Bloomberg: Disney Teddy Bear Case Offers Tricky Tryout of Trademark Test

A dispute over Disney’s Lotso bear from “Toy Story 3″ gives the Ninth Circuit a shot at shaping parameters for a new trademark test threshold that the US Supreme Court just created in a similar Jack Daniel’s case.

The high court last week revived Diece-Lisa Industries Inc.’s lawsuit against Disney. That order came on the heels of its ruling in favor of Jack Daniel’s, which reined in a test that can provide an escape hatch from liability when a trademark is used in First Amendment-protected expressive works.

The “Rogers” test, which allows artistically relevant use of trademarks, had single-handedly cleared Disney’s pink “Lots-O’-Huggin’” bear character and merchandise from Diece-Lisa’s claims they infringed its “Lots of Hugs” toys trademark. In Jack Daniel’s’ win over a dog-toy maker, the high court cabined the test by saying it didn’t apply to use as a trademark, but it expressly declined to ax it.

Lower courts must now decide how to apply the new “trademark use” threshold, and the fight over hug-inclined bears will provide an early indicator of how they will answer questions the high court raised.

The Disney litigation also involves complications absent in the Jack Daniel’s case, attorneys said. Lotso merchandise is derived from a character in an expressive work that will likely remain Rogers-protected, and it’s less clear that Lotso was used as a trademark.

“The problem there is the facts in the Jack Daniel’s decision were pretty clear cut,” intellectual property attorney Josh Geller of Greenberg Glusker Fields Claman & Machtinger LLP said. “Because those facts were easy, we’re left wondering what happens when there are more interesting and harder facts.”

Disney and Diece-Lisa may be inclined to settle the 11-year-old litigation, IP attorney Jonathon K. Hance of Bracewell LLP said. But he also said Disney, given all of its brand placement in movies, might want to get precedent on the books limiting the reach of the Jack Daniel’s case if it thinks facts line up well.

“Look for a significant fight in the Ninth to broaden the Rogers doctrine as much as it can without running over the Jack Daniel’s decision,” Hance said.

Rogers by Proxy

Diece-Lisa sells a patented stuffed “hugging toy” with sleeves in its limbs, first registering “Lots of Hugs” in 1997 and again in 2007 after a brief lapse.

It sued Disney in Texas in 2012, and the US Court of Appeals for the Fifth Circuit moved the case to California in 2015. The company alleged consumers would perceive its products as associated with Disney after “Toy Story 3″ became the highest grossing film of 2010.

The “Lots of Hugs” bear is seen to the left of Disney’s “Lots-O’-Huggin’” bear.
Source: Court filing.

A distributor also forced it to change the product’s name to “Hugalots” in fear of litigation by Disney, it said.

But both the US District Court for the Central District of California and the Ninth Circuit applied the test from Rogers v. Grimaldi in short decisions granting and affirming summary judgment to Disney.

Meanwhile, Jack Daniel’s was appealing a Ninth Circuit ruling that Rogers shielded a “Bad Spaniels” dog toy as an expressive parody.

Two weeks after the high court agreed to hear that case in 2022, it asked Disney to respond to Diece-Lisa’s petition. And two weeks after its June 8 opinion in Jack Daniel’s Properties Inc. v. VIP Products LLC, it sent Disney’s win back to the Ninth Circuit.

Unaddressed Questions

Attorneys said the Ninth Circuit would likely send the case back to district court to build up the record on newly pertinent questions unaddressed in briefings or its short opinion.

One will be how the Lotso movie character—which attorneys said would likely still be cleared by Rogers despite the holding in Jack Daniel’s—relates to the toy merchandise.

“The question at issue is going to be: If the merchandise is tied to the movie, does it come under the penumbra of the movie and become acceptable?” IP attorney Margaret A. Esquenet of Finnegan Henderson Farabow Garrett & Dunner LLP said. “Or is it going to be considered entirely on its own as if the movie doesn’t exist?”

Esquenet said she’s not aware of an existing legal framework for making that determination. She wondered if the protection of the film extends to the merchandise, and “if so, completely? A little?”

One of the few relevant cases was the Ninth Circuit’s 2017 application of Rogers to Twentieth Century Fox’s “Empire” show, soundtrack, and promotional activities. It found Fox’s promotional activities “auxiliary to the television show,” and said its holding was “only a minor logical extension” of Rogers’ reasoning, dispensing with record label Empire Distribution Inc.’s claims.

But it’s not clear whether courts will view such cases in the same light after Jack Daniel’s.

Labeling a Mark

Hance noted VIP had used a Jack Daniel’s-invoking “Bad Spaniels” logo on a merchandise tag as well as on the product, and the Supreme Court found clear trademark use. Putting Lotso on a similar tag might hurt Disney under the new standard, he said.

“Once you take the bear out of the film and put it in a Disney store, that starts to look like trademark branded use of the name,” Hance said.

Disney could argue that its tags and packaging don’t use any allegedly infringed marks as a trademark that indicates its product’s source, IP attorney Cynthia S. Arato of Shapiro Arato Bach LLP said.

“It looks like Disney uses the word ‘Lotso’ in plain font dwarfed by the Toy Story 3 logo,” Arato said. Disney “may have a compelling way to show that it’s not using the name ‘Lotso’ as a mark but as a character name for expressive purposes, even within the merchandise.”

Arato also argued that even if the Rogers test couldn’t apply to the merchandise after Jack Daniel’s, Disney could persuasively argue “Lotso” alone is too dissimilar from “Lots of Hugs” to be confusing to consumers.

“Lots-O’-Huggin’” is only mentioned once in the movie, and doesn’t appear on Lotso merchandise packaging in Diece-Lisa’s court filings.

Similarity of the marks is just one factor in a likelihood of confusion analysis for determining trademark infringement. Hance noted that the “Toy Story” series presented particular challenges, as Disney created some toy characters while many long predated the franchise.

“Those could be some really weird survey results” for gauging potential consumer confusion, Hance said. “There are lots of ways for the righstholder to win their suit.”

Trade Dress

Another question could be how trade dress—the look and feel of a product or packaging that indicates its source but isn’t tied to the item’s function—could factor in both the use and confusion analyses.

Consumers must recognize features as indicative of who made the product for it to qualify for trade dress protection. It’s possible for the look of toys to garner trade dress protections, like with the shape of Lego blocks. It’s also possible to argue the design of a stuffed bear is an expressive work, Hance said.

While Diece-Lisa’s high court brief showed one of its Lots-Of-Hugs in a similar pink shade as Lotso, other filings show other colors as well. It would be difficult for it to argue the look of a pink bear could be protectable, attorneys said.

“Go to a store around Valentine’s Day and see how many pink stuffed bears you see. I don’t think anyone’s thinking ‘It’s a Lots-of-Hugs Bear,’” Esquenet said. “Disney’s probably going to have to go back and attack the underlying rights.”

It’s also unclear if alleged use of a protectable, famous trade dress inherently constitutes use as a mark by an alleged infringer.

Arato said an alleged infringer could credibly argue trade dress was used in a non-trademark fashion in its expressive toy—particularly in a one-off toy rather than a series.

But that remains unclear; the Supreme Court didn’t differentiate between the bottle design and the Bad Spaniels tag, as it found that VIP couldn’t invoke the Rogers test because it used Jack Daniel’s trademarks as trademarks.

“People aren’t clear where you draw that line for certain uses,” Arato said. “So there’s just gray area here, and we’re going to need to see how that evolves in the courts.”

The case is Diece-Lisa Indus. Inc. v. Disney Store USA LLC, U.S., No. 22-347.