2nd Circuit Court of Appeals vacates Tiffany’s $21M summary judgement win, and remands for trial

tiffany-co-v-costco-wholesale-corp, August 17, 2020

Background

In November 2012, a Costco customer alerted Tiffany that she had seen engagement rings that appeared to be advertised as Tiffany Rings at a Costco store in Huntington Beach, CA.  Tiffany sent investigators to the store that observed two rings with signage nearby reading “639911/PLATINUM TIFFANY…” and “605880/PLATINUM TIFFANY…” Tiffany contacted Costco alleging that the display not only misrepresented the product, but also constituted infringement and counterfeiting.

Costco maintains that within one week of Tiffany’s letter, it had removed all uses of the word “Tiffany” from the signs in its jewelry display cases.  Costco further submits that it has not listed a “setting style” on signs identifying any rings having the “Tiffany setting.”  After Tiffany filed their complaint, Costco sent a letter to all customers that had purchased the displayed with signage indicating a “Tiffany setting” notifying them of the litigation.  Costco’s letter explained that the signs had “used the word ‘Tiffany’ to indicate that [the associated] ring had a Tiffany-style pronged setting” which Costco believed to be an accurate description of the ring, and reminded buyers of the Costco return policy which entitled buyers to a full refund at any time.  About 1.3% of the customers who received this letter returned their rings to Costco.

Procedural History

Tiffany sued Costco on Valentine’s Day, 2013, alleging trademark infringement, dilution, counterfeiting, unfair competition, false and deceptive trade practices and false advertising in violation of the Lanham Act and New York law.  These allegations were made only in connection with Costco’s point of sale signs that included the word “Tiffany” unaccompanied by the words “setting,” “style,” or “set.”

Costco argued in response that its use of the word “Tiffany” to describe ring setting styles was not infringement, and in fact was fair use under the Lanham Act.  Costco also file a counterclaim seeking to modify or cancel any trademark registrations that may prevent retailers from using the word “Tiffany” to indicate a Tiffany ring setting.  Boom.

Tiffany filed a first summary judgment motion seeking to dismiss Costco’s counterclaim during discovery, which was unsuccessful.  Tiffany again moved for summary judgment post-discovery, seeking not only to dismiss Costco’s counterclaim, but also seeking to hold Costco liable for trademark infringement and counterfeiting as a matter of law.  Costco cross-moved, seeking dismissal of Tiffany’s counterfeiting and punitive damages claims.

The District court granted Tiffany’s motion, holding that Costco had failed to raise a genuine issue of material fact as to the infringement analysis and that the found infringement constituted counterfeiting as a matter of law.  The Court also held that Costco’s fair use defense failed as a matter of law, and ruled that although punitive damages would not be available to Tiffany under the Lanham act, they would be available under NY law.

The jury was not sympathetic to Costco at the damages trial, awarding Tiffany $3.7 million of Costco’s profits, plus $1.8 million because the $3.7M was deemed inadequate, and an additional $8.25 million in punitive damages.  Not satisfied, the Court held that the jury’s verdict was merely advisory, and trebled the $3.7M.  For a grand total of $21,010,438.35 entered as the Court’s final judgment on August 25, 2017.

Not surprisingly, Costco appealed.

Appellate Decision

In a tremendous reversal of fortune, the 2nd Circuit Court of Appeals agreed with Costco, that they had raised sufficient questions of material fact as to its liability for trademark infringement and counterfeiting, as well as its entitlement to present its fair use defense to a jury.

Really, though the damages award here was stunning, it was even more so since it was the outcome of a summary judgment motion.  Indeed, the Appellate Court appeared to reverse each holding on the basis that the issue was not properly disposed of on summary judgment:

As in any other area of law, then, “[i]f a factual inference must be drawn to arrive at a particular finding on a Polaroid factor, and if a reasonable trier of fact could reach a different conclusion, the district court may not properly resolve that issue on summary judgment.”

Citing Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d 474 at 478.

Costco primarily contested on the District Court’s analysis of i) actual confusion, ii) bad faith and iii) the sophistication of the relevant population of consumers, and the Appellate Court agreed with Costco on each.

Actual Confusion

Below, Tiffany had provided deposition testimony and survey evidence interpreted by an expert to establish actual confusion, and the District Court deemed this evidence unrebutted.  The Appellate court pointed out that Costco did seek to rebut both – arguing in connection with the deposition testimony that it was de minimum and providing its own expert to interpret the survey evidence.  Applying the above standard, the Appellate Court held:

Tiffany bears the burden of proof on its own motion for summary judgment.  Resolving all factual inferences in Costco’s favor, a reasonable jury could find that Tiffany failed to present sufficiently persuasive evidence to meet that burden.

Bad Faith

Citing evidence including an email of a Costco employee instructing that the packaging in connection with the Costco rings ought to be “have a more Tiffany or upscale look,” the District Court held “no rational finder of fact could conclude that Costco acted in good faith in adopting the Tiffany mark.”  The Appellate Court again disagreed and held:

Although a jury could reasonably draw the conclusion that Costco’s interest in emulating Tiffany’s designs spilled over into an intent to mislead buyers as to the origins of its own jewelry, it could also reasonably conclude that Costco intended to borrow “certain successful features [from Tiffany’s] product” without implying that Tiffany actually produced or endorsed the jewelry at issue…We have consistently recognized that intent to copy a product’s useful, nonprotected attributes should not be equated automatically with an intent to deceive.

The Court continued:

In concluding otherwise, the district court overlooked substantial evidence that Costco did not attempt to sow confusion among its consumers…Costco backed these claims with evidence that the term “Tiffany” has been used as a generic descriptor – both explicitly in conjunction with a word like “setting” and implicitly by itself – in thousands of advertisements, dictionaries, trade publications, and other public documents since the late 1800s.

Customer Sophistication

After acknowledging precedent for the level of consumer sophistication in the arena of wedding or engagement rings, the Court’s analysis in connection with consumer sophistication was very similar:

Once again, its appraisal erroneously shifted Tiffany’s burden onto Costco.  As explained above, the weight of a piece of evidence can be determinative as to whether summary judgement is appropriate…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 engagement rings.