Phillips Screwdrivers, Kleenex Tissues And Tiffany Engagement Rings? Costco Suit Revolves Around Whether Tiffany Has Gone Generic

July 16, 2013 | Charles Bowen

untitledWhen you hear the phrase “Tiffany engagement ring” what comes mind? A diamond that costs an arm and a leg and comes in a pale blue box, or a ring that includes “multiple slender prongs extending upward from a base to hold a single gemstone.” Though the choice between the two may seem obvious, it’s currently the basis for a multimillion-dollar legal fight being waged between luxury jeweler Tiffany and Co. and discount retailer Costco.

The intellectual property suit was filed by Tiffany on Valentine’s Day of this year and recently progressed further in the litigation process, with the presiding federal district court judge, Laura Taylor Swain, ordering the two sides to attempt mediation. The case is based on a move by Costco to sell what it described as “platinum Tiffany” rings. Tiffany says such a description amounts to trademark infringement and has sued the retailer for brand dilution, counterfeiting, unfair competition, false and deceptive business practices and false advertising. In turn, Costco countersued, maintaining that Tiffany’s lawsuit amounts to an attempt to limit competition in the engagement ring market given Costco’s lower cost for the same quality diamond. (As a side note, Good Morning America decided to compare Costco and Tiffany gems and found that the $16,600 Tiffany ring appraised for only $10,500 while Costco’s $6,600 version appraised at $8,000).

The issue in the case boils down to whether the phrase “Tiffany” ring has become generic and applies to all diamond rings placed on a silver band and held in place with six prongs. Tiffany says it does not and that if 100 people were surveyed on the street, 99 would think the phrase referred to their branded line of rings. Tiffany says it has proof of this given that customers approached the company saying they were confused about whether the rings at the discount retailer were legit.

Costco, for their part, argues that it never tried to pass the rings off as branded Tiffany and Co. products. The rings were sold in red and beige boxes, not light blue, and did not contain the standard Tiffany engraving. Costco says it was merely using the word “Tiffany” in a generic context to describe the style and setting of the ring, something that it say signifies rings with “multiple slender prongs extending upward from a base to hold a single gemstone.” The company’s lead attorney compared the use of the phrase “Tiffany ring” to Phillips screwdriver, Murphy bed and even the Ferris wheel.

The case is indicative of the tension that often exists between many luxury brands and retailers. Though everyone wants to sell as much product as possible, retailers spend long nights fretting over just how mainstream they can afford to go before inflicting irreparable damage to their brand. Costco won a similar case against Omega SA, the luxury watchmaker, back in 2011, but the legal issue that decided that case involved the first sale doctrine, not whether a brand name had become generic.

Just this past week Businessweek reported that Michael Kors had filed suit against Costco after the company sent around a marketing email to customers with pictures of Michael Kors’ bags, implying the bags would be sold for the rock-bottom price of $99. Kors responded by filing suit saying that Costco is not authorized to sell its products and that any advertisement indicating that it was authorized to do so was aimed at misleading consumers and damaged the luxurious image cultivated by the brand.

It remains to be seen whether the attorneys at Costco will be able to convince a judge that the fabled Tiffany brand deserves no more respect than Kleenex. Luxury brands across the country are anxiously awaiting word.