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

Buccellati jewelry
FinancialsMay 17, 2024
Richemont Appoints Van Cleef & Arpels’ Nicolas Bos as New CEO

The announcement coincided with its full-year results, with growth driven by its jewelry brands.

Watches of Switzerland Mall of America store
FinancialsMay 17, 2024
Watches of Switzerland’s Fiscal-Year Sales Flat

Looking ahead, the retailer said it sees “enormous potential” in Roberto Coin’s ability to boost its branded jewelry business.

My Next Question webinar series graphic
Recorded WebinarsMay 17, 2024
Watch: Preparing for Trade Show Success

Jewelry trade show veterans share strategies for engaging buyers, managing your time effectively, and packing the right shoes.

Royal Chain gold chains
Brought to you by
Record Gold Prices Have Consumers Undeterred. Here’s Why.

Despite the rising prices, consumers continue to seek out the precious metal.

Cartier ring-tailed lemur brooch circa 1991
AuctionsMay 17, 2024
Piece of the Week: Cartier’s Ring-Tailed Lemur

This little guy’s name is Ricky and he just sold for more than $200,000 at Sotheby’s Geneva jewelry auction.

Weekly QuizMay 16, 2024
This Week’s Quiz
Test your jewelry news knowledge by answering these seven questions.
Take the Quiz
202.18 carat fancy intense yellow diamond The Yellow Rose
AuctionsMay 16, 2024
Christie’s Holds 2 Sales Despite Cyberattack

Though its website has been down for a week, Christie’s proceeded with its jewelry and watch auctions on May 13-14, bringing in nearly $80 million.

The Allnatt yellow diamond
AuctionsMay 16, 2024
Sotheby’s Withdraws 101-Carat Yellow Diamond from Auction

Despite the absence of “The Allnatt,” Sotheby’s Geneva jewelry auction totaled $34 million, with 90 percent of lots sold.

Header image w logo.jpg
Brought to you by
From Registration to Return: 10 Tips to Protect You Before, During and After a Tradeshow

Tradeshow risks are real. Get tips to protect yourself before, during and after and gain safety and security awareness for your business.

National Jeweler columnist Lilian Raji
ColumnistsMay 16, 2024
The PR Adviser: What the Designer Should’ve Done

Lilian Raji gives advice to designers on how to make the most of great publicity opportunities.

Mothae Diamond Mine Lesotho
SourcingMay 16, 2024
Lucapa to Shed Stake in Lesotho Diamond Mine

The mining company wants to divest its 70 percent holding in the Mothae Diamond Mine in an effort to streamline its portfolio.

National Jeweler columnist Peter Smith
ColumnistsMay 15, 2024
Squirrel Spotting: Why Retailers Struggle to Fire Brands

Why do so many jewelers keep lines that are not selling? Peter Smith thinks the answer lies in these two behavioral principles.

The Argyle Phoenix red diamond
AuctionsMay 15, 2024
Red Diamond Breaks Records at Phillips Geneva

The “Argyle Phoenix” sold for more than $4 million at the auction house’s second jewels sale.

Jewelers of America 20 Under 40 2024 recipients
Events & AwardsMay 15, 2024
See Who’s in JA’s 2024 ‘20 Under 40’ Class

The annual list recognizes young professionals making an impact in jewelry retail.

David Mann jewelry store
IndependentsMay 15, 2024
David Mann Jewelers in Upstate NY to Close After 35 Years

Owner David Mann is heading into retirement.

Brilliant Earth Logan Hollowell jewelry collection
FinancialsMay 15, 2024
Brilliant Earth’s Sales Fall Flat in Q1

While overall sales were sluggish, the retailer said its non-bridal fine jewelry was a popular choice for Valentine’s Day.

Rough diamonds from De Beers
SourcingMay 14, 2024
Anglo American Confirms It Is Looking to Sell De Beers

The mining giant also wants to offload its platinum business as part of an overhaul designed to “unlock significant value.”

The Yellow Rose and the Allnatt yellow diamonds
AuctionsMay 14, 2024
2 Huge Yellow Diamonds Are Heading to Auction

Christie's is selling one of the diamonds, moving forward with its Geneva jewelry auction despite the cyberattack that took down its website.

Instappraise Trifold Brochure
GradingMay 14, 2024
Instappraise Adds Trifold Brochure to Appraisal Offerings

Retailers can customize and print the appraisal brochures from their store.

White, pink, and blue lab-grown diamonds from Lightbox
Lab-GrownMay 13, 2024
Lab-Grown Diamond Brand Lightbox Cuts Prices by 25 to 40%

The move follows a price-drop test run in Q4 and comes with the addition of a “quality assurance card” from GIA for some loose diamonds.

Christie’s New York
TechnologyMay 13, 2024
Christie’s Website Brought Down by Hackers, Watch Auction Postponed

The site has been down since Thursday evening, just ahead of its spring auctions.

Madeleine K. Albright’s Patriotic Leopard Brooch
AuctionsMay 13, 2024
Madeleine Albright’s Jewelry, Pins a White-Glove Sale at Freeman’s | Hindman

The late former U.S. Secretary’s collection went for quadruple the sale’s pre-sale estimate.

Zachary’s Jewelers Mother’s Day Jewelry Contest winners
IndependentsMay 13, 2024
Zachary’s Jewelers Names Mother’s Day Jewelry Contest Winners

Three fifth graders’ winning designs were turned into custom jewelry pieces in time for Mother’s Day.

Kimberly Adams Russell
IndependentsMay 10, 2024
Frank Adams Jewelers Names New CEO

Kimberly Adams Russell is taking over the role from her father, David Adams, marking the third generation to hold the title.

Birth of Venus necklace
CollectionsMay 10, 2024
Piece of the Week: Carina Hardy’s ‘Birth of Venus’ Necklace

As a token of womanhood, this necklace depicts when Venus was born from the sea.

Lauren K Mosaic necklace
TrendsMay 09, 2024
Amanda’s Style File: Shine Bright, Moms  

Show your mother some love with a piece of fine jewelry.

Kyle Edward Fine Jewelry
IndependentsMay 09, 2024
Kyle Edward Fine Jewelry to Close Salisbury Store

The company’s Easton location will remain open.

Jewelers Board of Trade logo
MajorsMay 09, 2024
JBT Elects New Chairman

Brian D. Fleming of Carla Corporation was elected to serve a one-year term in the role.

×

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