Seventh Circuit overturns BEANIE BABY dilution decision

In Ty Inc v Ruth Perryman the US Court of Appeals for the Seventh Circuit has vacated a lower court's decision that the domain name 'bargainbeanies.com' diluted Ty's BEANIE BABIES mark. The appellate court discussed the interplay between trademark dilution law and fair use, and refused to allow Ty to use the law on dilution to prevent the trademark becoming a generic term.

Ty is the manufacturer of the well-known BEANIE BABY beanbag stuffed animals. Perryman sold second-hand beanbag stuffed animals - primarily Ty's Beanie Babies - over the Internet, having registered the domain name 'bargainbeanies.com'. Ty brought suit against Perryman, claiming dilution of its BEANIE BABIES mark. The district court found for Ty on summary judgment and entered an injunction. On appeal, the Seventh Circuit vacated that judgment.

The appellate court first noted that there was no dispute as to the fame of Ty's mark, and that Perryman's use of the mark was commercial in nature. The court then turned to the dilution claim. It described three possible rationales for protection from dilution: blurring, tarnishing, and taking a free ride on the trademark owner's investment (noting that the validity of the third is questionable). The court concluded that none of these bases for dilution applied to Perryman, because she was "selling the very product to which the trademark sought to be defended against her 'infringement' is attached." The court found Ty's argument "especially strained" because of its marketing strategy, which intentionally created a secondary market for Beanie Babies. The court also found no dilution in Perryman's use of 'bargainbeanies.com'.

The court surmised that Ty's goal in bringing this suit was to extend anti-dilution law to forbid commercial uses that "accelerate the transition from trademarks (brand names) to generic names (product names.)" The court listed several famous marks that had become generic, such as THERMOS and ESCALATOR, and stated that "Ty is doubtless cognizant of a similar and quite real danger to BEANIE BABIES [...]." The court then directed that the proceedings on remand be limited to the reformulation of the injunction.

David Fleming, Brinks Hofer Gilson & Lione, Chicago