Here's Why Costco Owes Tiffany & Co. Over $19 Million

On Monday, U.S. District Judge Laura Taylor Swain ruled that wholesale giant Costco (NASDAQ:COST) owes luxury jewelry company Tiffany & Co. (NYSE:TIF) over $19 million in a case over trademark infringement.

Judge Swain ruled that Tiffany is entitled to $11.1 million in trebled profits, which is three times the loss it incurred from Costco’s actions, plus interest and $8.25 million in punitive damages. Costco had been selling products, like diamond rings and other jewelry, falsely identified and marked with the “Tiffany” brand, and the company’s management "displayed at best a cavalier attitude toward Costco's use of the Tiffany name in conjunction with ring sales and marketing,” said Judge Swain in her opinion.

“Costco's salespeople described such rings as ‘Tiffany’ rings in response to customer inquiries, and were not perturbed when customers who then realized that the rings were not actually manufactured by Tiffany expressed anger or upset,” Swain continued.

Tiffany declared the judge’s decision a victory, with its lead counsel Jeffrey Mitchell saying that “this has been a long, hard fought battle to vindicate Tiffany’s rights.”

The iconic jewelry maker first filed a complaint against Costco back in 2013, saying that it had actually learned from a customer that the wholesaler was selling fake Tiffany rings. "There are now hundreds if not thousands of people who mistakenly believe they purchased and own a Tiffany engagement ring from Costco," the complaint said at the time. The 2013 complaint also said that Costco was not using the Tiffany trademark on its website, which made it difficult for the jeweler to track it down.

Costco said it intends to appeal Judge Swain’s ruling; the company argued that it was using “Tiffany” as a generic word to describe a particular kind of ring setting, and that the rings were not marked with the Tiffany brand. "This was not a case about counterfeiting in the common understanding of that word -- Costco was not selling imitation Tiffany & Co. rings," the company said in a statement.

Additionally, Costco can no longer use the word “Tiffany” to sell products, said Swain.

At market close, shares of COST were down a slight 0.65%, while TIF stock was down 2.89%.

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