Court Says Jury’s Award of Profits Justified by Costco’s Business Model

On August 14, 2017, the Southern District of New York determined that Costco Wholesale Corp. owed Tiffany and Co. over $19 million in damages for trademark infringement.

The case arose out of Costco’s marketing and display of non-Tiffany-brand solitaire diamond rings proximate to signage reading “Platinum Tiffany” and “Round Diamond Ring,” or “Platinum Tiffany” and “Round Brilliant Solitaire Ring.”  On September 8, 2015, the court granted Tiffany summary judgement, holding Costco liable for trademark infringement and trademark counterfeiting.  A jury trial was subsequently held on Tiffany’s claim seeking damages, including profits, and statutory and punitive damages.  The jury estimated Costco’s profits dating back to 2007 to be $3.7 million, but finding that sum inadequate to compensate Tiffany, added a further $1.8 million to the award.  In addition, the jury awarded Tiffany $2 million in statutory damages and $8.25 million in punitive damages. 

The court treated the jury’s profit determination as advisory, reciting its own independent findings of fact and conclusions of law.  It found that Tiffany had proved that Costco’s sales, net of returns, were approximately $7.2 million during the relevant period.  The court was unpersuaded by Costco’s expert’s testimony that Costco’s profits were limited to a 10.31% margin because credible evidence showed that Costco’s profits also include substantial sums derived from warehouse membership fees, which enable Costco to charge less of a markup on individual products.  Accordingly, the court stated:

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 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 rights into the profit margin range of a typical run-of-the-mill jewelry store, which is approximately 50-100%.

Because of this, the court found the jury’s advisory award of $3.7 million in profits, which was slightly more than 50% of the sales revenue proven in connection with those sales, was an appropriate award attributable to the infringing sales.  It disagreed, however that this award was inadequate and that an additional award of $1.8 million was necessary.  Finding no extenuating circumstances that warranted a denial of treble damages, the court found Tiffany was entitled to recover $11.1 million total, as well as its reasonable attorney’s fees.

The court rejected Costco’s arguments regarding the punitive damages award, finding it allowable under New York law, justified by the trial evidence, and not unconstitutional or otherwise excessive.  The final tally:  Tiffany was entitled to recover trebled profits of $11.1 million (or, in the alternative, $2 million in statutory damages), and punitive damages of $8.25 million.

The case is Tiffany and Co. v. Costco Wholesale Corp., No. 1:13-cv-01041-LTS-DCF.