Will Diamonds Be Forever?: The Second Circuit Overturns the Tiffany Decision
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| Source: The official website of Tiffany & Co. |
One of the most high-profile trademark cases of this year was Tiffany v. Costco. See Tiffany & Co. v. Costco Wholesale Corp., 917 F.3d 74 (2d Cir. 2020). Tiffany's engagement ring, featuring a distinctive style of six-prong diamond setting (pictured above), is one of the brand's signature jewelry pieces and, of course, is trademarked. In 2012, Costco sold various engagement rings. One particular line was displayed under point of sale signs along the lines of "Tiffany setting" and "Tiffany style", or sometimes, "Tiffany" alone. One customer who had visited a Costco store in California notified Tiffany of the situation, and Tiffany subsequently sent Costco a letter in which it informed that such behavior constitutes both trademark infringement and counterfeiting. After some time, Costco removed all the items in dispute from its shelves, but Tiffany resolutely filed a complaint in the Southern District Court of New York to recover what it believed to be ill-gotten gains and asked for a summary judgment.
At the district court, Costco mainly advanced two arguments. First, Costco contended that no infringement should be found, because under the Polaroid factors, no likelihood of confusion exists. (See my earlier post to learn about this 8-factor test and it application.) Second, Costco claimed that it is entitled to fair use because it used Tiffany as a descriptive term in good faith to refer to this particular type of engagement rings, pointing out that such usage is not so uncommon in the industry. It relied on the Lanham Act, which provides that no infringement is found if the use "is descriptive and used fairly and in good faith only to describe the goods or services". See 15 U.S.C. § 1115. However, Judge Swain found Costco liable for trademark infringement in large part because it is difficult to conclude from the submitted evidence that Costco acted in good faith to be eligible for fair use. (By the way, the bad faith is one factor in the Polaroid test.) The judge gave force to the discovered fact that "Costco was requesting that its vendors copy Tiffany products and that Costco employees were aware of vendors' efforts to do so." Tiffany & Co. v. Costco Wholesale Corp., 127 F. Supp. 3d 241, 252 (S.D.N.Y. 2015). Costco can't be acting in good faith when there were deliberate efforts on the multiple levels of such a large corporation. With respect to the likelihood of confusion under the Polaroid factors, the judge concluded that actual confusion exists based on the testimony of customers, coupled with the strength of the Tiffany trademark. In the end, the judge awarded $21 million in damages against Costco. Costco appealed the decision.
On appeal, the Second Circuit vacated the district court decision. How and why? Judge Livingston noted that, although "considerable deference" is given to district courts' findings of facts, the district court was wrong to issue a summary judgement when there are genuine issues of fact with respect to several Polaroid factors. Tiffany & Co, 917 F.3d at 85. The Second Circuit especially took issues with the district court's finding of the actual confusion and the bad faith. For the actual confusion, the judge pointed out that 6 customers are not sufficient to satisfactorily show that consumers, in fact, are likely to be misled in the market. At the summary judgment level, all inferences should be drawn in favor of the non-movant (here, Costco), and it could well be the case that a reasonable juror finds "the testimony of six customers - out of the 3,349 customers who purchased Tiffany-set rings at Costco during the relevant period - [is] only de minimus evidence of confusion." Id. at 87. For the bad faith both in connection with the Polaroid factors and the fair use defense, the judge again opined that it could well be the case that a jury reasonably finds that Costco simply meant to borrow certain successful features from Tiffany's product without suggesting that Tiffany was its actual producer. ("We have consistently recognized that intent to copy a product's useful, non-protected attributes should not be equated automatically with an intent to deceive." Id. at 89.) So, Tiffany should have conclusively established the bad intent with more concrete and direct pieces of evidence to rebut Costco's assertions to the contrary. Finally, the judge noted that the word "Tiffany", even trademarked, can both be a descriptive term and a source identifier. The Second Circuit therefore concluded that there are genuine triable issues of fact and that the summary judgment is not warranted in the present case. It remanded the case back to the district court for a new trial. Tiffany's legal team is determined to fight back.
I'm personally torn about this Second Circuit ruling. The Second Circuit was correct in articulating that it can review de novo (a fancy legal term for anew) how the relevant laws were applied. It seemed to be particularly disturbed by the fact that Tiffany's evidence was given more weight than that of Costco when the burden falls on Tiffany to satisfactorily disprove what Costco is alleging. In addition, there is a tendency in the circuit courts to think in broader terms than the district courts because they are concerned about various doctrinal implications. Admittedly, the burden-shifting mechanism is an important procedural issue. Having said that, although I might agree with the Circuit's analysis on the likelihood of confusion, I seriously have no idea how there is no bad intent on the part of Costco in light of such indicting evidence outlined above. How can there be "the uncontroverted evidence" of bad intent when it is, after all, inferential and circumstantial? Then, to what extent, does the Tiffany have to sufficiently and successfully bear the burden of proof? The so-called Polaroid factors, which have come out of the Second Circuit, has 8 factors in total, and the judge has the ultimate discretion to decide how much weight to accord to each factor. The district court judge, within his discretion, placed weighted emphasis on two of them because I think he believed it is fair to do so in light of the facts in the case. For now, what was once seen as a "diamond" win for Tiffany is now somehow broken into pieces. Can Tiffany make it shiny again? I really hope Tiffany wins because Costco, in my opinion, was free-riding on the goodwill of Tiffany, and that's not fair.
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