Disney Can't Stop Lawsuit Over 'Toy Story' Stuffed Bear

Hairy Affair
Pixar Animation Studios

The final rendering scene with Lotso and the rest of the toys at Sunnyside Day Care. The character model of Lotso contained 3,473,271 individual hairs organized in layers of various lengths and thicknesses.

A Texas judge is showing no love to Disney in a dispute arising from "Lotso," an evil stuffed bear character in the 2010 film Toy Story 3. On Wednesday, Disney failed in an attempt to win the case on summary judgment.

The lawsuit comes from Diece-Lisa Industries, a New Jersey company that owns a trademark to "Lots of Hugs" and has been licensing it for stuffed bears. Originally, the plaintiff objected to the "Lotso" character itself and demanded in its February 2014 complaint an injunction on future use of a character. Maybe because such relief would raise First Amendment problems, Diece-Lisa amended its lawsuit and removed the demand for a declaration that the character was an infringement.

Instead, Diece-Lisa more wisely began to look at Toy Story 3 merchandise, which has been reported to have generated more than $7.3 billion in retail.

The plaintiff apparently discovered that Disney was selling "Lotso" bear merchandise at stores across North America, Europe and Japan. It's now hoping to collect damages for a product that allegedly unfairly competes with its own licensed merchandise.

In summary judgment motion papers, Disney argued that Diece-Lisa had failed to meets its burden on proof of consumer confusion. The studio told the judge that Lotso was an "independently developed movie character, merchandized in toys as that character, distributed by Defendants’ own stores and website, and always in packaging or with tags marked to reinforce his affiliation with Disney, Pixar, and Toy Story 3."

Disney also attempted to raise other points that would tip the judge's decision its way. If plaintiff claimed "Lots of Hugs," that's descriptive, and without evidence of secondary meaning, it would be commercially weak. Also, according to Disney, "Lotso looks nothing like Plaintiff's puppets" and there wasn't any evidence that it "intended to drive Plaintiff’s business under."

U.S. Magistrate Judge Roy Payne won't let the arguments prevail.

"Neither party disputes that the likelihood of confusion prong of trademark infringement is a question of fact that is almost always left to the jury to decide," he writes, adding that Diece-Lisa in turn has "produced a substantial amount of evidence on this point, including the similarity of products and marks, the purchaser identities, the type of mark in question, Disney’s alleged knowledge of the marks, and various other factors that all constitute evidence upon which a reasonable jury could rely."

The judge adds that while Disney presents arguments on the prongs of likelihood of confusion, it's a different question, and nevertheless, Diece-Lisa has enough to overcome the summary judgment motion.

In a case that looks like it may be headed to trial, the judge also denied summary judgment on Diece-Lisa's argument that Disney had knowledge of its mark as of late 2007 and that its mark is indeed valid and hasn't been abandoned. Disney also has failed to win yet on its argument that Diece-Lisa hasn't shown injury.

Toy Story 4 is in the works, though it's said not to be a continuation of past storylines.

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner