Second Circuit Vacates Trademark Infringement Holding Against Costco For Use of the Term ‘Tiffany’

On August 17, the United States Court of Appeals for the Second Circuit vacated and remanded a decision of the district court in Tiffany & Co. v. Costco Wholesale Corp. In particular, the Circuit Court held that the district court’s determination that Costco was liable for trademark infringement and counterfeiting was inappropriate at the summary judgment stage.

Procedural History

In November 2012, a customer alerted Tiffany that Costco was selling diamond engagement rings that she believed were being advertised as Tiffany & Co. rings. Costco admitted to selling rings with identifying signs using the phrases “Tiffany setting,” “Tiffany set,” or “Tiffany style,” and in some instances using only the word “Tiffany” for identifying the setting style of the ring. The rings identified by the customer were accompanied by signs reading “Platinum Tiffany.”

In December 2012, Tiffany contacted Costco asserting that the designation of Costco rings as “Tiffany” was a misrepresentation of the product and constituted infringement and counterfeiting. According to Costco, it voluntarily removed all uses of the word “Tiffany” from the signs in its jewelry display cases within two weeks of being notified by Tiffany. In February 2013, Tiffany filed suit against Costco alleging that Costco was liable for “trademark infringement, dilution, counterfeiting, unfair competition, false and deceptive business practices, and false advertising in violation of the Lanham Act and New York law” in connection with Costco’s signs that included the word “Tiffany” without being accompanied by the words “setting,” “style,” or “set.” In response, Costco asserted that its use of the word “Tiffany” to describe a style of ring setting was not infringement. Costco raised a “fair use” defense under the Lanham Act and filed “a counterclaim seeking to modify or partially cancel any federal trademark registrations that might prevent retailers from using the word ‘Tiffany’ to indicate that a ring has a Tiffany setting.”

In September 2015, the district court granted Tiffany’s summary judgment motion and concluded that Costco failed to raise a genuine issue of material fact as to any of the relevant factors to the infringement analysis, Costco’s fair use defense failed as a matter of law, and Costco’s infringement constituted counterfeiting. In August 2017, the district court entered a final judgment and awarded damages in an amount of $21,010,438.35, including prejudgment interest. In September 2017, Costco appealed to the Circuit Court.

Tiffany’s Infringement Claim

Noting that in order to prove trademark infringement a plaintiff must show: (1) “it has a valid mark that is entitled to protection” and that (2) the defendant’s “actions are likely to cause confusion with [that] mark”, the Circuit Court explained that the first prong is presumptively satisfied and that the issue on appeal is whether Costco’s use of the word “Tiffany” on its point-of-sale signs was likely to cause confusion with Tiffany’s registered mark. The Circuit Court noted that the question of likelihood of confusion was to be evaluated using the eight factor test set forth in Polaroid Corp. v. Polarad Elecs. Corp. The eight factors are as follows:

(1) the strength of the trademark; (2) the degree of similarity between the plaintiff’s mark and the defendant’s allegedly imitative use; (3) the proximity of the products and their competitiveness with each other; (4) the likelihood that the plaintiff will “bridge the gap” by developing a product for sale in the defendant’s market; (5) evidence of actual consumer confusion; (6) evidence that the defendant adopted the imitative term in bad faith; (7) the respective quality of the products; and (8) the sophistication of the relevant population of consumers.

In considering actual confusion, the district court concluded that Costco did not rebut Tiffany’s customer testimony or consumer confusion survey and, therefore, Costco failed to raise a question as to whether customers were actually confused by its use of the word “Tiffany.” The Circuit Court disagreed, explaining that Costco did sufficiently rebut Tiffany’s evidence of confusion by submitting arguments and an expert report that criticized Tiffany’s customer confusion survey. In particular, Costco’s expert report pointed out that the survey only showed a single sign in isolation rather than showing other signs which may have indicated that the word “Tiffany” only referred to the style of setting. Thus, the Circuit Court concluded that when “[r]esolving all factual inferences in Costco’s favor, a reasonable jury could find that Tiffany failed to present sufficiently persuasive evidence to meet that burden.”

The Circuit Court also analyzed the Polaroid factors of whether Costco acted in bad faith, the level of consumer satisfaction, and the overall likelihood of consumer confusion. In disagreeing with the district court, the Circuit court explained that even though Costco admitted to intending to sell more upscale jewelry that looked like Tiffany’s it did not have an intent to “have its jewelry pass as Tiffany’s.” The Circuit Court noted that the intent to sell jewelry that looked like Tiffany’s is not enough to establish that Costco acted in bad faith. The Circuit Court also noted that the “the district court overlooked substantial evidence that Costco did not attempt to sow confusion among its customers.” Thus, the Circuit Court concluded that a reasonable jury could conclude that Costco did not intend to mislead its customers and its use of the word “Tiffany” constituted a good faith attempt to describe the style of ring setting.

With respect to customer satisfaction, the Circuit Court explained that the district court erred in concluding that “Costco failed to raise a question as to whether its customers were sufficiently sophisticated that its use of the word ‘Tiffany’ would not create confusion.” The Circuit court noted that the district court erroneously shifted Tiffany’s burden to Costco in its conclusion that Costco’s evidence only wen to the weight of Tiffany’s evidence and failed to provide a competing affirmative defense. The Circuit court stated that “the weight of a piece of evidence can be determinative as to whether summary judgment is appropriate” and Costco did offer evidence in the form of its expert declaration that customers who are purchasing diamond rings “definitely know more than people not in the market.” Thus, the Circuit Court concluded that a “jury could reasonably conclude, by crediting Costco’s evidence and rejecting Tiffany’s, that the relevant population of consumers would be sufficiently attentive and discriminating as to recognize that Tiffany had nothing to do with Costco’s diamond engagement rings.”

The Circuit Court also concluded that Costco’s evidence presented a “genuine question as to the likelihood of customer confusion” because Costco provided evidence that “Tiffany” is a broadly recognized term to describe a particular type of ring setting and because purchasers of diamond rings “educate themselves so as to become discerning consumers.”  Thus, the Circuit Court concluded that a jury could reasonably conclude that the consumers who are shopping for diamond engagement rings “would know or learn that ‘Tiffany’ describes a style of setting not unique to rings manufactured by Tiffany, and recognized that Costco used the term only in that descriptive sense.”

Fair Use Defense

Noting that in order to establish fair use a defendant must show “that it used the allegedly infringing term ‘(1) other than as a mark, (2) in a descriptive sense, and (3) in good faith’”,  the Circuit Court explained that the district court was incorrect in determining that no question of material fact existed with respect to Costco’s good faith, which is the factor upon which the district court rejected Costco’s defense.

The Circuit Court noted that a jury could reasonably conclude that Costco did not use the term “Tiffany” as a trademark because the word never appeared first in a product name, the word was the same size and font as the other words, and the word did not appear on the rings or ring packaging.  The Circuit Court also explained that a jury could reasonably conclude that Costco used the term “Tiffany” descriptively because Costco presented evidence to establish that “(1) “Tiffany” has a descriptive meaning independent of Tiffany’s brand and (2) Costco intended to and did invoke that meaning when it created its point-of-sale signs.”

Counterfeiting

With respect to Tiffany’s trademark counterfeiting claim, the Circuit Court noted that since the district court erred in holding Costco liable for trademark infringement at the summary judgment stage, the district court’s counterfeiting judgment must also be vacated.

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