Second Circuit Vacates Tiffany's $21 Million Win Over Costco

On August 17, 2020, in Tiffany & Co. v. Costco Wholesale Corp., Case No. 17-2798, the U.S. Court of Appeals for the Second Circuit vacated the district court's determination on summary judgment that Costco was liable to Tiffany for willful trademark infringement and counterfeiting and remanded the case for trial. 

In 2013, Tiffany filed suit alleging that Costco's use of the word "Tiffany" on point-of-sale signs at its jewelry counters next to unbranded diamond engagement rings constituted trademark infringement and counterfeiting. Costco argued that its use was not confusing and/or fair use because it used the word "Tiffany" in a descriptive sense to refer to a particular six-pronged diamond solitaire ring setting. After a trial on damages, the jury awarded $3.7 million in profits and $8.25 million in punitive damages, with the district court trebling profits to $11.1 million and adding prejudgment interest for a total of $21 million. The district court also awarded an additional $5.9 million in attorneys' fees and costs. 

The Second Circuit held that Costco raised a triable issue of fact on the three contested likelihood of confusion factors—actual confusion, Costco's bad faith, and sophistication of consumers. The Second Circuit based its conclusion on "Costco's evidence that 'Tiffany' is a broadly recognized term denoting a particular style of pronged ring setting," as well as Costco's evidence and the Second Circuit's prior decision finding "that purchasers of diamond engagement rings educate themselves so as to become discerning customers." The Court found that Tiffany failed to establish actual consumer confusion as a matter law and determined that "[a] reasonable jury could conclude that Costco did not intend to mislead its customers and that signs bearing the word 'Tiffany' were the product of a good-faith attempt to communicate to its customers the setting style of certain rings that it sold." Further, jurors could find that "discriminating" Costco customers would be able to discern that Tiffany "had nothing to do with Costco's diamond engagement rings." 

The Second Circuit also vacated the decision on the counterfeiting claim because it was based on the trademark infringement finding and further noted "that it is likely inappropriate to impose liability for trademark counterfeiting when a defendant is able to establish … that it used a term identical to the registered mark otherwise than as a mark."

Finally, the Second Circuit held that Costco created a triable question on its fair use defense, advising that "[t]here is nothing inherently absurd about a single word's being both a source identifier and a descriptive term within the same product class."

The Second Circuit's decision provides guidance to plaintiffs and defendants alike on the treatment of evidence at the summary judgment stage, as well as providing clarification on the difference between trademark infringement and counterfeiting.