By Clay D. Shorrock

Earlier this month, a federal jury in New York ordered Costco to pay Tiffany & Co. $5.5 million in compensatory damages and $8.24 million in punitive damages in a trademark infringement lawsuit relating to Costco’s use of the famous “Tiffany” mark.

The lawsuit, filed by Tiffany & Co. on Valentine’s Day 2013 (who said lawyers have no sense of humor!) alleged that Costco was selling engagement rings that were branded as “Tiffany” rings. Costco used the word “Tiffany” in its display case signs, but never proclaimed they were “Tiffany” rings. Examples of the signage are below.

Costco argued that the word “Tiffany” is a generic term for a pronged, solitaire style ring setting, and thus, the “Tiffany” trademarks (and the associated Registrations) are invalid. The Court rejected Costco’s generic defense and found the Costco was aware of rampant consumer confusion caused by its use of the word “Tiffany” on its signage and that Costco didn’t nothing to allay the confusion.

This is a very big win for Tiffany & Co., and the verdict highlights the importance of establishing and protecting one’s trademarks. In addition, the lawsuit demonstrates the importance of bringing pendant state law causes of action in a federal trademark infringement lawsuit. The federal Lanham Act does not provide for punitive damages (treble damages are available, but they must be compensatory in nature). The blockbuster $8.24 million punitive damages award was based on New York State consumer fraud laws, which provide for punitive damages if a defendant’s conduct is found to constitute “gross, wanton, or willful fraud or other morally culpable conduct to an extreme degree.”

Nonetheless, this saga is far from over. Before the award is final, the judge must decide if she accepts the jury’s findings. Even then, Costco is expected to appeal based upon the value of the award and the fact that the jury found Costco only reaped $3.7 million in profits from its infringing acts, yet returned a verdict almost four times that value. We’ll be keeping our eye on this one.