A multimillion-dollar judgement against Costco Wholesale (COST -0.53%) arising from a trademark infringement and counterfeiting lawsuit has been quashed on appeal. On Monday, a federal appeals court in Manhattan overturned the $21 million judgment previously awarded in Tiffany's (TIF) favor, on the grounds that the judge made the ruling improperly.

The decision was 3-0, and it was based on the appeals court's finding that "reasonable" jurors could figure out that "Tiffany" was not being unfairly appropriated. They could surmise, the ruling stated, that the appellation "is not only a brand name, but also a widely recognized descriptive term for a particular style of pronged ring setting."

A gavel above a pile of money.

Image source: Getty Images.

On the basis of that, the appeals court is sending the lawsuit back to the district court and the judge, Laura Taylor Swain, who handed down the previous judgement. 

The new ruling is the latest development in a long-running legal war between Costco and Tiffany. The big retailer has used the latter's name to advertise a line of diamond engagement rings it sells; in 2013, Tiffany sued it for doing so, after being contacted by a Costco shopper alerting the jewelry company to the use of the name.

According to Costco, per Tiffany's request, it removed signs using the name to advertise the rings. That didn't prevent Tiffany from filing the original lawsuit, which it did several months later. The $21 million judgment was handed down in 2015.

Costco hasn't commented on the overturning of the award. Tiffany has pledged to continue pursuing a legal remedy; general counsel Leigh Harlan said in a statement that the original judgment "is a clear indicator of the strength of the Tiffany brand, and of the jury's outrage over Costco's actions."