One of Costco's greatest perks is under siege

Costco was just ordered to pay Tiffany & Co. $19.4 million after selling rings under the "Tiffany" name. This isn't the first time the retailer's approach to designer brands has raised questions, as seen by a 2013 Michael Kors lawsuit. Customers are losing interest in designer brands like Kors and Ralph Lauren. Costco's ability to sell designer brands like Ralph Lauren and Calvin Klein is a huge draw for many budget shoppers.

However, the legality of parts of the retailer's strategy is being called into question.

On Monday, a federal judge ruled that Costco owed the jewelry company Tiffany & Co. $19.4 million after the budget retailer sold diamond engagement rings using the Tiffany name.

While Costco had argued that the word was understood as a generic reference to a ring's setting, not the brand itself, a court determined in 2015 that selling items described simply as "Tiffany" infringed on Tiffany's trademark.

This isn't the first time Costco has been accused of falsely marketing designer products.

In 2013, Michael Kors sued Costco for allegedly advertising the designer's handbags without being authorized to sell them. According to the lawsuit, Costco advertised $99 Michael Kors handbags, but did not actually stock the bags in stores (and was not authorized to do so). The companies settled the case out of court in 2014.

RELATED: 17 items that are surprisingly cheaper at Costco:

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17 health products and services that cost less at Costco
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17 health products and services that cost less at Costco

ORGANIC FRUIT


The U.S. Department of Agriculture reports that organic produce is the top seller in the organic food space. Costco meets the demand with an array of fresh fruit, such as organic strawberries, at budget prices. Two pounds of the sweet, tangy orbs go for $6.99 at Costco compared with $9.98 for two 1-pound boxes at the supermarket.

Photographer: Luke Sharrett/Bloomberg via Getty Images

ORGANIC VEGETABLES

Demand for organic food products may be outstripping supply, but Costco is well-stocked with large quantities of organic vegetables and undercuts other retailers on price. Spinach, for example, sells for $4.49 a pound at the membership club and $5.99 at a local market.

(Photo by Melanie Stetson Freeman/The Christian Science Monitor via Getty Images)

WHOLESOME CHIPS AND DIP

Healthy snacks for easy after-school nibbling include products such as organic Wholly Guacamole and Food Should Taste Good multigrain chips. Costco sells the dip in a 20-pack of 2-ounce cups for $10.99 (27 cents an ounce) compared with a four-pack of 2-ounce cups for $3.48 (43 cents an ounce) at Walmart. The chips come in a 24-ounce bag for $6.99 (29 cents an ounce) at Costco and a 5.5-ounce bag for $3.49 (63 cents an ounce) at the local supermarket.

(Photo by MIKE THEILER/WHITE HOUSE POOL (ISP POOL IMAGES)/Corbis/VCG via Getty Images)

LOW-CALORIE POPCORN

Skinny Pop Popcorn, another family favorite, contains 150 calories, 3 grams of fiber, and 75 milligrams of sodium in each serving. Costco charges $4.99 for a 14-ounce bag, the equivalent of 35 cents an ounce, while Walmart's $2.83 price on a 4.4-ounce bag comes out to 64 cents an ounce.

Photographer: Daniel Acker/Bloomberg via Getty Images

GLUTEN-FREE BREAD

Gluten-free food is all the rage these days, and Costco is a price leader on Udi's, a well-known brand. The price for a 30-ounce loaf at the warehouse club is $7.59 (25 cents an ounce). The same brand in a 24-ounce size sells for $7.94 (33 cents an ounce) at Walmart.

Photographer: Daniel Acker/Bloomberg via Getty Images

ALMOND BUTTER

Almond butter is an excellent source of fiber, protein, and unsaturated fatty acids, and a particularly good snack for people with diabetes. Costco, again, takes the lead on low price. A 27-ounce jar of almond butter costs $9.99, or 37 cents an ounce, at the warehouse club. At Walmart, the per-ounce cost is 58 cents for a 12-ounce jar costing $6.98.

(cegli via Getty Images)

ORGANIC APPLE SLICES

Add a touch of almond butter to pre-sliced organic apples for a healthy grab-and-go snack that will appeal to young and old alike. The apple slices are tagged at $7.99 for eight 4-ounce bags at Costco. Nothing similar was available at either Walmart or the local supermarket.

(Merrimon via Getty Images)

ANTI-DEPRESSANT

In a Consumer Reports study conducted in 2013, secret shoppers called 200 pharmacies, including Costco, inquiring about the cost of commonly prescribed medications without insurance. Costco was the cheapest by far. For example, Costco priced the anti-depressant Lexapro at $7 compared with $126 at CVS.

(Savushkin via Getty Images)

CHOLESTEROL MEDICATION

More than a quarter of American adults 40 and older take the cholesterol-lowering medications known as statins, according to the Centers for Disease Control and Prevention. Lipitor, a commonly prescribed statin, cost $17 at Costco and $150 at CVS, the Consumer Reports study found.

(Photo by Francis Dean/Corbis via Getty Images)

OTC PAIN RELIEVER

Ibuprofen, a common pain reliever and fever reducer, is cheaper at Costco than elsewhere. The cost for Costco's Kirkland Signature brand ibuprofen is $10.49 for 1,000 200 mg capsules. The price for the same quantity and strength of Walmart's house brand Equate is $12.97.

(Photo Illustration by Scott Olson/Getty Images)

DENTAL INSURANCE

Costco offers members living in California, Pennsylvania, and Texas individual and family dental insurance with premiums starting as low as $83.31 a year through a third-party provider. Coverage includes orthodontics, preventive, basic, and major services. Compare this against an average yearly cost of more than $200 for an individual plan, according to the National Association of Dental Plans.

(designer491 via Getty Images)

VISION SERVICES

Costco Optical (not available at all locations) can save members money on contacts, glasses, and prescription sunglasses with a current prescription. Many stores also host independent optometrists who conduct exams. Costco charges $130 for high-definition progressive lenses with anti-reflective coating and UV protection, according to Consumer Reports -- about half off the $255 price at Walmart. That said, Costco faces some stiff competition in this category, particularly for consumers with simpler prescriptions. It's possible to buy a pair of single-lens specs from an eyeglasses website for less than $50.

(Hero Images via Getty Images)

FLU SHOTS

Costco typically provides flu shots to members and non-members alike for $14.99, no insurance required. Last year Sam's Club charged the same price, but consumers had to pay $10 more at Target or Walmart and more than twice as much at Rite Aid, CVS, or Walgreens.

(Terry Vine via Getty Images)

HEALTH SCREENINGS

Costco offers a host of free health screenings for conditions such as diabetes and osteoporosis through health clinics at some locations on select days -- quite a bargain considering that the going rate for a bone density test is $125. The schedule can be downloaded from the pharmacy website.

(Hinterhaus Productions via Getty Images)

PET MEDICATIONS

Costco even throws a bone to the family pet: The warehouse club fills more than 150 commonly prescribed medications for dogs and cats. For example, Temaril-P, prescribed for itching and coughing in dogs, could be a daily medication the animal takes for life. The cost is 77 cents a tablet at Costco and 95 cents at 1-800-PetMeds.

(David Young-Wolff via Getty Images)

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Costco also has a history of selling what Refinery 29 calls "gray market goods" — designer items that were obtained through channels that aren't illegal, but that are unintended by the original makers. Aspirational designer brands like Michael Kors and Ralph Lauren don't want to be linked to Costco, but some of there items end up sold there nonetheless.

Designer brands "may have an abundance of fabric, or fabric may have come in that didn't meet their standards," Marshall Cohen, chief industry analyst at The NPD Group, told Refinery 29. "They can't sell it openly on the off-price market, so they sell it to the warehouse stores."

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Costco did not immediately respond to Business Insider's request for comment on its design brand strategy. In addition to legal questions, Costco's designer brand business is in also in danger due to consumers' growing disinterest with once aspirational brands.

The rise of fast fashion and the decline of retailers like Macy's and Sears has hit designer brands like Michael Kors and Ralph Lauren hard. Customers who once would have hunted for deals on these brands are increasingly saving money by buying less expensive private label items instead, such as Costco's Kirkland brand.

In fact, as customers' desire for designer shrinks, Costco has been growing the Kirkland brand. The retailer now sells everything from maternity wear to vodka under the Kirkland name.

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