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Costco in Trouble for Diluting Tiffany’s Sparkle

October 27, 2022
Trademark Costco in Trouble for Diluting Tiffany’s Sparkle

By Priya Adlakha and Arpit Kalra

The understanding of trademark infringement has taken an interesting turn with the conclusion of the widely reported and speculated case between Tiffany & Co. and Costco Corporation, in 2021[1] , which eventually ended in a settlement between the parties. The dispute arose in 2013 when Tiffany & Co. filed a suit against Costco before the District Court of the Southern District of New York (or “SDNY”), alleging that the latter had indulged in trademark infringement, dilution, counterfeiting, unfair competition, false and deceptive business practices and false advertising in violation of the Lanham Act (or the US Trademark Law)[2] and New York law. The complaint filed by Tiffany & Co. based the allegations on the point that Costco had been using the word “Tiffany” on their point-of-sale signs, solely, unaccompanied by any other words, such as “setting”, “style” or “set”. Having undergone various levels of judicial interpretations, the parties put to rest the long-running lawsuit with a settlement.

Facts of the case

In 2013, Tiffany & Co. filed a complaint for trademark infringement and additional grounds against Costco Corporation in the District Court of SDNY, for using the word “Tiffany” on their point-of-sale signs and not the term “Tiffany Setting”. In response, Costco argued that the usage of said word was to describe the setting styles used in certain rings, and also being generic, qualified as “fair use”, in good faith, under the Lanham Act, and not an infringement. Costco also filed a counterclaim seeking cancellation or modification of federal trademark registrations of the word “Tiffany”, since it was a commonly used term within the industry for a ring setting. Upon discovery, Tiffany filed a summary judgement motion seeking dismissal of Costco’s counterclaim, which was unsuccessful. The discovery process involved massive evidentiary submissions made by both parties, in favor of their claims, ranging from declarations and deposition testimonies of Costco customers, employees, expert reports, sales records to physical specimens of engagement rings of both parties as well as their packaging. Alternatively, Costco cross-moved for summary judgement as well, among other things, seeking dismissal of Tiffany’s counterfeiting and punitive damages.

Dispute

In a nutshell, the dispute between the parties came down to the use of the word “Tiffany” by Costco, with respect to engagement rings, which, as alleged by Tiffany & Co., had apparently been purchased by thousands of Costco customers under the false premise that they were authentic Tiffany products. On the contrary, Costco’s primary argument was based on the fact that “Tiffany” is not a legally-protected trademark, but a generic term used popularly within the industry, in short for “Tiffany setting”, or a form of specific ring setting with six prongs, thus seeking to invalidate the protection granted to the Tiffany mark.

Procedural History

In 2015, the District Court of SDNY ruled in favor of Tiffany & Co., stating that Costco was liable on the counts of trademark infringement, counterfeiting, and causing confusion among the consumers, in using the word “Tiffany” for certain rings sold by them. J. Laura Taylor Swain gave the decision based on evidence on record and stated that despite Costco’s arguments to the contrary, there was no rational fact supporting the conclusion that they had acted in any form of good faith while adopting the “Tiffany” mark. The decision of quantity/amount of damages to be awarded to Tiffany & Co. was left to the discretion of the jury, which then ruled for a sum of $21 million. On a parallel, J. Swain dismissed Costco’s counterclaims, including removal of federal registration, and defense of fair use.

In August 2020, the US Court of Appeals for the Second Circuit, through a 3-0 panel, invalidated the lower court’s judgement and ruled in favor of Costco. One of the judges, J. Debra Ann Livingston, stated that the jury could reasonably reach a conclusion that the use of the word “Tiffany” by Costco was merely in respect of the six-prong ring setting and was not intended to pass off their products as those of Tiffany & Co. Reliance for this decision was placed on the evidence proffered by Costco, which sufficiently supported that “Tiffany” had become a generic, broad term denoting a particular style of ring setting and that there was no likelihood of consumer confusion, since purchasers of diamond engagement rings are capable of discerning specific differences, while recognizing that Costco rings are not manufactured by Tiffany & Co. Additionally, it was also held by the Court of Appeals that there existed a factual dispute over whether the use of “Tiffany” by Costco was merely descriptive of a type of ring setting or whether the use thereof qualified as infringement of trademark: which was to be decided by a jury on its merits. In observing thus, the Court held that the District Court was ultimately responsible for making factual determinations at the stage of summary judgement only in situations where all submissions led to only one conclusion, in favor of the Defendants. Finally, it was also held by the Court that it was not within the authority of the lower court to hold Costco liable for trademark infringement at the stage of summary judgement, while also noting inappropriateness in applying counterfeit liability when the use of the registered mark was otherwise than as a trademark, and since counterfeiting is a mere aggravated form of infringement, both decisions of the lower court were dismissed on similar grounds.

Through this dismissal by the Court of Appeals, the matter was remanded to the District Court for a fresh trial, before which the parties amicably agreed to dismiss the lawsuit, through filing of a stipulation before the New York Federal Court in July, 2021.

Opinion

The present case has played an important role in establishing precedence with respect to usage of a valid and subsisting word mark, in a descriptive sense, having acquired generality through extensive usage within a particular industry. The Court, in identifying the dual use of a term, both as a trademark and as a descriptive term within the same industry, has paved the way for many such possible disputes hereinafter, challenging the protectability of descriptive terms. As a thumb rule of trademark law, it is quite clear that descriptive terms are not granted trademark registrations, unless they acquire a secondary meaning. However, in the present instance, the word “Tiffany” is not only a validly registered mark, but has also acquired a generic connotation (with respect to ring setting styles) within the jewellery industry. Additionally, the Court’s decision has also played an important role in bringing to the forefront the relationship between counterfeit claims and descriptive use defense, wherein when a registered mark is used in descriptive sense, the liability of counterfeit cannot be invited. The Court has also specified the thin line of difference which exists between using a mark in good faith or bad faith, while stating that when an unprotected mark is used, it is not always conclusive of bad faith, throwing caution to the litigants assuming so. The Court elaborated on the possibility of using such terminology as mere indications of the nature an/or quality of the products and not being representative of possible mala fide intention to establish infringement.

Indian Position

In India, Section 30(2) of the Trade Marks Act, 1999[3] , mentions the fair use provisions, wherein this specific situation might be covered. Descriptive fair use is a valid defense against trademark infringement, even of a registered mark. This has also been repeatedly established through multiple judicial interpretations over the years, through cases like Marico Limited v. Agro Tech Foods Limited, 2010 (44) PTC 736, wherein it had been held that the term “Low Absorb” had not been sought to be used as a mark, but rather in a descriptive sense, which is permissible even under the legislation, specifically under Section 30(2)(a). A similar decision was given in Cadila Healthcare Ltd. v. Gujarat Cooperative Milk Marketing Federation Ltd. & Ors, 2009 (41) PTC 336, with respect to the term “Sugar Free”. In both cases, the principle of descriptive fair use, relied upon heavily in the present matter, remained the same.

Conclusion

Therefore, the case remains a landmark precedent for times to come, for understanding the difference between use of a word mark in its true sense, or descriptive sense, with bona fide intention.

[1] Tiffany & Co. v. Costco Wholesale Corp., 1:13-cv-01041(SDNY)
[2]Accessible at https://www.uspto.gov/sites/default/files/trademarks/law/Trademark_Statutes.pdf
[3]Accessible at https://legislative.gov.in/sites/default/files/A1999-47_0.pdf

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