Some initial thoughts on Costco's illuminating Answer and Counterclaims in Tiffany & Co.'s trademark "counterfeiting" [sic] suit
Here are my initial, quasi-stream-of-consciousness thoughts on Costco's filing in the Tiffany "counterfeiting" case (elaborating on some statements I made in Rob Bates' JCK Magazine article analyzing the dispute) -- but note that I provide them while reserving the right to refine or completely change my view later on:
For me, this case is reminiscent of the Louboutin v. YSL litigation, and not just because both disputes involve trademark law and luxury goods. In both scenarios, an aggressive plaintiff brought suit based on a somewhat vulnerable mark against an entity with the resources to fight back, potentially leaving the plaintiff worse off than it started. In Louboutin, of course, that prospect became apparent when the District Court not only denied Louboutin's request for a preliminary injunction, but simultaneously issued an order to show cause why it should not cancel Louboutin's red-sole trademark registration on the basis of "aesthetic functionality." Although the Court of Appeals for the Second Circuit saved Louboutin from that dire fate, it nevertheless narrowed the scope of Louboutin's trademark by ruling that the "secondary meaning" sufficient to support a color trademark was present only where a shoe's "upper" contrasts with the red sole. In other words, Louboutin made a poor strategic decision about whom to sue, over what set of facts, and ended up worse off than when it started -- not much worse, but worse nonetheless.
However, things could go worse for Tiffany & Co.: like YSL in the Louboutin litigation (albeit on different legal grounds), Costco has not only mounted a defense but also gone on the offensive, asking the court to cancel or revise Tiffany & Co.'s trademark registrations to explicitly exclude Tiffany settings. This is also reminiscent of the approach Costco took when Omega sued it for selling "parallel import" watches; Costco took the case all the way to the Supreme Court on the question of whether Omega had exhausted the relevant rights by selling the watches once, abroad, and advocated for a position that, if adopted, would jeopardize the price-differentiation and selective distribution strategies central to the business model of many consumer-goods companies. (The Court tied, 4-4, with Justice Kagan having recused herself, though the Court is slated to rule on essentially the same issue this term, in the Kirtsaeng case.) On remand, Costco pushed the boundaries of a little-used defense called "copyright misuse," and actually persuaded the District Court to agree with it that Omega had misused copyright protection in a manner repugnant to the law. That ruling is now on appeal before the Ninth Circuit.
Costco appears to be taking some similarly ambitious positions in the Tiffany litigation; see page 9 of its Answer and Counterclaims, where it mentions the possibility that "this lawsuit was filed and publicized by Plaintiffs [i.e., Tiffany & Co. and its affiliate] for improper purposes, including to hinder lawful competition from Costco...." This suggests that Costco is teeing up an "abuse of process" claim or perhaps a "trademark misuse" defense -- a legal doctrine whose adoption I urge in my scholarship. If Costco were able to convince the court to recognize and apply "trademark misuse," that would be a game-changer for aggressive trademark owners like Tiffany & Co. In this scenario, Tiffany will wish it had merely lost the case on fair use grounds, or even that it had its trademark registration curtailed so as to exclude descriptive uses of the word "Tiffany" for Tiffany settings.
[UPDATE (3/14/13): Tiffany has filed a "Reply" to Costco's Counterclaim document, posted here for your perusal; LAW OF FASHION's analysis forthcoming....]
[Like everything on LAW OF FASHION, this post is for entertainment and informational purposes only, and does not constitute legal advice or create an attorney-client relationship among any individuals or entities. Any views expressed in this post or at the linked web pages are those of the relevant writer(s) on a particular date, and should not necessarily be attributed to Charles Colman, his law firm, or its agents or clients. Neither the writer of this post nor LAW OF FASHION (or any person or entity associated with it) can or will warrant the thoroughness or accuracy of the content here or at the cited sources.]