A federal court of appeals threw out a $21 million judgment and remanded the case to determine whether a retailer infringed a trademark by marketing generic diamond engagement rings with the term “Tiffany.” The appellate court held that the district court erred by failing to consider the retailer’s evidence, which raised a triable issue as to whether consumers would be confused about the distinction between rings made by high-end jeweler Tiffany and Company and generic Tiffany-style ring settings. ABA Litigation Section leaders emphasize that the decision underscores the highly fact-specific nature of trademark litigation.
In Tiffany and Co. v. Costco Wholesale Corp., the centuries-old jeweler Tiffany and Company accused big-box chain Costco Wholesale Corporation of violating the Lanham Act and New York law by using “Tiffany” to describe its rings. Costco maintained that it was entitled to use “Tiffany” because the term was not just a brand-name mark but also used widely in the jewelry industry to refer to a style of diamond setting made famous by Charles Tiffany in the mid-1800s.
Costco sells a variety of diamond engagement rings specifically produced for it by the jeweler R.B. Diamond, Inc., and which it refers to as “unbranded.” The rings are available in a variety of settings, such as bezel, cathedral, channel, and the Tiffany setting. The retailer displays the rings in prominent cases near the front of its stores with sale signs indicating the setting and, in more noticeable font, the price. Costco admitted that it sometimes used “Tiffany settings” in its marketing, and sometimes merely “Tiffany.”
The jeweler further pointed out that Costco’s additional efforts to promote Tiffany-style diamonds to more upscale customers mimicked some of Tiffany’s marketing, and that Costco displayed Tiffany’s website near the rings. It also cited emails from Costco customers who were concerned about the source of the rings and Costco’s failure to clarify the confusion.
Tiffany moved for summary judgment based in part on its internet customer survey of Costco customers who said that they would “consider buying a diamond engagement ring at Costco that cost at least $2,500.” The customers were shown pictures of the rings alongside the signs Costco used to market them. The survey’s author concluded that “more than two out of five were likely confused into believing that Tiffany & Co. was the source of the rings.”
The U.S. District Court for the Southern District of New York granted the jeweler summary judgment on liability and held a trial to determine if Tiffany was entitled to lost profits statutory damages under the Lanham Act. The district court ultimately made its own determination on damages and awarded Tiffany “trebled profits in the amount of $11.1 million (based on the advisory jury’s award of $3.7 million), along with the additional $8.25 million in punitive damages awarded by the jury.” On appeal, Costco argued that the district court erred by not crediting its evidence that contradicted Tiffany’s customer survey and showed that it acted in good faith.
The U.S. Court of Appeals for the Second Circuit agreed that there was a triable issue of fact as to whether consumers of diamond rings would have been misled by Costco’s marketing. To prove a violation of the trademark laws, a plaintiff must establish that a defendant’s actions are likely to cause confusion with a valid mark. Specifically, there must be “a probability of confusion . . . affecting numerous ordinary prudent purchasers.” The appellate court concluded that Costco had established a fact issue by providing evidence that “Tiffany” is a generic descriptor used to denote a certain type of ring setting, that Costco did not brand its rings with the Tiffany mark, and that buyers received Costco-branded sales documents. The court also reasoned that because engagement rings are such an important purchase, customers ready to purchase a ring would research the different ring options and learn about the difference between the mark and the setting and recognize that a Tiffany-style setting was not a Tiffany ring.
Litigation Section leaders believe that interpretation of the survey data was a key issue. “The appellate court here took the district court to task for taking Tiffany’s customer survey evidence at face value,” observes Michael D. Steger, New York, NY, cochair of the Litigation Section’s Intellectual Property Committee. “The court’s opinion makes clear that there was at least a triable issue of fact as to whether sophisticated customers in the market for diamond engagement rings would be misled by Costco’s marketing,” he adds.
The Second Circuit’s decision stressed the importance of providing accurate consumer information in competitive markets. “In the trademark space, the law is very concerned with consumer confusion, which is just a different take on protecting consumer welfare. If consumers are confused about the source of a product, they are not making an informed choice to purchase the product,” explains Lauren M. Weinstein, Washington, DC, cochair of the Section’s Antitrust Litigation Committee.
“A trademark is essentially a lawful monopoly. Antitrust law does not forbid monopolies, only the abuse of monopoly power,” notes Weinstein. “Similarly, trademark law does not penalize all uses of other’s trademarks, only improper uses of protected marks. This case shows that when a plaintiff can demonstrate that a mark is being used as a descriptor that consumers would understand as such, the trademark holder’s monopoly does not prohibit that use,” she concludes.
