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.

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.

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),
 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

Recorded WebinarsMay 27, 2022
Watch: The 5 Things I Always Take to a Trade Show

Editor-in-Chief Michelle Graff is joined by three industry veterans to talk about the items they never leave behind and why.

CollectionsMay 27, 2022
92Y Has Selected its 2022 Artist in Residence

German jewelry artist Alexander Blank is the fourth designer to receive the honor.

CollectionsMay 27, 2022
Piece of the Week: Which Movie Inspired This Chopard Masterpiece?

The answer is “Hair,” and the necklace is from Chopard’s 2022 Red Carpet Collection, rolled out at the Cannes Film Festival.

Brought to you by
3 Reasons to Offer Estate Buying at Your Store

Provide your customers with a seamless selling solution by partnering with Windsor Jewelers, Inc.

Supplier BulletinMay 26, 2022
Extraordinary Italian Jewelry at JCK and COUTURE

Sponsored by Italian Trade Agency

Weekly QuizMay 26, 2022
This Week’s Quiz
Test your knowledge of the latest jewelry news with this quick test.
Take the Quiz
SourcingMay 26, 2022
Q&A: Deciphering De Beers’ Blockchain Platform

David Prager virtually sat down with Editor-in-Chief Michelle Graff to answer questions about the rollout of Tracr at scale.

AuctionsMay 26, 2022
Bonhams New York Jewels Auction Is a White Glove Sale

Jewelry and objects belonging to Bette Midler, heiress Hélène Irwin Crocker Fagan, and Lady Sylvia Ashley were among the highlights.

Brought to you by
Dive into GIA’s Pearl Expertise

When it comes to knowing the identity and quality of your pearls, count on GIA as your independent pearl experts.

FinancialsMay 26, 2022
Movado Posts Record Q1 Sales Despite ‘Challenging’ US Market

The company opted not to raise its fiscal guidance, citing a slowdown in the U.S. market as a key reason.

TechnologyMay 26, 2022
State of Retail: The Pros and Cons of 4 Jewelry-Selling Platforms

From “old-school” eBay to new kid on the block 1stDibs, we asked jewelers about their experiences selling jewelry in non-traditional places.

Policies & IssuesMay 26, 2022
Barbara Wheat Named Executive Director of Ethical Metalsmiths

She has nearly 30 years’ experience in the gem and jewelry industry and a background in nonprofit management.

EditorsMay 25, 2022
7 Standout Tiaras in Sotheby’s Platinum Jubilee Exhibition

Senior Editor Brecken Branstrator chooses the pieces she’d most want to see in person.

IndependentsMay 25, 2022
The Mexican Shack to Close After 47 Years

Owner Steve Delzio shares his thoughts on retirement after nearly five decades in the jewelry industry.

IndependentsMay 25, 2022
Designer Theo Fennell Has Written a Memoir

“I Fear for This Boy” takes readers through the ups and downs of his business and is available for pre-order now.

IndependentsMay 25, 2022
MVEye, Wedding Report Partner on New Jewelry Research Platform

“Today’s Wedding Jewelry Consumer” shares data about engagement ring market size, lab-grown and natural diamonds, and more.

ColumnistsMay 24, 2022
The PR Adviser: 10 Questions to Contemplate

Columnist Lilian Raji wants to walk you through the customer journey. But first, she’d like you to answer a few questions.

Events & AwardsMay 24, 2022
8 Gold Jewelry Designers Unveil New Platinum Designs

Several Couture brands have partnered with Platinum Guild International ahead of the jewelry trade show.

Lab-GrownMay 24, 2022
Kendra Scott Unveils Lab-Grown Engagement Ring Collection

The jewelry company is moving into bridal just a month after branching out into the watch world.

SourcingMay 24, 2022
State of the Diamond Industry: Where Does Supply Go From Here?

The 2008 economic crisis, COVID-19, and sanctions on Russian goods have set the stage for an interesting decade for natural diamond supply.

Events & AwardsMay 24, 2022
WJA to Host Diversity Keynote at New Las Vegas Breakfast Event

The Generating Community Impact fundraiser on June 11 will feature Karine Bah Tahé of Blue Level Training.

WatchesMay 23, 2022
Steven Kaiser, Watch Industry Veteran and Beloved Mentor, Dies at 68

Kaiser, whose illustrious career spanned decades, died suddenly on Friday.

IndependentsMay 23, 2022
Long’s Jewelers to Open New Location

The family-owned jeweler is relocating its Braintree, Massachusetts, store to a new space.

IndependentsMay 23, 2022
Luxury Goods Veteran Olivier Stip Joins Chicago Jeweler CD Peacock

He will step into the retailer’s newly created role of chief development officer.

GradingMay 23, 2022
Gem-A Launches Digital Entry-Level Gemology Course

GemIntro is meant to give a broad introduction to gems and gemology.

Recorded WebinarsMay 20, 2022
Watch: Responsible Sourcing and the Gold Supply Chain

Three industry experts discuss “recycled” gold vs. mined, their challenges and benefits, and how jewelers can navigate the area.

FinancialsMay 20, 2022
Richemont’s 2022 Jewelry Sales in the Americas Nearly Double

Cartier, Van Cleef & Arpels, and Buccellati put on stellar performances.

AuctionsMay 20, 2022
Piece of the Week: ‘Birds in Flight’ by Oscar Heyman

The New York jeweler made this incredible, colorful Art Deco bracelet featuring tropical birds in 1927.


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