NEW YORK (Reuters) - Costco Wholesale Corp willfully infringed Tiffany & Co’s trademarks by selling counterfeit diamond engagement rings bearing the luxury retailer’s name and must face a jury trial to assess damages, a U.S. judge ruled on Tuesday.

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U.S. District Judge Laura Taylor Swain in Manhattan rejected claims by Costco that Tiffany’s trademarks were invalid because they sought to prevent others from using the word “Tiffany” as a generic description of a type of ring setting.

Instead, Swain said evidence established that Costco, the largest U.S. warehouse club chain, had infringed Tiffany’s trademarks by selling engagement rings and confused consumers by using the word Tiffany in display case signs.

“Despite Costco’s arguments to the contrary, the court finds that, based on the record evidence, no rational finder of fact could conclude that Costco acted in good faith in adopting the Tiffany mark,” Swain wrote.

Under the ruling, Tiffany may now take Costco before a jury to seek damages, including a recovery of Costco’s profits from the sale of the diamond rings and punitive damages.

Swain set a hearing for Oct. 30 and directed Tiffany and Costco to “make good faith efforts to settle the outstanding issues.”

In a statement, Tiffany General Counsel Leigh Harlan welcomed the ruling, saying it “further validates the strength and value of the Tiffany mark and reinforces our continuing efforts to protect the brand.”

Representatives for Costco did not respond to requests for comment.

Tiffany filed the lawsuit on Valentine’s Day in February 2013, saying it believed hundreds, if not thousands, of Costco members bought engagement rings they wrongly believed were authentic Tiffany products.

Tiffany said that in 2012, a person shopping at a Costco in Huntington Beach, Calif., complained to Tiffany that she was disappointed to see Costco offering for sale what were promoted on in-store signs as Tiffany diamond engagement rings.

Tiffany said a subsequent investigation revealed rings in a display case at the Huntington Beach Costco labeled with the word “Tiffany” and that a salesperson there referred to them as such.

Prior to the lawsuit, Tiffany contacted Costco and secured a commitment that it would remove references to Tiffany from its display case signs, according to Tuesday’s ruling.

Costco also previously sent a letter to customers who bought the rings offering a full refund if they were unsatisfied, the ruling said.

The case is Tiffany & Company and Tiffany (NJ) LLC v. Costco Wholesale Corp, U.S. District Court, Southern District of New York, 13-1041.