In the matter of Tiffany & Co. (“Tiffany”) v. Costco Wholesale Corporation (“Costco”), Tiffany won a whopping award of over $19.4 million for trademark infringement, trademark counterfeiting, and unfair competition. Costco had been selling solitaire diamond rings with signs that used the mark TIFFANY.
In its defense, Costco asserted that a “Tiffany-setting” is an industry term and therefore it wasn’t intentionally infringing Tiffany’s mark. The Court didn’t buy it because Costco used the TIFFANY mark without combining it with any modifier, such as “setting.”
The Court granted summary judgment in favor of Tiffany on liability and sent the case to trial for damages.
So, how did Tiffany amass $19.4 million in damages?
The Lanham Act provides that, after a finding of trademark infringement, a court may award a plaintiff monetary damages in the form of the defendant’s profits, actual damages sustained by the plaintiff, the costs of the action, treble damages for use of a counterfeit mark, and statutory damages. 15 U.S.C. § 1117.
Defendant’s Profits and Plaintiff’s Actual Damages
The rationale for awarding a plaintiff the defendant’s profits stems from the idea that profits are a reasonable measure of the harm to the plaintiff, which often can be difficult to quantify; the defendant has been unjustly enriched by infringing on the plaintiff’s mark and should not be entitled keep such profits; and the award will deter future willful infringement.
It is always in the court’s discretion whether to award a plaintiff the defendant’s profits. Often, courts will look for some element of willfulness to infringe plaintiff’s mark before granting the award. Willfulness can mean palming off, a deliberate intent to deceive, bad faith, conscious awareness of wrongdoing, or an intent to benefit from the plaintiff’s goodwill.
For the court to determine the amount of defendant’s profits, the plaintiff has the burden of proving the defendant’s sales from the infringing goods or services. The burden then shifts to the defendant to prove all elements of cost or deduction claimed. Even then, because the award is subject to principles of equity, the court may alter the amount if it finds that the award is “inadequate” or “excessive” based on the facts of the case.
In the matter between Tiffany and Costco, the Court found that because Costco used the TIFFANY mark without any credible reason for doing so, except to attract customers to its fine jewelry displays, Costco’s infringement was willful and Tiffany was entitled to recover Costco’s profits.
Tiffany met its burden of proving Costco’s sales of $7.2 million through records of serial numbers and inventory units and records of signage information and cash register and ring sales.
Costco then tried to meet its burden to prove costs by offering vendor invoices as well as providing expert testimony of Costco’s overall percentage markup for its products. The Court found that Costco failed to meet its burden that its profits were limited to the margin offered by the expert because of evidence that Costco could charge lower prices due to its membership fees.
Relying on its equitable powers, the Court determined that it was “necessary” and “appropriate” to impute a portion of the membership revenue to the sale of the rings. By doing so, it raised Costco’s profits to slightly more than 50% of the sales revenue, which fit the profit margin of typical jewelry stores. The Court then awarded Tiffany $3.7 million in Costco’s profits.
Although Tiffany did not seek actual damages, a plaintiff can recover its actual damages by proving both that defendant caused the loss and the amount. A plaintiff may recover both its actual damages and defendant’s profits, but such an award is again subject to equitable principles and should not be awarded if it would over-compensate the plaintiff.
Treble Damages for Counterfeit Mark
The Lanham Act provides that when a defendant intentionally and knowingly uses a counterfeit mark, a court shall award three times the profits or damages, along with reasonable attorneys’ fees. 15 U.S.C. § 1117(b). A “counterfeit mark” is a non-genuine mark identical to or substantially indistinguishable from a mark that is in use and registered on the USPTO’s principal register for the same goods and services. 15 U.S.C. 1116(d)(1)(B)(i).
Even if a defendant used a counterfeit mark, a court may decline to award treble damages if it finds “extenuating circumstances,” such as a lack of deliberate intent to deceive consumers. It will be the rare case, however, where the court finds extenuating circumstances.
In the case of Tiffany and Costco, the Court found that Costco counterfeited Tiffany’s mark and there were no extenuating circumstances. Therefore, treble damages were warranted and Tiffany was entitled to recover $11.1 million, three times Costco’s profits of $3.7 million, as well as its attorneys’ fees.
As an alternative to trebling damages, in a case involving the use of a counterfeit mark, the plaintiff may elect at any time before final judgment is rendered to recover statutory damages instead of actual damages and profits. Statutory damages can range from $1,000 to $200,000 per counterfeit mark, depending on what the court considers just, and if the use of the counterfeit mark was willful, then a court may award up to $2,000,000 per counterfeit mark. 15 U.S.C. 1117(c).
At the time of the Court’s opinion, Tiffany was entitled to collect $2,000,000 in statutory damages rather than the trebled profits of $11.1 million, if it had chosen to do so.
Punitive Damages
While punitive damages are not expressly discussed in the Lanham Act, they may be awarded in jurisdictions that allow punitive damages in tort cases. The purpose behind punitive damages is to punish the wrongdoer, deter the defendant and others from engaging in similar behavior in the future, and compensate the plaintiff for the cost of litigation.
In the Tiffany case, the Court found that Tiffany was entitled to punitive damages because Costco’s actions satisfied the “gross, wanton, or willful” standard required for awarding punitive damages under New York law. Tiffany was awarded $8.25 million in punitive damages, which the Court noted was not excessive in light of Costco’s billions of dollars of annual revenue.
Tiffany was also entitled to interest and may collect its attorneys’ fees and other costs, thereby likely pushing its total award to well over the $19.4 million mark.
While many trademark cases will not result in such a hefty award, the Lanham Act and common law certainly provide the means for a plaintiff to be substantially compensated.
If you need assistance in bringing or defending a trademark infringement or counterfeit claim, Astrachan Gunst Thomas, P.C. can help. Contact Jim Astrachan at 410-783-3550 (jastrachan@agtlawyers.com) or Julia Bartels at 410-783-3533 (jbartels@agtlawyers.com).
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