by Lady Michelle-Jennifer Santos, Founder & Publisher
February 21, 2013 (TSR) – Tiffany & Co last Thursday filed a suit in Manhattan court to force Costco Wholesale Corporation to forfeit profits from the sale of rings, plus damages of US$2 million.
Tiffany & Co. sued Costco Wholesale Corporation to prevent further sales of what the luxury retailer concluded where counterfeit diamond engagement rings and for damages associated with prior sales, Rapaport reports.
The lawsuit was filed to protect the Tiffany brand, according to a filing in the U.S. District Court for the Southern District of New York. It also alleges trademark infringement, dilution, counterfeiting, unfair competition, injury to business reputation, false and deceptive business practices and false advertising.
In November, Tiffany was alerted to the sale of what was promoted on in-store signs as “Tiffany” diamond engagement rings at a Costco store in Huntington Beach, California. Tiffany investigated the claim and learned that for many years, and without Tiffany’s knowledge, Costco had allegedly been selling different styles of rings that it was identifying on in-store signage as “Tiffany,” according to Tiffany.
The rings were not Tiffany rings, however, nor were they manufactured by, licensed by, or otherwise in any way properly associated with the brand. In this way, Costco led its members to believe they were purchasing authentic Tiffany products at significant discounts, when in fact, that was simply not true, according to the filing.
“We now know that there are at least hundreds if not thousands of Costco members who think they bought a Tiffany engagement ring at Costco, which they didn’t. Costco knew what it was doing when it used the Tiffany trademark to sell rings that had nothing to do with Tiffany. This is not the kind of behavior people expect from a company like Costco, and this case will shed a much needed light on this outrageous behavior,” said Jeffrey Mitchell of Dickstein Shapiro, Tiffany’s counsel in the case. “The Tiffany brand has been damaged, Costco members have been damaged, and Costco has profited from the sale of engagement rings by misrepresenting what they were. We will get to the bottom of what Costco was up to and why, and right a terrible wrong,” Mitchell added.
Authentic Tiffany jewelry is manufactured to the company’s strict specifications and then subjected to rigorous quality control standards to assure provenance and quality, according to the firm. Tiffany diamond engagement rings are then backed by a lifetime guarantee. Additionally, to protect the brand, Tiffany fine jewelry is sold only in Tiffany retail stores by trained sales professionals and is not distributed or sold at discount through other wholesale or retail establishments. In particular, Tiffany has never sold nor would it ever sell its fine jewelry through an off-price warehouse retailer like Costco, either directly or indirectly, the company stated.
“What’s different here from many other cases of counterfeiting is that here customers might be more easily taken in since Costco members expect authentic brand name merchandise at discount prices at Costco. Everyone knows that buying something on a street corner or over the internet from an unknown source is risky. Until now, no one would have thought it could be risky to buy brand name merchandise from Costco as well,” Mitchell said.
Tiffany is known for its aggressive behavior regarding copyright infringement, and has even trademarked its signature robin egg blue used in its packaging.
In June 2004, Tiffany sued eBay, for the same reasons, claiming that it was making profits from the sale of counterfeit Tiffany products. Tiffany lost at trial and on appeal. (see Tiffany v. eBay for more details.)
BRIEF HISTORY and BACKGROUND
Founded by Charles Lewis Tiffany and Teddy Young in New York City in 1837 as a “stationery and fancy goods emporium,” the store initially sold a wide variety of stationery items, and operated as Tiffany, Young and Ellis in Lower Manhattan. The name was shortened to Tiffany & Co. in 1853 when Charles Tiffany took control, and the firm’s emphasis on jewelry was established.Tiffany & Co. has since opened stores in major cities all over the world. Unlike other stores at the time in the 1830s, Tiffany clearly marked the prices on its goods, as there would be no haggling for the price. In addition, against the social norm at the time, Tiffany only accepted cash payments, and did not accept payments on credit.
The first Tiffany’s mail order catalog, known as the “Blue Book,” was published in 1845 in the United States; and it is still being published today. In 1862, Tiffany & Co. supplied the Union Army with swords (Model 1840 Cavalry Saber), flags and surgical implements. In 1867, Tiffany & Co. was the first US firm to win an award for the excellence in silverware at the Exposition Universelle in Paris. In 1877, an insignia that would become the famous New York Yankees “NY” logo was struck on a medal of honor by Tiffany & Co. The Yankees adopted the logo in 1909. In 1878, Tiffany won the gold medal for jewelry and a grand prize for silverware at the Paris Exposition, which gave the Tiffany name added prestige. In 1868, Tiffany was incorporated.In 1887, Tiffany bought the French Crown Jewels which attracted publicity and further solidified the Tiffany brand’s connection to quality diamonds.The company revised the Great Seal of the United States in 1885. In 1902, after the death of Charles Lewis Tiffany, his son, Louis Comfort Tiffany became the company’s first official Design Director.
In November 1978 Tiffany & Co. was sold to Avon Products Inc. for about $104 million in stock. However, in a 1984 Newsweek article, it was noted that the Fifth Avenue Tiffany store had began stocking so many inexpensive items that it began looking like Macy’s during a white sale.Furthermore, customers complained about declining quality and service. In August 1984, Avon sold Tiffany to an investor group led by William R. Chaney, for $135.5 million in cash. Tiffany went public again in 1987, and raised about $103.5 million by selling 4.5 million shares of common stock.Because of the 1990-1991 recession in the United States, Tiffany began to emphasize mass merchandising. A new campaign was started that stressed how Tiffany could be affordable for all; for instance, it advertised that diamond engagement rings started at $850. “How to Buy a Diamond” brochures were sent to 40,000 people who called a toll-free number specifically set up to target the larger population.However, to maintain its image as a luxury goods company, it continued to display high-style images in stores.
The Company’s manufacturing facilities produce approximately 60% of Tiffany merchandise sold. The balance, including rose-gold and almost all non-jewelry items, are purchased from third parties from overseas.
Tiffany produces jewelry and silver goods in Mount Vernon, New York; Cumberland, Rhode Island; Lexington, Kentucky and silver hollowware in New Jersey. Other subsidiaries of the Company process, cut and polish diamonds at facilities outside the U.S.
The Company may increase the percentage of internally manufactured jewelry in the future, but it is not expected that Tiffany will ever manufacture all of its needs. Factors considered by management in its decision to outsource manufacturing include: product quality, gross margin, access to or mastery of various jewelry-making skills and technology, support for alternative capacity and the cost of capital investments.
A Tiffany’s gemologist, George Frederick Kunz, was instrumental in the international adoption of the metric carat as a weight standard for gems, and the Tiffany standard for sterling and platinum have been adopted as United States Standards.
The 128.54 carats (25.71 g) Fancy Yellow Tiffany Diamond is usually on display in the New York City flagship store.
In November 2012, Tiffany & Co. agreed to purchase diamonds from Russia’s ALROSA for $60 million annually.
