In Trademark Dispute over Engagement Rings, the Second Circuit Court of Appeals asks the Southern District of New York to Reconsider (NY)
In Tiffany and Company v. Costco Wholesale Corporation, the United Second Circuit Court of Appeals found a triable issue of fact as to whether Costco’s otherwise unbranded engagement rings identified as “Tiffany” rings by signs placed at the point-of-sale infringed upon Tiffany’s trademark.
As part of its lawsuit, Tiffany alleged, that these point-of-sale signs constituted trademark infringement under the Lanham Act. Specifically, Tiffany alleged that Costco by displaying of these signs throughout its stores deliberately misled consumers as to the actual source of the rings. On summary judgment, the trial court agreed, entering judgment in favor of Tiffany and awarding Tiffany approximately $21 million in trebled profits, prejudgment interest, and punitive damages. Costco appealed the trial court’s decision arguing that there was a genuine issue of material fact as to whether there was a likelihood of confusion to consumers based upon Costco’s conduct.
Courts in the Second Circuit follow an eight-part factor test in assessing whether there was a likelihood of confusion. In its appeal, Costco cited three of those factors as being in dispute: (1) actual confusion; (2) good faith; and (3) consumer sophistication. The Second Circuit agreed with Costco.
In assessing actual confusion, the lower court found that evidence presented by Tiffany established that no reasonably jury could find in favor of Costco. The lower court pointed to testimony from six Costco customers who stated they were confused by the signs, as well as results from a survey of self-identified Costco customers in which two of five respondents reported they would have been confused. The Second Circuit disagreed with this reasoning, noting that Costco’s expert successfully raised the specter of “trained” responses and thus brought this factor into dispute.
As to good faith, the District Court found this factor in Tiffany’s favor on the basis that Costco sought to have its suppliers provide rings that looked like Tiffany’s. The Second Circuit disagreed observing that under the law of the Second Circuit, the question of good faith is not whether Costco sought to sell jewelry that looked like Tiffany, but whether it sought to have its consumers believe they were purchasing Tiffany. On that basis, the Second Circuit found a genuine dispute on this factor, as Costco did not use the Tiffany trademark or its packaging and that it’s return policy allowed for fully refundable returns at any time. Rather, Costco used the Tiffany name to describe the setting style employed by Tiffany in its rings.
Finally, as to the sophistication of the consumers, the Second Circuit found that it has been the recognized in that circuit that ring buyers, particularly the purchaser of a wedding or engagement ring, are among the most “discriminating in his [or her] purchase.” In assessing these factors together, the Second Circuit found that it was possible for a reasonable jury to conclude that Costco used “Tiffany” as a descriptor rather than a mark.
This case demonstrates that claims of trademark infringement should not be taken at face value, and instead require a careful assessment by the court and the parties.
Thanks to Benjamin G. Ferrell for the post. Please contact Vincent Terrasi with any questions or comments.