Dive Brief:

• Costco was ordered to pay at least $19.4 million in damages to Tiffany & Co. August 14 over a diamond ring trademark infringement, according to court documents. 

• Costco is also "permanently enjoined from using the mark 'Tiffany' as a standalone term, not combined with any immediately following modifiers such as 'setting,' 'set' or 'style,' in connection with its advisement and/or sale of any products that were not manufactured by [Tiffany] or their affiliates," according to the court order signed by U.S. District Court Judge Laura Taylor Swain.

• "[T]he ruling is a product of multiple errors in pretrial, trial, and post-trial rulings," Costco said in a statement, adding that the company intends to appeal.

Dive Insight:

Costco's argument is not that far-fetched: A "Tiffany" setting is now known by the world over as a type of ring setting that is used — much like the words "Kleenex" or "Chapstick" — by people inside and outside the industry. Judge Swain acknowledged that in her order, writing, "Costco presented credible evidence, and the Court finds that, 'Tiffany' is used within the jewelry industry in the context of the combined term 'Tiffany setting' to denote a certain type of multipronged solitaire ring setting."

"Costco used the terms 'Tiffany style' and 'Tiffany setting,' as to which Tiffany did not assert trademark infringement or counterfeiting claims in this case, in a large proportion of its diamond ring signage," she also said. "Costco also used the infringing standalone signage to a significant degree." 

But Costco may have gone too far with its use of the word, to the point of letting — or even encouraging — customers to believe they were buying Tiffany rings. The court found that Costco failed to include words like "setting" or "style" in key product information and signage, warranting the finding of trademark infringement and damages.

It’s worth noting that while several news reports described the rings sold by Costco as "counterfeit diamond rings," that is not necessarily the case. Costco sells diamond rings, sometimes at prices higher than those found at traditional jewelry stores. Rather, it’s Costco’s use of the word "Tiffany" that is at issue.

The retailer has already taken steps to address the issue, agreeing with a request by Tiffany to stop using its name, as well as sending a letter to customers clarifying that the rings aren’t "Tiffany & Co." rings and offering refunds if they were disappointed. 

Costco has run into trouble over counterfeit and "gray market" goods in the past. It’s an issue that dogs every marketplace and discount store — including Amazon, TJX Cos., Alibaba, and others — that sells merchandise designed to resemble or ape designer goods.

In his statement on the matter this week, Costco President and CEO Craig Jelinek said that the retailer's customer trust is paramount, but that the case isn't over. "Our mission statement mandates first that we obey the law and second that we take care of our members," he said. "Over 90% of our members in the U.S., who pay to shop with us, renew their memberships every year.  We work very hard to maintain their trust, and we strive to be candid with them. These efforts will continue whatever the final outcome of this lawsuit may be."