disparagement campaign in niche jewelry market could violate Lanham Act

Roberto Coin, Inc. v. Goldstein, No. 18-CV-4045(EK)(ST), 2021
WL 4502470 (E.D.N.Y. Sept. 30, 2021)

Defendants Goldstein and his company Kings Stone supplied
plaintiff RCI with a gemstone they called “black jade.” “After RCI stopped
sourcing black jade from Kings Stone and found a new supplier, Goldstein
contacted a number of stores selling RCI jewelry and disparaged RCI’s stones.
Both sides now claim the other is liable for false advertising, among other
claims.” For example, Goldstein allegedly told one of RCI’s customers that
RCI’s stones were to real black jade as cubic zirconia is to diamond. Defendants
also allegedly infringed RCI’s trademarks by using photographs of Roberto Coin
jewelry and RCI’s logo in Kings Stone’s advertising after RCI terminated the
relationship. Kings Stone counterclaimed that RCI made false claims about (a)
the gemological content of the stones from its new supplier and (b) whether
those stones had been “certified” by a laboratory. The counterclaims/third
party claims were dismissed for failure to prosecute and the results on the
plaintiff’s claims were mixed.

When things were going well, Kings Stone provided RCI with
an analysis prepared by the National Gem Testing Center — a gemstone testing
laboratory based in China — stating that the mineral content of its stones was
“black amphibole jade.” About eighteen months after the parties split up, RCI
discovered that the Defendants were using photographs of RCI jewelry alongside
RCI’s logo, as well as the name “Roberto Coin,” on Kings Stone’s Instagram feed.
Instagram ultimately removed the posts. Goldsein also sent marketing materials
incorporating RCI images to various vendors, including in a PowerPoint
presentation. He stated that he believed RCI “knew about” and “was okay” with
this.

Goldstein solicited Borsheims, a jewelry retailer that sold
RCI products (including the Roberto Coin “Black Jade” collection), touting Kings
Stone’s black jade as “exclusively certified by the china NGTC and the
prestigious US based AGL as Black jade.” Borsheims wasn’t interested.

Goldstein emailed Borsheims again, this time pretending to
be a customer looking for a “gift for a jade connoisseur.” He expressed
interest in a specific Roberto Coin product and asked Borsheims to provide him
with “a gem certificate that verifies its authenticity as genuine black jade.” Borsheims’
employee wrote back to say that she had contacted RCI, and that “while they do
not have official certificates of authenticity for their jade gemstones, they
provided me with the attached card detailing the certification of the jade
along with further details.” The “attached card” said: “The most fascinating
black amphibole jade, 100% natural identified and certified by China’s National
Gemstone Testing Center (NGTC) is the protagonist of the homonymous ‘Black
Jade’ collection.” Goldstein responded that the product

does not come with any
certification as to its authenticity that the black jade is genuine. If there
is no certification available, then legally you cannot claim or advertise that
it is black jade, no less then [sic] claiming a cubic zirconia being a real
diamond …. My black jade comes with full certification by 3 major Gemological
Labs. When dealing with my certified black jade stones you are assured of the
highest quality and no reputational risk to your company by selling non
certifiable black jade. The real black jade jewelry companies are doing great
with our line with sales exceeding the best projections.

A followup email from Goldstein said that “[w]e have asked
Roberto Coin directly numerous times for confirmation of the black jade
authenticity and we have not received any response.” He then threatened Borsheims
with “filing for class action status on this matter to protect [his] business
and the consumers being misled by false advertising.” He said that Borsheims
needed to “take remedial action otherwise we will include your company in this
[action] since we have legally notified you…. And yes even borsheims has to
be held accountable.” Afterwards, Borsheims told RCI it was “removing the black
jade” offerings from Borsheims’ website.

Goldstein also contacted other RCI retailers (Macy’s, Neiman
Marcus, and Saks Fifth Avenue) seeking confirmation that RCI’s black jade was
certified.  He told Saks’s parent
corporation that RCI’s black jade was “not … authenticated or certified as
advertised,” and had similar exchanges with Macy’s and Neiman Marcus. He
emailed them to say he would be filing a lawsuit against RCI: “I am part of a
group of gemstone dealers selling genuine and certified black jade, that are in
the process of filing a class action lawsuit against Roberto coin for selling
non authenticated black jade.” He said he was letting the retailers know about
his lawsuit as a “courtesy” so that they could “take remedial action … and
remove any questionable product that cannot be authenticated.” At his
deposition, Goldstein acknowledged approaching “every customer that was
advertising the black jade.”  He
testified about the steps he took to identify every RCI retailer and that it
was a “huge amount of communication.”  (He
also emailed “basically industry wide” announcing his counterclaims in this
case, reaching “various jewelry-industry players: newsletters and magazines,
trade associations, and additional retailers” and analogizing the situation to an
earlier scandal about gem misclassification; there was a bribery aspect to that
situation but he testified that he wasn’t aware of the bribery part.)

Macy’s and Saks Fifth Avenue also stopped selling the Black
Jade collection. Saks, Borsheims and Bloomingdales alone returned jewelry
valued at more than $380,000 from the Black Jade collection. “At least one
jewelry retailer apparently understood Goldstein to be challenging the
authenticity of the gemstones in RCI’s Black Jade collection, as opposed to
merely questioning whether RCI had obtained an authentication from a
laboratory.”

RCI’s position was that there is no industry-wide
“certification” for the “authenticity” of black jade, because “black jade” is
not a scientific category. Instead, it contended that “jade” is generally used
in the industry to describe two different but related minerals, nephrite and
jadeite, and that the term “black jade” cannot constitute false advertising. It
did, however, obtain certifications from various gemological labs, including one
certifying that RCI’s gemstones were comprised of “Natural Amphibole Material”;
another certifying “amphibole and other minerals”; an NGTC certification certifying
“Black Amphibole Jade”; and another certifying “Black Nephrite Jade.” However,
RCI obtained the latter two certifications — including the one from NGTC —
after it emailed the card promoting its stones as “[t]he most fascinating black
amphibole jade …. 100% natural identified and certified by China’s National
Gemstone Testing Center (NGTC)” — to Saks and Borsheims.  

Lanham Act false advertising: RCI alleged two overlapping
subcategories, (1) claims that RCI’s black jade was fake or inauthentic (e.g.,
Goldstein’s emails to Borsheims discussing the impact that the sale of “Fake
black jade” has on Goldstein’s business, making a cubic zirconia/diamond comparison,
and calling his company one of “the real black jade jewelry companies”) and (2)
statements that RCI’s stones lacked some form of certification or
authentication.

Falsity: RCI showed sufficient evidence of literal falsity
of (1) to continue, but (2) was murkier. The “not authenticated” statements
weren’t literally false, “as RCI did not (at the time) possess a certification
expressly confirming that its stones were ‘black jade.’” But given RCI’s
evidence that there is no established mineralogical category for “black jade,” a
jury could find implied falsity, especially since one retailer seemed to
understand the statement as questioning whether the stones were “somehow
counterfeit.” A falsity finding would be premature, since a factfinder should address
implied falsity and the parties continued to dispute which stones RCI submitted
to obtain its certifications. “The existing record does not definitively rule
out the possibility that RCI commingled stones from Goldstein and its
subsequent supplier, or definitively establish the provenance of the stones RCI
submitted for evaluation.”

Goldstein also made legal claims in his emails, e.g., “[i]f
there is no certification available, then legally you cannot claim or advertise
that it is black jade.” This wasn’t itself actionable, because “a layman’s
statements about the illegality of another party’s conduct do not violate the
Lanham Act absent a ‘clear and unambiguous ruling from a court or agency of
competent jurisdiction’ that the conduct is lawful.” However, a jury could
consider them “to the extent they imply (as a factual matter) that RCI was
misleading its retailers or other customers about the content of its stones.”

Commercial advertising or promotion: Since the statements to
retailers weren’t identical, the court had to decide whether to consider them
individually or in the aggregate when assessing the breadth of dissemination. “Goldstein’s
statements should be aggregated when assessing the breadth of dissemination,
because they were made during a compressed time period (approximately three
weeks in April 2018) and concerned similar subject matter (the authenticity and
authentication of RCI’s black jade).”  A
jury could reasonably conclude that they constituted a single “campaign.” Once
that was done, the dissemination was sufficiently broad to qualify as
advertising or promotion. The court noted, that, “[o]n the one hand, the global
market for fine jewelry is perhaps enormous.”  But “the market for name-brand, artistically
produced luxury jewels is surely a discrete subset of that industry.” RCI’s
evidence showed that the five prominent department stores that Goldstein
emailed accounted for “over 23% of RCI’s gross profits on sales from the black
jade collection” in themselves. “[O]n this record, a reasonable jury could
conclude that the relevant market is confined to higher-end jewelers like
Neiman Marcus, rather than every seller of precious stones in the world,” and
that Goldstein communicated with a sufficiently large proportion of that market—a
“huge” amount of communication in his own words.

Trademark infringement: Goldstein admitted that he posted photographs
of RCI’s jewelry on Kings Stone’s Instagram feed.  RCI’s logo — the letters “RC” with a diamond
shape beside them—was superimposed. He used these materials to promote Kings
Stone’s black-jade business, and used his PowerPoint similarly. Goldstein
argued that he had oral authorization as part of the deal to supply black jade
to RCI. (Nominative fair use would be relevant outside the Second Circuit,
though use of the logo would definitely pose a problem.) He argued that he’d
provided a discount on stones in exchange for this authorization and that such
a deal was a “common industry practice.”

The court was unconvinced: “[I]t strains credulity to think
that the parties agreed on the duration of the trademark license —
specifically, that it would exist in perpetuity — without any corresponding
agreement on the period of time for which RCI and its affiliates would purchase
stones from Goldstein (a period that, in the end, lasted only about a year).”
But more importantly, the Statute of Frauds prevented reliance on such
permission, irrespective of credibility. What he had in writing—purchase orders
memorializing a “discount price” from Kings Stone and an email from Roberto
Coin stating that the “RC brand will bring you lots of credibility in the
market”—wasn’t enough to set out the material terms of an agreement. Thus, RCI
won summary judgment on its infringement claims.

However, the court would let a jury resolve the question of
damages, including willfulness.

Defamation/trade disparagement:  There was sufficient evidence for a jury to
find special damages, based on lost customers and revenue. Otherwise, factual
questions remained, as with the Lanham Act false advertising claim. Tortious
interference: same. Specifically as to the lawsuit threats: “[A] lawsuit or the
threat of a lawsuit is wrongful [for purposes of a tortious interference claim]
if the actor has no belief in the merit of the litigation.” “It is also
wrongful if the actor, having some belief in the merit of the suit,
nevertheless institutes or threatens to institute the litigation in bad faith,
intending only to harass the third parties and not to bring his claim to
definitive adjudication.”

GBL Section 349:  The alleged
conduct was not consumer-oriented, even it wasn’t a “garden-variety” dispute
between competitors. There was no specific evidence that the “public interest
[wa]s harmed” by defendants’ actions.

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