Not yet in the bag: BEANIES Case remanded

In Ty Inc v Softbelly's Inc, the US Court of Appeals for the Seventh Circuit has reversed and remanded the lower court's judgment for the plaintiff on its claims for trademark infringement and dilution. The appellate court's ruling is primarily based on findings of evidentiary and procedural errors by the trial judge.

Ty, the maker of the popular BEANIE BABIES plush toys, alleged that Softbelly's similar SCREENIE BEANIES mark infringed and diluted its trademark rights. Softbelly counterclaimed that the term 'beanies' had become generic for plush beanbag animals.

The trial got off to a hurried start when the judge gave the parties only six weeks' notice of their trial date. Possibly because of this rush to trial, Softbelly failed to identify and summarize key documents, including evidence of generic use of the term 'Beanies' by Ty itself, in a list of exhibits attached to the pre-trial order. As a result, the trial judge excluded most of Softbelly's generic evidence, even though Ty had already seen such evidence during discovery. In contrast, the trial judge showed relative leniency to Ty by merely imposing a fine when Ty disclosed the names of its expert witnesses only days before trial.

With scant admissible evidence, Softbelly was unable to create a triable issue of fact on the genericness issue, giving rise to the court's ruling as a matter of law that Softbelly had infringed the BEANIE BABIES trademark. The court further ruled as a matter of law in Ty's favour on its dilution claim, notwithstanding the lack of any evidence of actual dilution presented at trial. The court also granted Ty $700,000 in damages.

In reversing the lower court's decision, the Seventh Circuit panel was highly critical of the court's management of the trial and evidentiary rulings. Judge Posner stated that (i) the trial judge's decision to exclude evidence was "excessive [and] unreasonable", and (ii) Softbelly had created triable fact issues as to whether the SCREENIE BEANIES mark created a likelihood of confusion or diluted the BEANIE BABIES mark.

The court also considered Softbelly's allegations that Ty had tampered with Softbelly's star witness, a former business associate of Ty's founder who was to testify that 'beanies' was a generic term, but who had changed his mind about testifying after receiving a call from Ty's founder. Although the witness initially identified "time constraints" as the reason for his change of heart, a post-trial deposition suggested that he had inferred from the call that his testimony might have negative ramifications for a potential business opportunity that the two had been exploring. The Seventh Circuit held that Softbelly's allegations warranted further investigation and, if proven, would be admissible as evidence against Ty.

The case has been remanded to a different judge.

Ron N Dreben and Travis Boozer, Morgan Lewis & Bockius LLP, Washington DC