In the world of high fashion and luxury goods, Costco is not a name that jumps to forefront. In fact, Costco might be considered the epitome of generic. It is just such an argument that Costco put forward about luxury brand Tiffany in a recent row over rings demonstrates the danger of playing it too close to the edge. Costco is a membership-only warehouse retailer known for selling bulk-packaged products at discounted rates. They sell ketchup by the gallon, canned corn by the pound, and even cars and vacations at wholesale prices. They also sell Tiffany diamond rings. While the name evokes images of sparkling trinkets packaged in robin egg blue boxes, Costco claims that the name is not meant to be affiliated with Tiffany & Co., a luxury jewelry brand.
Costco asserts that the “Tiffany” ring is simply a reference to Tiffany & Co.’s classic style of setting the diamond on a band with six prolonged prongs. The term “Tiffany setting” even appears in the dictionary as a style popularized by Charles Tiffany in 1886 [i]. Costco argues that “Tiffany” has become a generic term, similar to how “Kleenex” is a term used colloquially for tissues. However, without any modifiers to indicate that the rings were not created by the iconic jewelry brand, Costco is liable for trademark infringement. Tiffany & Co. has claimed that Costco was illegally selling counterfeit products and willingly infringing upon its trademarked brand by using the word “Tiffany” in its marketing displays. Costco customers have even expressed confusion and anger upon realizing that their reasonably priced diamond ring is not an authentic Tiffany & Co. product. On February 14th, 2013, Tiffany & Co. sued Costco over the alleged infringement. On August 14th, 2017, a federal judge determined that Tiffany & Co. may recover at least $19.4 million in damages [ii].
U.S. District Judge Laura Taylor Swain has estimated that Tiffany & Co. deserves $11.1 million plus interest, which is three times the amount of profit lost from Costco’s infringement. Tiffany & Co. was also awarded $8.25 million in punitive and statutory damages in a decision made by a jury last October [iii]. After determining that Costco’s reference to the luxury brand was “an intentionally deceptive marketing ploy,” Judge Swain has also issued a permanent injunction that prohibits Costco from using the Tiffany name [iv].
Tiffany & Co. has been involved with protecting its intellectual property for many years. Since 1991, the brand has filed 28 lawsuits concerning its copyrights, patents, and trademarks. In the same number of years, Costco has been involved in 190 intellectual property lawsuits, 161 of which it was a defendant [v]. This case in particular demonstrates the importance of trademark protection in avoiding consumer confusion. While Costco excels at selling a high volume of merchandise at incredibly low prices, this marketing blunder cost them about 3 million gallons of ketchup.
[i] Tiffany vs. Costco: Is this Popular Wholesale Store Selling Tiffany Rings? (2013, June 14). Retrieved August 16, 2017 from https://www.thediamondauthority.org/tiffany-vs-costco-is-this-popular-wholesale-store-selling-tiffany-rings/
[ii] Stempel, J. (2017, August 14). Costco owes Tiffany $19.4 million for fake Tiffany rings: U.S. judge. Retrieved August 16, 2017 from https://www.reuters.com/article/us-costco-wholesale-tiffany-idUSKCN1AU29U
[iii] Miao, E. and Organ, D. (2016, October 10). Analysis: Why Tiffany Won $15M from Costco. Retrieved August 16, 2017 from https://www.nationaljeweler.com/majors/market-developments/4753-analysis-why-tiffany-won-15m-from-costco
[iv] McCoy, K. (2017, August 15). Judge: Costco must pay Tiffany $19.4 million for advertising knock-off rings. Retrieved August 16, 2017 from https://www.usatoday.com/story/money/2017/08/15/judge-costco-must-pay-tiffany-19-4-million-advertising-knock-off-rings/568129001/
[v] Miao, E. and Organ, D. (2016, October 10). Analysis: Why Tiffany Won $15M from Costco. Retrieved August 16, 2017 from https://www.nationaljeweler.com/majors/market-developments/4753-analysis-why-tiffany-won-15m-from-costco
Posted in: Commercial Litigation