SD NY assesses damages against Costco for Tiffany trademark violation
In a 2015 decision, SD NY gave summary judgment in favor of TIFFANY AND COMPANY, holding Costco liable for trademark infringement and trademark counterfeiting under the Lanham Act with respect to engagement rings sold under certain signage that referenced the mark "Tiffany" as a standalone term. A decision on August 14, 2017 addressed damages.
An issue in Tiffany v. Costco, 2017 U.S. Dist. LEXIS 128946, was "equitable vs. legal":
In the Summary Judgment Opinion, the Court stated that "[i]t was still an open question in the Second Circuit as to whether the accounting of profits in a trademark infringement action is an equitable or legal remedy." (S.J. Op. at 36.) In the parties' post-trial briefing, Costco contends that the jury verdict on the "Accounting of Profits Issues" was rendered on an equitable remedy for which there is no federal right to a jury trial, and that the Court is obligated to make an independent determination as to the accounting of profits. Tiffany, likewise, urges that "regardless of where the Court comes out on the state of the law, Tiffany believes the Court should set out findings of fact that would support the jury's determinations, whether or not it was advisory on actual profits." (Tiffany Br. at 3.) Although the Second Circuit has not explicitly ruled on the issue, in Gucci America, Inc. v. Weixing Li, a trademark infringement action under 15 U.S.C. Section 1117(a), the court characterized the accounting of profits sought by the plaintiff as an "equitable remedy." 768 F.3d 122, 130 (2d Cir. 2014). The Court will treat the jury verdict as to accounting of profits as advisory and make its own findings.
The issue of profits through membership fees arose:
Tiffany also presented credible evidence that Costco's profits are not limited to the margin between product costs and sales, but also include very substantial sums derived from warehouse membership fees. Douglas Schutt, Costco's Chief Merchandising Officer, acknowledged that Costco's "business model of charging the membership fee . . . is one of the things that enables [Costco] to charge less of a markup on the individual products [Costco] sell[s]." (Tr. 444.) Costco uses a "treasure hunt" marketing concept - creating "buzz" among members by offering "brand name merchandise at exceptional values" to drive frequent member visits and renewals. (Id. 461-63.) Kaczmarek, Tiffany's expert, testified credibly that even the 13% markup figure that he had used in his analysis is very low, and that Costco is "able to survive with that low markup because they charge membership fees annually. So they make most of their money on the membership fees and so that's how they can actually make such small profits on the items. That's what attracts customers to want to go to Costco." (Tr. 281.)
(...)
The Court finds that Costco has failed to prove that its profits on sales of rings under Standalone Signage were limited to the 10.31% margin computed by Costco's damages expert. That margin is artificially small, and was made possible chiefly by the subsidizing impact of membership fees, which are themselves enhanced by the pull of the "treasure hunt" tactic in which Costco uses extraordinary bargains on brand-name merchandise to pull customers into its stores. Fine jewelry is the first display case customers encounter in Costco's standard store layout, along with name-branded luxury watches. (Tr. 451-452, 466-467, 470.) In light of the role of the membership fees in Costco's business model and of its use of Tiffany's mark in selling fine jewelry, which is prominently displayed at the entrance of the stores to catch the [*16] eye of the customer, the Court finds it necessary and appropriate as an equitable matter to impute a sufficient portion of the membership revenue to the sale of these rings to bring the recoverable profit margin on the rings into the profit margin range of a typical run-of-the-mill jewelry store, which is approximately 50-100%. The Court further finds that the advisory jury's award of $3.7 million in profits on the Standalone Signage sales, a figure that is slightly more than 50% of the sales revenue proven in connection with those sales, constitutes a just and appropriate award of Costco's profits attributable to the infringing sales.
As to punitive damages:
The issues of whether punitive damages were warranted and, if so, of how much punitive damages to award were within the province of the jury, and the jury's decision cannot be set aside unless "there exists such a complete absence of evidence supporting the verdict that the jury's findings could only have been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so overwhelming that reasonable and fair minded persons could not arrive at a verdict against it." Providencia v. ex rel. K.V. v. Schultze, No. 02 CV 9516, 2009 U.S. Dist. LEXIS 30411, 2009 WL 890057, at *1 (S.D.N.Y. Apr. 2, 2009) (quoting Brady v. Wal-Mart Stores, Inc., 531 F. 3d 127, 133 (2d Cir. 2008) (internal quotation marks omitted)). As the Court stated in its Summary Judgment Opinion, "Tiffany . . . proffered [in connection with that motion practice] evidence upon which the finder of fact could conclude that Costco's behavior satisfied the 'gross, wanton or willful' standard" required for awarding punitive [*21] damages." (Docket entry no. 175 at 34.) Even more evidence of conduct supporting punitive damages was adduced at trial, including evidence of the conduct and attitude of Costco's senior executives towards use of the "Tiffany" mark and the lawsuit, customer confusion, and marketing strategies designed to invoke an association with Tiffany. Given that there plainly was enough evidence to support the jury's award of punitive damages, the jury's finding that punitive damages were warranted will not be disturbed.
The outcome:
Treating the jury's verdict as advisory only as to the recovery of profits, the Court finds that Plaintiffs are entitled to recover trebled profits of $11.1 million, and judgment will be entered in their favor in that amount, plus prejudgment interest at the annual rate set under 26 U.S.C. ยง 6621(a)(2) for the period from February 15, 2013, through the date of judgment and punitive damages of $8.25 million, unless Plaintiffs file within seven (7) days from the date hereof a written election to instead recover the $2 million in statutory and $8.25 million in punitive damages awarded by the jury.
Costco is permanently enjoined from using the mark TIFFANY as a standalone term, not combined with any immediately following modifiers such as "setting," "set" or "style," in connection with its advisement and/or sale of any products that were not manufactured by Plaintiffs or their affiliates.
An issue in Tiffany v. Costco, 2017 U.S. Dist. LEXIS 128946, was "equitable vs. legal":
In the Summary Judgment Opinion, the Court stated that "[i]t was still an open question in the Second Circuit as to whether the accounting of profits in a trademark infringement action is an equitable or legal remedy." (S.J. Op. at 36.) In the parties' post-trial briefing, Costco contends that the jury verdict on the "Accounting of Profits Issues" was rendered on an equitable remedy for which there is no federal right to a jury trial, and that the Court is obligated to make an independent determination as to the accounting of profits. Tiffany, likewise, urges that "regardless of where the Court comes out on the state of the law, Tiffany believes the Court should set out findings of fact that would support the jury's determinations, whether or not it was advisory on actual profits." (Tiffany Br. at 3.) Although the Second Circuit has not explicitly ruled on the issue, in Gucci America, Inc. v. Weixing Li, a trademark infringement action under 15 U.S.C. Section 1117(a), the court characterized the accounting of profits sought by the plaintiff as an "equitable remedy." 768 F.3d 122, 130 (2d Cir. 2014). The Court will treat the jury verdict as to accounting of profits as advisory and make its own findings.
The issue of profits through membership fees arose:
Tiffany also presented credible evidence that Costco's profits are not limited to the margin between product costs and sales, but also include very substantial sums derived from warehouse membership fees. Douglas Schutt, Costco's Chief Merchandising Officer, acknowledged that Costco's "business model of charging the membership fee . . . is one of the things that enables [Costco] to charge less of a markup on the individual products [Costco] sell[s]." (Tr. 444.) Costco uses a "treasure hunt" marketing concept - creating "buzz" among members by offering "brand name merchandise at exceptional values" to drive frequent member visits and renewals. (Id. 461-63.) Kaczmarek, Tiffany's expert, testified credibly that even the 13% markup figure that he had used in his analysis is very low, and that Costco is "able to survive with that low markup because they charge membership fees annually. So they make most of their money on the membership fees and so that's how they can actually make such small profits on the items. That's what attracts customers to want to go to Costco." (Tr. 281.)
(...)
The Court finds that Costco has failed to prove that its profits on sales of rings under Standalone Signage were limited to the 10.31% margin computed by Costco's damages expert. That margin is artificially small, and was made possible chiefly by the subsidizing impact of membership fees, which are themselves enhanced by the pull of the "treasure hunt" tactic in which Costco uses extraordinary bargains on brand-name merchandise to pull customers into its stores. Fine jewelry is the first display case customers encounter in Costco's standard store layout, along with name-branded luxury watches. (Tr. 451-452, 466-467, 470.) In light of the role of the membership fees in Costco's business model and of its use of Tiffany's mark in selling fine jewelry, which is prominently displayed at the entrance of the stores to catch the [*16] eye of the customer, the Court finds it necessary and appropriate as an equitable matter to impute a sufficient portion of the membership revenue to the sale of these rings to bring the recoverable profit margin on the rings into the profit margin range of a typical run-of-the-mill jewelry store, which is approximately 50-100%. The Court further finds that the advisory jury's award of $3.7 million in profits on the Standalone Signage sales, a figure that is slightly more than 50% of the sales revenue proven in connection with those sales, constitutes a just and appropriate award of Costco's profits attributable to the infringing sales.
As to punitive damages:
The issues of whether punitive damages were warranted and, if so, of how much punitive damages to award were within the province of the jury, and the jury's decision cannot be set aside unless "there exists such a complete absence of evidence supporting the verdict that the jury's findings could only have been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so overwhelming that reasonable and fair minded persons could not arrive at a verdict against it." Providencia v. ex rel. K.V. v. Schultze, No. 02 CV 9516, 2009 U.S. Dist. LEXIS 30411, 2009 WL 890057, at *1 (S.D.N.Y. Apr. 2, 2009) (quoting Brady v. Wal-Mart Stores, Inc., 531 F. 3d 127, 133 (2d Cir. 2008) (internal quotation marks omitted)). As the Court stated in its Summary Judgment Opinion, "Tiffany . . . proffered [in connection with that motion practice] evidence upon which the finder of fact could conclude that Costco's behavior satisfied the 'gross, wanton or willful' standard" required for awarding punitive [*21] damages." (Docket entry no. 175 at 34.) Even more evidence of conduct supporting punitive damages was adduced at trial, including evidence of the conduct and attitude of Costco's senior executives towards use of the "Tiffany" mark and the lawsuit, customer confusion, and marketing strategies designed to invoke an association with Tiffany. Given that there plainly was enough evidence to support the jury's award of punitive damages, the jury's finding that punitive damages were warranted will not be disturbed.
The outcome:
Treating the jury's verdict as advisory only as to the recovery of profits, the Court finds that Plaintiffs are entitled to recover trebled profits of $11.1 million, and judgment will be entered in their favor in that amount, plus prejudgment interest at the annual rate set under 26 U.S.C. ยง 6621(a)(2) for the period from February 15, 2013, through the date of judgment and punitive damages of $8.25 million, unless Plaintiffs file within seven (7) days from the date hereof a written election to instead recover the $2 million in statutory and $8.25 million in punitive damages awarded by the jury.
Costco is permanently enjoined from using the mark TIFFANY as a standalone term, not combined with any immediately following modifiers such as "setting," "set" or "style," in connection with its advisement and/or sale of any products that were not manufactured by Plaintiffs or their affiliates.
posted by Lawrence B. Ebert at 1:01 PM
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