Some initial thoughts on Costco's illuminating Answer and Counterclaims in Tiffany & Co.'s trademark "counterfeiting" [sic] suit

Posted by Charles Colman

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.


Similarly, Tiffany has decided to sue Costco (a company that has already demonstrated its willingness to fight for its business model, in the increasingly epic Omega v. Costco litigation) over a set of apparent facts that can only leave Tiffany exactly where it started -- if things go well -- and much worse off, if things go poorly.  It would be one thing if the rings at issue in this case were sold using something other than just the word "Tiffany," which Costco's Exhibit 1 quite clearly shows is a generic term for a standard setting.  But there is no indication that Tiffany & Co.'s signature font was used at any Costco location, and the photos in Costco's Exhibit 2 reveal that the packaging is about as far from Tiffany's robin's-egg blue as can be. Assuming all of the rings at issue were sold in this manner, there would appear to be no compelling support for a finding of "likelihood of confusion" on which to base a claim of trademark infringement.  (The only viable infringement theory, it seems to me, is one of "initial-interest confusion," but I doubt that will get Tiffany very far;  the claim of federal trademark dilution will fail because of the defense discussed in the next paragraph, while the "counterfeiting" claim fails for half a dozen reasons we can discuss some other time.)
 
             
Costco's ring packaging          Tiffany & Co.'s packaging
 
Costco, like YSL in the Louboutin case, has invoked the trademark-law defense of "statutory fair use" (15 U.S.C. 1115(b)(4)), which was somewhat ill-fitting in a case involving product design, but is practically tailor-made for the Tiffany v. Costco case.  That rule allows a defendant to use another's mark in a non-trademark manner where "the use of the [word] charged to be an infringement is . . . descriptive of and used fairly and in good faith only to describe the goods or services of such party...."  Unless there's significantly more to the story than what appears in Costco's pleading and exhibits, this seems like an archetypal case of "statutory fair use."  In other words, Costco is using the word "Tiffany" to refer generically to describe the type of setting of some of its unbranded rings.
 
Even if there was some consumer confusion about whether these were Tiffany & Co. rings, that doesn't necessarily prevent Costco from prevailing on its fair use defense.  As a majority of the Supreme Court held in KP Permanente Make-Up v. Lasting Impression I, Inc., 543 U.S. 111, 121-22 (2004) (emphasis added):

Since the burden of proving likelihood of confusion rests with the plaintiff, and the fair use defendant has no free-standing need to show confusion unlikely, it follows (contrary to the Court of Appeals's view) that some possibility of consumer confusion must be compatible with fair use, and so it is.  The common law's tolerance of a certain degree of confusion on the part of consumers followed from the very fact that in cases like this one an originally descriptive term was selected to be used as a mark, not to mention the undesirability of allowing anyone to obtain a complete monopoly on use of a descriptive term simply by grabbing it first.   Canal Co. v. Clark, 13 Wall., at 323-324, 327, 20 L. Ed. 581.  The Lanham Act adopts a similar leniency,there being no indication that the statute was meant to deprive commercial speakers of the ordinary utility of descriptive words.

So it seems to me that unless Tiffany & Co. has some evidence of Costco's "bad faith" up its sleeve, it's at the very least likely to lose on fair use grounds.

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.]