Dive Brief:

• A federal jury ruled Thursday that Costco Wholesale Corp. should pay $5.5 million to Tiffany & Co. for violating the iconic jeweler's trademark through the sale of diamond engagement rings labeled "Tiffany," Reuters reports. The luxury jewelry retailer could also seek punitive damages.

• The $5.5 million far surpasses the $781,000 that Costco has argued should be the maximum it owes, which the retailer says it based on some 2,500 rings that the court ruled infringed on the trademark name.

• The trial to determine damages, which started Sept. 20, comes a year after the court found Costco infringed Tiffany & Co. trademarks. Tiffany originally filed suit against Costco in February 2013. 

Dive Insight:

The court has officially found Costco's use of the word “Tiffany” for its jewelry sales to be a case of trademark infringement, but Costco’s argument that it was merely a description of ring settings is not all that far-fetched: A “Tiffany” setting, developed in the 19th century by Charles Lewis Tiffany to raise up a diamond for maximum sparkle, is often considered to be a type of ring setting, and people inside and outside the industry toss the term around similarly to how the word “Kleenex” is synonymous with facial tissue.

While some news outlets have referred to the Costco rings as counterfeit diamonds, that is not necessarily the case; Costco sells real diamond rings, sometimes at prices higher than those found at traditional jewelry stores. Rather, it’s Costco’s use of the word “Tiffany” that is at issue.

While the diamonds may be genuine, the court says Costco went too far with its use of the word “Tiffany,” to the point of letting — or even encouraging — customers to believe they were buying Tiffany rings, and not just rings with Tiffany settings.

Costco last year took steps to address this issue, agreeing with a request by Tiffany to stop using its name. Costco also sent a letter to customers clarifying that the rings were not “Tiffany & Co.” products and offered refunds to those who were disappointed. 

Knockoffs of brand-name goods are increasingly an issue at off-price retailers and online marketplaces, and Costco has run into trouble over counterfeit and “gray market” goods in the past. Amazon, TJX Cos., Alibaba and even artisan marketplace Etsy have been slammed for hawking merchandise designed to resemble or ape designer goods. Brands are getting fed up, knowing that their power is diluted when others sell discounted goods at lower quality. That in turn means their reputation for quality — and their ability to charge upscale prices — suffers.