Four years after audiences left the theater with damp handkerchiefs and thoughts of their favorite childhood toys, Disney is embroiled in a legal battle over the rights to the huggable villain who was set on thwarting Woody and Buzz’s return to their best friend Andy in Toy Story 3. New Jersey’s Diece-Lisa Industries (DLI), which holds both trademark and patent rights in its “Lots of Hugs” bear, has sued Disney in a Texas federal court alleging trademark infringement and unfair competition. DLI seeks “profits attributable to the alleged bad actions, trebled damages[,] and an injunction on future use of [Disney's] ‘Lotso’ character.” By far the most severe sanction DLI asks for is an injunction against future use of the ‘Lotso’ character, which is already featured in a film and embodied in products owned by millions.

DLI has sold its “Lots of Hugs” stuffed toy bears since 1996, with online sales beginning in 1998. The company alleges that Disney’s “Lots-O’-Huggin” character, the primary antagonist in Toy Story 3, has resulted in consumer confusion and misrepresentation of DLI’s “Lots of Hugs” bears. Furthermore, DLI claims that the billion-dollar success of the film causes reverse confusion, leading consumers to view Disney as the senior user even though DLI’s use preceded Disney’s by more than ten years. As evidence, DLI offered a failed licensing agreement with Interactive Group, which refused to close a deal with DLI unless it changed the name of its bears from “Lots of Hugs” to “hugalots” to better differentiate its product line from the “Lotso” Toy Story 3 character. As a result, DLI’s valuable property rights in “Lots of Hugs” have been destroyed.

The toymaker does not claim Disney was directly aware of its “Lots of Hugs” trademark, but does note that Disney’s 2004 purchase of the Bear In The Big Blue House TV show actually included a license to DLI’s “Lots of Hugs” patent. Moreover, DLI’s successful trademark registration serves as “constructive notice of the registrant’s claim of ownership thereof” under 15 U.S.C. § 1072. In addition, DLI alleges that Disney’s decision not to claim copyright protection for its own “Lotso” character is suspiciously uncharacteristic.

DLI previously filed lawsuits against Disney Shopping Inc. and QVC last year and against Pixar in 2012, which was subsequently dropped as a defendant. Disney, the defendant with the highest profile and the deepest pockets, was the last to be sued.

Courts have previously been unpersuaded by a potential business partner’s fear of a theoretical lawsuit by a powerful company. DLI’s best argument is that Disney knew via an affiliated company who had licensed their patented technology for a Bear in the Big Blue House product when Disney purchased the popular show in 2004. It seems a better argument would be a disparagement-based argument that the target audience, small children, would be deterred from the product because of the association with a psychologically damaged villain, but even that claim would lack credence as Toy Story 3 products have been wildly successful. Given the lengthy history of the lawsuit and revolving door of plaintiffs, there are no guarantees the lawsuit will go far with its new defendant.

–Chastity Bobo

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