"BEANIES": DILUTION AND GENERIC LEGAL ISSUES

IVAN HOFFMAN, B.A., J.D.


        Ty, Inc. continues to create valuable case law in its legal battles to protect its trademarks and copyrights.  In  “Beanie Babies Collector’s Guide: Another Study In Fair Use,”  I discussed the company’s legal claims under the issues relating to fair use.   In this case, Ty, Inc. vs. Perryman, the same Seventh Circuit Court of Appeals that ruled in the case discussed in the above article ruled that Ty could not prevent an Internet reseller of Beanie Babies from using the name “Beanie Babies” in relationship to those products.

        Ruth Perryman was a reseller of various kinds of stuffed animals including but not limited to Beanie Babies on her web site, bargainbeanies.com.   On that site, she included a disclaimer that her site had no affiliation with Ty.  Since the defendant was not a manufacturer of any products that competed with those of Ty, there was no legal issue related to likelihood of confusion by the use of the registered marks of Ty.

        The trial court had issued an injunction prohibiting the defendant from using the marks “Beanie” or “Babies” in a wide variety of ways including as a domain name, business name.  The defendant’s main arguments on appeal were that the term “beanies” has now become generic for certain kinds of stuffed animals and as a result, cannot be the subject of a trademark and that the lower court’s injunction was overbroad.

Dilution Issues

        As part of the response to the defendant’s arguments on appeal, the Court discussed whether or not, in the context of the use by Perryman, such use amounted to the “dilution” of the said marks.

        The owner of a “famous” mark has the right to prevent the use of that mark in ways that, while not competitive to that of the owner’s rights and not likely to cause confusion in the minds of the public (i.e. not infringing uses), still result in diminishment of the value of the mark.  Such diminishment is referred to as “dilution” and as such, the trademark owner has rights that are related to and yet different from those involving confusion as to source.

        The anti-dilution statute (15 USC Section 1125 (c)) states in part

(1) The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person’s commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this subsection. In determining whether a mark is distinctive and famous, a court may consider factors such as, but not limited to -
(A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used;
(E) the channels of trade for the goods or services with which the mark is used;
(F) the degree of recognition of the mark in the trading areas and channels of trade used by the marks’ owner and the person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties; and
(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.
        The Court concluded that the “Beanie Babies” and “Beanies” marks were indeed “famous” and that the use by the defendant on her site was “commercial.”  Thus the issue was whether or not there was dilution.

        The Court analyzed various forms of dilution.  One involves “blurring,” the use of the mark in products that are unrelated to the products that the mark has become associated with.  The Court gave an example of the use of the mark “Tiffany” in relationship to a restaurant.  Such use would not result in confusion in the minds of the public that the jewelry manufacturer was running a restaurant but could result in a “higher imagination cost” because consumers would now have to think about the jewelry manufacturer in the context of the restaurant and as a result, the value of the mark could be blurred.

        Another form of dilution is when the mark is used in a manner that takes away from the value of the mark, such as if the mark “Tiffany” were used in association with a “striptease joint.”  In that manner, such use would “tarnish” the value of the mark in association with jewelry even though there would be no likelihood that consumers would believe that the “striptease joint” were being run by the jewelry company.

        The third form is neither “blurring” nor “tarnishment” but instead involves the use by another of the mark merely to get a “free ride” off of the marketing of the mark by the owner.  To continue the “Tiffany” example, the Court referred to the use in regard to a restaurant in a distant country.  Although the customers of the restaurant may have heard of the mark, they would not likely be customers of the jewelry company and thus the jewelry company would not likely have its mark “tarnished” or “blurred” but instead, the jewelry company might find that others were getting this free ride.  The purpose of a trademark is to have the owner obtain the full value of such a mark and all the marketing and promotion associated with it and to allow others to obtain this free ride reduces the value of its efforts to the mark’s owner.  It thus reduces the incentive to market and promote the mark.

        [NOTE: the reader should read this article and the Ty decision discussed in view of the United States Supreme Court decision in the “Victoria’s Secret” case, which case was decided after the said Ty case.  See “Trademark Dilution: The “Victoria’s Secret Case.”]

        Having discussed these theories, the Court concluded that none applied to the Ty situation in this case.  It said that the defendant was using the marks of Ty for the very purpose of identifying the products she was selling which Ty manufactured.  Such conduct is neither “blurring,” “tarnishing” or “free riding.”

        The Court said:

You can’t sell a branded product without using its brand name, that is, its trademark.
        The “secondary market” in Beanie Babies, the Court said, was actually a product of the marketing strategies of Ty since by producing limited quantities initially, that secondary market is created.  Sellers in that secondary market must have the right, the Court said, to identify the products by their brand otherwise there is no such secondary market.  It said:
That market is unlikely to operate efficiently if sellers who specialize in serving it cannot use “Beanies” to identify their business….[s]o that to forbid it to use “Beanies” in its business name and advertising (Web or otherwise) is like forbidding a used car dealer who specializes in selling Chevrolets to mention the name in his advertising.
Generic Marks

        The Court discussed the issue of whether or not the term “beanies” has become associated with any kind of stuffed animals and thus has become generic.   Marks that became so well known that they become synonymous with the product they originally identified were “thermos,” “yo-yo,” “escalator” and “cellophane,” among others.  Once a mark becomes generic, it can no longer be used as a mark since it loses its ability to function as a source identifier.  The more “descriptive” or “suggestive” a mark is, the more it runs the risk of becoming generic, as compared, for example, to marks that are “fanciful,” such as “Kodak.”    The Court noted that, because Ty’s product names are potentially descriptive of the product they denote, they run the risk of becoming generic.  The Court ruled that “for now,” the mark “Beanies” is not generic since the pubic associates the mark with this particular brand of stuffed animals.  However, the Court refused to allow Ty to bring a litigation under the theory of dilution simply because the use by a particular defendant might render a mark “generic.”

        The Court thus ruled that indeed, the lower court injunction was overbroad.  It did, however, continue the injunction against the defendant but limited only to preventing her from using the term “Other Beanies” in relationship to non-Beanie Babies products.

Conclusion

        In the law business, it can be stated categorically that there are no absolutes.

        Free market capitalism, much to be valued and protected, is not inconsistent with the protection of intellectual property rights.   Indeed, copyrights, trademarks and other forms of rights whereby free access to use such rights is limited, are at the heart of free market capitalism.  Intellectual property rights are today’s means of production and the source of great wealth and industrial value and as such, produce enormous benefits for society as a whole while at the same time protecting the investment of the rights’ owners.

        Since each and every one of us is either in or is impacted by the intellectual property law business (if you do not believe so, you should read “What Business Are You In?”),  there is no way to be on the “right” or “wrong” sides of these issues.   We are all both creators and users, though our roles may vary with the moment.  If you are creator of intellectual properties, you want to own all rights for as long a time as possible.  If you are a user of intellectual properties, you want them to be as free as the wind.

        This case represents a balance of the rights of the market and the rights of the owners.
 

© 2002 Ivan Hoffman.  All Rights Reserved.

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.

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