Jeweler, directing the publication’s coverage both online and in print.

The Latest

Tyrese Maxey The 1916 Company campaign
IndependentsDec 23, 2024
Philadelphia 76ers’ Tyrese Maxey Stars in The 1916 Company’s New Campaign

The retailer’s “On the Clock” campaign celebrates how time, precision, and purpose come together.

Jewelry by Sorellina, Francesca Villa, Cece Jewellery, Retrouvai, Ray Griffiths, Cartier, Cocoerow Fine Jewelry, and Gumuchian
EditorsDec 23, 2024
My Favorite Piece of the Week Jewels of 2024

Associate Editor Natalie Francisco chose her 12 favorite Piece of the Week picks from the year gone by.

GIA emerald report
GradingDec 23, 2024
GIA Adds Filler Identification to Emerald Reports

Lab clients have the option to request this addition on their emerald reports.

ride_or_die_1872x1052.png
Brought to you by
A Diamond Is Forever Celebrates "Forever Present" Holiday Campaign

A Diamond is Forever hosted a holiday celebration in honor of their new marketing campaign, ‘Forever Present.’

Ella Klein Interns Jamie Dunton and Gabriella Botelho
Events & AwardsDec 20, 2024
Two Participants Complete Inaugural Ella Klein Internship

Jamie Dunton and Gabriella Botelho are the first graduates of the program, created by the WJA Foundation and Julius Klein Diamonds.

Weekly QuizDec 19, 2024
This Week’s Quiz
Test your jewelry news knowledge by answering these questions.
Take the Quiz
Retrouvai Green Sapphire and Diamond Heirloom Bezel Ring for Charity
CollectionsDec 20, 2024
Piece of the Week: Retrouvaí’s Ring for Charity

In the spirit of giving, Retrouvaí will donate $4,000 from the sale of this ring to the Los Angeles Regional Food Bank.

DeVries Jewelers
IndependentsDec 19, 2024
Michigan’s DeVries Jewelers Unveils New Location in Time for the Holidays

Co-owner Dan DeVries shared what it’s like moving into a space triple the size of its old store and how it feels to be a “real jeweler” now.

me_myself_and_I_1872x1052 .jpg
Brought to you by
De Beers Group Launches Holiday Campaign for Natural Diamonds

‘Forever Present’ campaign revives the iconic A Diamond is Forever tagline and celebrates the diamond dream.

State Property Gardens Collection Campaign
CollectionsDec 19, 2024
State Property Transforms Spain’s Generalife Gardens into Jewelry

Along with the latest “Gardens” collection, the brand has released limited-edition designs offering more indulgent pieces.

Two people in a rowboat
CrimeDec 19, 2024
Alleged Jewelry Thieves Attempt Rowboat Escape

The man and woman are accused of stealing jewelry from a shipping container then trying to flee by paddling a small boat out into a bay.

2488-carat diamond found in Botswana
SourcingDec 19, 2024
The Second-Largest Diamond Ever Found Now Has a Name

The 2,488-carat diamond recovered from a mine in Botswana has been dubbed “Motswedi” while its 1,094-carat sibling is “Seriti.”

Rough rubies
SourcingDec 19, 2024
Gemfields Reports Record Ruby Auction Results Despite Challenges at Source

The average price per carat hit a record high for the miner, which said it remains unaffected by the conflict in Mozambique.

alexandrite ring
AuctionsDec 18, 2024
Alexandrite Ring Sells for Record-Setting $1.9M at Sotheby’s

The nearly 17-carat stone made history for the color-change gem that, according to the auction house, is experiencing a “notable surge” in the market.

Tiffany & Co. pocket watch gifted to captain of the Carpathia
WatchesDec 18, 2024
Historic Titanic Pocket Watch Winds Its Way Back to Tiffany & Co.

More than a century after survivors gifted a Tiffany timepiece to the captain of the ship that rescued them, the jeweler has reclaimed it.

Picchiotti Spotlight Campaign Video Still
TechnologyDec 18, 2024
Picchiotti Utilizes AI in ‘Spotlight’ Video Campaign

The videos highlight how pieces from the “Xpandable” and “Reversible Xpandable” collections put the wearer in the spotlight.

Steve Feldman
IndependentsDec 18, 2024
Industry Veteran Steve Feldman Set to Retire

Feldman reflected on 45 years in the jewelry industry and clarified that it’s not a total retirement.

Chanel Quilted Stars Necklace
Events & AwardsDec 17, 2024
Chanel to Receive Gem Award for High Jewelry Excellence

The luxury brand is being honored for excellence in high jewelry design in its “Haute Joaillerie Sport” collection.

Frank Circelli
SourcingDec 17, 2024
Frank Circelli, Founder of Gem Shopping Network, Dies at 75

Circelli was a pioneer in the world of TV shopping who is remembered for his passion for gemstones and his big personality.

Blue diamond ring
AuctionsDec 17, 2024
Blue Diamond Fetches $8.8M at Christie’s

The nearly 6-carat stone headlined the recent jewelry auction, which also featured Mica Ertegun’s jewelry.

Stock image of a gavel, handcuffs, and books
CrimeDec 17, 2024
‘Black Bin Crew’ Robbers Get 14-16 Years in Prison

The three men, who got their nickname because they’d toss the jewelry they stole into black plastic bins, were arrested back in August.

Cover of the new book “The History of Diamond Engagement Rings: A True Romance”
TrendsDec 16, 2024
Marion Fasel’s New Book Delves Into the History of Engagement Rings

“The History of Diamond Engagement Rings: A True Romance” is a 128-page small-format book containing more than 165 images.

Rolex store on Rodeo Drive
WatchesDec 16, 2024
Take a Look Inside the New Rolex Boutique on Rodeo Drive

Gearys opened a 6,200-square-foot Rolex store with a design that pays homage to the brand’s connection to the ocean.

GCAL 8X pear and marquise-cut diamonds
GradingDec 16, 2024
GCAL By Sarine Expands 8X to 2 More Fancy Shapes

The diamond cut grade is now available for marquise- and pear-shaped diamonds.

Claudia Cividino, Sissy’s Log Cabin, Shri Govind Dholakia, Tanishq
SourcingDec 16, 2024
Diamonds Do Good Announces 2025 Award Recipients

DDG said the honorees’ business practices embody a commitment to positive social impact, industry innovation, and community empowerment.

Selena Gomez, Benny Blanco, Engagement Ring
TrendsDec 13, 2024
Selena Gomez Said ‘Forever Begins Now’ to Marquise Diamond Engagement Ring

Estimates on the size and value of the solitaire diamond, which is mounted on a diamond pavé-set yellow gold band, vary.

Martin Katz tanzanite drop earrings
TrendsDec 13, 2024
Piece of the Week: Martin Katz’s Tanzanite Drops

These half-moon tanzanite earrings totaling 25 carats are part of a special trunk show taking place this weekend in Dallas.

My Next Question webinar graphic
Recorded WebinarsDec 13, 2024
Watch: The Highs and Lows of 2024

The National Jeweler editors recap the top news, the best jewels, and their favorite stories of the year.

×

This site uses cookies to give you the best online experience. By continuing to use & browse this site, we assume you agree to our Privacy Policy