243 F.3d 789 (4th Cir. 2001), 99-2255, Lyons Partnership v. Morris Costums

Docket Nº:99-2255.
Citation:243 F.3d 789
Party Name:LYONS PARTNERSHIP, L.P., a Texas Limited Partnership, Plaintiff-Appellant, v. MORRIS COSTUMES, INCORPORATED; PHILIP MORRIS; AMY MORRIS SMITH, Defendants-Appellees.
Case Date:March 16, 2001
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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243 F.3d 789 (4th Cir. 2001)

LYONS PARTNERSHIP, L.P., a Texas Limited Partnership, Plaintiff-Appellant,

v.

MORRIS COSTUMES, INCORPORATED; PHILIP MORRIS; AMY MORRIS SMITH, Defendants-Appellees.

No. 99-2255.

United States Court of Appeals, Fourth Circuit

March 16, 2001

Argued: December 4, 2000.

Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Graham C. Mullen, Chief District Judge. (CA-97-256-3-MU)

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COUNSEL: ARGUED: Mack Sperling, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina, for Appellant. Jay Scot Bilas, MOORE & VAN ALLEN, P.L.L.C., Charlotte, North Carolina, for Appellees. ON BRIEF: Hubert Humphrey, David Sar, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina, for Appellant. George V. Hanna, III, M. James Grode, MOORE & VAN ALLEN, P.L.L.C., Charlotte, North Carolina, for Appellees.

Before NIEMEYER, WILLIAMS, and TRAXLER, Circuit Judges.

Affirmed in part, reversed in part, vacated in part, and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Judge Williams and Judge Traxler joined.

OPINION

NIEMEYER, Circuit Judge:

The owner of "Barney," the famous purple dinosaur who speaks in a distinctive baritone, seeks, through this action for injunctive relief and damages, to end the marketing of three look-alike costumes that children allegedly believe are in fact Barney. The district court recognized the plaintiff's intellectual property rights in the Barney character but denied their enforcement against a costume rental company because (1) the first act of infringement occurred outside of the statute of limitations period; (2) the claims were in any event barred by laches; and (3) confusion as to one of the costumes existed only among young children and not among the adults who rented the costume. After considering the district court's comprehensive rulings, we affirm in part, reverse in part, vacate in part, and remand. Our reasons follow.

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I. Background

Lyons Partnership, L.P., ("Lyons"), a Texas limited partnership, owns all of the intellectual property rights to the character "Barney," the well-stuffed Tyrannosaurus Rex with a green chest and stomach, friendly mien, green spots on its back, and yellow "toeballs." Barney is readily recognizable to young children, who repeatedly parrot his song, "I Love You,"1 often testing the patience of nearby adults. Lyons' predecessor developed Barney as a plush stuffed animal in 1988, and in connection with that process, it prepared three videotapes featuring the character.

On April 5, 1992, Barney made his debut on the Public Broadcasting System, and, Lyons claims, the result was "absolutely unprecedented." Barney became hugely popular with children almost instantly. At an early appearance of Barney at a mall in Dallas, Texas, promoters expected a few hundred people to appear to see him. Instead, people started lining up before the mall opened, and by the time Barney arrived, 35,000 had formed a line that extended for one and a half miles. Now, the "Barney and Friends" show is viewed weekly by 14 million children, and over 50 million copies of Barney related videos have been sold. The "Barney and Friends" show enjoys the number one Nielsen rating for shows directed at young children. Adults rarely watch the program except with their children.

The live appearance of the Barney character, who is played by adults in costume, is completely controlled by Lyons, and Lyons does not license Barney costumes because of its inability to police the behavior of those who might appear in the costume. It claims that it would be unable to prevent would-be Barneys from behaving in a decidedly un-Barney-like manner and tarnishing his wholesome reputation. Cf. Zack Van Eyck, Take a Deep Breath: Barney Has Hit the Big Screen, Deseret News Today, Apr. 3, 1998, at C2 (describing the satirical treatment of Barney look-alikes by such notables as Charles Barkley and the Famous Chicken). Accordingly, every person who wears the costume -there are five -is trained by a single choreographer how to be Barney. Moreover, Barney's live voice is provided by only one person. Lyons not only refuses to license Barney costumes, but also has waged a legal campaign against retailers that have distributed allegedly infringing costumes. See Brooke A. Masters, Protecting Barney's Image from Bogus Beasts, Wash. Post, Mar. 25, 1998, at B1. Lyons does, however, license the Barney image on toys, books, clothing, and the like.

To protect its intellectual property, Lyons has registered approximately 25 trademarks and obtained hundreds of copyrights with respect to the name "Barney" and the character's depiction.

On May 2, 1997, Lyons commenced this action against Morris Costumes, Inc., Philip Morris, and Amy Morris Smith, alleging copyright and trademark infringement, as well as a state law violation. Morris Costumes is a North Carolina corporation, operating a retail costume-rental establishment in Charlotte, North Carolina. Philip Morris and his wife Amy Morris Smith are the principal stockholders of the corporation and are alleged in the complaint to have participated in the infringing conduct. The complaint, as amended, alleges that the defendants rented three different forms of costume to the public, each of which looked like Barney and therefore violated Lyons' proprietary interests in Barney: (1) the "NDC costume," a purple dinosaur costume manufactured by National Discount Costume Company and sold to Morris Costumes for rental or resale; (2) "Hillary the Purple Hippopotamus," an NDC costume that Morris Costumes altered; and (3) "Duffy

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the Dragon," a purple reptilian costume manufactured by Alinco Costumes, Inc. The complaint requested that the court grant Lyons injunctive relief, statutory damages, compensatory damages, treble damages, punitive damages, attorneys fees, and other "proper relief."

After a four-day bench trial, the district court entered judgment in favor of the defendants on all claims. In a detailed opinion, in which the court made 240 separately numbered findings of fact and conclusions of law, the court concluded that the NDC and Hillary costumes infringed Lyons' copyrights and trademarks. The court, however, denied Lyons a remedy because it found that the claims with respect to the NDC and Hillary costumes were barred by the applicable statutes of limitations and by the doctrine of laches. The court held that the four-year lapse between the time when Lyons first became aware of Morris' acts of infringement and the commencement date of the lawsuit was "inexcusable." On the claims relating to the Duffy the Dragon costume, the court found that the evidence was inadequate to show that Duffy was substantially similar to or likely to cause confusion with the Barney character. In reaching this conclusion, the court disregarded as hearsay the first-hand accounts of adults about children who believed that Duffy was in fact Barney and over 30 newspaper articles evidencing actual confusion between Duffy and Barney. On Lyons' state law unfair trade practices claim, the court again found in favor of the defendants because the "infringing activities were not undertaken with the intent that the public would be deceived as to the true origin of the costumes." Finally, the court found that the action against Amy Morris Smith was in bad faith because of her minimal involvement and the untimeliness of claims against her, and, on that basis, ordered Lyons to pay her attorneys fees.

From the judgment entered for the defendants, Lyons noticed this appeal.

II. NDC and Hillary costumes

On Lyons' claims relating to Morris Costumes' rentals of the NDC and Hillary costumes, the court found that the defendants infringed both Lyons' copyrights and trademarks, though it also found that the infringements were not willful. The court refused, however, to provide Lyons with any remedy because it determined that Lyons' claims were barred by both the applicable statutes of limitations and laches. The court also concluded that, in any event, Lyons did not prove that the infringement was willful and that injunctive relief was no longer necessary because Morris Costumes was no longer renting the infringing costumes. Lyons challenges each of these rulings, and we address them in order.

A

The limitations period for bringing copyright infringement claims is three years after the claim accrues. See 17 U.S.C. S 507(b); Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199, 202 (4th Cir. 1997). And a claim accrues when "one has knowledge of a violation or is chargeable with such knowledge." Hotaling, 118 F.3d at 202 (internal quotation marks and citations omitted).

While the Lanham Act itself does not provide an express period of limitations for filing a trademark infringement claim, courts generally assume that Congress intended that courts "borrow" a limitations period for a federal action at law from an analogous state law. See Reed v. United Transp. Union, 488 U.S. 319, 323-24 (1989); Wilson v. Garcia, 471 U.S. 261, 266-67 (1985); Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946); Kason Indus., Inc. v. Component Hardware Group, Inc., 120 F.3d 1199, 1203 (11th Cir. 1999). In this case, the district court borrowed the four-year statute of limitations provided in the North Carolina Unfair Trade Practices Act, N.C. Gen. Stat. S 7516.2, a provision that the parties agree is appropriately analogous.

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In applying these statutes of limitations, the...

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