We can infringe upon you wholesale

Brozik

[Editor's note:  When this was first posted, I -- not Matthew, I, Ron Coleman -- failed to utilize the drop-down box and make sure that MDB showed as the author of this piece, probably thinking that the picture at left would do the trick.  Based on some blog posts, um, it didn't.  Sorry to all concerned!]

On Valentine’s Day, appropriately enough perhaps, Tiffany (the jeweler, not the singer) filed a complaint against Costco in the United States District Court for the Southern District of New York, asserting a variety of trademark-related causes of action. The lawsuit is not extraordinary by any means. The alleged facts, summarized below, are not scandalous, even if they describe an underhanded practice:

A woman complained to Tiffany & Co. about something she had seen at a Costco warehouse in Huntington Beach, California—to wit: diamond rings for sale, described in signage at the display case as “Tiffany” rings. (The woman was reportedly “disappointed” by her “observ[ation].”)  Costco investigated and confirmed what the woman had described: Costco was selling jewelry (mis)labeled as Tiffany items. (A saleswoman referred to the rings as “Tiffany” rings, and said that the store generally carries only one of each at a time.)

But Tiffany has never permitted its merchandise to be sold by Costco; apparently, something was amiss. The items sold by Costco were not in fact Tiffany items—not even in the way that other higher-end watches, for instance, sold by Costco are the real things (even if not every higher-end watchmaker is happy about it; see Omega S.A. v. Costco Wholesale Corp., the Ninth Circuit matter addressing whether the first-sale doctrine is a defense against claims of infringing distribution and importation for unauthorized sale of authentic items incorporating designs protected by copyright.) Tiffany found that Costco was selling the items in question online as well, but not labeled “Tiffany” there.

Tiffany confronted Costco with its discovery, and Costco immediately removed all misleading signage. The damage had been done, however. The complaint alleges (or at least suggests) that the offending practice was not limited to the Huntington Beach warehouse, but rather was widespread throughout Costco’s locations nationwide, for many years. “There are now,” according to the complaint, “hundreds if not thousands of people who mistakenly believe they purchased and own a Tiffany engagement ring from Costco.”

So what makes this case interesting? A few minor things, to my mind, and one more significant.

Tiffany asserts seven causes of action: federal trademark infringement; federal false designation of origin and unfair competition; federal trademark dilution (inasmuch as the Tiffany marks at issue are “famous”); federal trademark counterfeiting; violation of the New York General Business Law provision making “deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state… unlawful”; violation of the NY GBL provision dealing with “Injury to business reputation; dilution”; and trademark infringement in violation of New York common law.

Tiffany demands the usual things, including a permanent injunction—Tiffany notably does not seek a preliminary injunction, as Costco “assured” Tiffany in December that it would “refrain from any further use of the Tiffany trademarks”—and “monetary damages, trebled under the law, including but not limited to an amount equal to all profits of Costco by which it was unjustly enriched by its counterfeiting of Tiffany’s valuable trademarks, plus punitive damages, costs and attorney’s fees. Included in the foregoing amount are monetary damages equal to the amount by which Costco’s engagement ring business increased following its counterfeiting of the Tiffany trademarks.”

As the complaint explains, “in addition to selling what amounted to counterfeit Tiffany rings, Costco was also able to increase sales of all of its engagement rings. The use of the Tiffany [marks] brought attention not just to the rings marked Tiffany themselves, but to Costco’s fine jewelry department generally.” The counterfeit rings “made other non-branded jewelry in the same display case appear more valuable by comparison since those other items were, in fact, no different [from] what was falsely labeled as Tiffany.”

In other words, if Costco sold more engagement rings—of any brand—because of the increased cachet it gained by “unlawfully trad[ing] off Tiffany’s goodwill and brand awareness to increase its own sales, including [Costco] member acceptance of Costco as a retailer of high-end jewelry products” …then Costco owes its increased profit to Tiffany, literally. If a Costco member visited a warehouse, saw that Costco was selling Tiffany engagement rings, was impressed enough to reconsider Costco as a place to buy an engagement ring, and then ultimately purchased a Costco house-brand “Kirkland Signature” diamond ring, then Costco should now turn over the profit from that sale to Tiffany… because of course. This seems, to this writer, a bit overzealous, and more than a bit speculative.

Not that I don’t think Costco should be punished (although that is what both treble damages and punitive damages are for, no?). But even Tiffany wants more than just money and a permanent prospective injunction. Tiffany is asking the court to order Costco to “publicly admit its misconduct to the purchasers of each [mislabeled] ring, and notify affected purchasers that they do not own a Tiffany engagement ring from Costco.” Tiffany wants to shame Costco, although it isn’t quite clear how exactly Tiffany wants Costco to have to do its non-monetary penance. “Publicly admit its misconduct” sounds… well, public, like on billboards or in television spots, but “to the purchasers” doesn’t need to be public; rather, Costco could notify the purchasers of the mislabeled rings by letter or phone call. But it’s the next part that really matters—to Tiffany—I’m certain. Tiffany does not want anyone thinking that he or she bought and/or owns a real Tiffany ring purchased at a warehouse store. No doubt Tiffany has the consumer’s interests in mind: The consumer should never be misled. The consumer comes first.

Or something. Tiffany has “more than 175 years” of reputation to protect, and specifically a reputation for selling “high quality goods” that most people simply can not afford. Contrast Costco, whose “no-frills limited selection approach to retailing… is the polar opposite to the approach of Tiffany, which is well-known for offering its customers attentive personalized service in stores built out in  a first-class manner consistent with the high quality and standards associated with the Tiffany brand.” Costco, you know, is a warehouse where you can buy socks, beer, batteries, garbage bags, deodorant, frozen lasagna, and so very much more, all in bulk, all in one trip. If you’re a member, that is.

Because for all of the subtle and not-so-subtle denigration of Costco by Tiffany in the complaint, there a perceptible hint of… let’s call it envy dusting the paragraph that mentions the membership aspect of the Costco business model. The complaint makes it plain that Tiffany wants nothing to do with Costco—“Tiffany has never sold nor would it ever sell its fine jewelry through an off-price warehouse retailer like Costco, either directly or indirectly”; “Costco… used the Tiffany [marks] to misrepresent the jewelry items… because they were far more valuable than [Costco’s] own Kirkland Signature brand could ever be for jewelry items”; “[Costco’s actions] diluted the value of the Tiffany [marks] by causing them to be associated with Costco and its discount warehouse operations, a method of retailing Tiffany would never utilize or authorize for its products”—but Tiffany acknowledges (with some resentment, this writer imagines) that “Costco publicly claims to have approximately 60 million members worldwide who are not only familiar with its business model, but who also pay for the privilege of membership to gain access to its warehouse stores.” That’s right: Anyone at all can just walk into a Tiffany & Co. store, but you have to pay to be a Costco member, and if you aren’t a member, you can’t go into a Costco warehouse. Oh, the 24-karat irony.

And maybe that’s why Tiffany wants Costco to have to write, or call, each purchaser of a Tiffany-not-Tiffany ring to tell them the truth. So those warehouse-club members won’t believe that they’re wearing the real thing, and so they certainly won’t tell anybody that they are, and that it came from Costco, even if they did have to first be a member of that exclusive club of only sixty million people worldwide, including this writer and the woman who was disappointed to see Tiffany rings for sale at her local Costco location. “Why,” she must have thought, clutching her $180,000 Schlumberger Fleur de Mer brooch in platinum and gold with sapphires and diamonds, “I never!”

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