Tiffany’s blues: Costco gets a trial on sales of “Tiffany” rings with Tiffany setting

Tiffany & Co. v. Costco Wholesale Corp., Nos.
17-2798-cv, 19-338, 19-404, 2020 WL 4743020, — F.3d – (2d Cir. Aug. 17, 2020)

The district court found that Costco’s sales of otherwise
unbranded diamond engagement rings with the solitaire setting known as a
Tiffany setting, identified by point-of-sale signs containing the word “Tiffany,”
constituted infringement and counterfeiting. It awarded Tiffany trebled
profits, prejudgment interest, and punitive damages (under NY law) totaling over $21
million. The court of appeals held that summary judgment should not have been
granted to Tiffany on liability and remanded for trial, including on Costco’s
descriptive fair use defense.

Of note: (1) “Use as a mark” continues its wild and not
particularly coherent ride in the US. It’s not a requirement for infringement
liability in the Second Circuit but it is, we learn, a requirement for
counterfeiting liability. (2) Consistent with Booking.com, the court isn’t
particularly interested in the difference between generic and descriptive—among
other things, the court indicates that generic use can constitute descriptive
fair use. This makes sense given the justification for the defense (as well as
the historic use “common descriptive name” to identify generic terms). (3) But
on the flipside, the court seems relatively uninterested in what I would have
thought was the very important fact that, according to the facts recited, there
is no other name
to identify the setting at issue other than “Tiffany
setting.” Even so, the court indicates that there could be infringement if
consumers are confused. (4) Relatedly, the court’s suggestion at the end of its
fair use discussion that the descriptive fair use defense could fail if consumers
are confused seems inconsistent with KP Permanent. Descriptive fair use, in its
current form, supposedly weighs something else against likely confusion—perhaps
whether the competitor is objectively behaving reasonably given the descriptiveness
of the term at issue, even if an ordinarily sufficient number of consumers are
confused.

Some other relevant facts: Tiffany has a number of relevant trademark
registrations. Costco used “Tiffany” only in connection with rings with Tiffany
settings; it sold several other styles identified by similar point-of-sale
signs, each of which indicated the name of the corresponding ring’s setting style
and none of which used the word “Tiffany.” Also:

At some point in the late
nineteenth century, Charles Lewis Tiffany developed and sold an engagement ring
incorporating a particular style of six-prong diamond setting. Since that time,
numerous advertisements, dictionaries, trade publications, and other documents
have referred to diamond settings reminiscent of that style as “Tiffany
settings.”

Costco used small, white point-of-sale signs that displayed information
about the rings “(ostensibly including setting style)” in uniform black text,
along with their prices in larger, bold text. “In general format, but not necessarily
in size, these signs resembled other point-of-sale signs that identified virtually
all items for sale throughout Costco stores.” Costco argued that it copied
these signs directly from descriptions supplied by its vendors. Its signs for
rings with a Tiffany setting “at times identified the ring setting using the
phrases ‘Tiffany setting,’ ‘Tiffany set,’ or ‘Tiffany style,’ and at other
times used only the word ‘Tiffany’ for that purpose,” and it “apparently
identified other setting styles in a similarly variable manner.” Tiffany purported
to challenge only the “Tiffany”-only uses, not those with “style,” “set,” or “setting.”

When Tiffany objected, Costco said that, within one week, it
voluntarily removed all uses of the word “Tiffany” from the signs in its
jewelry display cases. After Tiffany sued, Costco also sent a letter to all
customers who had purchased engagement rings with Tiffany settings to alert
them that Tiffany had sued. It explained that Costco’s point-of-sale signs had
“used the word ‘Tiffany’ to indicate that [the associated] ring had a
Tiffany-style pronged setting,” asserted that Costco “do[es] not believe [its]
signs were inaccurate,” and reminded buyers that they could return their rings
for a full refund at any time under Costco’s existing return policy. “Approximately
1.3% of customers who received this letter returned their rings to Costco.”

Infringement: A reasonable jury could find for Costco; the
district court erred in finding otherwise, based on three factors. [Footnote on
the multifactor test: “similarity of marks” is shorthand as defendant need not
use a term “as a mark,” that is, “as a symbol to attract public attention,” to
infringe.] The summary judgment standard is the same for trademark as for
anything else, and also “insofar as the determination of whether one of the
Polaroid factors favors one party or another involves a legal judgment—which it
often does—we must review that determination de novo.” Thus, “in the majority
of cases, we should review de novo both a district court’s determinations as to
each Polaroid factor and its ultimate balancing of those factors.”

The key factors: (1) Actual confusion. The district court
relied on (a) the deposition testimony of six Costco customers, each of whom
alleged that he or she was confused by Costco’s point-of-sale signs and (b) Dr.
Jacob Jacoby’s survey, which surveyed 944 people, 606 of whom identified
themselves as Costco patrons who thought that “they [or their significant
other] would consider buying a diamond engagement ring at Costco that cost at
least $2,500.” Of the 606, each of whom was shown a photo of a diamond
engagement ring alongside one of Costco’s point-of-sale signs, either in
isolation or after seeing photos of other branded items sold by Costco—“more
than two out of five … were likely confused into believing that Tiffany &
Co. was the source of the rings.” The district court found this evidence
unrebutted, but that was error.

First, Costco argued that 6 out of the 3,349 customers who
purchased Tiffany-set rings at Costco during the relevant period was only de
minimis evidence, and it submitted a report from its own expert, Dr. Russel S.
Winer, criticizing Dr. Jacoby’s survey methodology and results. Costco’s expert
opined that Jacoby should have targeted only customers with a “present purchase
interest in buying a diamond ring,” and that the survey respondents “could not
have been a group whose perceptions provided any valid or reliable predictor of
past or future Costco diamond ring purchaser beliefs.” In addition, he
contended that the survey was fatally flawed due to “artificial, contrived and
biasing” stimuli that “ignore[d] the reality of the customer purchase process.”
Rather than showing survey responders a point-of-sale sign as it would have
appeared to customers—in a display case surrounded by other rings identified by
“other tags …, some of which would have other setting and style types
indicated”—Jacoby’s survey showed them only a single ring and sign in
isolation. Indeed, Costco’s expert argued that, though both images (one with
only a single point-of-sale sign and the other with a small section of a Costco
display case) provided insufficient context, the relatively lower confusion
among respondents who saw the latter was “striking.” A jury was entitled to
consider “how the percentage [of customers identifying ‘Tiffany’ as a
descriptive word rather than a brand] might have changed had the context
provided been comparable to the real world experience.”

In addition—comment: highly relevant given the live dispute
over the genericness of “Tiffany” for the name of the setting—Costco’s expert
contended that the screening questions, which required responders to sort words
into brand names and descriptive words, “trained” those responders to “bias[ ]
the responses in favor of selecting Tiffany as a brand identifier.” To the
extent that this nudged the numbers upward, that’s relevant also to the
descriptive fair use defense, as KP Permanent says that the amount of confusion
can be relevant.

Costco’s evidence was sufficient to raise a question on actual
confusion. The district court had reasoned that Winer’s criticisms went to
weight rather than admissibility, and that he didn’t perform his own survey.
But the weight to be given to a particular piece of evidence “can be determinative
of whether the moving party is entitled to summary judgment or whether a jury
could find a material fact favorable to the non-moving party.” A reasonable
jury could find that Tiffany failed to present sufficiently persuasive evidence
to meet its burden.

(2) Good faith: The question is whether the defendant attempted
“to exploit the good will and reputation of a senior user by adopting the mark
with the intent to sow confusion between the two companies’ products.” Although
“where the allegedly infringing mark is identical to the registered mark, and
its use began subsequent to the plaintiff’s trade-mark registration, the
defendant must carry the burden of explanation and persuasion,” it is still the
case that “[p]rior knowledge of a senior user’s trade mark does not necessarily
give rise to an inference of bad faith and may [actually] be consistent with
good faith.” Indeed, “the intent to compete by imitating the successful
features of another’s product is vastly different from the intent to deceive
purchasers as to the source of [one’s own] product.” And “subjective issues
such as good faith are singularly inappropriate for determination on summary
judgment.”

The district court concluded that “no rational finder of
fact could conclude that Costco acted in good faith in adopting the Tiffany
mark.” The evidence it cited included an email from a Costco employee
indicating that Costco’s jewelry boxes should have a more “Tiffany or upscale
look”; the deposition testimony of a Costco inventory control specialist who
acknowledged that she took no action in response to two emails ostensibly
indicating customer and employee confusion over the source of Costco’s rings;
and photographs and emails that suggest efforts by Costco to “copy Tiffany’s
designs by making references to Tiffany designs and sharing links to Tiffany’s
website [in communications with vendors].”

Both Tiffany and Costco also pointed to a customer email
asking whether the word “Tiffany” on the label referred to the “Tiffany setting
or Tiffany brand.” It was consistent with good faith that a Costco employee
responded to the customer’s email that “[i]t means Tiffany setting.” And
importantly, “the jury could also consider this email as evidence of an absence
of actual customer confusion,” since inquiries about a potential relationship
are not actual confusion and arguably show lack of confusion.

Costco’s contrary evidence indicated that it had never
attempted to adopt the Tiffany mark; that its signs actually used the word
“Tiffany” as a brand-independent description of a particular style of diamond
setting; and that those signs merely reflected information provided by its own
suppliers.

The district court thought that no reasonable jury could
believe Costco, but the court of appeals disagreed. “We have consistently
recognized that intent to copy a product’s useful, nonprotected attributes should
not be equated automatically with an intent to deceive. Therefore, Costco’s
admitted intent to sell jewelry that looks like Tiffany’s—as opposed to an intent
to have its jewelry pass as Tiffany’s—cannot be enough to justify a finding
that Costco acted in bad faith.” There was “substantial” evidence favoring Costco,
including declarations from a diamond buyer and an assistant general
merchandise manager affirming that Costco inventory control personnel took the
term “Tiffany” directly from vendor descriptions, that the representatives
understood Tiffany as a “generic style name,” and that indeed it was “the only
name … used to denote [that] type of pronged setting.” There was supporting
evidence that the term “Tiffany” “has been used as a generic descriptor—both
explicitly in conjunction with a word like “setting” and implicitly by
itself—in thousands of advertisements, dictionaries, trade publications, and
other public documents since the late 1800s.”

Costco also provided evidence that its rings were not
branded with Tiffany’s mark (and indeed were branded with its supplier R.B.
Diamond’s logo instead); that the rings came in “unbranded containers bearing
no resemblance to Tiffany’s distinctive robin’s-egg blue packaging”; that
buyers received Costco-branded receipts, appraisal forms, and other sales
documents; and that Costco’s return policy permitted customers to return their
rings any time after purchase. A reasonable jury could conclude that Costco’s that
signs “were the product of a good-faith attempt to communicate to its customers
the setting style of certain rings that it sold.” A jury could also infer good
faith from Costco’s voluntary cessation and communications to purchasers.

Tiffany’s only rejoinder was that, after Costco voluntarily
stopped using the name “Tiffany,” it was still able to describe those rings’
settings as “Solitaire.” “But ‘Solitaire,’ which describes any single gem in a
simple setting, is undeniably a less descriptive term than ‘Tiffany,’ which
ostensibly describes a specific type of six-prong setting.” If a seller claimed
rights in “spoon” for a spoon, we wouldn’t think it sufficed to allow other
sellers to advertise their “utensils.”

(3) Consumer sophistication: Although sophistication may
usually be proven by direct evidence, including expert opinions or surveys, “in
some cases a court is entitled to reach a conclusion about consumer
sophistication based solely on the nature of the product or its price.” Jacoby’s
study assumed that respondents who said they “would consider buying a diamond
engagement ring at Costco” were representative of relevant customers, and
Tiffany offered no other evidence. Costco’s expert countered that the purchase
of an engagement ring is a “high involvement” transaction, and that actual
purchasers—as opposed to those who merely “would consider buying an engagement
ring”—possess substantial “subject matter knowledge and familiarity with the
relevant vocabulary.”

The district court nevertheless found no factual question,
as Costco’s evidence only went to the weight of Tiffany’s evidence and wasn’t
affirmative evidence of consumer sophistication. This wrongly shifted the
burden to Costco on Tiffany’s motion for summary judgment in its favor, and ignored
Costco’s evidence in the form of its expert’s declaration. “A jury could
reasonably conclude, by crediting Costco’s evidence and rejecting Tiffany’s,
that the relevant population of consumers would be sufficiently attentive and
discriminating as to recognize that Tiffany had nothing to do with Costco’s
diamond engagement rings.”

Overall, a jury could reasonably conclude that the relevant
consumers would know, or learn, that “Tiffany” describes a style of setting not
unique to rings manufactured by Tiffany, and recognize that Costco used the
term only in that descriptive sense. “Such consumers may also be distinctly
capable of recognizing that Costco’s rings were not manufactured by
Tiffany—based, for example, on their price, place of purchase, packaging, or
paperwork—and consequently be particularly unlikely to be confused by any
aspect of Costco’s point-of-sale signs,” especially given that they’d see “a
jewelry case full of other unbranded rings, each identified by a sign
indicating its own setting type in a similar or identical way.” Although there
was clearly a “potential for confusion” inherent in the public association
between the Tiffany brand and high-quality engagement rings, that wasn’t
enough. In light of Costco’s evidence, as well as “Tiffany’s failure to
demonstrate that actual purchasers would not recognize the word ‘Tiffany’ as
denoting a commonly used setting style,” summary judgment for Tiffany was
improper.

In addition (maybe), Costco was entitled to reach a jury on
its descriptive fair use defense “even where the challenged material is likely
to cause some confusion.” By “some” the court means “some otherwise actionable,”
otherwise KP Permanent would be pointless.

The district court’s good faith finding above led it to
reject Costco’s defense on the good faith prong; this was now reversed, and
Costco also raised factual issues on the other elements.

(1) Use as a mark: Use as a mark means use “as a symbol to
attract public attention,” or “to identify and distinguish … goods [or
services] … and to indicate [their] source.” Relevant factors include: whether
the challenged material appeared on the product “itself, on its packaging, or
in any other advertising or promotional materials related to [the] product,”
and the degree to which “defendants were trying to create, through repetition
… a[n] association between [themselves] and the [mark].”

A reasonable jury could find no use as a mark. “Tiffany’s
own evidence indicates that Costco typically identifies the trademark
associated with its branded products as the first word on the product label,” including
when it did sell genuine Tiffany merchandise, whereas Costco produced hundreds
of examples of signs for its engagement rings, “none of which began with the
word ‘Tiffany’ or any other brand name.” Instead, it used the word “in the
exact same manner (including typeface, size, color, and relative location on
the signs) that it displayed setting information for other engagement rings.” “Tiffany”
didn’t appear on any of its rings or ring packaging, and that the rings
actually bore the logo of a different manufacturer.

(2) Descriptive use: This includes “words that describe a
characteristic of the goods[ ] such as size or quality,” and also “words or images
that more abstractly identify some information about the goods in question.” A
jury could reasonably credit Costco’s evidence that “Tiffany” has a descriptive
meaning independent of Tiffany’s brand and that Costco “intended to and did
invoke that meaning when it created its point-of-sale signs.”

Tiffany argued that this result would be absurd because Tiffany
is a valid mark for jewelry, and that the court shouldn’t allow “Tiffany” to be
a source identifier for rings of other styles, but a descriptive term for rings
in the so-called “Tiffany” style. But that’s not absurd; it’s inherent in the
idea that a descriptive term can be a trademark. It’s black-letter law that
“the public’s right to use descriptive words or images in good faith in their
ordinary descriptive sense must prevail over the exclusivity claims of the
trademark owner.” It doesn’t matter that Tiffany the company and the Tiffany setting
derive their names from a common source; nor did it matter that “Tiffany” didn’t
“inherently” describe the setting. For whatever reason, Tiffany didn’t stop “Tiffany
setting” from becoming a well-known term [here again I note that the court doesn’t
seem particularly concerned that there doesn’t appear to be another name for the
setting, which I think is a pretty important issue]. “Indeed, the fact that
Tiffany does not here challenge Costco’s use of the phrase ‘Tiffany set’ or ‘Tiffany
setting’ may signal an implicit recognition that some uses of its protected
mark are indeed descriptive.”

In conclusion, however, the court suggests that the ultimate
question is whether the descriptive use worked to avoid confusion—which seems
inconsistent with KP Permanent: “To be sure, a reasonable jury could
also reject Costco’s evidence and find that customers would not recognize
the word ‘Tiffany’ as descriptive even with the context Costco provided”
(emphasis added).

The counterfeiting claim also had to be reversed and sent to
the jury. In a footnote, the court indicated that if there was no use as a mark,
there “likely” could be no counterfeiting even in the presence of infringement
liability, since a non-mark use cannot be a “spurious mark.”  “We fail to see how a term can be a ‘fake’
mark if it is not actually used as a mark, or how a term can ‘deceptively
suggest an erroneous origin’ if it is not used as a means to indicate origin in
the first place,” even though terms not used as marks can still generate
confusion as to “affiliation, connection, … association[,] … sponsorship or
approval,” and thus constitute trademark infringement [court’s rather puzzling citation
to §43(a)(1)(B) as a source of trademark infringement liability omitted]. “But
because terms not used as marks are not ‘spurious,’ they cannot, as a matter of
law, be counterfeit.”

The court declined to reach whether punitive damages under NY
law would be available to Tiffany if it prevailed.

from Blogger https://ift.tt/2FGFov7

This entry was posted in Uncategorized and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s