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Ty Inc. v. Ruth Perryman

Reversing the decision of the court below, the Seventh Circuit Court of Appeals holds that a reseller of "Beanie Babies" did not violate the Federal Trademark Dilution Act when she used plaintiff Ty Inc.'s "Beanies" trademark in the title and domain name of her web site, at which site approximately 80% of the toys offered for sale are used "Beanie Babies" manufactured by Ty.

Plaintiff Ty Inc. ("Ty") is the manufacturer of a line of bean bag stuffed animals it markets under the trademarks "Beanie Babies" and "Beanies."  Defendant Ruth Perryman operated a web site at the domain www.barginbeanies.com, which site is titled "Bargin Beanies."  Eighty percent of the toys Perryman offers for sale at her site are used "Beanie Babies" manufactured by plaintiff.  The remaining twenty percent of her products consist of competing children's toys manufactured by others, including "Planet Plush" and "Rothschild Bears." Defendant's site contains a disclaimer that states that it is not affiliated with plaintiff.

Claiming that defendant's activities constitute a violation of the Federal Trademark Dilution Act, plaintiff commenced suit.  The court below agreed, granted plaintiff summary judgment, and issued an injunction, enjoining defendant from continuing to use plaintiff's "Beanies" mark in the domain name of her site.

On this appeal, the Seventh Circuit reversed.  The Court found that plaintiff's "Beanie Baby" and "Beanies" marks were famous, and that defendant Perryman had used them in Interstate commerce, perquisites to a Federal Dilution claim.  The court held, however, that defendant's actions constituted neither a blurring nor tarnishment of plaintiff's marks, nor any other actionable form of dilution.  Federal dilution laws cannot be used to bar a reseller from using plaintiff's marks in the resale of plaintiff's used products.  Said the Seventh Circuit:

None of the rationales we have canvassed supports Ty's position in this case.  Perryman is not producing a product, or a service … that is distinct from any specific product; rather, she is selling the very product to which the trademark sought to be defended 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 … we would find it impossible to understand how she could be thought to be blurring, tarnishing, or otherwise free riding to any significant extent on Ty's investment in its mark.  To say she was would amount to saying that if a used car dealer truthfully advertised that it sold Toyotas, or if a muffler manufacturer truthfully advertised that it specialized in making mufflers for installation in Toyotas, Toyota would have a claim of trademark infringement. …  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. … We do not think that by virtue of trademark law producers own their aftermarkets and can impede sellers in the aftermarket from marketing the trademarked product. … 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 summary judgment proceeding that could possibly justify an injunction against Perryman's representing in her business name and Internet and Web addresses that she is doing that she has a perfect right to do, namely sell Beanie Babies.

In reaching this conclusion, the court relied, in part, on the fact that Ty's marketing strategy included the creation of a secondary market in its products, in which market pent-up demand for products produced in limited supply would raise their prices.

Lastly, the Seventh Circuit affirmed so much of the decision of the court below which prohibited Perryman from using the phrase "Other Beanies" to describe the products of competitors sold on her site.  Such a description was "false advertising" and hence actionable.