disparagement campaign in niche jewelry market could violate Lanham Act

Roberto Coin, Inc. v. Goldstein, No. 18-CV-4045(EK)(ST), 2021 WL 4502470 (E.D.N.Y. Sept. 30, 2021)

Defendants Goldstein and his company Kings Stone supplied plaintiff RCI with a gemstone they called “black jade.” “After RCI stopped sourcing black jade from Kings Stone and found a new supplier, Goldstein contacted a number of stores selling RCI jewelry and disparaged RCI’s stones. Both sides now claim the other is liable for false advertising, among other claims.” For example, Goldstein allegedly told one of RCI’s customers that RCI’s stones were to real black jade as cubic zirconia is to diamond. Defendants also allegedly infringed RCI’s trademarks by using photographs of Roberto Coin jewelry and RCI’s logo in Kings Stone’s advertising after RCI terminated the relationship. Kings Stone counterclaimed that RCI made false claims about (a) the gemological content of the stones from its new supplier and (b) whether those stones had been “certified” by a laboratory. The counterclaims/third party claims were dismissed for failure to prosecute and the results on the plaintiff’s claims were mixed.

When things were going well, Kings Stone provided RCI with an analysis prepared by the National Gem Testing Center — a gemstone testing laboratory based in China — stating that the mineral content of its stones was “black amphibole jade.” About eighteen months after the parties split up, RCI discovered that the Defendants were using photographs of RCI jewelry alongside RCI’s logo, as well as the name “Roberto Coin,” on Kings Stone’s Instagram feed. Instagram ultimately removed the posts. Goldsein also sent marketing materials incorporating RCI images to various vendors, including in a PowerPoint presentation. He stated that he believed RCI “knew about” and “was okay” with this.

Goldstein solicited Borsheims, a jewelry retailer that sold RCI products (including the Roberto Coin “Black Jade” collection), touting Kings Stone’s black jade as “exclusively certified by the china NGTC and the prestigious US based AGL as Black jade.” Borsheims wasn’t interested.

Goldstein emailed Borsheims again, this time pretending to be a customer looking for a “gift for a jade connoisseur.” He expressed interest in a specific Roberto Coin product and asked Borsheims to provide him with “a gem certificate that verifies its authenticity as genuine black jade.” Borsheims’ employee wrote back to say that she had contacted RCI, and that “while they do not have official certificates of authenticity for their jade gemstones, they provided me with the attached card detailing the certification of the jade along with further details.” The “attached card” said: “The most fascinating black amphibole jade, 100% natural identified and certified by China’s National Gemstone Testing Center (NGTC) is the protagonist of the homonymous ‘Black Jade’ collection.” Goldstein responded that the product

does not come with any certification as to its authenticity that the black jade is genuine. If there is no certification available, then legally you cannot claim or advertise that it is black jade, no less then [sic] claiming a cubic zirconia being a real diamond .... My black jade comes with full certification by 3 major Gemological Labs. When dealing with my certified black jade stones you are assured of the highest quality and no reputational risk to your company by selling non certifiable black jade. The real black jade jewelry companies are doing great with our line with sales exceeding the best projections.

A followup email from Goldstein said that “[w]e have asked Roberto Coin directly numerous times for confirmation of the black jade authenticity and we have not received any response.” He then threatened Borsheims with “filing for class action status on this matter to protect [his] business and the consumers being misled by false advertising.” He said that Borsheims needed to “take remedial action otherwise we will include your company in this [action] since we have legally notified you.... And yes even borsheims has to be held accountable.” Afterwards, Borsheims told RCI it was “removing the black jade” offerings from Borsheims’ website.

Goldstein also contacted other RCI retailers (Macy’s, Neiman Marcus, and Saks Fifth Avenue) seeking confirmation that RCI’s black jade was certified.  He told Saks’s parent corporation that RCI’s black jade was “not ... authenticated or certified as advertised,” and had similar exchanges with Macy’s and Neiman Marcus. He emailed them to say he would be filing a lawsuit against RCI: “I am part of a group of gemstone dealers selling genuine and certified black jade, that are in the process of filing a class action lawsuit against Roberto coin for selling non authenticated black jade.” He said he was letting the retailers know about his lawsuit as a “courtesy” so that they could “take remedial action ... and remove any questionable product that cannot be authenticated.” At his deposition, Goldstein acknowledged approaching “every customer that was advertising the black jade.”  He testified about the steps he took to identify every RCI retailer and that it was a “huge amount of communication.”  (He also emailed “basically industry wide” announcing his counterclaims in this case, reaching “various jewelry-industry players: newsletters and magazines, trade associations, and additional retailers” and analogizing the situation to an earlier scandal about gem misclassification; there was a bribery aspect to that situation but he testified that he wasn’t aware of the bribery part.)

Macy’s and Saks Fifth Avenue also stopped selling the Black Jade collection. Saks, Borsheims and Bloomingdales alone returned jewelry valued at more than $380,000 from the Black Jade collection. “At least one jewelry retailer apparently understood Goldstein to be challenging the authenticity of the gemstones in RCI’s Black Jade collection, as opposed to merely questioning whether RCI had obtained an authentication from a laboratory.”

RCI’s position was that there is no industry-wide “certification” for the “authenticity” of black jade, because “black jade” is not a scientific category. Instead, it contended that “jade” is generally used in the industry to describe two different but related minerals, nephrite and jadeite, and that the term “black jade” cannot constitute false advertising. It did, however, obtain certifications from various gemological labs, including one certifying that RCI’s gemstones were comprised of “Natural Amphibole Material”; another certifying “amphibole and other minerals”; an NGTC certification certifying “Black Amphibole Jade”; and another certifying “Black Nephrite Jade.” However, RCI obtained the latter two certifications — including the one from NGTC — after it emailed the card promoting its stones as “[t]he most fascinating black amphibole jade .... 100% natural identified and certified by China’s National Gemstone Testing Center (NGTC)” — to Saks and Borsheims.  

Lanham Act false advertising: RCI alleged two overlapping subcategories, (1) claims that RCI’s black jade was fake or inauthentic (e.g., Goldstein’s emails to Borsheims discussing the impact that the sale of “Fake black jade” has on Goldstein’s business, making a cubic zirconia/diamond comparison, and calling his company one of “the real black jade jewelry companies”) and (2) statements that RCI’s stones lacked some form of certification or authentication.

Falsity: RCI showed sufficient evidence of literal falsity of (1) to continue, but (2) was murkier. The “not authenticated” statements weren’t literally false, “as RCI did not (at the time) possess a certification expressly confirming that its stones were ‘black jade.’” But given RCI’s evidence that there is no established mineralogical category for “black jade,” a jury could find implied falsity, especially since one retailer seemed to understand the statement as questioning whether the stones were “somehow counterfeit.” A falsity finding would be premature, since a factfinder should address implied falsity and the parties continued to dispute which stones RCI submitted to obtain its certifications. “The existing record does not definitively rule out the possibility that RCI commingled stones from Goldstein and its subsequent supplier, or definitively establish the provenance of the stones RCI submitted for evaluation.”

Goldstein also made legal claims in his emails, e.g., “[i]f there is no certification available, then legally you cannot claim or advertise that it is black jade.” This wasn’t itself actionable, because “a layman’s statements about the illegality of another party’s conduct do not violate the Lanham Act absent a ‘clear and unambiguous ruling from a court or agency of competent jurisdiction’ that the conduct is lawful.” However, a jury could consider them “to the extent they imply (as a factual matter) that RCI was misleading its retailers or other customers about the content of its stones.”

Commercial advertising or promotion: Since the statements to retailers weren’t identical, the court had to decide whether to consider them individually or in the aggregate when assessing the breadth of dissemination. “Goldstein’s statements should be aggregated when assessing the breadth of dissemination, because they were made during a compressed time period (approximately three weeks in April 2018) and concerned similar subject matter (the authenticity and authentication of RCI’s black jade).”  A jury could reasonably conclude that they constituted a single “campaign.” Once that was done, the dissemination was sufficiently broad to qualify as advertising or promotion. The court noted, that, “[o]n the one hand, the global market for fine jewelry is perhaps enormous.”  But “the market for name-brand, artistically produced luxury jewels is surely a discrete subset of that industry.” RCI’s evidence showed that the five prominent department stores that Goldstein emailed accounted for “over 23% of RCI’s gross profits on sales from the black jade collection” in themselves. “[O]n this record, a reasonable jury could conclude that the relevant market is confined to higher-end jewelers like Neiman Marcus, rather than every seller of precious stones in the world,” and that Goldstein communicated with a sufficiently large proportion of that market—a “huge” amount of communication in his own words.

Trademark infringement: Goldstein admitted that he posted photographs of RCI’s jewelry on Kings Stone’s Instagram feed.  RCI’s logo — the letters “RC” with a diamond shape beside them—was superimposed. He used these materials to promote Kings Stone’s black-jade business, and used his PowerPoint similarly. Goldstein argued that he had oral authorization as part of the deal to supply black jade to RCI. (Nominative fair use would be relevant outside the Second Circuit, though use of the logo would definitely pose a problem.) He argued that he’d provided a discount on stones in exchange for this authorization and that such a deal was a “common industry practice.”

The court was unconvinced: “[I]t strains credulity to think that the parties agreed on the duration of the trademark license — specifically, that it would exist in perpetuity — without any corresponding agreement on the period of time for which RCI and its affiliates would purchase stones from Goldstein (a period that, in the end, lasted only about a year).” But more importantly, the Statute of Frauds prevented reliance on such permission, irrespective of credibility. What he had in writing—purchase orders memorializing a “discount price” from Kings Stone and an email from Roberto Coin stating that the “RC brand will bring you lots of credibility in the market”—wasn’t enough to set out the material terms of an agreement. Thus, RCI won summary judgment on its infringement claims.

However, the court would let a jury resolve the question of damages, including willfulness.

Defamation/trade disparagement:  There was sufficient evidence for a jury to find special damages, based on lost customers and revenue. Otherwise, factual questions remained, as with the Lanham Act false advertising claim. Tortious interference: same. Specifically as to the lawsuit threats: “[A] lawsuit or the threat of a lawsuit is wrongful [for purposes of a tortious interference claim] if the actor has no belief in the merit of the litigation.” “It is also wrongful if the actor, having some belief in the merit of the suit, nevertheless institutes or threatens to institute the litigation in bad faith, intending only to harass the third parties and not to bring his claim to definitive adjudication.”

GBL Section 349:  The alleged conduct was not consumer-oriented, even it wasn’t a “garden-variety” dispute between competitors. There was no specific evidence that the “public interest [wa]s harmed” by defendants’ actions.