Costco To Pay $19.4M To Tiffany & Co. For Selling Bogus ‘Tiffany’ Rings

Image courtesy of Leanne J

Costco learned a very expensive lesson this week: A “Tiffany” ring is a specific product sold by a specific company; not just a generic name for any diamond engagement ring. Now the warehouse retailer must pay Tiffany & Company $19.4 million for marketing and selling “Tiffany” diamond rings that had nothing to do with the famed jewelry store.

U.S. District Judge Laura Taylor Swain closed the book on the nearly four-year old court case Monday, ruling [PDF] that Costco must pay Tiffany $11.1 million plus interest, as well as $8.25 million in punitive damages to resolve the case.

The $11.1 million represents triple the amount Costco earned from the ring sales, or what Tiffany lost due to the trademark infringement, Swain ruled.

“The Court finds that Costco used Tiffany’s trademark to attract customer attention to the fine jewelry items by indicating that the items accompanied by such signage were Plaintiffs’ products although they were in actuality generic items,” Swain wrote.

The Complaint

Tiffany first filed a complaint [PDF] against Costco back in 2013, accusing the retailer of trademark infringement, counterfeiting, unfair competition, injury to business reputation, false advertising, and deceptive business practices.

According to the complaint, Tiffany became aware of the issues after a customer shopping at a California Costco saw that the store was selling what it advertised as “Tiffany” diamond engagement rings ranging in price from $3,199.99 to $6,399.99.

Tiffany says that it contacted Costco, which subsequently removed any signage indicating that these rings were related to Tiffany & Co.

“Unbeknownst to Tiffany, Costco had apparently been selling different styles of rings for many years that it has falsely identified on in-store signage as ‘Tiffany’,” read the complaint, which alleged that Costco unlawfully traded off Tiffany’s good will and brand awareness. “There are now hundreds, if not thousands, of people who mistakenly believe they purchased and own a Tiffany engagement ring from Costco.”

Costco countered that “Tiffany” is a generic name for a type of diamond ring setting.

Related: 15 Product Trademarks That Have Become Victims Of Genericization

Additionally, the company argued that the actual rings did not contain a “Tiffany” stamp or other marking, and did not include appraisal documents mentioning the Tiffany & Co. name.

Still, because Costco does sell some name-brand merchandise at a discount, customers testified that they assumed they were just getting a great deal on an actual ring from Tiffany, not a generic ring with a Tiffany-style setting.

One couple testified that they were devastated to learn that their engagement ring wasn’t a genuine Tiffany piece, which they only discovered when the ring’s stone fell out.

The Rulings

In Sept. 2015, Swain granted summary judgment [PDF] in favor of Tiffany, noting that Costco had not acted in good faith when slapping the word “Tiffany” on their jewelry cases.

“The Court therefore finds that no reasonable finder of fact could reach the conclusion that Costco acted in good faith when it used the Tiffany mark in its display case signs,” Swain wrote at the time.

In Oct. 2016, a jury was tasked with determining the damages that Costco should pay, based on the damage to Tiffany’s brand and the actual sales of “Tiffany” rings at Costco.

The jury found that Costco had earned nearly $3.7 million in profits from the sale of about 2,500 rings by “using display case signage that included the ‘Tiffany’ mark as a standalone term.”

Swain notes in her opinion Monday that Costco “displayed at best a cavalier attitude toward its use of the ‘Tiffany’ name in conjunction with ring sales and marketing.”

For instance, Costco’s “salespeople described such rings as ‘Tiffany’ rings in response to customer inquiries, and were not perturbed when customers who then realized that the rings were not actually manufactured by Tiffany expressed anger or upset,” Swain wrote.

While she found that Costco provided evidence that many other jewelers have used the terms “Tiffany setting” or “Tiffany style” as generic terms, the retailer didn’t use those terms. Instead, it only used “Tiffany” when describing the rings, not a modifier. This Swain, notes, suggests that Costco was selling Tiffany rings rather than an imitation of the well-known design.

In addition to ordering Costco to pay Tiffany $19.4 million, Swain permanently barred the retailer from selling anything that Tiffany did not make as “Tiffany” products, unless it uses modifiers such as “setting,” “style,” or “set.”

An Appeal

In a statement Monday, Costco claims that the ruling is a “product of multiple errors in pretrial, trial, and post-trial rulings and intends to appeal.”

“We work very hard to maintain their trust, and we strive to be candid with them,” Costco’s President and CEO Craig Jelinek, said. “These efforts will continue whatever the final outcome of this lawsuit may be.”

The company, which maintains it was not selling imitation Tiffany & Co. rings, also notes that it has identified customers who purchased the rings and remained them of the retailer’s member satisfaction policy and their right to return rings with which they were dissatisfied for any reason.

Leigh Harlan, general counsel for Tiffany, told Reuters in a statement that Swain’s decision “sends a clear and powerful message” to anyone who seeks to infringe on the brand’s trademark.

“We brought this case because we felt a responsibility to protect the value of our customers’ purchases and to ensure that Costco’s customers were not misled,” she said.