Tiffany & Co. Gifts a Lawsuit this Valentine’s Day
This past Valentine’s Day, the famous jewelry corporation, Tiffany & Co., filed a suit against discount warehouse Costco Wholesale alleging that Costco knowingly and intentionally sold counterfeit Tiffany engagement rings. Tiffany has registered trademarks which include Tiffany, Tiffany & Co., T & Co., and Tiffany Blue Box. In its complaint, Tiffany and its licensor claim that by selling rings advertised as “Tiffany,” Costco is unlawfully using Tiffany’s trademark and is thereby taking advantage of hard work, and significant time and monetary investments made by Tiffany. Tiffany claims Costco’s advertisement of its own rings as “Tiffany” is in violation of various sections of the Lanham Act, the Federal Trademark Dilution Act of 1995, the New York General Business Law, and New York common law.
Tiffany became aware of the Costco rings advertised under the Tiffany name when a woman, while shopping in a California Costco, called Tiffany to express disappointment that the off-price retail chain was selling Tiffany engagement rings. Knowing that Tiffany had never (“nor would it ever,” as stated in the complaint) sold its high-end jewelry to Costco, Tiffany investigated the California woman’s complaint. At that particular Costco, there were two diamond rings, each accompanied by a sign, which stated “Platinum Tiffany” and then listed the specs of the ring.
Further, a sales representative at Costco stated the rings were Tiffany rings, and that there was generally one or two in stock.
Interestingly, Tiffany points out, the same rings were not advertised online as Tiffany, but are instead referred to as “The Audrey Collection.” Perhaps this is meant to make the purchaser think of Audrey Hepburn, famous for her role in the movie Breakfast at Tiffany’s, where she plays a girl who loves to just be at the jewelry store, but nowhere on the Costco website are any of the rings referenced as “Tiffany.” Tiffany believes this evidences Costco’s intent to avoid detection by Tiffany’s intensive trademark policing procedures. By only using the Tiffany trademark in Costco’s brick and mortar stores, which allow entrance to members only, Costco was able to pass its own rings off as Tiffany rings for “many years” without Tiffany’s knowledge.
Tiffany confronted the warehouse chain upon its confirmation that Costco was in fact using the Tiffany trademark to advertise its rings, and Costco immediately agreed to remove all signs displaying the Tiffany name. But the conflict doesn’t end there. Tiffany wants Costco to hand over the profits it received from falsely labeling rings as Tiffany. Included in this, Tiffany demands compensation from the overall value of Costco’s fine jewelry department, which increased as a result of consumers believing Costco carried high-end products such as Tiffany rings. Consumers were also led to conclude that the actual Costco rings were more valuable because they appeared identical to Tiffany rings next to them. In fact however, they were identical rings, all made by Costco, none genuine Tiffany. Further, Tiffany wants a court-ordered permanent injunction to prohibit Costco from ever again using the Tiffany trademark, for Costco to publicly admit wrongdoing in relation to their advertisement of the rings, and to personally contact anyone who had purchased a ring advertised as Tiffany to inform them that they had not, in fact, purchased a Tiffany ring. In addition, Tiffany is reportedly seeking two-million dollars in punitive damages for each fake Tiffany ring sold, of which Tiffany believes there could be hundreds, or even thousands.
This is not the first time high-end brands have entrenched themselves in a legal battle in order to get their products out of the wholesale warehouse chain. In 2000, Calvin Klein sued its major licensor and manufacturer Warnaco Group, Inc. for selling Calvin Klein jeans to Costco without Calvin Klein’s consent. The case ended in an undisclosed settlement, but today you can still find some Calvin Klein products on the Costco website. In 2011, Omega S.A. (Omega), a Swiss manufacturer of high-end watches filed suit against Costco for selling Omega watches etched with a copyrighted globe design. Omega argued Costco was in violation of the Copyright Act, which prohibited the importation of copyrighted goods without the consent of the copyright holder. However, the etched globe design was implemented after Omega’s discovery of its watches being sold in Costco as a way to prevent further importation on a good that was otherwise not eligible for copyright protection. The district court declared this an abuse of Omega’s copyright, and an attempt to “leverage it’s limited monopoly” to gain control of an area outside the scope of the copyright.
So why don’t these brands want to be associated with a hugely successful retailer like Costco? The answer is the fear of brand dilution. High-end products are known not only for their high quality, but also for their abilities to serve as status symbols for their consumers. A large draw for consumers of luxurious brands is that the product communicates to others that the wearer is not an everyday average Joe, and that the wearer can afford expensive items that most other people cannot. When that brand is then sold in Costco, at a drastically reduced price, the product is no longer exclusively for the wealthy consumer. When Tiffany shows up in Costco, there’s suddenly a Tiffany ring for anyone’s budget, and the brand loses its stake as a unique luxury brand that only a select few can have. The truth of this is seen even by the call that started this whole lawsuit. A woman saw Tiffany products in a place like Costco, and went so far as to call the company to express her disappointment. A brand like Tiffany does not belong in a Costco warehouse.
But Costco isn’t ready to give up it’s right to advertise it’s rings as “Tiffany” just yet. Costco’s main argument is that “Tiffany” has become a generic term in the engagement ring industry. A Tiffany setting is described as having “multiple slender prongs extending upward from a base to hold a single gemstone.”
In its answer and counterclaim, Costco has submitted dictionary definitions, references, and advertisements, which use the term Tiffany to describe rings with this setting (Tiffany’s answer to the counterclaim disputes the validity and reliability of these sources). Costco also seeks to invalidate, modify, or partially cancel the trademark at issue, and to get a permanent injunction against the jewelry corporation from ever again asserting a right to prohibit retailers from using the word Tiffany to describe their products.
Costco denies their use of the word Tiffany led to any confusion among customers that they were receiving rings actually manufactured by Tiffany. The Costco rings did not have any brand name embossed on them, whereas Tiffany rings are engraved with the words “Tiffany & Co.” Costco rings come in plain beige gift boxes, clearly different from the famous pale blue box that a Tiffany ring goes home in. Costco rings are also backed by, and appraised by Costco, whereas a Tiffany ring would have Tiffany sales and appraisal documentation.
Costco accuses Tiffany of initiating this suit to hinder lawful competition from Costco selling a substantially similar product of like quality at a cheaper price than sold at Tiffany. Courts generally favor, as an overriding policy consideration, the promotion of a free market and fair competition. Tiffany would likely be up against a strict construction of the trademark law in order to prevent monopoly control over an area Tiffany’s trademark doesn’t reach.
But is a store like Tiffany, which prides itself on luxury goods as well as a luxurious shopping experience, likely to be afraid of losing market share to a “no frills” warehouse giant like Costco? Tiffany claims the sales approaches of the two stores are “polar opposites,” which leads to the assumption that the target markets are also completely different. It is likely the aforementioned possibility of brand dilution is of the utmost concern to the high-end jeweler. A ruling in favor of Costco could have devastating effects for the future of the reputable Tiffany name. Further, the impact of such a decision would likely be felt across other high-end brands if the Tiffany trademark now constitutes a generic term in its industry. Many brands have signature looks, which an off-price retailer could then argue that the associated trademark is a generic term in the industry. Could stores advertise red-soled shoes as Louboutin? Or could any trench coat with a beige plaid detail be advertised as Burberry? Ruling in favor of Costco could set a scary precedent for high-end brands, especially those in the fashion industry, who already fight an uphill battle to get protection for their products. The outcome of this case is surely one that manufacturers and retailers of both high and low-end goods should keep an eye on.
