Ty Inc. v. Perryman, 2001 WL 826893, 2001 U.S. Dist. LEXIS 10303 (N.D. Ill. July 23, 2001), rev’d in part and remanded, 306 F.3d 509, 64 U.S.P.Q.2d (BNA) 1689 (7th Cir. 2002) (full-text), cert. denied, 538 U.S. 971 (2003).
Defendant, an Internet retailer in second-hand beanbag toys, used the term “beanies” as part of her business name, BARGAIN BEANIES, and her domain name, “bargainbeanies.com.” Plaintiff sued, alleging trademark infringement, unfair competition, and dilution regarding its BEANIE BABIES mark and other BEANIE-formative marks.
Trial Court Proceedings
The parties filed cross-motions for summary judgment on all three claims. Defendant argued, among other things, that the term “beanies” was a generic term for beanbag toys. Although the court found that the mark BEANIES was only descriptive and had acquired secondary meaning before defendant’s first use of the BARGAIN BEANIES name in 1997, the court declined to grant summary judgment to either party on the infringement and unfair-competition claims, due to issues of material fact on the issue of likelihood of confusion.
The court found that the word “bargain” in defendant’s name was significant because it connoted defendant’s sale of plaintiff’s BEANIE BABY products in the second-hand market, as opposed to plaintiff’s exclusive sale to retailers. To the extent that customers and potential customers knew about the secondary-market phenomenon, the likelihood that they would believe plaintiff was associated with a second-hand dealer would be diminished. In addition, defendant’s display of a disclaimer on its site that it was “neither endorsed by nor affiliated with [plaintiff]” supported defendant’s position.
The court did grant summary judgment for plaintiff in part, holding that defendant’s use of the term “beanies” to refer to third-party products diluted plaintiff’s trademarks by lessening the capacity of plaintiff to distinguish its goods from competitors. As to defendant’s use of the BARGAIN BEANIES mark, however, summary judgment was inappropriate because a genuine issue of fact existed as to whether defendant’s mark was sufficiently similar to plaintiff’s marks.
Appellate Court Proceedings
On appeal, defendant argued that “beanies” had become a generic term for beanbag stuffed animals and that the injunction was overbroad. Although the Seventh Circuit did not find the BEANIES mark to be generic, it did vacate the lower court’s judgment and remand the case for the “formulation of a proper injunction.”
Initially, the appeals court examined the doctrine of dilution. It noted the widely accepted concepts of dilution by blurring and dilution by tarnishment. But it also noted a possible third type of dilution where “someone is still taking a free ride on the investment of the trademark owner in the trademark” but which does not constitute blurring or tarnishment. In discussing this third type of dilution, the court used the hypothetical example of an upscale restaurant in Kuala Lumpur named “Tiffany’s,” noting that while patrons might recognize the mark as belonging to the famous department store, none of them would ever buy anything there, and therefore “the efficacy of the trademark as an identifier will not be impaired.”
Regardless of the types of dilution available, none of them supported plaintiff’s position in this case because defendant was not using the mark on a distinct product or service. Instead, defendant was selling the very products that plaintiff’s mark identified. The court likened this case to an attempt to enjoin a car dealer from truthfully advertising that it sold “Toyotas,” or a muffler manufacturer from truthfully advertising that it made mufflers for use on “Toyotas.” Plaintiff’s attempts to stop all use of the BEANIES mark by defendant was particularly problematic where, as here, plaintiff’s marketing practices deliberately created a secondary market for its products. And sellers specializing in serving that market need to use BEANIES to identify their businesses for that market to operate efficiently.
According to the court:
|“||[t]o forbid [defendant] to use ‘Beanies’ in its business name and advertising (Web or otherwise) is like forbidding a used car dealer who specializes in Chevrolets to mention the name in his advertising.||”|
The appeals court “surmised” that plaintiff was trying to extend antidilution law to preclude commercial uses of its mark that could possibly genericize the mark. Such attempts may not be in the public interest because the genericism of a mark provides a social benefit of adding a new word to the ordinary language.
Turning to the appropriateness of the lower court’s injunction, the Seventh Circuit agreed that defendant should be enjoined from using plaintiff’s marks with any non-plaintiff products because those uses constituted false advertising. Plaintiff did not establish any basis, however, for enjoining defendant from using the marks in “any business name, Internet domain name, or trademark.” The appeals court thus vacated the grant of summary judgment to plaintiff and remanded the case for formulation of an appropriate injunction.
It specifically stated that the district court should not reconsider plaintiff’s dilution claim because
|“||given [defendant’s] status as a seller in the secondary market created as a result of Ty’s marketing strategy, we cannot imagine a state of facts consistent with the extensive record compiled in the summary judgment proceeding that could possibly justify an injunction against [defendant’s] representing in her business name and Internet and Web addresses that she is doing what she has a perfect right to do, namely sell Beanie Babies.||”|
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