Costco Wholesale Corp. lost a bid to reverse or reduce a $19 million judgment against it for allegedly selling counterfeit Tiffany & Co. engagement rings.
The Jan. 7 decision by the U.S. District Court for the Southern District of New York means Costco must pay nearly $6 million more to cover Tiffany’s legal costs even as its appeal of the six-year-old case moves forward. The U.S. Court of Appeals for the Second Circuit had paused the case for more than a year pending the district court’s ruling on Costco’s post-judgment motion.
“Costco looks forward to vindicating its rights in the appeal,” David H. Bernstein, counsel for Costco and an IP attorney at Debevoise & Plimpton LLP in New York, told Bloomberg Law in an email.
Tiffany in 2017 won an award of $8.25 million in punitive damages plus $11.1 million in tripled lost profits damages. The district court had found that Costco acted in bad faith by using the term “Tiffany” in display signs to describe the rings’ setting style.
Costco failed to show the court relied on the wrong standard to determine whether the rings were counterfeit, and that it incorrectly calculated the award, U.S. District Judge Laura Taylor Swain wrote. She granted Tiffany an additional $5.9 million in litigation expenses and directed the jewelry retailer to propose an attorneys’ fee award by Jan. 21.
“We are gratified that Judge Swain has reiterated what she has said repeatedly now, and what a jury also found, that Costco’s use of the world famous Tiffany mark to sell its own jewelry was totally improper,” Jeffrey Mitchell, a commercial litigator at Browne George Ross LLP in New York, told Bloomberg Law in an email.
The membership warehouse chain argued that the court incorrectly relied on the eight-factor test for likelihood of confusion set out by Polaroid Corp. v. Polarad Electronics Corp. Those factors are only relevant in determining whether a defendant infringed, rather than counterfeited, a mark, according to Costco.
Swain said the test didn’t equate infringement with counterfeiting, and that the court used the factors to help analyze the elements of the counterfeiting claim.
Swain also rejected Costco’s argument that the court should alter the award because it calculated profits damages based on the profit margin range of an average jewelry store. Costco sells a wider range of products and has a different business model than the traditional jewelry store, the company argued.
The court imputed a 50 percent profit margin to account for the low markups that Costco charges for its rings, Swain noted. “Awarding only the profits earned directly from the sale of the infringing rings would be insufficient,” she wrote in her opinion.
The case is Tiffany & Co. v. Costco Wholesale Corp., S.D.N.Y., No. 1:13-cv-01041-LTS-DCF, 1/7/19.
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(Updated with comment from Tiffany)