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JD Talks  Tiffany v Costco Raises YOUTUBE

JONES DAY TALKS®: Tiffany v. Costco Raises Trademark Infringement, Counterfeiting Questions

A federal appeals court has overturned Tiffany & Co's $21 million judgment against Costco Wholesale over the retail chain's sale of diamond engagement rings with the “Tiffany” name. Jones Day partners Meredith Wilkes and Jessica Bradley explain why the decision is illustrative of the treatment of evidence at the summary judgment stage, while also providing clarification on differences between trademark infringement and counterfeiting.

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Dave Dalton:

Our JONES DAY TALKS®: Women in IP podcasts have covered many issues across a number of industries, but I think this might be the first time we've talked about a matter involving two household name corporations that also happen to be retail powerhouses. Here's what's going on. A federal appeals court has overturned Tiffany & Co's $21 million judgment against Costco wholesale over the warehouse club chains sale of generic diamond engagement rings bearing the Tiffany name.

But there's a lot to unpack here: summary judgment considerations; fair use standards; and the difference between trademark infringement and counterfeiting. Jones Day's Meredith Wilkes and Jessica Bradley are here to explain. I'm Dave Dalton. You're listening to JONES DAY TALKS®: Women in IP.

Meredith Wilkes co-leads Jones Day's global trademarks, unfair competition and copyrights group. She focuses on high stake trademark, trade secret, false advertising and design patent litigation leading matters for global brands and federal and state courts throughout the United States. Meredith also chairs the firms Women in IP initiative.

Jessica Bradley has more than 10 years experience litigating trademark, trade dress, false advertising, unfair competition, dilution, and copyright cases. She also counsels clients on trademark clearance, prosecution and enforcement, including representing clients before the trademark trial and appeal board. Jessica is a member of the International Trademark Association's trademark enforcement policy advocacy subcommittee. Meredith, Jessica, thanks for being here today.

Meredith Wilkes:

Thanks for having us, Dave.

Jessica Bradley:

Good to be here.

Dave Dalton:

We are talking about Tiffany & Co v. Costco Wholesale Corp. Two household words, big brands embroiled in some big scuffle. There was a second circuit decision recently that overturned a lower court ruling. But before we get into all of that, give us some background, Meredith. What did Costco do to incur the wrath of Tiffany & Co? What happened?

Meredith Wilkes:

Wrath is a good word.

Dave Dalton:

It was a wrath. Let's do it on full round. You spend a long time building a brand and look out. Yeah, so I think this was back in 2013 originally, right? So how did it all unfold?

Meredith Wilkes:

The battle actually dates back to 2012, and there was some evidence that there may have even been some issues prior to that time. But at least we know in 2012, Tiffany loyalists alerted Tiffany that they had seen the word Tiffany appearing in Costco in connection with the sale of diamond rings. As brand owners typically do in cases like this, they'd sent out a cease and desist letter to Costco telling them stop using the word Tiffany.

By all under indicators, Costco did take down the signage in the stores and stopped using. But a Valentine's day love note came across the bow in the form of a lawsuit in the Southern district of New York in 2013. Tiffany accused Costco of infringing its trademark rights, diluting its trademark rights and engaging in trademark counterfeiting, essentially, and the case went on then for a couple of years.

I think it's important to note some of the facts in this case. Now, we didn't have a trial and I'll get to that one second. All we have are the papers on summary judgment. But the word Tiffany was used in point of sale displays at Costco. And anybody who's walked into Costco knows there's all these different sections. So there was no Tiffany signage prominently anywhere in the store, it was just in the jewelry case next to the rings, the word Tiffany appeared. Tiffany rings or Tiffany style rings. The word Tiffany didn't appear on the box. The famous blue packaging wasn't used anywhere. In fact, there was a different brand name on the actual ring.

But not withstanding, the cease and desist letter went, the lawsuit was filed 2013. And in 2015, Tiffany got summary judgment of liability against Costco. And it got some regional liability for both its infringement claim and its counterfeiting claim. So all that happened after that was a trial on damages. And all probably isn't exactly the right word because in 2016, Tiffany recovered really substantial damages from Costco. Treble damages in the amount of $11.1 million and 8.25 in punitive damages, then of course attorney's fees and prejudgment interest. So it was a really huge victory at the trial level for Tiffany, and so that always means a big appeals always going to follow.

Dave Dalton:

Sure. No one could have been surprised. Well, let's go to Jessica Bradley for a second. Jessica, okay, so the allegation originally was trademark infringement and counterfeiting. What was Costco's defense in the original case? How did they push back a little bit?

Jessica Bradley:

They essentially had two main part to Costco's defense here. First they filed a counterclaim to cancel some of Tiffany's trademark registrations for the mark Tiffany on the grounds that Tiffany was a generic term for a type of setting, so it wasn't protectable for some of the goods covered by the registration and that the registration had to be canceled. On that, the district court granted summary judgment to Tiffany dismissing that counterclaim and that didn't go up on appeal, so that wasn't part of the second circuit decision.

The core part that reached the second circuit was Costco's defense of fair use. As Meredith was saying, the word Tiffany was used on point of sale signs in the jewelry case. And Costco argued that the word Tiffany was widely recognized as a descriptive term for a particular style of a ring setting, an engagement ring setting, and that it was using the word Tiffany in this descriptive sense. Not as a trademark, but just to describe the rings that had the setting that was used for this. Costco pointed to evidence that supported defense. It sold other rings in a similar manner using similar signs where they would put in the name of the setting like cathedral or bezel. And then they also pointed to advertisements and dictionaries and trade publications that have referred to this type of setting, this particular style setting, as a Tiffany setting.

Dave Dalton:

Yeah. I don't know if it got to this point, but I can see them bringing in expert witnesses from the jewelry industry. Oh yeah, that's sort of a Tiffany style. That's sort of a generic term. That's common use, fair use maybe. I shouldn't use legal terms that don't fully understand. But I could see that argument. Is that legit, Jessica?

Jessica Bradley:

Yeah, no, I definitely think that was the stronger argument for Costco here. Fair use versus the genericism counterclaim. And there definitely was expert evidence here and competing experts on a variety of issues. It was interesting because there is some historical precedent to this. I mean, some of the documents that were put in this case went back to the 1800's when Tiffany first came out. Definitely interesting.

Dave Dalton:

No doubt, no doubt. Okay, back to Meredith for a second. So Costco loses on summary judgment, and as you mentioned, big award, I think. I mean, I wouldn't set it on fire if it were in front of me. Twenty-one million bucks, plus another 6 million in attorney's fees. So there's going to be an appeal. No one's surprised. But talk about the issues Costco would raise on appeal. I think there's a concept of likelihood of confusion. Tell us about how all this works with trademark law in this particular case.

Meredith Wilkes:

So there are a couple issues on appeal here and the first centers on the courts entrance of summary judgment of liability. Trademark infringement cases, by their very nature, tend to be very fact sensitive inquiries. you and Jessica were just talking about that a minute ago, where maybe there'd be some expert testimony about some things. Jessica mentioned that there was, in fact, some competing expert testimony about some of the issues in the case. It's exactly those types of things where there's evidence that points both ways that suggests that maybe you shouldn't be entering summary judgment and not letting a jury hear the competing evidence on these issues. And that's the thrust of Costco's appeal here. They're saying, "Listen, we should be able to get to a jury on this issue of infringement counterfeiting, these liability issues. And we should be able to get to a jury on our fair use defense, on this descriptive fair use defense."

Each circuit has its own test of likelihood of confusion, which is the litmus test for infringement. In the second circuit it's the Polaroid factors, and there's a whole bunch of different... Eight different factors that courts assess to determine whether or not there's likelihood of confusion, infringement, liability. And competing evidence on these factors always suggests that the case should get to a jury so that the jury can resolve which evidence they want to believe, who they want to believe.

Costco here is asserting three in particular on appeal. They're saying, "Listen, the evidence with respect to actual confusion," there's a tremendous fact dispute on that. Fights back and forth about whether the survey was any good and the methodology was any good, and what weight should be given to it.

Big fact dispute on Costco's faith, whether or not Costco acted in good faith. And that's important for a couple of reasons. One, it can really impact the damages and can really impact whether or not there's a counterfeiting claim. But also, to Jessica's point and Costco's defense, it implicates whether or not there's a fair use defense.

And then the sophistication of the customers is another issue that Costco is challenging. And they were saying, "Listen, those three Polaroid factors are really in dispute. There's competing evidence, so it should get to a jury." And that's really the thrust of the appeal.

Dave Dalton:

That's where it headed. I don't mean to dumb this down too much, but talk about fair use and likelihood of confusion, good faith and so forth. No one thinks they're buying a Tiffany ring in Costco, right? Was that kind of what you could infer here? It's not the same as being down on Park Avenue and buying the ring from that jeweler in that store in New York City. This is different. Is that what everybody's thinking here, Meredith? You just know better.

Meredith Wilkes:

Yes. I think you hit the nail right on the head there, Dave. I think that's part of Costco's defense here that you walk into Costco, you don't think you're walking into Tiffany & Co or walking into the Tiffany store. But at a very minimum, this is something that a jury should be deciding and not a judge on summary judgment.

Dave Dalton:

Got you. All right, back to Jessica Bradley for a second. Jessica, okay, the decision is vacated. What was the second circuit's reasoning in reaching that decision?

Jessica Bradley:

To follow up what Meredith was talking about, the really key driver of the second circuit's decision is that this was a case that was decided on summary judgment. That it didn't reach the jury, liability only on damages. So it was really focusing on the summary judgment standard and it found that there were disputed issues of material fact, meaning there was evidence that existed that supported both sides. And where that is the case, a judge cannot decide issues as a matter of law where there's competing evidence like this, that a jury has to consider it and weigh that evidence.

Jessica Bradley:

Just digging in a little bit more, Meredith mentioned the key likelihood of confusion factors the second circuit was focusing in on here, for example, actual confusion. Tiffany had a survey, Costco didn't do its own survey, but had an expert that critiqued Tiffany's survey pointing out things like Tiffany's survey only showed a single ring and a sign in isolation. Show it like they would actually appear in the Costco display case. And the second circuit there said, "Well, there is a dispute here." The district court kind of just waved that away and said, "Well, Costco didn't do its own survey. Its rebuttal survey only goes to the weight," but that in and of itself creates a disputed issue of material fact.

Dave Dalton:

Okay. I want to talk about the counterfeiting claim for a second in this context. But before we get to that, Jessica, did Costco move for summary judgment? I'm sorry if this so 101-ish, but I'm wondering why the summary judgment came about in the first place and who decides this didn't go to a jury. What are the mechanics there?

Jessica Bradley:

So there was competing motions for summary judgment here. Tiffany filed a motion for summary judgment on its claim and on Costco's fair use defense, and Costco filed a motion for summary judgment also on its counterclaim. So either side can file a motion for summary judgment and then the judge looks at the motion for summary judgment. If the material facts are undisputed, then the judge can issue summary judgment. It has to give all benefit to the non-moving party on the evidence. So viewing the evidence in the most favorable to the side that's not moving, if there's still no dispute of material fact and you can only come out one way then yes, the judge can decide, as a matter of law, the issue and it doesn't have to go to the jury.

When you file these types of motions, there can be a lot of different weighing. Each side, obviously, is trying to argue that there is no competing evidence. But it was clear here when you really looked at the evidence, there definitely was evidence on both sides and it's not something that the court can just do away with on its own.

Dave Dalton:

Okay. I want to get back to the counterfeiting claim because I'd never heard about counterfeiting, honestly, in a retail context. Counterfeiting, you think about people making bogus money, or art, for instance. Counterfeit, that's not really a Rembrandt, right? And you try and pilfer it off on somebody. What does counterfeiting mean in this context, Jessica? I was surprised to see that term come about in the story.

Jessica Bradley:

So just taking a step back to the legal definition of counterfeiting in this context, it's an aggravated form of trademark infringement. It's when you have a spurious mark which is identical with, or substantially indistinguishable, from a registered trademark. The second circuit explained spurious means fake or deceptively suggesting an erroneous origin.

So really it's not the normal everyday trademark infringement. It's really where you are trying to deceive a consumer, you're trying to take advantage and using a fake mark on your product to make consumers think that Costco was trying to make consumers think that it was Tiffany.

The line between trademark infringement and counterfeiting, when you get into one versus the other, it can be a little bit hard to make that determination. And the second circuit, not as part of its actual decision but in a footnote, had some interesting guidance. I think it was clear the second circuit did not view this as a counterfeiting case. It viewed at most as a trademark infringement case.

Dave Dalton:

Got you, got you. We'll talk about takeaways in a second and what we learned from this decision, but let's talk about near term what's next. Meredith, the case has been remanded back to the district court. What happens from here, do you think? You notice how I always do this to you? We can have 10 then lawyers on the podcast, I always ask you. It's like, "What is going to happen? Get out your crystal ball." So, give it a shot.

Meredith Wilkes:

Yes, I will take out my crystal ball right now. So when you're dealing with big dollars in damages, you've given both sides a real reason to dig in and fight. That's definitely true in this case, but I think there's even more at stake here and it's various in respect to business models that are at issue. So I think there's an added incentive for both parties to fight here.

Meredith Wilkes:

We have a big reputation and brand issue for Tiffany, I think, because at some level Costco, and then probably others who would be likely to follow, are trying to genericise or allow for a descriptive use of what some would view as a very famous and iconic brand, Tiffany. So Costco is trying to allow everybody, not just Costco, to use Tiffany as this style of diamond ring. So regardless of the dollars that are at issue, Tiffany has a real reason to fight for that reason alone. 

On the flip side, Costco's business model is to sell its stuff in its store and be able to describe the things that it's selling, or say that it is like X, Y, and Z. And something that Jess alluded to earlier, the second circuit was saying this, if it's trademark infringement, that's one thing. But this is not what we think of when we think of counterfeit activity. This is not knockoff bags on Seventh Avenue, you know what I mean?

Dave Dalton:

Yeah, yeah.

Meredith Wilkes:

So there's incentives that I think here on both sides to fight for a really long time. The question becomes, in the COVID world, because the case has been remanded and it has to go to a jury, is this going to be a live jury trial? Are you going to be doing a virtual jury trial, some sort of Zoom or WebEx type of jury trial? So that could impact decisions that get made.

Meredith Wilkes:

A lot of times after a big case goes up on appeal, case is settled, but here there's really a lot at stake. My sense is is that it's going to continue to go forward. It's been going on since 2012 and my sense is it's going to go on for some time.

Dave Dalton:

Right, what's the hurry now? As you were talking, it dawned on me. I'm not a car guy, I'm not. I can barely pump my own gas. But I've got a brother-in-law who's big into cars. I was at his house several weeks ago and he was flipping through this magazine and I saw classified... Not classified, a display ad in this car magazine for Ferrari sound exhaust. You know that [car exhaust sound] you hear when a Ferrari? There aren't a lot of Ferrari's in my neighborhood, but I've heard a couple. But evidently you can put Ferrari exhausts on your Mazda's if that's your thing. If you want your Mazda to sound like a Ferrari, I guess. But is this a similar thing? I mean, could this open up litigation or problems for people that are using... That's another chronic brand, Ferrari. But maybe Ferrari is like, "Yeah, we just assume you didn't use our name when trying to sell your exhaust system to make your car sound faster." Is this similar territory, Meredith?

Meredith Wilkes:

Well, the trademark fair use doctrine, which actually is the non trademark use doctrine if you're a total trademark-law nerd and you break down really what it means, is there are a lot of competing factors in play here. One is the right to use other words in the English language in a way that doesn't step on somebody's trademark rights. There are only so many words in the English language that are out there. The fair use doctrine is out there to allow you to use what may be the mark of somebody else in a lawful, non deceptive, descriptive way. 

So the question starts to come back around to are you using it as a mark? And then that was something that the second circuit talked about in this case, which is are you using this as a symbol to draw attention to what it is that you're selling? Or are you using it to describe a characteristic of your goods? So this is one of those heady trademark-law nerd type topics. 

The courts have said that some confusion is going to be okay, as long as you're acting in good faith and you're using it to describe. So has a Tiffany style setting become part of the vernacular such that it's okay to use that in a descriptive manner? Has Ferrari sounding... The Same type of thing. Has that become part of the vernacular such that you can say that you are using it in a good faith manner to describe an attribute of your goods? So it's a big question.

Dave Dalton:

Complicated, complicated. I'm looking forward to seeing where all this goes. All right, back to Jessica. We'll wrap it up with this. Let's talk about takeaways. What's to be learned from the second circuit's decision? Are the things you can kind of hone in on? I know the case is still moving forward, but is there anything that kind of jumps out in terms of yeah, here's where the courts are thinking about this?

Jessica Bradley:

I see two main takeaways. One overall is just the second circuit's opinion, it provides good guidance. It's a good primer to go through for parties on both sides to see how summary judgment evidence is going to be treated, or how it should be treated, both for plaintiffs and for defendants. The court provided some interesting guidance there, especially on if you're weighing evidence. 

For example, on the survey, Tiffany's survey were talking about earlier, the district court had disregarded the rebuttal survey evidence there because it didn't go to the admissibility of that survey. And the second circuit is like, "No, if you're weighing evidence, that potentially could push you out of summary judgment land and into having to go to trial." So I think it's a very detailed opinion, I think over 40 pages. And it's something that, if you're a plaintiff or defendant, really good guidance to take a look at to see if you're either planning on filing for summary judgment or you're opposing summary judgment. 

The other takeaway, even though it was in a footnote, I think, is the second circuit's discussion on the difference between counterfeiting and trademark infringement. I've seen a lot of cases where people try to make a counterfeiting claim where there really isn't a counterfeiting claim. And the second circuit picked up on that issue and discussed it in terms of the fair use defense that was there too. The second circuit said that it found it pretty hard that if a term wasn't being used as a mark, which is part of the fair use test, which is part of the defense here, that it was likely inappropriate to impose liability for trademark counterfeiting in that circumstance because it was saying it failed to see how a term can be a fake mark, if it's not being used as a mark, or how it can deceptively suggest origin, if it's not being used to indicate origin. It could still generate confusion and potentially could be trademark infringement depending on the amount of that confusion. But if the term isn't being used as a mark, like Costco was arguing here, the second circuit was saying, "We don't think we're confident land there."

Dave Dalton:

Let's leave it right there. A lot to watch, a lot to follow. I think we'll probably do, once a jury is convened, once a decision is made, and as Meredith points out, who knows when that is in the current COVID environment, but we'll definitely follow up with this. 

Meredith, I would be remiss if I didn't ask you what's going on with women in IP. And as a matter of fact, speaking of COVID, I was safe at home and this package shows up from Jones Day. It was a coffee mug, Women in IP speaker series. So thank you for that if you had something to do with that. It's nice to get a little token of women in IP speaker series stuff. So thanks. What's going on with Women in IP for the rest of the year?

Meredith Wilkes:

So on behalf of our entire committee, Dave, you are very welcome. We're just always so delighted for all the great support that you give us.

Dave Dalton:

I don't even put coffee in this thing, Meredith, I put pens in it because I don't want it to stain. That's how important it is. It's right here on my shelf next to my other cool Jones Day stuff, my little collection here. So thank you.

Meredith Wilkes:

Well, you're very, very welcome. We've got a great program coming up on September 15th. Not too late to register and information is available on the Jones Day website under insights for Women in IP: COVID Courtroom Considerations, really timely program coming up. We've got some fantastic speakers on the panel you'll hear from, sitting in the United States district court and magistrate judges. And of course our fabulous women in IP and wonderful clients are all joining us for a really important discussion about how the courtroom is changing in this COVID environment and how judges are treating different issues, how clients are treating different issues. It'll be a fantastic discussion, that's on September 15th. 

We will end out the year with another remote program as well, virtual on licensing and technology transactions and talking about all the really great stuff that's going on in the tech space with our Women in IP. So as always, we've got a couple of great programs in the works and hope everybody can join us.

Dave Dalton:

Can people email you if they want direct information or have questions? Is that okay?

Meredith Wilkes:

Absolutely. mwilkes@jonesday.com.

Dave Dalton:

That's M-W-I-L-K-E-S @jonesday.com. We'll put them in touch. Sounds great. Jessica, Meredith, thanks so much. Another great program and we'll do this again soon.

Meredith Wilkes:

Thanks for having us, Dave.

Jessica Bradley:

Thanks.

Dave Dalton:

Take care. 

As we just mentioned, to learn more about the firm's Women in IP initiative, email Meredith Wilkes at mwilkes, that's M-W-I-L-K-E-S @jonesday.com. For more information on Jones Day's IP practice, visit jonesday.com. That's where you'll also find complete contact information for Meredith and Jessica. 

While you're there, visit our insights page for publications, more podcasts, videos, blogs, newsletters, and other valuable content. Subscribe to JONES DAY TALKS® on Apple podcasts and wherever else quality podcasts are found. As always, we appreciate your listening. I'm Dave Dalton. We'll talk to you next time.

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