Ty, Incorporated v. Perryman, Ruth ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1771
TY INC.,
Plaintiff-Appellee,
v.
RUTH PERRYMAN,
Defendant-Appellant.
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Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 8190—John F. Grady, Judge.
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ARGUED SEPTEMBER 11, 2002—DECIDED OCTOBER 4, 2002
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Before POSNER, EASTERBROOK, and EVANS, Circuit Judges.
POSNER, Circuit Judge. Ty Inc., the manufacturer of
Beanie Babies, the well-known beanbag stuffed animals,
brought this suit for trademark infringement against
Ruth Perryman. Perryman sells second-hand beanbag
stuffed animals, primarily but not exclusively Ty’s
Beanie Babies, over the Internet. Her Internet address
(“domain name”), a particular focus of Ty’s concern, is
bargainbeanies.com. She has a like-named Web site
(http://www.bargainbeanies.com) where she advertises
her wares. Ty’s suit is based on the federal antidilution
statute, 15 U.S.C. § 1125(c), which protects “famous” marks
2 No. 02-1771
from commercial uses that cause “dilution of the distinc-
tive quality of the mark.” See Nabisco, Inc. v. PF Brands,
Inc., 191 F.3d 208, 214-16 (2d Cir. 1999). The district court
granted summary judgment in favor of Ty and entered
an injunction that forbids the defendant to use “BEANIE
or BEANIES or any colorable imitation thereof (whether
alone or in connection with other terms) within any busi-
ness name, Internet domain name, or trademark, or in
connection with any non-Ty products.” Perryman’s appeal
argues primarily that “beanies” has become a generic term
for beanbag stuffed animals and therefore cannot be
appropriated as a trademark at all, and that in any event
the injunction (which has remained in effect during the
appeal) is overbroad.
The fundamental purpose of a trademark is to reduce
consumer search costs by providing a concise and unequiv-
ocal identifier of the particular source of particular goods.
The consumer who knows at a glance whose brand he is
being asked to buy knows whom to hold responsible if
the brand disappoints and whose product to buy in the
future if the brand pleases. This in turn gives producers
an incentive to maintain high and uniform quality, since
otherwise the investment in their trademark may be lost
as customers turn away in disappointment from the brand.
A successful brand, however, creates an incentive in un-
successful competitors to pass off their inferior brand as
the successful brand by adopting a confusingly similar
trademark, in effect appropriating the goodwill created
by the producer of the successful brand. The traditional
and still central concern of trademark law is to provide
remedies against this practice.
Confusion is not a factor here, however, with a minor
exception discussed at the end of the opinion. Perryman
is not a competing producer of beanbag stuffed animals,
No. 02-1771 3
and her Web site clearly disclaims any affiliation with Ty.
But that does not get her off the hook. The reason is that
state and now federal law also provides a remedy against
the “dilution” of a trademark, though as noted at the
outset of this opinion the federal statute is limited to the
subset of “famous” trademarks and to dilutions of them
caused by commercial uses that take place in interstate
or foreign commerce. “Beanie Babies,” and “Beanies” as
the shortened form, are famous trademarks in the ordi-
nary sense of the term: “everybody has heard of them”; they
are “truly prominent and renowned,” in the words of
Professor McCarthy, 4 McCarthy on Trademarks and Unfair
Competition § 24:109, p. 24-234 (2001), as distinguished
from having a merely local celebrity. TCPIP Holding Co.
v. Haar Communications Inc., 244 F.3d 88, 98-99 (2d Cir.
2001). And while both this court and the Third Circuit have
held, in opposition to the Second Circuit’s TCPIP decision,
that “fame,” though it cannot be local, may be limited
to “niche” markets, Syndicate Sales, Inc. v. Hampshire Paper
Corp., 192 F.3d 633, 640-41 (7th Cir. 1999); Times Mirror
Magazines, Inc. v. Las Vegas Sports News, L.L.C., 212 F.3d 157,
164 (3d Cir. 2000), this is not a conflict to worry over here;
Ty’s trademarks are household words. And Perryman’s
use of these words was commercial in nature and took
place in interstate commerce, and doubtless, given the
reach of the aptly named World Wide Web, in foreign
commerce as well.
But what is “dilution”? There are (at least) three possibili-
ties relevant to this case, each defined by a different under-
lying concern. First, there is concern that consumer search
costs will rise if a trademark becomes associated with a
variety of unrelated products. Suppose an upscale restau-
rant calls itself “Tiffany.” There is little danger that the
consuming public will think it’s dealing with a branch of
the Tiffany jewelry store if it patronizes this restaurant.
4 No. 02-1771
But when consumers next see the name “Tiffany” they may
think about both the restaurant and the jewelry store, and
if so the efficacy of the name as an identifier of the store
will be diminished. Consumers will have to think harder—
incur as it were a higher imagination cost—to recognize
the name as the name of the store. Exxon Corp. v. Exxene
Corp., 696 F.2d 544, 549-50 (7th Cir. 1982); cf. Mead
Data Central, Inc. v. Toyota Motor Sales, U.S.A., Inc., 875
F.2d 1026, 1031 (2d Cir. 1989) (“The [legislative] history [of
New York’s antidilution statute] disclosed a need for
legislation to prevent such ‘hypothetical anomalies’ as
‘Dupont shoes, Buick aspirin tablets, Schlitz varnish,
Kodak pianos, Bulova gowns’ ”); 4 McCarthy on Trademarks
and Unfair Competition, supra, § 24:68, pp. 24-120 to 24-121.
So “blurring” is one form of dilution.
Now suppose that the “restaurant” that adopts the name
“Tiffany” is actually a striptease joint. Again, and indeed
even more certainly than in the previous case, consum-
ers will not think the striptease joint under common owner-
ship with the jewelry store. But because of the inveterate
tendency of the human mind to proceed by association,
every time they think of the word “Tiffany” their image
of the fancy jewelry store will be tarnished by the associa-
tion of the word with the strip joint. Hormel Foods Corp.
v. Jim Henson Productions, Inc., 73 F.3d 497, 507 (2d Cir.
1996); 4 McCarthy on Trademarks and Unfair Competition,
supra, § 24:95, pp. 24-195, 24-198. So “tarnishment” is
a second form of dilution. Analytically it is a subset
of blurring, since it reduces the distinctness of the trade-
mark as a signifier of the trademarked product or service.
Third, and most far-reaching in its implications for the
scope of the concept of dilution, there is a possible con-
cern with situations in which, though there is neither
blurring nor tarnishment, someone is still taking a free
No. 02-1771 5
ride on the investment of the trademark owner in the
trademark. Suppose the “Tiffany” restaurant in our first
hypothetical example is located in Kuala Lumpur and
though the people who patronize it (it is upscale) have
heard of the Tiffany jewelry store, none of them is ever
going to buy anything there, so that the efficacy of the
trademark as an identifier will not be impaired. If appro-
priation of Tiffany’s aura is nevertheless forbidden by an
expansive concept of dilution, the benefits of the jewelry
store’s investment in creating a famous name will be,
as economists say, “internalized”—that is, Tiffany will
realize the full benefits of the investment rather than
sharing those benefits with others—and as a result the
amount of investing in creating a prestigious name will rise.
This rationale for antidilution law has not yet been
articulated in or even implied by the case law, although
a few cases suggest that the concept of dilution is not
exhausted by blurring and tarnishment, see Panavision
Int’l, L.P. v. Toeppen, 141 F.3d 1316, 1326 (9th Cir. 1998);
Intermatic, Inc. v. Toeppen, 947 F. Supp. 1227, 1238-39
(N.D. Ill. 1996); Rhee Bros., Inc. v. Han Ah Reum Corp., 178
F. Supp. 2d 525, 530 (D. Md. 2001), and the common law
doctrine of “misappropriation” might conceivably be in-
voked in support of the rationale that we have sketched.
See Rochelle Cooper Dreyfuss & Roberta Rosenthal Kwall,
Intellectual Property: Cases and Materials on Trademark,
Copyright and Patent Law 137-38 (1996). The validity of the
rationale may be doubted, however. The number of presti-
gious names is so vast (and, as important, would be
even if there were no antidilution laws) that it is un-
likely that the owner of a prestigious trademark could
obtain substantial license fees if commercial use of the
mark without his consent were forbidden despite the
absence of consumer confusion, blurring, or tarnishment.
Competition would drive the fee to zero since, if the name
6 No. 02-1771
is being used in an unrelated market, virtually every
prestigious name will be a substitute for every other in
that market.
None of the rationales we have canvassed supports Ty’s
position in this case. Perryman is not producing a product,
or a service, such as dining at a restaurant, that is dis-
tinct from any specific product; rather, she is selling the
very product to which the trademark sought to be de-
fended against her “infringement” is attached. You can’t
sell a branded product without using its brand name, that
is, its trademark. Supposing that Perryman sold only
Beanie Babies (a potentially relevant qualification, as we’ll
see), we would find it impossible to understand how
she could be thought to be blurring, tarnishing, or other-
wise free riding to any significant extent on Ty’s invest-
ment in its mark. To say she was would amount to say-
ing that if a used car dealer truthfully advertised that it
sold Toyotas, or if a muffler manufacturer truthfully ad-
vertised that it specialized in making mufflers for installa-
tion in Toyotas, Toyota would have a claim of trade-
mark infringement. Of course there can be no aftermarket
without an original market, and in that sense sellers in
a trademarked good’s aftermarket are free riding on the
trademark. But in that attenuated sense of free riding,
almost everyone in business is free riding.
Ty’s argument is especially strained because of its mar-
keting strategy. As we explained in an earlier case brought
by Ty, Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1173
(7th Cir. 1997), Ty deliberately produces a quantity of each
Beanie Baby that fails to clear the market at the very low
price that it charges for Beanie Babies. The main goal is
to stampede children into nagging their parents to buy
the new Baby lest they be the only kid on the block who
doesn’t have it. A byproduct (or perhaps additional goal)
No. 02-1771 7
is the creation of a secondary market, like the secondary
market in works of art, in which prices on scarce Beanie
Babies are bid up to a market-clearing level. Perryman is
a middleman in this secondary market, the market, as
we said, that came into existence as the result, either
intended or foreseen, of a deliberate marketing strategy.
That market is unlikely to operate efficiently if sellers
who specialize in serving it cannot use “Beanies” to iden-
tify their business. Perryman’s principal merchandise is
Beanie Babies, so 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.
It is true that Web search engines do not stop with
the Web address; if Perryman’s Web address were
www.perryman.com but her Web page mentioned Beanies,
a search for the word “Beanies” would lead to her Web
page. Yet we know from the events that led up to the
passage in 1999 of the Anticybersquatting Consumer
Protection Act, 15 U.S.C. § 1125(d), that many firms value
having a domain name or Web address that signals their
product. (The “cybersquatters” were individuals or firms
that would register domain names for the purpose of sell-
ing them to companies that wanted a domain name
that would be the name of their company or of their prin-
cipal product.) After all, many consumers search by typing
the name of a company in the Web address space (browser)
on their home page rather than by use of a search engine.
We do not think that by virtue of trademark law produc-
ers own their aftermarkets and can impede sellers in
the aftermarket from marketing the trademarked product.
In this respect the case parallels our most recent decision
dealing with Ty’s intellectual property, in which we found
that Ty was attempting to control the market in collec-
tors’ guides to Beanie Babies by an overly expansive in-
8 No. 02-1771
terpretation of its copyrights. Ty, Inc. v. Publications Int’l
Ltd., 292 F.3d 512 (7th Cir. 2002).
We surmise that what Ty is seeking in this case is an
extension of antidilution law to forbid commercial uses
that accelerate the transition from trademarks (brand
names) to generic names (product names). Words such
as “thermos,” “yo-yo,” “escalator,” “cellophane,” and
“brassiere” started life as trademarks, but eventually lost
their significance as source identifiers and became the
popular names of the product rather than the name of
the trademark owner’s brand, and when that happened
continued enforcement of the trademark would simply
have undermined competition with the brand by making
it difficult for competitors to indicate that they were sell-
ing the same product—by rendering them in effect speech-
less. Ty is doubtless cognizant of a similar and quite real
danger to “Beanie Babies” and “Beanies.” Notice that the
illustrations we gave of trademarks that became generic
names are all descriptive or at least suggestive of the
product, which makes them better candidates for ge-
nericness than a fanciful trademark such as “Kodak” or
“Exxon.” Ty’s trademarks likewise are descriptive of the
product they denote; its argument that “Beanies” is “in-
herently distinctive” (like Kodak and Exxon), and there-
fore protected by trademark law without proof of second-
ary meaning, is nonsense. A trademark that describes a
basic element of the product, as “Beanies” does, is not
protected unless the owner can establish that the consum-
ing public accepts the word as the designation of a brand
of the product (that it has acquired, as the cases say, sec-
ondary meaning). Two Pesos, Inc. v. Taco Cabana, Inc., 505
U.S. 763, 769 (1992); Platinum Home Mortgage Corp. v.
Platinum Financial Group, Inc., 149 F.3d 722, 727 (7th Cir.
1998). As the public does with regard to “Beanies”—
for now. But because the word is catchier than “beanbag
stuffed animals,” “beanbag toys,” or “plush toys,” it may
No. 02-1771 9
someday “catch on” to the point where the mark becomes
generic, and then Ty will have to cast about for a differ-
ent trademark.
Although there is a social cost when a mark becomes
generic—the trademark owner has to invest in a new
trademark to identify his brand—there is also a social
benefit, namely an addition to ordinary language. A non-
trivial number of words in common use began life as
trademarks. See, e.g., Shawn M. Clankie, “Brand Name
Use in Creative Writing: Genericide or Language Right?”
in Perspectives on Plagiarism and Intellectual Property in
a Postmodern World 253 (Lisa Buranen and Alice M. Roy
eds. 1999); Monroe Friedman, “The Changing Language of
a Consumer Society: Brand Name Usage in Popular Amer-
ican Novels in the Postwar Era,” 11 Journal of Consumer
Research 927 (1985). An interpretation of antidilution law
as arming trademark owners to enjoin uses of their mark
that, while not confusing, threaten to render the mark
generic may therefore not be in the public interest. More-
over, the vistas of litigation that such a theory of dilution
opens up are staggering. Ty’s counsel at argument re-
fused to disclaim a right to sue the publishers of diction-
aries should they include an entry for “beanie,” lower-
cased and defined as a beanbag stuffed animal, thus
accelerating the transition from trademark to generic term.
He should have disclaimed such a right. See Illinois High
School Ass’n v. GTE Vantage Inc., 99 F.3d 244, 246 (7th Cir.
1996); 2 McCarthy on Trademarks and Unfair Competition,
supra, § 12:28, pp. 12-79 to 12-81.
We reject the extension of antidilution law that Ty beck-
ons us to adopt, but having done so we must come back
to the skipped issue of confusion. For although 80 percent
of Perryman’s sales are of Ty’s products, this means that
20 percent are not, and on her Web page after listing the
10 No. 02-1771
various Ty products under such names as “Beanie Babies”
and “Teenie Beanies” she has the caption “Other Beanies”
and under that is a list of products such as “Planet Plush”
and “Rothschild Bears” that are not manufactured by Ty.
This is plain misdescription, in fact false advertising, and
supports the last prohibition in the injunction, the prohi-
bition against using “Beanie” or “Beanies” “in connec-
tion with any non-Ty products.” That much of the injunc-
tion should stand. But Ty has not demonstrated any basis
for enjoining Perryman from using the terms in “any
business name, Internet domain name, or trademark.”
We can imagine an argument that merely deleting “Other
Beanies” is not enough; that if the other beanbag stuffed
animals look much like Ty’s, consumers might assume
they are “Beanies,” or if not, that they still might asso-
ciate “Beanies” with these other animals, causing the term
to lose its distinctness as the name of Ty’s products. But
we do not understand Ty to be seeking a broadening of
the injunction to require a disclaimer as to the source of
the non-Ty products sold by Perryman. This however is
a matter that can be pursued further on remand.
So the judgment must be vacated and the case remanded
for the formulation of a proper injunction. But is more
open on remand? The judge merely granted summary
judgment for Ty, and we are merely reversing (in part)
that ruling. Ordinarily this would mean that Ty would
have a shot at a trial in which it might try to convince
the judge (as there is no jury in trademark cases) that its
rights under antidilution law really were violated. But
this case is unusual because, given Perryman’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 sum-
mary judgment proceeding that could possibly justify an
No. 02-1771 11
injunction against Perryman’s representing in her busi-
ness name and Internet and Web addresses that she is
doing what she has a perfect right to do, namely sell
Beanie Babies. We therefore direct that the proceedings
on remand be limited to the reformulation of the injunc-
tion in conformity with this opinion.
VACATED AND REMANDED
WITH INSTRUCTIONS.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-4-02