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*Note: The following opinion was edited by AudioCaseFiles' staff.
© 2007 AudioCaseFiles, LLC.

Fun-Damental Too, Ltd. v. Gemmy Industries Corp.
111 F.3d 993
United States Court of Appeals, Second Circuit, 1997

CARDAMONE, Circuit Judge.

This is an appeal in a trade dress infringement case. For the purpose of legal analysis, trade dress is generally broken down into two categories: product configuration, which relates to the design of a product distinct from the package in which it is sold, and product packaging. Among the several issues we have to resolve is whether it is appropriate -- when evaluating the inherent distinctiveness of the packaging -- to consider also the product itself, which is quite visible in an open-style box. Another difficult issue is the significance -- when considering the likelihood of confusion between two products' packaging -- of the junior user's copying the senior user's trade dress. Imitation may well be the sincerest form of flattery, but copying another's trade dress poses vexing legal problems.

Plaintiff Fun-Damental Too, Ltd. (plaintiff or Fun-Damental) brought suit in the United States District Court for the Southern District of New York (Mukasey, J.) against defendants Gemmy Industries Corp. and Kay-Bee Toy & Hobby Shops, Inc. (defendants, appellants, or Gemmy and Kay-Bee) for trade dress infringement under the Lanham Act, 15 U.S.C. § 1125(a), as well as for claims alleging injury to its business under New York law. According to Fun-Damental's complaint, Gemmy copied the packaging of plaintiff's "Toilet Bank," a retail novelty item, for use with defendant's similar product, the "Currency Can" (photographs of the two products as packaged are reproduced as an appendix to this opinion). Pending resolution of Fun-Damental's claims, Judge Mukasey granted a preliminary injunction prohibiting Kay-Bee and Gemmy from manufacturing, selling or distributing the Currency Can in its present packaging or in any other packaging similar to plaintiff's. The injunction further directs Gemmy to bring all finished products from its Chinese factory to the United States and retain them here.

Fun-Damental is a Pennsylvania limited partnership that develops and sells novelty toys and gifts, most of which feature some mechanism for producing sound. These products are known in the toy industry as "impulse items," because they are purchased based on a consumer's quick decision made while in the store, without comparison shopping or investigation. Fun-Damental sells its line of products through large chains such as Walgreen's, Service Merchandise and Toys 'R' Us, and through gift shops, hardware stores, college bookstores and other small retail outlets.

In 1992 plaintiff began developing the Toilet Bank, a toy coin bank closely resembling the familiar white tank toilet. An important feature of this product is its ability to simulate the flushing sound of a toilet when its handle is depressed. "Flushing" the Toilet Bank also enables coins placed in the toilet bowl to drop into the bank's base. When development was completed in 1994, Fun-Damental began promoting its novelty coin bank through its catalogs and at trade shows. Consumers have since purchased more than 860,000 of these items at a retail price of $ 15 to $ 20 each.

In May 1995 defendant Kay-Bee, a major toy and novelty retailer, expressed interest in buying the Toilet Bank. But after examining a sample, Kay-Bee decided against carrying the product because of its high cost relative to other impulse items. In September 1995 Fun-Damental's sales manager visited Kay-Bee and noticed a toilet-shaped bank resembling the Toilet Bank on a shelf in the office of Kay-Bee's purchasing agent in charge of impulse items. The sales manager's request to examine the item more closely was turned down. In October Fun-Damental sent Kay-Bee a product notice requesting to examine a sample of the observed product for possible infringement. No sample was sent.

It turned out that defendant Gemmy, a novelty manufacturer, had approached Kay-Bee and supplied it with toilet-shaped coin banks similar to Fun-Damental's. Kay-Bee was able to purchase Gemmy's Currency Cans at a lower wholesale price than the Toilet Bank, and was therefore able to retail Gemmy's product at $ 9.99 each. The record reveals that when Gemmy's vice-president learned of Fun-Damental's Toilet Bank, he contacted his company's Chinese factory in May 1995 and asked it to design a similar product. In the design phase of the Currency Can, a sample of Fun-Damental's Toilet Bank was sent to Gemmy's Chinese manufacturer. The Gemmy official testified that the Currency Can was designed with dimensions virtually identical to those of the Toilet Bank in order to compete effectively with it. . . .

The product name "TOILET BANK" appears in yellow letters on the royal blue box's lower front panel. The four inch-high upper rear panel is decorated with the product name and two pictures demonstrating how to use the product. The top picture shows a hand holding a coin over the toilet bowl, and the bottom one shows an index finger depressing the handle with the message "REAL FLUSHING SOUND" in white letters on a red bubble. In the upper right hand corner of this panel is a yellow starburst with the words "REAL FLUSHING SOUND" in red letters. Below it is a yellow arrow pointing down toward the handle with the legend in red: "TRY ME" and in smaller letters: "PRESS HANDLE." The same message appears on a red arrow sticker, affixed to the toilet tank, pointing diagonally towards the silver handle.

Gemmy's Currency Can is packaged in a box identical in its configuration and dimensions to Fun-Damental's box, including the various tabs and slots used to assemble each. Gemmy has used two different color schemes on its boxes. The first version featured a yellow background with powder blue squares in a "bathroom tile" design. At the behest of Kay-Bee's purchasing agent, who preferred a brighter color scheme, the second and more widely-used design features a deeper blue background with bright yellow "bathroom tile" squares. In the center of their upper panels, both of Gemmy's boxes include a starburst with yellow lettering: "A BANK WITH A REAL FLUSHING SOUND!" Both also include, at the right of the upper panel, an arrow pointing down toward the silver handle with "PRESS HANDLE" in small yellow lettering followed by "TRY ME!" in large white letters. A similar red arrow is affixed to the tank of the toilet and angled toward the toilet's handle. Gemmy's Currency Can also has a flat plastic cover over the toilet bowl opening on which a gray coin-like sticker is affixed. . . .

Fun-Damental offered the direct testimony of its national sales manager to demonstrate actual confusion. He testified that some retail customers complained because they thought Fun-Damental was selling its Toilet Bank at a lower price to other retailers. Defendants argue that this evidence is inadmissible hearsay upon which the district court should not have relied and, even if admissible, it does not support a finding of actual confusion.

There is no hearsay problem. Hearsay is an out-of-court statement admitted for the truth of the matter asserted. See Fed. R. Evid. 801. The testimony in question was not offered to prove that Fun-Damental was actually selling to some retailers at lower prices, but was probative of the declarant's confusion. Further, Federal Rule of Evidence 803(3) allows statements, otherwise excluded as hearsay, to be received to show the declarant's then-existing state of mind. The district court properly considered the statements. See Armco, Inc. v. Armco Burglar Alarm Co., Inc., . . . (testimony by plaintiff's employees that customers called for defendant company was admissible to show confusion in minds of declarants).

With respect to the weight of the evidence, the trial court credited the sales manager's testimony and, while noting that the showing of actual confusion was not overwhelming, found the statements sufficient to support a finding of actual confusion at the preliminary injunction stage of the proceedings.

In sum, the preliminary injunction against Gemmy and Kay-Bee was properly issued. The district court did not abuse its discretion by finding that Fun-Damental is likely to succeed on the merits of its claim that the Toilet Bank's trade dress is inherently distinctive, that it is nonfunctional, and that there is a substantial likelihood of confusion between the Toilet Bank and the Currency Can, as presently packaged. Because all parties subject to the injunction are American corporations and the regulated conduct has a substantial effect on United States commerce, the injunction's reach over the extraterritorial conduct of these parties is properly within the power of the district court under the Lanham Act.

Affirmed.

This case is in these books

• Evidence: Cases and Materials
• Waltz, Park
• 10th Edition