Hasbro, Inc. v. Lanard Toys, Ltd.

• Decision Date: 15 September 1988
• Docket Number: No. 799,D,799
• Citation: 858 F.2d 70
• Parties: HASBRO, INC., Plaintiff-Appellant, v. LANARD TOYS, LTD., Defendant-Appellee. ocket 87-9037.
• Court: U.S. Court of Appeals — Second Circuit

Page 70

858 F.2d 70

8 U.S.P.Q.2d 1345

HASBRO, INC., Plaintiff-Appellant, v. LANARD TOYS, LTD., Defendant-Appellee.

No. 799, Docket 87-9037.

United States Court of Appeals, Second Circuit.

Argued Feb. 8, 1988.

Decided Sept. 15, 1988.

Kim J. Landsman, New York City (Anthony M. Radice, Debra Freeman, Morrison & Foerster, New York City, of counsel), for plaintiff-appellant.

Russell H. Falconer, New York City (Thomas R. Nesbitt, Jr., Parker H. Bagley, Brumbaugh, Graves, Donohue & Raymond, New York City, of counsel), for defendant-appellee.

Before CARDAMONE and PIERCE, Circuit Judges, and STANTON, District Judge. ^*

CARDAMONE, Circuit Judge:

This appeal brings before us a dispute between two toy manufacturers. It is focused on toy figures enclosed in plastic bubbles whose descriptions on the cardboard backing to which they are attached make them the toughest "characters" ever to appear in court. Legal combat regarding the use of a trademark has engaged two manufacturers of military action figures, appellant Hasbro, Inc., and appellee Lanard, Ltd., the manufacturer of current combat action figures. The outcome of this litigation cannot be determined by pitting "Large Sarge," a member of Lanard's "GUNG-HO!" line of figures, with his bazooka and ability to be "[e]xtremely cool and competent under deadly pressure ... [and] to formulate strategy revisions in the heat of battle," against Hasbro's "GUNG-HO" action figure, with his dress sabre and ability to "low-crawl through the nastiest black-water, stinking mud and bubbling slime."

Instead, familiar tests to determine whether Hasbro's unregistered mark is protectible under the Lanham Act, to assess its strength, and to evaluate the likelihood of confusion decide the outcome of this expedited appeal from a denial of Hasbro's request for a preliminary injunction. Based on our conclusions that the mark "GUNG-HO" is suggestive and that there is a likelihood of confusion, the order denying a preliminary injunction is reversed.

BACKGROUND

Hasbro, incorporated in Rhode Island, is the world's largest toy manufacturing company with 1986 revenues of over $1.3 billion. Since 1982 it has produced and marketed for retail sale a line of 3 3/4 inch poseable military figures under the trademark "G.I. JOE". The "G.I. JOE" line consists in part of individual characters--originally nine and now 34--each with his or her own real name, code name, uniform, military specialty, biography, and personality. These figures retailing at $2.80 to $5 are sold everywhere in retail toy, department and other stores aimed toward children aged four through 14.

From 1983 to 1985 Hasbro introduced into the "G.I. JOE" line "Ettienne R. LaFitte"--code name "GUNG-HO"--a bare-chested tattooed marine with a machine gun and backpack. Although in 1986 "GUNG-HO" was removed from the action figure series, Hasbro continued to promote the character in 1986 through licensing it in, for example, comic books, book cover illustrations, and album covers, and delivered to its retail accounts leftover inventory of those figures from the previous years' production.

Hasbro reintroduced "GUNG HO" in its 1987 "G.I. JOE" action figure series. The 1987 figure, distinct from the earlier one, appeared in full dress marine uniform. The character's real name--"Etienne R. La Since 1983 Hasbro has spent over $65 million to promote its "G.I. JOE" line. Because it does not advertise single characters it cannot specify what portion of that amount can be attributed specifically to promoting the "GUNG HO" character. Sales of the "G.I. JOE" line in 1986 amounted to $170 million, approximately 13 percent of Hasbro's total sales for that year. "GUNG HO" was a top seller in the 1983-85 line. In 1983, 1,250,000 figures were shipped, and it has shipped close to two million of them since 1983.

Fitte"--and code name remained the same as before (except for two insignificant spelling changes in the real name), but the location and size of the name "GUNG-HO" changed on the packaging. On the 1987 packaging, the code name appears in 1/4 inch lettering above the character description, "MARINE DRESS BLUES," which appears in 1/16 inch lettering. On the back side of the plastic blister packaging, the code name appears prominently on the file-card size biography and beneath the postage-stamp size illustration of the character.

Defendant Lanard, incorporated in Hong Kong, had 1986 sales in the United States of $10 million. In May 1986 it commissioned a toy designer to create a toy product to compete with Remco and other toy companies in the secondary toy market for military-style action figures. According to the designer, Lanard and other toy companies tap the secondary market by avoiding promotional costs and producing toys on a per order basis, thus creating a price differential between their products and higher priced but otherwise similar, or even interchangeable, toys produced by Hasbro and other companies in the primary market. The designer--who suggested the name of "GUNG-HO!" for the new project--worked on the development of the figure line from May until December 1986. He was aware of the "G.I. JOE" line and its popularity and had in his possession and used for reference during the design stage Hasbro's "G.I. JOE" packaging and its 1983, 1984 and 1985 catalogues.

In October 1986, Lanard's trademark counsel conducted a search which revealed no prior use of the term "Gung Ho" as a federally registered trademark in the toy industry. Lanard introduced its "GUNG-HO!" line--12 action figures and two vehicles--in its January 1987 catalogue, and at the February 1987 New York Toy Fair displayed the line in its New York City showroom. Lanard's first shipment to the United States occurred on January 27, 1987.

Like Hasbro's "G.I. JOE" action figures, Lanard's figures are 3 3/4 inch plastic action figures with jointed arms and legs. Each figure has its own name and biography. Lanard's blister-card packaging, target market, and sales to stores are similar in many respects to Hasbro's. The retail price of its figures is $1.50 to $4.00 each, slightly below the range of prices for Hasbro's "G.I. JOE" figures. Further, on Lanard's packaging for its vehicle accessories, Lanard states that the accessories are "[f]or use with all 3 3/4" action figures including "GUNG-HO!" TM, "G.I. JOE" TM, and "AMERICAN DEFENDER" TM [a Remco product]."

The magistrate found that Lanard has not advertised, marketed, or promoted its "GUNG-HO!" line apart from the 1987 catalogue and the February 1987 Toy Fair display, and has spent little on research and development apart from the fee paid its designer. Lanard estimates its expenditures for packaging the line at approximately $200,000. As of the parties' last submissions to the magistrate, Lanard had shipped in 1987 over $350,000 (retail value) of this line, which represents almost four percent of its total sales.

On August 20, 1987 Hasbro commenced the instant action in the New York State Supreme Court (New York County), alleging common law unfair competition. On August 26 Lanard successfully petitioned for the action to be removed to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. Sec. 1441 (1982). Hasbro subsequently amended its complaint without objection to assert a claim under Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982). In October 1987, after referral upon stipulation of the

parties to Magistrate Buchwald, approved by the district court (Duffy, J.), the magistrate held a hearing on the motion for a preliminary injunction. In an opinion rendered on November 18, 1987 the magistrate denied Hasbro's motion. Hasbro, Inc. v. Lanard Toys, Ltd., 87 Civ. 6214 (S.D.N.Y. Nov. 18, 1987). Hasbro brought this expedited interlocutory appeal as of right pursuant to 28 U.S.C. Sec. 1292(a)(1) (1982). We reverse.

DISCUSSION

In order to obtain a preliminary injunction, Hasbro must demonstrate "(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) (per curiam); see Warner Bros. v. Gay Toys, Inc., 658 F.2d 76, 78-79 (2d Cir.1981) (Jackson Dairy standard applies in trademark infringement cases). In a Lanham Act case a showing of likelihood of confusion establishes both a likelihood of success on the merits and irreparable harm, see Home Box Office, Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311, 1314 (2d Cir.1987); Standard & Poor's Corp. v. Commodity Exch., Inc., 683 F.2d 704, 708 (2d Cir.1982); Omega Importing Corp. v. Petri-Kine Camera Co., 451 F.2d 1190, 1195 (2d Cir.1971), assuming that the plaintiff has a protectible mark.

I Protectibility of Hasbro's Mark

The first question to be resolved is whether Hasbro's unregistered mark is entitled to protection under the Lanham Act. The four categories that measure the degree of protection a mark merits are, in ascending order of protection, generic, descriptive, suggestive, and arbitrary or fanciful. Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir.1976). The central issue on this appeal is whether Hasbro's "GUNG-HO" is a descriptive or suggestive mark.

"A term is suggestive if it requires imagination, thought and perception to reach a conclusion as to the nature of goods." Stix Prods., Inc. v. United Merchants & Mfrs., Inc., 295 F. Supp. 479, 488 (S.D.N.Y.1968), quoted in Abercrombie & Fitch, 537 F.2d at 11. Generally, if a term is suggestive it is entitled to trademark protection without proof of secondary meaning, Thompson Medical Co. v. Pfizer Inc., 753 F.2d 208, 216 (2d Cir.1985), and recognition as a strong mark.

"A term is descriptive if it forthwith conveys an immediate idea of the...