Tech Law Journal Daily E-Mail Alert
October 7, 2002, 9:00 AM ET, Alert No. 524.
TLJ Home Page | Calendar | Subscribe | Back Issues
Posner Opinion Provides Economic Analysis of Trademark, Dilution & Cybersquatting
10/4. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Ty, Inc. v. Perryman, a case regarding the application of the law of trademark dilution to an Internet based merchant who used the words "bargain beanies" in her web site and domain name over the objections of the company which manufactures, and holds the trademark for, "Beanie Babies". Bottom line: there is no dilution -- she gets to keep her business name and domain name.
This is not an ordinary trademark infringement case, because that would entail the marketing of a competing product in a manner that is likely to cause confusion with the product with the trademarked name. Here, the issue is not the use of a trademark in the context of the sale of a competing product, but rather, the use of the trademark in a secondary market, that is, resale over the Internet. This is a trademark dilution case, which involves the notion that, even in the absence of the use of a trademark that will cause a likelihood of confusion, or in the absence of competition with the owner of a trademark, someone may nevertheless lessen the capacity of a famous mark to identify goods or services.
This opinion contains a thorough review of both the legal and economic bases for the law of dilution. The opinion may be significant for anyone who sells or auctions the trademarked products of others over the Internet, as well as the holders of the relevant trademarks.
Background. Ty Inc. makes Beanie Babies, which are plush toy animals that consist of plastic bean pellets inside of stitched fabric. Ty has obtained a U.S. trademark registration for the mark "Beanie Babies". Ty aggressively asserts its intellectual property rights. Ruth Perryman sells second hand beanbag stuffed animals over the Internet. About 80% of her sales are Ty Beanie Baby products. Her web site, where she disclaims any affiliation with Ty, was located This URL is still active, but now contains only the text "ERROR, Page Not Available".
District Court. Ty filed a complaint in U.S. District Court (NDIll) against Perryman alleging trademark infringement. The appellate opinion does not list the claims in the complaint, or the issues on appeal. However, the opinion deals with the issue of trademark dilution. The District Court granted summary judgment to Ty, and enjoined Perryman from using "BEANIE or BEANIES or any colorable imitation thereof (whether alone or in connection with other terms) within any business name, Internet domain name, or trademark, or in connection with any non-Ty products." (Parentheses in original.) Perryman appealed.
Dilution Statute. 15 U.S.C. § 1125(c) provides, in part, that "The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark ..."
Appeals Court. Judge Richard Posner wrote the opinion for the three judge panel vacating and remanding. He reviewed the purpose of trademark law, and the nature of consumer confusion and various forms of dilution, in an opinion laced with economic analysis.
He began by noting that the "fundamental purpose of a trademark is to reduce consumer search costs by providing a concise and unequivocal 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."
Posner continued that "A successful brand, however, creates an incentive in unsuccessful 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."
Posner then wrote that there is no confusion in this case, because Perryman sells few competing products, and clearly disclaims affiliation with Ty. Hence, Ty's case must rest upon dilution of its mark.
Posner then reviewed three theories of dilution -- blurring, tarnishment, and free riding -- but concluded none are applicable in this case. He wrote "But what is ``dilution´´? There are (at least) three possibilities relevant to this case, each defined by a different underlying concern. First, there is concern that consumer search costs will rise if a trademark becomes associated with a variety of unrelated products." This is Posner's economic definition of blurring. (Parentheses in original. All parenthetical statements within quotes are in the original.)
Second, wrote Posner, there is tarnishment, where, "because of the inveterate tendency of the human mind to proceed by association" a mark may be "tarnished by the association of the word" with its use by someone who is selling a non-competing product.
Posner then suggested a third type of dilution -- free riding. "Third, and most far reaching in its implications for the scope of the concept of dilution, there is a possible concern with situations in which, though there is neither blurring nor tarnishment, someone is still taking a free ride on the investment of the trademark owner in the trademark." In this situation, "the efficacy of the trademark as an identifier will not be impaired."
Posner offered a possible rationale for such a theory. If the trademark owner has a dilution claim, then the "investment in creating a famous name will be, as economists say, ``internalized´´" That is, the owner "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." Although, he added that the rationale "has not yet been articulated in or even implied by the case law". Posner also questioned the validity of the rationale.
Then, having set out three rationales for dilution, Posner concluded that none apply in the present 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 (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 otherwise free riding to any significant extent on Ty's investment in its mark."
Cybersquatting. The appellate opinion does not review a District Court judgment rendered pursuant to the Anti- Cybersquatting Consumer Protection Act (ACPA). However, Judge Posner discussed this statute, because it was relevant to his analysis of secondary markets, or aftermarkets.
Posner wrote that there is a secondary market for beanie babies. In fact, Ty employs a marketing strategy that seeks the creation of a secondary market. And, wrote Posner, Perryman is a middleman in this secondary market, or aftermarket.
He then wrote that "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 selling them to companies that wanted a domain name that would be the name of their company or of their principal 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."
Posner continued that "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. 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 collectors' guides to Beanie Babies by an overly expansive interpretation of its copyrights." See, story titled "7th Circuit Rules in Copyright and Fair Use Case" in TLJ Daily E-Mail Alert No. 444, June 5, 2002. See also, May 30, 2002, opinion in Ty v. Publications International.
Posner concluded that "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)."
He added that "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." In addition, "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. Moreover, the vistas of litigation that such a theory of dilution opens up are staggering."
And hence, the Appeals Court vacated and remanded to the District. However, since 20% of Perryman's sales are not Beanie Babies, the summary judgment and injunction as to use of the trademark in connection with the sale of that 20% might stand on remand. However, the Appeals Court all but instructed the District Court to allow Perryman to keep and use the domain name: "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 what she has a perfect right to do, namely sell Beanie Babies."
Interstate and Foreign Commerce. Judge Posner also suggested in obiter dictum that use of a web site to sell something constitutes both interstate and foreign commerce. He wrote: "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."
Related Cases. Ty has been up to the Seventh Circuit on several prior occasions in intellectual property cases. For example, on January 23, 2001, the U.S. Court of Appeals (7thCir) issued its opinion in Ty v. Jones Group, another trademark infringement case involving the "Beanie Babies" trademark. The Jones Group made "Beanie Racers", bean filled toy NASCAR racing cars. Ty filed a complaint in U.S. District Court (NDIll). Ty also sought a preliminary injunction, which the trial court granted. The Jones Group brought an interlocutory appeal. The Appeals Court affirmed. Judge Flaum wrote that opinion.
On May 30, 2002, the 7th Circuit issued its opinion in Ty v. Publications International, a copyright infringement and fair use case. Ty holds copyrights to its Beanie Babies as "sculptural works". Publications International, Ltd. (PIL) publishes books, including For the Love of Beanie Babies and Beanie Babies Collector's Guide, which contain pictures of Beanie Babies. Ty filed a complaint in U.S. District Court (NDIll) against PIL alleging copyright and trademark infringement. PIL conceded that the Beanie Babies are copyrighted, and that its books are derivative works, but asserted the affirmative defense of fair use. The District Court ruled on summary judgment that the copying was not fair use, and granted Ty an injunction on the copyright claim. The Appeals Court reversed and remanded. The Appeals Court concluded that the issue was not appropriate for summary judgment, reversed, and remanded for further proceedings in light of its opinion.
Rep. Israel Introduces Bill to Expand Tax Deduction for Computer Contributions
10/3. Rep. Steve Israel (D-NY) introduced HR 5551, a bill to amend the Section 170(e)(6)(B) of the Internal Revenue Code of 1986 relating to qualified computer contributions to allow corporations to claim a charitable deduction for the donation of services related to contributions of computer technology or equipment.
Section 170 pertains to deductions for charitable contributions. Subsection 170(e) pertains to "Certain contributions of ordinary income and capital gain property". Subsection 170(e)(6), in turn, is the "Special rule for contributions of computer technology and equipment for educational purposes". Currently, 26 U.S.C. § 170(e)(6)(B) defines ''qualified computer contribution'' as "a charitable contribution by a corporation of any computer technology or equipment". This bill would add the phrase "or any services related to computer design or to computer technology or equipment".
The bill further provides that "The value of such a contribution of services related to computer design or to computer technology or equipment shall be calculated at a rate not to exceed $65 an hour".
Moreover, the bill would add a very broad definition of the phrase "services related to computer design or to computer technology or equipment". It would include such things as "Computer repair", "Computer programming and software design", and "Network designing, installation, and support services". However, it would also include "photo retouching", banner design, and "scanning services".
The bill was referred to the House Ways and Means Committee.
NIST Publishes Computer Security Guides
10/2. The National Institute of Standards and Technology's (NIST) Computer Security Resource Center (CSRC) published four computer security guides [all large PDF and ZIP files] to provide the federal government with information in countering cyber attacks. They are as follows:
Security Guide for Interconnecting Information Technology Systems (NIST Special Publication 800-47) in PDF or ZIP.
Procedures for Handling Security Ppatches (NIST Special Publication 800-40) in PDF or ZIP.
Security for Telecommuting and Broadband Communications (NIST Special Publication 800-46) in PDF or ZIP.
Use of the Common Vulnerability and Exposures (CVE) Vulnerability Naming Scheme (NIST Special Publication 800-51) in PDF or ZIP.
New Bills
10/3. The Digital Media Consumers’ Rights Act of 2002, introduced by Rep. Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) on October 3, has been assigned number HR 5544. See also, stories in TLJ Daily E-Mail Alert No. 523, October 4, 2002.
10/2. The Digital Choice and Freedom Act of 2002, introduced by Rep. Zoe Lofgren (D-CA) and Rep. Mike Honda (D-CA) on October 2, 2002, has been assigned number HR 5522. See also, story in TLJ Daily E-Mail Alert No. 522, October 3, 2002.
People and Appointments
10/4. Suzy DeFrancis joined the Executive Office of the President as Deputy Assistant to the President for Communications. She replaces, in part, Karen Hughes, who has left the White House staff, in part. She was previously a SVP and Director of Public Affairs at the public relations firm Porter Novelli. Before that, she was Deputy Director of Communications and Congressional Affairs at the Republican National Committee. See, White House release.
10/4. Doug Badger joined the Executive Office of the President as Special Assistant to the President for Economic Policy. He replaces Mark McClellan as health policy coordinator for the National Economic Council. McClellan has been nominated to be Commissioner of the Food and Drug Administration (FDA). Badger previously worked at Ernst & Young. Before that, he worked for Sen. Don Nickles (R-OK). See, White House release.
More News
10/2. The Internet Corporation for Assigned Names and Numbers' (ICANN) Committee on ICANN Evolution and Reform published its proposed new bylaws.
10/4. The U.S. Court of Appeals (4thCir) issued its "unpublished" per curiam opinion [4 pages in PDF] in Neurotron v. AAEM, a Lanham Act case brought by a manufacturer (Neurotron) against a publisher (AAEM) of an unfavorable technical review of a product. The Appeals Court affirmed the District Court's grant of summary judgment to the publisher. The product review was not commercial speech with the meaning of the Lanham Act.
10/2. Apple Computer announced that it settled its lawsuit against Sorenson Media. Apple filed a complaint on April 30, 2002 in U.S. District Court (NDCal) against Sorenson alleging breach of contract in connection with the licensing to Macromedia of a compression codec used in Apple's QuickTime. Sorenson counterclaimed. Apple stated in a release only that "The settlement provides for the dismissal of all claims and counterclaims." Sorenson issued a similar release.
10/2. Dell announced that the U.S. Marine Corps will buy about 30,000 desktop computers and 30,000 notebook systems. Dell stated that the "notebooks are planned for use by Marine Corps combat troops" and that "Dell will repair or replace the notebook if it has been accidentally damaged". See, Dell release.
About Tech Law Journal
Tech Law Journal publishes a free access web site and subscription e-mail alert. The basic rate for a subscription to the TLJ Daily E-Mail Alert is $250 per year. However, there are discounts for entities with multiple subscribers. Free one month trial subscriptions are available. Also, free subscriptions are available for law students, journalists, elected officials, and employees of the Congress, courts, and executive branch, and state officials. The TLJ web site is free access. However, copies of the TLJ Daily E-Mail Alert and news items are not published in the web site until one month after writing. See, subscription information page.

Contact: 202-364-8882; E-mail.
P.O. Box 4851, Washington DC, 20008.

Privacy Policy

Notices & Disclaimers

Copyright 1998 - 2002 David Carney, dba Tech Law Journal. All rights reserved.
Monday, October 7
The House will meet at 9:30 AM for morning hour and at 11:00 AM for legislative business. Votes will be postponed until 6:30 PM. The House will consider a number of measures under suspension of the rules, including HR 4561, the Federal Agency Protection of Privacy Act. The bill, which is sponsored by Rep. Bob Barr (R-GA) would require that rules noticed for public comment by federal agencies must be accompanied by an initial assessment of the rule's impact on personal privacy interests.
The Senate will meet at 12:00 NOON for morning business, and at 1:00 PM to consider SJRes 45, a Joint Resolution authorizing the use of force against Iraq.
The Supreme Court will return from its recess, which it began on June 28, 2002.
9:30 - 11:00 AM. The Markle Foundation will hold a panel discussion, and will release a report, titled "Protecting America's Freedom in the Information Age". The scheduled speakers are Zoe Baird (Markle Co-Chair), James Barksdale (Markle Co-Chairs), Gov. Michael Leavitt (R-UT), Philip Zelikow (Miller Center for Public Affairs), William Crowell (former Deputy Director of the National Security Agency), Esther Dyson (EDVenture Holdings), Jerry Berman (CDT), and Frank Sesno (former CNN Washington Bureau Chief). Press contact: Kristine Gager at 202 326-1747 or Kristine.Gager Location: National Press Club, 13th Floor, Holeman Lounge, 529 14th Street, NW.
11:00 AM. Steve DelBianco, Executive Director of the NetChoice Coalition, will hold a conference call for reporters regarding a NetChoice report titled "The State of eCommerce: Beyond the Bubble, Beware the Barriers". The members of NetChoice include ACT, ITAA, Electronic Commerce Association, Electronic Retailing Association, Wine Institute, American Vintners Association, eBay, Orbitz,, and 1-800-Contacts. The call in number is 866 854-2496. The passcode is 2445480. For more information, call Mark Blafkin at 202 331-2130 x104.
12:00 NOON. The FCBA's Engineering and Technical Practice Committee will hold a brown bag lunch to discuss committee planning and priorities for the rest of the year. Location: Paul Hastings, 1299 Pennsylvania Ave., NW, 10th floor.
2:00 PM. The Senate Judiciary Committee will hold a hearing to examine pending judicial nominations, including: Rosemary Collyer (to be a Judge of the U.S. District Court for the District of Columbia), Mark Fuller (U.S.D.C., MD Alabama), Robert Klausner (U.S.D.C., CD California), Robert Kugler (U.S.D.C., New Jersey), Ronald Leighton (U.S.D.C., WD Washington), Jose Luis Linares (U.S.D.C. New Jersey), William Smith (U.S.D.C., Rhode Island). See, notice. Press contact: Blythe McCormick at 202 224-9437. Location: Room 226, Dirksen Building.
2:00 - 4:00 PM. The FCC will hold an en banc hearing on "the current state of the telecommunications sector and to discuss steps needed to restore its financial health". The participants will include Simon Wilkie (FCC Chief Economist), Rob Gensler (T. Rowe Price), Robert Konefal (Moody's Investors Service), Barry Nalebuff (Yale University School of Management), Hal Varian (School of Information Management and Systems, UC Berkeley), Kim Wallace (Lehman Brothers), Lara Warner (Credit Suisse First Boston), Larry White (NYU School of Business). Web cast. See, notice [PDF]. Location: FCC, TW-C305, 445 12th St., SW.
Extended deadline for the USITC to complete its investigation titled "Certain Integrated Circuits, Processes for Making Same, and Products Containing Same". This is the USITC's Investigation No. 337-TA-450. See, notice in the Federal Register.
Tuesday, October 8
The House will meet at 9:00 AM for morning hour and at 10:00 AM for legislative business.
The Supreme Court will hear oral argument in FCC v. Nextwave, Case No. 01-653, and Arctic Slope Corp. v. Nextwave, Case No. 01-657.
Day one of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Penn. Ave., NW.
10:00 AM. The Senate Judiciary Committee will hold a business meeting. See, notice. Press contact: Blythe McCormick at 202 224-9437. Location: Room 226, Dirksen Building.
10:00 AM. The Copyright Office (CO) will hold a status conference regarding data format and delivery for record keeping requirements to be established by the CO for the Section 112 and 114 statutory licenses. See, notice [PDF].
12:15 PM. The FCBA's Professional Responsibility Committee will hold a brown bag lunch to discuss the scheduling of committee events and activities for the upcoming year. For More Information: Frank Montero. No RSVP is required. Location: Arnold & Porter, 555 12th Street, NW.
12:30 PM. Tom Donahue, P/CEO of the U.S. Chamber of Commerce, will give a luncheon address. Location: National Press Club, Ballroom, 529 14th St. NW, 13th Floor.
3:00 PM. Kozo Yabe will give an address titled "Protecting Intellectual Property Rights in Cyberspace: A Japanese Perspective". Yabe is a partner in the Tokyo based law firm of Yuasa & Hara, which focuses on intellectual property law. The lecture is sponsored by the George Washington University (GWU) Law School's Dean Dinwooodey Center for Intellectual Property Studies. For more information, contact Prof. Robert Brauneis at 202 994-6138 or by email. Location: GWU Law School, Burns Building, 5th Floor, Faculty Conference Center, 720 20th St., NW.
6:10 - 7:30 PM. The George Washington University (GWU) Cyberspace Security and Policy Research Institute and the GWU Law School will host a panel discussion titled "The Music Wars over Digital Intellectual Property". The speakers will be James Boyle (Duke Law School), Stanley Pierre-Louis (RIAA), and Lance Hoffman (GWU Computer Science Department). Location: GWU Law School, Room LL 102, 2000 H St., NW.
Wednesday, October 9
The House will meet at 10:00 AM for legislative business.
The Supreme Court will hear oral argument in Eldred v. Ashcroft, Case No. 01-618.
Day one of a two day symposium titled "The Rule of Law in the Information Age: Reconciling Private Rights and Public Interest" hosted by the Catholic University of America School of Law. See, schedule. Location: CUA, Walter Slowinski Court Room.
10:00 AM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "Telecommunications and Trade Promotion Authority: Meaningful Market Access Goals for Telecommunications Services in International Trade Agreements". Web cast. See, notice. Location: Room 2322, Rayburn Building.
10:00 AM. The Senate Commerce Committee's Subcommittee on Technology, Terrorism, and Government Information will hold a hearing on new laws implemented by the Administration in the fight against terrorism. Location: Room 226, Dirksen Building.
10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Northrop Grumman v. Intel, No. 02-1024. Location: Courtroom 402, 717 Madison Place, NW.
Day two of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Pennsylvania Ave., NW.
TIME? The Federal Accounting Standards Advisory Board (FASAB) will meet to "obtain information from interested individuals, organizations, and groups about potential future projects". For more information, contact Charles Jackson at 202 512-7352. See, notice in Federal Register.
Deadline to submit comments to the FCC regarding SBC's Section 271 application with the FCC to provide in region interLATA service in the state of California. This is WC Docket No. 02-306. See, FCC notice [PDF].
Thursday, October 10
The House will meet at 10:00 AM for legislative business.
9:00 AM. The House Judiciary Committee's Subcommittee on the Constitution will hold an oversight hearing titled "A Judiciary Diminished is Justice Denied: the Constitution, the Senate, and the Vacancy Crisis in the Federal Judiciary". Web cast. Location: Room 2141, Rayburn Building.
9:30 AM. The FCC will hold a meeting. The agenda includes four items. First, the FCC will consider a NPRM concerning the reform of the International Settlements Policy, its international simple resale and benchmarks policy, and the issue of foreign mobile termination rates. (IB Docket No. 96-261). Second, the FCC will consider a First Report and Order regarding digital operation by terrestrial radio broadcasters. (MM Docket No. 99-325). Third, the FCC will a Forefeiture Order concerning compliance with the shared transport condition of the SBC Ameritech merger order. Finally, the FCC's Enforcement Bureau will report on recent enforcement activities. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).
12:00 PM. The Cato Institute will host a book forum. Jagdish Bhagwati (Columbia University) will discuss his book, Free Trade Today, and a collection which he edited, Going Alone: The Case for Relaxed Reciprocity in Freeing Trade. Robert Litan (Brookings) will comment. Webcast. Lunch will follow the program. See, notice. Location: Cato, 1000 Massachusetts Ave., NW.
Day two of a two day symposium titled "The Rule of Law in the Information Age: Reconciling Private Rights and Public Interest" hosted by the Catholic University of America School of Law. See, schedule. Location: CUA, Walter Slowinski Court Room.
Day three of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Pennsylvania Ave., NW.
Day one of a two day Annual Update Conference on Export Controls and Policy hosted by the Department of Commerce's Bureau of Industry and Security (BIS). See, agenda. Location: to be announced.
Deadline to submit comments to the FCC regarding BellSouth's Section 271 application with the FCC to provide in region interLATA service in the states of Florida and Tennessee. This is WC Docket No. 02-307. See, FCC notice [PDF].
Friday, October 11
The House will meet at 9:00 AM for legislative business.
Day two of a two day Annual Update Conference on Export Controls and Policy hosted by the Department of Commerce's Bureau of Industry and Security (BIS). See, agenda. Location: to be announced.