Tiffany & Co (TIF) is launching a new ad campaign touting the craftsmanship that goes into its iconic namesake engagement rings.
It’s the kind of thing you’d expect to start seeing around Valentine’s Day, when bridal season starts to ramp up. But in this case, the messaging has a backstory. The rings are at the heart of a long and nasty court battle between Tiffany and Costco Wholesale (COST), and the ads themselves, set to appear in magazines on newsstands in mid-February, are part of Tiffany’s aggressive intellectual property strategy.
The Tiffany Setting, known for its six prongs and coveted by many brides-to-be, is celebrating its 130th anniversary, and the New York based jeweler is marking the occasion with a campaign showing off the work of its top gemologist and the specialists who set the diamonds and polish them. The campaign, with the tagline “I WILL,” is a message that invokes wedding vows. But it also refers to pledges by Tiffany to “reject 99.96% of the world’s diamonds” because they’re not good enough and to craft flawless settings around.
The message of the campaign — stressing the uniqueness of Tiffany’s engagement jewelry — is the same one Tiffany wanted to send to the marketplace when it sued Costco on Valentine’s Day in 2013, accusing the warehouse club company of selling inferior imitation rings.
In December 2012, a woman in California complained to Tiffany that she was disappointed to see Costco selling Tiffany diamond engagement rings. After looking into the matter, Tiffany found rings in a display case at the Huntington Beach Costco labeled with the word “Tiffany” (see below), and discovered that a salesperson at the store there referred to them as such.
Though Costco has argued that “Tiffany” is a generic term for a type of setting, citing among other things an entry in Webster’s New World dictionary, a U.S. District Court in Manhattan in September found that Costco knowingly infringed on Tiffany’s intellectual property. (The Costco displays did not have the word “Tiffany” written in that company’s distinctive font, nor were the rings sold in boxes that mimicked Tiffany’s distinctive robin’s-egg blue.)
The court ruled that Costco would have to face a jury trial to determine damages for the trademark infringement and counterfeiting. The case remains before the courts, with the damages trial to start June 13 at the earliest after several delays.
The battle comes as discount chains like Costco and Wal-Mart Stores’ (WMT) Sam’s Club claim a growing share of the U.S. fine jewelry market. Indeed, Costco is no slouch in the gem world: its engagement rings go for as much as $27,000, and it once even listed a $1 million 6.5-karat ring on its website. Meanwhile, Tiffany’s U.S. sales are feeling a pinch from lower spending by tourists.
At issue in the Tiffany-Costco dispute is the sale of a mere 2,500 rings, net of those customers returned (Costco offered refunds), worth about $10 million. That’s a drop in the bucket for Tiffany, which is set to take in a bit more than $4 billion in annual sales this fiscal year.
So why would Tiffany take on a retailer 25 times its size, especially since Costco quickly stopped using the “Tiffany” displays after the jeweler complained?
Tiffany says it has to fight tooth and nail to defend what it calls its biggest asset: the value and cachet of its brand. That’s crucial for its engagement jewelry, a category that generates 30% of Tiffany’s company sales. The company holds 97 trademarks linked to its name, the first being used all the way back in 1868.
“This is Costco. This is not one little mom-and-pop shop on a street corner in Astoria,” says Jeffrey Mitchell, a partner at Browne George Ross who represented Tiffany in the case. “No, we don’t sell at Costco; no, you won’t a Tiffany engagement ring at a discount at Costco.” He added: “That public statement had to be made.” Costco declined to comment for this article.
What’s more, when companies are fighting against claims that their trademarks are generic, they have to be seen defending them by using them, hence the ad campaign. (Tiffany has advertised the rings before, but the emphasis on its design is new.)
“They definitely wanted a decision out there that says, ‘No, you can’t genericize their name’,” says Tim Holbrook, a professor of intellectual property law at Emory University in Atlanta. “It’s about setting an example that Tiffany will not allow other parties to use its name in this way.”
It’s not the first time Tiffany has taken on a much bigger company in court. In 2004, Tiffany sued eBay (EBAY), saying the online auction operator deceived customers by allowing the sale of counterfeit Tiffany jewelry on its website. Though Tiffany ultimately lost that case, a years-long saga that ended in 2010, the company’s legal team says Tiffany’s aggressiveness meant companies took it seriously. (Tiffany did win in one sense: the case created a legal precedent that put an onus on online auctioneers to act when a trademark owner notifies them of fake goods on their site.)
On top of a legal team and outside investigators, the New York-based jeweler has a full-time team of seven members who work on trademark enforcement. Other Tiffany employees are enabled to help: all have access to a smartphone app that allows them to take a picture of any piece of jewelry that is suspect if they see one when they’re out and about in their everyday life.
And it’s an ongoing challenge. Tiffany says that between 2012 and 2015, some 218,000 fake Tiffany auction items were removed from various web sites, many operated in China, because of its monitoring.
“When our customer is purchasing something that has the name ‘Tiffany’ on it, we want them to know that what they’re getting is our product and everything that comes with it,” Tiffany General Counsel Leigh Harlan told Fortune. “That’s true whether they bought it on a web site that’s run out of China or that they bought it at Costco.”
