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The Second Circuit Vacates Tiffany & Co.’s $21 Million Judgment for Trademark Infringement and Counterfeiting Against Costco

Posted in IP, Trademark Law

Almost five years ago, I wrote an article published in the Daily Recorder about a ruling in the Tiffany & Co. v. Costco Wholesale Corporation case filed in the United States District Court for the Southern District of New York. Specifically, I wrote about the Court granting Tiffany’s motion for summary judgment on liability, permitting Tiffany to proceed to trial on the issue of damages. Tiffany eventually did exactly that and obtained a $21 million judgment against Costco for selling unbranded engagement rings as “Tiffany” diamond engagement rings. But just over a week ago, the Second Circuit Court of Appeals vacated the judgment of the District Court and remanded the case for trial.

To recap, Tiffany sued Costco for selling other rings and using the word Tiffany on nearby signage to describe those rings, claiming trademark infringement and unfair business practices. Costco responded to the allegations by claiming that “Tiffany” is a word used throughout the industry to refer to a particular style of setting–a diamond solitaire in a six-prong setting. Costco argued that consumers are aware of this use of “Tiffany” and that its use was therefore unlikely to cause consumer confusion. Costco also argued that Tiffany is not a legally protected trademark because the mark is descriptive or generic for that style of setting. For that reason, Costco requested that the Court cancel Tiffany’s trademark.

But the District Court wasn’t persuaded by Costco’s defense. Instead, the District Court granted Tiffany’s motion for summary judgment, finding no trier of fact could agree with Costco’s arguments and that Costco had infringed Tiffany’s rights. The District Court then ordered the parties to proceed to trial on damages. A jury eventually awarded Tiffany $13.8 million in lost profits and just over $7 million in punitive damages, bringing the total award to $21,010,438.35.

On appeal, the Second Circuit vacated the judgment and remanded the matter for trial after finding that the District Court’s granting of summary judgment on liability was improper. In short, the Second Circuit held that the District Court abused its discretion when it granted summary judgment. The District Court had decided that no reasonable jury could find in Costco’s favor because Costco did not raise a disputed issue of material fact concerning any of the Polaroid factors, which is the applicable tests for trademark infringement in the Second Circuit. The Second Circuit disagreed, finding that triable issues of fact existed concerning three Polaroid factors: whether Costco’s customers were actually confused; whether Costco adopted Tiffany’s mark in bad faith; and whether the relevant population of consumers was sufficiently sophisticated to avoid confusion. As a result, the Second Circuit likewise held disputed issues of material fact existed concerning the “ultimate issue of whether Costco’s actions generated a likelihood of customer confusion.” The court believed that Costco had presented sufficient evidence concerning each of these factors and the issue of liability to enable a jury to find that Costco had not infringed Tiffany’s trademark. The District Court’s order granting Tiffany’s motion for summary judgment was therefore an abuse of discretion requiring the Second Circuit to vacate the decision and remand the matter for trial.

The Second Circuit also determined that the District Court’s ruling was an abuse of discretion because it deprived Costco of its ability to present its fair use defense. Costco argued below that its use of Tiffany was a permissible fair use because it did not constitute use as a mark, was descriptive of the diamond setting, and was in good faith. All three of those factors weigh in favor of a finding of fair use. But the District Court rejected Costco’s argument without considering any of the applicable factors except good faith, and as to that factor, the District Court found the evidence supporting its ruling on infringement also refuted the idea that Costco acted in good faith. On appeal, Costco argued that it presented sufficient evidence in support of each of the relevant factors. The Second Circuit agreed and held this was a separate ground for vacating the District Court’s judgment and remanding the matter for trial.

The Second Circuit’s ruling illustrates exactly why district courts are often reluctant to grant summary judgment concerning trademark infringement issues, except in the most one-sided of cases. Whether it is under Sleekcraft, Polaroid, or DuPont, the factors do not always give rise to bright-line determinations and usually require the trier of fact to weigh evidence from both parties to decide which party each factor favors. But the summary judgment standard is clear: If the trier of fact is required to weigh evidence, the matter cannot be resolved by summary judgment. In most instances, as in Tiffany v. Costco, there will be at least some evidence on both sides. And if there is sufficient evidence to allow a reasonable trier of fact to find in favor of the non-moving party—even if it’s unlikely—a trial court must deny summary judgment. Any ruling to the contrary runs the risk of being overturned on appeal, and there are few things judges hate more.