Second Chances From the Second Circuit: Tiffany’s $21m Judgment Is Overturned and Remanded Back to the SDNY

| Ian W. Gillies

The U.S. Court of Appeals in the Second Circuit found in favor of Costco in the latest chapter of an over seven-year legal battle between Tiffany and Co. (“Tiffany’s”) and Costco Wholesale Corporation (“Costco”). A three judge panel overturned the $21 million award granted to Tiffany’s, after a summary judgment decision in Tiffany’s favor in the U.S. District Court for the Southern District of New York (“SDNY”). In a unanimous decision, the court concluded that the SDNY improperly granted Tiffany’s motion for summary judgment, which prevented a jury from deciding key issues of fact. Thus, the SDNY decision was vacated and the case remanded for trial.

Tiffany’s filed suit and a motion for summary judgment against Costco in early 2013, accusing it of trademark infringement, counterfeiting, and unfair business practices. Tiffany’s claimed that Costco sold engagement rings using the “Tiffany” name to create the false impression that they were authentic Tiffany and Co. products. Costco countersued and denied infringement, claiming fair use as an affirmative defense based on an argument that its use of “Tiffany” referred to a generic six-prong ring setting, and sought to have Tiffany’s trademark registration for TIFFANY invalidated as generic. In September 2015, the SDNY granted Tiffany’s request for summary judgment and found Costco liable for trademark infringement and counterfeiting, while dismissing Costco’s counterclaims. In 2016 a jury awarded Tiffany’s $13.25 million in punitive and compensatory damages, and the court awarded additional damages, bringing the total to over $21 million. Costco appealed the decision, which led to this most recent decision from the Second Circuit.

The Second Circuit reviewed the case de novo, holding that the SDNY erred in granting Tiffany’s motion for summary judgment. The court reasoned that to validly affirm a summary judgment from a lower court, it must find that “no reasonable jury could return a verdict for the non-moving party.” The court’s decision hinged on its determination that a reasonable jury could conclude that Costco’s actions did not constitute trademark infringement, and that Costco’s use of “Tiffany” could referr to a generic ring setting under fair use principles.

The court analyzed the trademark infringement claim by balancing the Polaroid factors and the evidence presented by both parties during discovery, in which all factual inferences were to be resolved in Costco’s favor. The court determined that Costco’s evidence with respect to actual confusion, Costco’s good faith, and the sophistication of the consumers created a legitimate question of material fact as to the overall likelihood of consumer confusion. The court further determined that there was a genuine dispute of fact as to whether Costco’s use of “Tiffany” as referencing a “Tiffany setting” fell within the bounds of fair use. Specifically, the court reasoned that “[t]here is nothing inherently absurd about a single word’s being both a source identifier and a descriptive term within the same product class.... [T]he simple fact that a defendant has trademarked a 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.” The court emphasized that “whether a defendant has used a name descriptively requires ‘individualized consideration’ of how the defendant has used the name.” Here, Costco’s evidence may have been sufficient for a jury to find the word “Tiffany,” when used for a stone setting, to be descriptive and fair use. Thus, the court vacated the judgment and remanded the case back to the SDNY.

There are a few interesting takeaways from this Second Circuit decision. First, the court’s review of the likelihood of confusion factors and the overturn of summary judgment based upon actual confusion, good faith and consumer sophistication, reminds us that trademark infringement is determined using multiple factors, which can lead to various results even if the marks and goods at issue are identical. This means that parties claiming infringement and moving for summary judgment will want to include as much evidence as is available for as many of the factors as possible, and parties arguing against these motions should proffer significant counterevidence in response. Second, the court’s decision reminds us that a term can conceivably serve both as a trademark and a descriptive term within a particular industry. In such circumstances, a party asserting infringement will need to prove that the complained-of use is trademark use, and not descriptive use. While the outcome of this legal battle is yet to be determined, it is clear that neither party is going down without a fight.

Note: For more information about the procedural posture in this case, check out two other articles published on our blog.

  1. Tiffany Wins the Generic Battle, and the Spoils of War are Significant
  2. District Court Awards Nearly $20 Million to Tiffany for Trademark Infringement and Enjoins Costco From Further Sales of Infringing Engagement Rings

Editor: Catherine Holland