Sanction against Beanie Babies maker reduced by Seventh Circuit.

• Author: Ziemer, David

Byline: David Ziemer

Mercifully, the 1990s ended long ago. Unfortunately, litigation over those '90s icons, the Beanie Babies, continues unabated.

In the latest round of litigation, the Seventh Circuit held on Feb. 22 that it was an erroneous exercise of discretion to impose a sanction nine times greater than the damage caused by a party's infringement of the Beanie Babies trademark. The court also held that a party need only prove fraud on the court by a preponderance of the evidence, rather than clear and convincing evidence.

Ty Inc., the manufacturer of Beanie Babies, brought suit in federal court in Illinois against Softbelly's Inc., alleging that Softbelly's violated Ty's trademarks by selling a product called Screenie Beanies.

Screenie Beanies look and felt like Beanie Babies, but have chamois bellies for the purpose of cleaning computer screens.

Judgment for Ty

After a trial in 2002, the district court entered judgment in favor of Ty for $713,000.

Softbelly's later moved to vacate the judgment, on the ground that Ty Warner, the owner of Ty Inc., had tampered with a prospective witness for Softbelly's.

The district court denied the motion, but the Seventh Circuit reversed, concluding that the trial judge erroneously excluded evidence that Beanies had become a generic mark. 353 F.3d 528 (7th Cir. 2003).

However, the court also held that, if Ty prevailed on retrial, despite admission of the evidence, it would be entitled to the damages awarded at the first trial. Finally, the court directed the district judge to conduct a hearing on whether Ty Warner had tampered with a witness.

On remand, the jury again found that Softbelly's infringed Ty's trademark. However, the judge awarded no damages, as a sanction, after concluding that the witness tampering occurred.

Instead of damages, the district court awarded Ty only the attorney fees it incurred in proving the trademark infringement.

Both parties appealed, and in a decision by Judge Richard A. Posner, the Seventh Circuit affirmed the finding of infringement, but reversed the sanction as excessive.

Sanction

The court first held that fraud on the court, in the form of trying improperly to influence a witness, need not be proved by clear and convincing evidence, but that a mere preponderance is sufficient.

The court acknowledged the general rule that fraud must be proved by clear and compelling evidence, but found the rule inapplicable. In Maynard v. Nygren, 332 F.3d 462, 468 (7th Cir. 2003)...