Diamonds In The Rough – A Rock-Solid Case Of Trademark Infringement?

Catherine Richardson, associate at law firm Charles Russell, discusses recent developments in intellectual property law – an essential means for high net worth entrepreneurs (and luxury brands) to protect their most valuable assets.

Hundreds, if not thousands, of men in the US have been left in a sticky situation after it has emerged that Costco has sold thousands of engagement rings bearing Tiffany & Co branding. The unlucky ladies presented with these rings could soon find out that the supposed “Tiffany engagement ring” on their finger is in fact a cheap knock-off purchased from Costco, a warehouse wholesaler based in the US.

Tiffany products are sold exclusively in Tiffany stores and a small number of selected upmarket third-party retailers, and the limited availability of these products is no doubt part of a deliberate strategy to maintain the exclusivity of their luxury brand. The consumer buying experience is part and parcel of how a brand maintains its luxury feel, and – as Audrey Hepburn taught generations – it seems like nothing bad could ever happen there.

It is difficult to imagine a more different buying experience to Tiffany’s than Costco, a membership warehouse club the first location of which was a converted aeroplane hanger in San Diego. While Costco says it is dedicated to bringing to its members the best possible prices on quality brand-name merchandise, perhaps the idea of them selling Tiffany engagement rings is stretching credibility a little too far! Of course, the rings being sold by Costco were not genuine and as a special Valentine’s Day gift to Costco, on 14 February this year Tiffany filed a claim in the Manhattan Federal Court alleging trade mark infringement, dilution, counterfeiting, unfair competition, injury to business reputation, false and deceptive business practices and false advertising.

What separates this from many instances of dodgy knock-off products is that Costco members expect genuine branded merchandise, even though it is sold at discounted prices. It does seem that thousands of men were fooled, as reports suggest that Costco have been selling these rings under the “Tiffany” name for many years.

Debasing brand cachet

The production and sale of counterfeit items using a luxury brand’s trademarks or designs has obvious negative consequences. Not only does it have the potential to jeopardise a carefully crafted image, but the increased availability of products through lower prices and wider sales damages the brand’s reputation for exclusivity. If consumers are genuinely confused about what they are buying, poorly copied and reproduced items can make consumers sceptical of Tiffany’s high quality standards. Perhaps worse – you have to feel for the poor men who will face their fiancée’s wrath if they discover the ring on their finger actually cost him $50.

So what can Tiffany do to protect itself, its image and its customers? The answer usually lies in a brand’s intellectual property rights – and the case involving Costco is a perfect of example of the importance of taking active steps to protect a brand and ensure measures are taken to pursue those marketing rip-offs. 

What is intellectual property?

Intellectual property can come in all sorts of guises, including trademarks, copyright, patents and design rights. The trick is to identify the correct IP right to fit the occasion and ensure first that it exists and secondly that the party seeking to enforce it actually owns the right (which might sound obvious, but experience tells us that it is something many overlook).

The claim that a brand might bring against a third party marketing counterfeit products in similar circumstances to Tiffany and Costco will vary from one jurisdiction to another. In this instance, in the EU and the UK, two key IP rights that a brand such as Tiffany could rely on lie in the laws relating to trade marks and to designs.

Trademark rights

Trademarks can be used to protect traditional brand identifiers such as names and logos, but can also be used to protect more unusual elements of a brands livery. For example, the shape of goods and packaging can be protected as well as colours and even smells. Although trademark rights can be built up simply through use of a mark, the best protection is given by registering a trademark – and Tiffany is a good example of a brand that can make use of a wide range of trademark registrations; amongst its registrations are trademarks not only for the brand name itself, but also for their famous square Tiffany box and their iconic “Tiffany blue” colour.

A registered trademark effectively grants a monopoly right to the proprietor to use the relevant mark in relation to the goods and services listed on the registration. This can be relied upon to bring a claim for registered trademark infringement. The law sets out circumstances in which a registered trademark can be relied upon – not only does it protect the use of the registered mark itself, but it can also be used to prevent the use of similar marks for goods or services which are identical or similar to those for which the mark is registered (and, for the most famous marks, on any goods or services). 

Design rights

The law relating to designs is exceedingly complicated – but one of the key rights is the so-called Community Design.  In the UK and EU, the right given by a Community Design arises essentially where a design is created that is “new” and has “individual character” (or, in simple terms, where a design is unlike anything that has been done before). Unless they are registered, the scope of these rights is, however, limited – the term of protection for unregistered Community Designs only lasts for three years and can only be used against third parties which create a design which gives the same overall impression and, crucially, which can be shown to have actually copied the original.

A further problem with relying on unregistered rights is that brand owners often find that they do not actually own the IP in their designs. The default position in the UK and EU is that (except in the case of employees, where the employer will own the rights) unless there is an agreement to the contrary, the creator will be the owner of any unregistered designs. Brand owners should therefore take care to ensure that any such rights are formally assigned to them by the designer.

One way to strengthen a brand’s arsenal in terms of rights in designs is to register designs – in particular, as a registered Community Design.  This will not only extend the term of protection (to 25 years), but also means that the owner of the registered Community Design does not need to demonstrate that their original design has been copied; a registered Community Design can be used against a third party who commercialises a design which has the same overall impression as the original design, regardless of whether or not that third party has even seen it. For example, Mulberry have a registered Community Design for their famous Alexa handbag, amongst several other of their iconic designs.

It is no wonder that Tiffany has chosen to pursue Costco given the damage that these sorts of activities could cause. Luxury brand owners should take note and ensure that they have done everything they can to ensure that they would be in the best position to pursue a third-party infringer in similar circumstances.


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