It turns out that “too good to be true” deal you scored on a Tiffany & Co. engagement ring at your local Costco wholesale store last month actually was just that. Tiffany & Co. filed a lawsuit against Costco this past Valentine’s Day after being tipped off by a customer located in California last November 2012 who complained to the company that she was disappointed to see the luxury jeweler’s diamond rings for sale at the discount wholesaler. (brandchannel). The tip moved Tiffany to launch an investigation during which the jeweler discovered that Costco had been falsely identifying engagement rings for sale in its store as “Tiffany” on in-store advertising signs for years and that in-store salespersons also referred to the rings as “Tiffany rings” when speaking with customers. (Complaint). Interestingly, the wholesaler did not identify the rings as “Tiffany” on their online website where Tiffany & Co.’s trademark policing could have easily picked up on the false identification suggesting Costco wanted to “avoid detection of it’s unlawful activities”. (Complaint).
In December Tiffany confronted Costco with a cease and desist letter to which Costco agreed to stop all use of Tiffany’s trademark in connection with the sale of their diamond rings. Nevertheless, Tiffany & Co. has gone forward with the lawsuit and filed the complaint in the U.S. District Court for the Southern District of New York on February 14, 2013. The complaint alleges trademark infringement, dilution, counterfeiting, injury to business reputation, false and deceptive business practices and false advertising, and claims damages in the form of a permanent injunction against Costco from using Tiffany’s trademark and for the wholesaler to “publicly admit its misconduct to the purchasers of each such ring, and notify affected purchasers that they do not own a Tiffany ring”. Further, the jeweler seeks monetary damages in an amount equal to Costco’s profits made as a result of their unlawful use of Tiffany’s trademark as well as for punitive damages and attorney’s fees. (Complaint).
Costco’s use of the Tiffany’s trademark on in-store advertisements likely violates the Lanham act both because it unlawfully used the Tiffany trademark in their stores in connection with the sale of rings and because they did so in a manner that suggested an association and connection between Tiffany and Costco i.e. that Costco was a lawful distributor of genuine Tiffany & Co. brand rings. In effect, Costco’s use of Tiffany’s trademark confused consumers as to the actual source of the diamond rings they bought and deceived them into believing they were an authentic Tiffany product. (See, 15 U.S.C. §§1114, 1125). The fact that Costco actually is a lawful distributor of other high-end luxury branded goods such as Cartier, Breitling, Chanel and Movado increases the likelihood that consumers would be confused and deceived into believing they purchased Tiffany & Co. rings. If Costco sells genuine Cartier then why shouldn’t they also sell genuine Tiffany? Tiffany & Co. spends a great deal of time and money protecting their Brand’s reputation by subjecting their goods to “rigorous quality control standards” to guarantee to the public the origin and quality of every item it sells. The company also chooses only to sell its luxury goods at Tiffany & Co. retail stores where trained sales professionals are there to help. (BusinessWire.com). In doing so Tiffany not only ensures a quality product but also a glamorous purchasing experience for their customers. Costco’s use of the Tiffany trademark in connection with the sale of diamond rings in Costco stores affects Tiffany’s image in the eye of their consumer (as evidenced by their Californian consumers complaint) and as a result, dilute or weaken the brand name.
Tiffany’s lawyer, Jeffery Mitchell of Dickstein Shapiro, reported to WWD that he believes the brand has sustained intangible damage as a result of Costco’s false advertising and the complaint suggests he believes Costco’s actions were willful, that Costco purposefully attempted to trade off Tiffany’s goodwill with the intention to deceive consumers. Therefore, he believes it is necessary to go ahead with the lawsuit seeking a permanent injunction and monetary damages even after Costco agreed to take the signs down. Mr. Mitchell explains to WWD that “the brand’s ‘name and goodwill’ were tarnished” and sees it as Tiffany’s duty to pursue the lawsuit not only to uphold it’s own reputation, but also to right the wrong done to the Costco members who were deceived into believing they were buying genuine Tiffany products, which they were not. (WWD)
Costco’s CEO, Craig Jelinek, defended his company by stating that the word “Tiffany” was meant to describe the engagement rings’ setting and not to suggest the Tiffany brand. In an internal email sent to all employees a few days after the lawsuit was filed he stated, “we have sold some high-quality diamonds that were signed or labeled using the word ‘Tiffany’. That was intended to describe a setting style used on those rings, and was not intended to claim that the rings were of any particular brand. In retrospect it would have been better had we not used the description the way we did.” (Brandchannel.com).
In most recent news reported by WWD, Costco filed counterclaims against Tiffany in the Manhattan federal court on Friday March, 11, claiming it only used the term “Tiffany rings” to describe the setting type of the ring, and further that “the word Tiffany is a generic term for ring settings comprising multiple slender prongs extending upward from a base to hold a single gemstone”. (WWD). The wholesaler argues that describing the rings as “Tiffany” was not an attempt to profit off Tiffany & Co.’s goodwill but to describe the setting type explaining that the rings came with receipts clearly indicating their origin of purchase – Costco, and were sold in beige boxes unlike those sold by Tiffany which come in light blue boxes with white ribbons. Costco asks the court to “permanently ban Tiffany from claiming it controls the name of the ring setting, which Costco deems ‘generic’” merely describing a setting type, interestingly first created by Charles Lewis Tiffany, the man who founded Tiffany & Co. in New York City in 1837.
The complaint can be viewed at: http://www.scribd.com/doc/125630408/Tiffany-v-Costco-Complaint