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Tiffany & Co.’s 7-Year Long Fight Against Costco Continues

9/1/2020

On August 17, 2020, in Tiffany & Co. v. Costco Wholesale Corp., No. 17-2798 (2d Cir. 2020), the United States Court of Appeals for the Second Circuit vacated the district court’s decision and remanded the case for trial.

This dispute began in November 2012 when Plaintiff Tiffany & Co. (“Tiffany”) was contacted by a customer who believed she saw Tiffany rings sold at a Costco in Huntingdon Beach, California. Tiffany investigated and contacted Defendant Costco Wholesale Corp. (“Costco”), which then removed references to Tiffany from its display cases. Tiffany then filed a complaint against Costco in the United States District Court for the Southern District of New York in February 2013. In response, Costco filed a counterclaim arguing that the term “Tiffany” is generic for a specific type of setting of engagement ring.

The parties filed cross-motions for summary judgment. On September 8, 2015, the district court granted Tiffany’s motion for summary judgment, finding Costco liable for trademark infringement and counterfeiting under the Lanham Act and for unfair competition under New York law. The district court also rejected Costco’s fair use defense. After a trial on damages, the district court entered its final judgment and damages award of $21,010,438.35 to Tiffany on August 25, 2017.

Costco appealed this decision to the Court of Appeals for the Second Circuit. In evaluating the trademark infringement claim, the Court found the district court erred in finding that no reasonable jury could find that Costco’s use of “Tiffany” was not likely to cause confusion with Tiffany’s trademark. To determine whether Costco’s use of “Tiffany” causes a likelihood of confusion with Tiffany’s trademark, the Court evaluated the factors listed in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492 (2d Cir. 1961). The Court emphasized that the district court’s conclusions as to each factor and the balancing of the factors are reviewed de novo.

The Court held that the district court’s findings on the factors regarding actual confusion, good faith, and the consumer sophistication were in error. With respect to the actual confusion factor, Tiffany provided evidence of some customer confusion and results of an expert survey, while Costco argued that six (6) confused customers out of 3,349 is de minimis evidence of confusion and that the expert survey was flawed. The Court found that the district court erred in finding that Costco did not raise a factual issue and that Costco did present sufficient evidence where a reasonable jury could find that Tiffany did not meet its burden in showing actual confusion.

In discussing the good faith factor, the Court emphasized that issues of good faith are usually inappropriate for determination on summary judgment and that an intent to copy does not automatically equal an intent to deceive. Therefore, the Court held the district court erred in finding Costco acted in bad faith and instead the evidence Costco provided could cause a reasonable jury to conclude that it did not have an intent to mislead its consumers.

With respect to consumer sophistication, the Court found the parties have competing evidence regarding the relevant population of consumers. Since someone purchasing a diamond ring would likely be more careful, the Court found that a reasonable jury could credit Costco’s evidence more than Tiffany’s to find a consumer would be sophisticated enough to distinguish Costco’s rings from Tiffany’s.

Therefore, since “Tiffany” is recognized as denoting a particular style of ring setting and that diamond ring purchasers are well educated and sophisticated consumers, the Court found there is a genuine question as to the likelihood of confusion and vacated the district court’s judgment on trademark infringement.

The Second Circuit also found the district court erred in finding that no reasonable jury could find that Costco’s use of “Tiffany” was fair use. The Court held that Costco presented enough evidence that a reasonable jury may find that Costco did not use the term “Tiffany” as a trademark, that it used the term descriptively, and that it used it in good faith.
 
Finally, since counterfeiting is an aggravated form of infringement and the Court vacated the district court’s judgment on infringement, the Court also vacated the judgment on counterfeiting.

Since this Court found that the standard for summary judgment has not been met, this case continues to drag on as it goes back to the district court for trial.