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Ty Inc., the maker of Beanie Babies, the lovable beanbag stuffed animals, has just lost a major trademark dilution action it brought against Ruth Perryman, a secondhand Internet seller of Beanie Babies. At the end of the day, it appears that Ty is losing its battle to prevent Beanies Babies from becoming a generic part of the English language, like predecessors such as Kleenex and Xerox. THE LAWSUIT Ty filed suit against Perryman over her use of the www.bargainbeanies.com Web site to sell secondhand beanbag stuffed animals over the Internet. Perryman sells mostly Ty’s Beanie Babies, but she also sells products made by others at the www.bargainbeanies.com Web site. Ty’s suit alleged violation of the federal antidilution statute, found at 15 U.S.C. � 1125(c). This statute protects famous marks from the commercial uses of others that cause dilution to the distinctive quality of the trademarks. SUMMARY JUDGMENT The trial court granted summary judgment in favor of Ty. Specifically, Perryman was ordered not to use “Beanie or Beanies or any colorable imitation thereof … within any business name, Internet domain name, or trademark, or in connection with any non-TY products.” THE APPEAL On appeal, Perryman argued that “Beanies” has become a generic term for beanbag stuffed animals, and thus is not subject to trademark protection. Perryman also contended that the trial court’s order was overbroad. THE APPELLATE DECISION The 7th U.S. Circuit Court of Appeals ruled on Perryman’s appeal on Oct. 4. The appellate court noted in its opinion that one of the fundamental purposes of trademark law is to identify the particular source of specific goods and to prevent competitors from causing product and source confusion. However, because Perryman is not a competing producer of beanbag stuffed animals, confusion was not considered by the appellate court to be a major factor in this case. Instead, the court’s key inquiry focused on the potential remedies afforded by federal law for trademark dilution — the dilution of famous trademarks caused by commercial uses that take place in interstate or foreign commerce. The appellate court quickly found that the terms “Beanie Babies” and “Beanies” are famous trademarks, as practically “everybody has heard of them.” The appellate court likewise found that Perryman used these marks in a commercial manner in interstate, and probably also foreign, commerce based on her Web site sales activities. The court then turned to whether Perryman had actually caused true dilution of Ty’s marks. The appellate court noted three potential types of dilution: 1) blurring — association of a product with a variety of unrelated products; 2) tarnishment — the linking of a product to other perceived less desirable products; and 3) free riding — piggybacking on the investment of a trademark owner in the trademark. Ultimately, the appellate court found that none of these rationales supported Ty’s position. The fundamental flaw in Ty’s case, according to the appellate court, was that Perryman sells the very product to which the trademark attaches — Beanie Babies. The court specifically concluded that “you can’t sell a branded product without using its brand name, that is, its trademark.” Otherwise, “if a used car dealer truthfully advertised that it sold Toyotas … , Toyota would have a claim of trademark infringement.” And “there can be no aftermarket without an original market, and in that sense sellers in a trademarked goods aftermarket are free riding on the trademark. But in that attenuated sense of free riding, almost everyone in business is free riding.” CRACKING THE NUT Finding that Perryman was not liable for trademark dilution, the appellate court offered some thoughts as to why Ty took on this particular legal fight, noting, “Ty is doubtless cognizant of the … quite real danger to ‘Beanie Babies’ and ‘Beanies.’” This is because Ty’s trademarks are “descriptive or at least suggestive of the product they denote,” and because a “trademark that describes a basic element of the product, as ‘Beanies’ does, is not protected unless the owner can establish that the consuming public accepts the word as the designation of a brand of the product.” Thus, “Beanie Babies” and “Beanie” someday “may ‘catch on’ to the point where the mark becomes generic, and then Ty will have to cast about for a different trademark.” VICTIM OF SUCCESS Some products do “catch on” so well that their trademarks are genericized — like Kleenex and Xerox, as mentioned above. This certainly may become the case for Ty’s Beanie Babies, and it might be that fear that has caused Ty to be so aggressive in trying to protect its marks. This particular fight did not go Ty’s way, and perhaps Ty is futilely fighting the inevitable genericization of its marks. Eric Sinrod is a partner in the San Francisco office of Duane Morris LLP (www.duanemorris.com), where he focuses on litigation and information technology matters. He can be reached at [email protected]; his Web site is www.sinrodlaw.com.

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