A Jewel of an Opinion or Missing the Mark? Second Circuit Holds that Costco’s Use of “Tiffany” May Be Descriptive

Written by Sofia Castillo and Marissa B. Lewis

In Tiffany and Co et al v. Costco Wholesale Corp., No. 17-2798 (2d Cir., Aug. 17, 2020) the Second Circuit vacated and remanded for trial a 2017 decision issued by the Southern District of New York that awarded fine jewelry giant Tiffany & Co. over $21 million in damages arising from Costco’s use of the term “Tiffany” in connection with the sale of engagement rings in Costco stores nationwide. Although the court did not ultimately rule on the substantive issues, the Second Circuit’s holding is a reminder to brand owners that even a trademark as famous as “Tiffany” may be descriptive in particular contexts—in this case, the use of the phrase “Tiffany setting” to refer to the six-pronged style that Tiffany & Co. made famous. The decision also clarifies that a district court’s ability to make factual findings in trademark infringement cases on summary judgment is limited, particularly on the issue of likelihood of consumer confusion.

The dispute originated in 2012, when Tiffany & Co. discovered that Costco was using the term Tiffany at the point-of-sale for engagement rings that were otherwise unbranded and supplied by third parties. Tiffany & Co. brought suit for trademark infringement, dilution, counterfeiting, and related claims under the Lanham Act and corresponding state laws. Costco argued that consumers would not be confused because it was not using the term “Tiffany” as a trademark, but rather, in a descriptive sense—particularly, to refer to the six-prong diamond ring setting developed by Tiffany & Co.’s founder, which has become widely known as the Tiffany setting.  Costco argued that even if some confusion was likely, the Lanham Act permitted such a descriptive fair use of an otherwise protected mark.

The district court granted summary judgment for Tiffany & Co., concluding that Costco raised no genuine issue of material fact as to any Polaroid factor and could not establish a fair use defense as a matter of law. First formulated by the Second Circuit in Polaroid Corp. v. Polarad Elecs. Corp, 287 F.2d 492 (2d Cir. 1961), the eight Polaroid factors are (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. The court further held that Costco’s infringement constituted counterfeiting as a matter of law. After a jury trial on damages, the court awarded treble and punitive damages exceeding $21 million dollars. Costco appealed.

Writing for a unanimous court, Judge Livingston held that the district court erred in its conclusion that no reasonable jury could find either that Costco’s use of the term “Tiffany” was unlikely to cause confusion with Tiffany & Co.’s famous mark or that Costco’s use of the term was fair. The Court reviewed de novo the district court’s determinations as to three factors of Polaroid test,as well as its balancing of these factors in determining the likelihood of confusion.The Court explained that a district court’s factual findings underlying the Polaroid factors are afforded considerable deference “only in circumstances in which the traditional summary judgment standard has been satisfied.” In other words, such findings will stand only if “the uncontroverted evidence and the reasonable inferences to be drawn in the non-moving party’s favor support only a single conclusion.” 

In this instance, Costco challenged the district court’s determinations regarding actual confusion, Costco’s intent in using the term “Tiffany,” and whether the relevant consumers were sufficiently sophisticated to avoid confusion. The court found that Tiffany & Co.’s evidence was not uncontroverted and, moreover, that Costco’s evidence on all three Polaroid factors raised questions as to whether Tiffany sustained its burden of proof on summary judgment.  

Specifically, the Second Circuit held that competing expert testimony raised issues of fact as to actual confusion.  It also held that an infringer’s “intent” involved subjective determinations that are “singularly inappropriate for determination on summary judgment.”  In this case, a reasonable jury could have found that Costco innocently sought to copy non-protected features of Tiffany & Co.’s products. (For more on the relationship between mental state in trademark cases and profits, see our prior post on this year’s Romag Fasteners v. Fossil ruling out of the U.S. Supreme Court).  Finally, the Court held that issues of fact precluded a determination as to consumer sophistication, including whether consumers exercise particular care in buying engagement rings (obviously an expensive item), and thus are unlikely to be confused as to the source.

With respect to Costco’s fair use defense, the Second Circuit found that Costco had presented sufficient evidence to support each prong of the analysis—particularly, that it used the term “Tiffany” (1) other than as a mark, (2) in a descriptive sense, and (3) in good faith. The Second Circuit credited the fact that Costco did not use “Tiffany” as the lead term of the product, and instead used it in the same place as Costco typically provides information about the type of engagement ring setting. The panel explained that “a trademarked term for use in a particular industry does not preclude a jury’s finding that the term has some descriptive use within the same industry.” Finally, the panel found that Costco had presented sufficient evidence (including a century’s worth of documents) to enable a jury to conclude that “the word ‘Tiffany’, when used in conjunction with a particular six-pronged stone setting, had acquired a descriptive meaning in the jewelry trade that did not suggest an association with the jeweler Tiffany & Co.”

Lastly, the Second Circuit vacated the district court’s ruling on Tiffany & Co.’s counterfeiting claim.  Because “counterfeiting is merely an aggravated form of infringement,” the panel reasoned that it would be inappropriate to accord it a different result here. Although abstaining from making any findings, the opinion includes a lengthy footnote that the counterfeiting claim should not survive because, in the panel’s view, the word “Tiffany” as used with the Costco rings was not “spurious.” This may be a warning to plaintiffs to think twice about asserting claims for counterfeiting when the lawsuit is not a traditional type of counterfeiting case. As statutory damages are available only in cases where a use of a counterfeit mark is found, the availability of a counterfeiting claim can have a significant impact on a plaintiff’s potential recovery.

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