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Little Tikes Co. v. Kid Station Toys

April 18, 2008

THE LITTLE TIKES COMPANY, AN OHIO CORPORATION, PLAINTIFF,
v.
KID STATION TOYS, LTD., A FLORIDA CORPORATION, KIDS STATION TOYS, LTD., A HONG KONG CORPORATION, KIDS STATION (U.S.) INC., A FLORIDA CORPORATION, KIDS STATION TOYS INTERNATIONAL, A BERMUDA CORPORATION, KIDS STATION TOYS INTERNATIONAL HOLDING, GMBH, A SWISS CORPORATION, AND ELLIOT S. NEWMAN, DEFENDANTS.



The opinion of the court was delivered by: Judge Joan B. Gottschall

MEMORANDUM OPINION AND ORDER

Plaintiff The Little Tikes Company ("Little Tikes") has filed suit against defendants Kids Station Toys et al. ("Kids Station") alleging: (1) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(1); (2) dilution by tarnishment under 15 U.S.C. § 1125 (c); (3) false representation under 15 U.S.C. § 1125(a); (4) unfair competition; (5) breach of contract; and (6) piercing of the corporate veil. In the motion at bar, Little Tikes seeks a Temporary Restraining Order ("TRO") against Kids Station enjoining it from the marketing or sale of any products produced by Kids Station under license from, and bearing the trademark of, Little Tikes. For the reasons set forth below, Little Tikes' motion seeking a TRO is denied.

I. BACKGROUND

At the heart of this suit is a licensing agreement between Little Tikes and Kids Station. Little Tikes, an Ohio corporation, is a well-established and widely recognized manufacturer, licensor, and distributor of children's toys. Seeking to diversify its product line to include electronic toys for children, Little Tikes, in December 2003, entered into a licensing agreement (the "Agreement") with Kids Station, a Florida corporation with its principal place of business in Miami. Under the terms of the Agreement, Kids Station was licensed to manufacture and distribute children's electronic toys under the Little Tikes trademark, in exchange for "running royalties," which are royalties calculated from net profits. A minimum guaranteed annual royalty schedule was also incorporated into the Agreement; earned "running royalties" were to be credited against the annual minimum until the minimum was exceeded. Kids Station was required to submit annual samples of all toys (including packaging) distributed under the Little Tikes trademark for quality testing and general approval by Little Tikes. Moreover, the products produced by Little Tikes were also required to meet all applicable laws and safety standards. The initial term of the Agreement extended from December 2003 through June 30, 2007, and could be renewed for an additional two year term provided that minimum royalty payment amounts were met in the prior term.

Finally, the Agreement contained a termination clause. Under that clause, the Agreement could be terminated: (1) at any time by mutual agreement of the parties; (2) by either party giving the other 30 days' written notice of a material breach of the Agreement provided that the breach was not cured within the 30 days following notice, or; (3) by Little Tikes, unilaterally and without notice, if Little Tikes determined that Kids Station published or offered for sale any product, packaging, marketing, advertising, or any other materials under the Little Tikes trademark that was not approved by Little Tikes pursuant to the terms of the Agreement. In case of termination under the latter conditions, the Agreement required that Kids Station acknowledge that Little Tikes would be irreparably injured and could seek interlocutory or injunctive relief.

At the time that the Agreement was consummated, Little Tikes was owned by Newell-Rubbermaid ("Rubbermaid"). However, at the end of 2006, Little Tikes was acquired by MGA Entertainment, Inc. ("MGA"). In February 2008, MGA notified Kids Station that it was unilaterally and immediately terminating the Agreement. Kids Station then filed suit against MGA and Little Tikes in the Southern District of Florida, alleging breach of contract, breach of implied covenant of good faith and fair dealing, tortious interference with contract and civil conspiracy. The case was dismissed, and the instant case was filed in this court on April 2, 2008. Little Tikes filed the instant motion for a temporary restraining order on April 9, 2008 to prevent Kids Station from distributing or selling products under the Little Tikes trademark.

Little Tikes alleges that, prior to its acquisition by MGA, it had begun to discover significant quality problems with, and consumer complaints concerning, the electronic toys manufactured and distributed by Kids Station. Specifically, Little Tikes states that in April 2007, it received a report from the Consumer Products Safety Commission ("CPSC") describing a possible choking hazard associated with one of Kids Station's products marketed under the Little Tikes trademark, the Little Tikes Play Cell Phone, product no. KSL8033 (the "Cell Phone"). Little Tikes contends that it met with Kids Station shortly thereafter, and that Kids Station agreed to modify the design of the product to ameliorate the hazard. However, according to Little Tikes, Kids Station continued to sell the unmodified Cell Phone and did not recall it from the retailers to which it was distributed, nor did it request that the retailers cease selling the Cell Phone. Little Tikes further claims that both the unmodified and modified Cell Phone models were sold under the same product (SKU) number and therefore retailers could not distinguish which units still presented the potential choking hazard reported by the CPSC. According to MGA, the unmodified units could still be purchased by individual consumers as late as February, 2008. As a result, MGA and Little Tikes notified Kids Station that the Agreement was terminated immediately.

Kids Station tells a somewhat different tale, although it does not dispute the terms of the Agreement. According to Kids Station, it had an amicable and mutually satisfactory relationship with Little Tikes until it was purchased by MGA; in fact, Kids Station contends that the relationship between the two was so beneficial that the parties agreed in January, 2006 to extend the agreement. However, once MGA purchased Little Tikes, alleges Kids Station, the relationship quickly went downhill. MGA manufactures its own line of children's electronic toys, including some in the same categories as those manufactured and distributed by Kids Station under the exclusive license granted by the Agreement, and Kids Station contends that MGA/Little Tikes wrongfully seeks to abrogate the Agreement in order to eliminate competition from Kids Station. Kids Station claims that it was warned by a long-time employee at Little Tikes that MGA wanted to terminate the Agreement prematurely and market its own products under the Little Tikes trademark. Furthermore, Kids Station claims that MGA/Little Tikes sent an audit report to Kids Station falsely claiming that Kids Station owed MGA/Little Tikes in excess of $13.5 million in unpaid royalties; MGA/Little Tikes allegedly later abandoned that claim. Kids Station alleges further that MGA/Little Tikes began to retract prior approvals of Kids Station products retroactively and to manufacture bogus safety concerns in order to eliminate competition by Kids Station and manufacture and sell its own similar product lines under the Little Tikes trademark.

The final straw that broke the back of the deteriorating relationship between Little Tikes and Kids Station was the termination letter sent by Little Tikes to Kids Station on February 5, 2008. Kids Station alleges that the problem was based upon the defective design of the Cell Phone, but that particular model had not been sold by Kids Station for some months prior, following the expression of safety concerns by Little Tikes and the CPSC and Little Tike's approval of the modified Cell Phone. Kids Station argues that it had worked closely with Little Tikes and the CPSC to modify and correct the faulty design of the Cell Phone on a going forward basis, and that neither Little Tikes nor the CPSC ever suggested that the prior model be recalled. Moreover, according to Kids Station, Little Tikes approved both the pre- and post-modification designs of the Cell Phone. Kids Station contends that Little Tikes never suggested recall of the Cell Phone until less than a week before it sent the termination letter to Kids Station. Kids Station emphasizes that it was only the unmodified Cell Phone, and no other Kids Station product marketed under the Little Tikes trademark, that was ever mentioned as a cause for safety concerns or as a reason for Little Tikes' termination of the Agreement.

Finally, Kids Station claims that it has voluntarily recalled all of the unmodified Cell Phone models and removed them from the marketplace. However, Kids Station alleges that, if injunctive relief is granted preventing it from selling any of its products licensed under the Little Tikes trademark, it will suffer irreparable injury due its inability to meet its current commitments to retailers, lost contracts, reputation and goodwill.

II. ANALYSIS

The standards for a temporary restraining order are the same as those for a preliminary injunction. Bernina of Am., Inc. v. Fashion Fabrics Int' l, Inc., No. 01 C 585, 2001 WL 128164, at *1 (N.D. Ill. Feb. 9, 2001). To succeed on a motion for a TRO, a plaintiff must demonstrate:

(1) some likelihood of success on the merits; (2) that no adequate remedy at law exists; and (3) that plaintiff will suffer irreparable injury if the TRO is not issued. Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001). If the court is satisfied that these three conditions have been met, it must then consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied. Storck USA, L.P. v. Farley Candy Co., 14 F.3d 311, 314 (7th Cir. 1994). Finally, the court must consider the public interest in denying or granting the injunction. Id. The court then weighs all of these factors, "sitting as would a chancellor in equity." Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir. 1992). The resultant "sliding scale" approach is not mathematical in nature; rather "it is more properly characterized as subjective and intuitive, one which permits district courts to weigh the competing considerations and mold appropriate relief." Id.

In the motion at bar, Little Tikes argues that its suit alleging, inter alia, trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114, is likely to succeed on the merits because: (1) Little Tikes has an undisputedly valid trademark, and; (2) the defendant's use of the trademark is likely to cause confusion. Segal v. Geisha NYC LLC, 517 F.3d 501, 506 (7th Cir. 2008). According to Little Tikes, Kids Station's continued sale of its products under the Little Tikes trademark after the Agreement has been validly terminated is likely to cause confusion among consumers. Little Tikes quotes, inter alia, Burger King Corp. v. Mason in arguing that there is a ...


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