Earlier today, Tiffany and Company filed a lawsuit against Costco Wholesale Corporation in the U.S. District Court for the Southern District of New York. The purpose of the lawsuit is to prevent further sales of counterfeit diamond engagement rings and for damages associated with prior sales. The suit was filed, and alleges trademark infringement, dilution, counterfeiting, unfair competition, injury to business reputation, false and deceptive business practices and false advertising. Tiffany’s is seeking a permanent injunction, damages, treble damages and punitive damages for the alleged infringement and other alleged unlawful acts.
Tiffany & Co. (NYSE: TIF), renowned for its luxury goods, particularly diamonds, operates high-end jewelry stores and manufactures products through various subsidiary corporations. Its principal subsidiary is Tiffany and Company, which is the named plaintiff in the abovementioned litigation with Costco. Tiffany and Company operates retail stores and boutiques in the Americas, Asia-Pacific, Japan, Europe and the United Arab Emirates and engages in direct selling through Internet, catalogue and business gift operations.
The dispute between Tiffany and Costco first came to light in November 2012 when a customer alerted Tiffany to the sale of what was promoted on in-store signs as “Tiffany” diamond engagement rings at a Costco store in Huntington Beach, California. Tiffany immediately launched an investigation, and later learned that for many years, and without Tiffany’s knowledge, Costco had apparently been selling different styles of rings that it has falsely identified on in-store signage as “Tiffany.” The rings are not in fact Tiffany rings, nor are they manufactured by, approved by, licensed by, or otherwise in any way properly associated with Tiffany.
“What’s different here from many other cases of counterfeiting,” notes Jeffrey Mitchell of Dickstein Shapiro, Tiffany’s counsel in the case, “is that here customers might be more easily taken in since Costco members expect authentic brand name merchandise at discount prices at Costco. Everyone knows that buying something on a street corner or over the Internet from an unknown source is risky. Until now, no one would have thought it could be risky to buy brand name merchandise from Costco as well.”
The complaint explains in summary fashion the investigation that ensued after Tiffany learned of what Costco was doing. The complaint reads in relevant part:
Subsequent investigation showed that in the jewelry display case at the Huntington Beach Costco location was an engagement ring alongside a point of sale (“POS”) sign marked “639911 – PLATINUM TIFFANY .70 VS2, 1 ROUND DIAMOND RING – 3199.99,” and another ring alongside a different POS sign marked “605880 – PLATINUM TIFFANY VS2.1 1.00 CT ROUND BRILLIANT SOLITAIRE RING – 6399.99.” (emphasis added) The Costco salesperson also referred to each of the rings as a “Tiffany ring,” and said the store generally carries one of each item.
The complaint also alleges that Costco was not only infringing, but doing so only in the real world so as to avoid being caught. The complaint alleges:
Tiffany then discovered that Costco was not using the Tiffany trademarks online for the same products at the same time, thereby avoiding detection of its unlawful activities by Tiffany’s normal trademark policing procedures.
Tiffany maintains an aggressive intellectual property enforcement program, and regularly takes actions against counterfeiters and infringers. Like other brand name manufacturers they search the Internet to find fakes and infringers. If Costco was selling the rings online without using the Tiffany brand and was selling them inside the store with the Tiffany brand that would certainly be some evidence, perhaps strong evidence, of a conscious knowledge that what they were doing in the stores in the real world was wrong.
“We now know that there are at least hundreds if not thousands of Costco members who think they bought a Tiffany engagement ring at Costco, which they didn’t. Costco knew what it was doing when it used the Tiffany trademark to sell rings that had nothing to do with Tiffany. This is not the kind of behavior people expect from a company like Costco, and this case will shed a much needed light on this outrageous behavior,” said Mitchell. “The Tiffany brand has been damaged, Costco members have been damaged, and Costco has profited from the sale of engagement rings by misrepresenting what they were. We will get to the bottom of what Costco was up to and why, and right a terrible wrong,” Mitchell added.
Tiffany’s said in a press release that its diamond engagement rings, which are backed by a lifetime guarantee, are only sold in Tiffany retail stores by professional, trained sales staff. Tiffany’s says they have never distributed or sold to discounters or wholesalers, such as Costco. “Tiffany has never sold nor would it ever sell its fine jewelry through an off-price warehouse retailer like Costco, either directly or indirectly,” the release explained.
Interestingly, Tiffany is not asking for a preliminary injunction. In trademark cases a preliminary injunction is almost always asked for, and where the infringement case is strong the plaintiff typically prevails. In a case like this where there are allegations of counterfeiting and passing off using a trademarked name one would ordinarily expect a preliminary injunction to be issued as a matter of course. But the complaint explains that Costco has agreed to stop using Tiffany trademarks. The complaint says:
Tiffany confronted Costco in December 2012 after first being alerted about the foregoing, and was assured in response that Costco would refrain from any further use of the Tiffany trademarks in the manner described herein. Accordingly, there is no need for a preliminary injunction at this time. Nevertheless, Costco should be permanently enjoined and restrained from using any Tiffany trademark to falsely identify rings or other products not manufactured by Tiffany or its licensees, and compelled to publicly admit its misconduct to the purchasers of each such ring, and notify affected purchasers that they do not own a Tiffany engagement ring from Costco.
So why is Tiffany pursing this? It seems pretty clear to me that they want to make a public example out of Costco. They want everyone to know that they are watching and when they find infringers they will act swiftly. They want an apology and perhaps most importantly they want the world to know that they never have and never will sell their rings to discounters or wholesalers. This action and any resulting publicity and decision will reassure Tiffany customers that when they buy a Tiffany diamond ring at a Tiffany store they are not paying a premium for the same ring that could otherwise be purchased for less at Costco.
While it is wise for Costco to agree to cease selling fake Tiffany rings, that begs the obvious question. What was Costco thinking?