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IP/Entertainment Case Law Updates

Disney Enterprises, Inc. v. Characters for Hire, LLC

In infringement action by Disney, Marvel and Lucasfilm against character-for-hire service, district court grants summary judgment to defendants on trademark infringement claims, finding no reasonable jury could find likelihood of consumer confusion as to source, origin or sponsorship of defendants’ services. 

Plaintiffs Disney Enterprises Inc., Marvel Characters Inc., Lucasfilm Ltd. LLC and Lucasfilm Entertainment Co. Ltd. LLC sued defendants Characters for Hire LLC and Nick Sarelli for copyright and trademark infringement, alleging that defendants marketed and operated a party services and entertainment business that used plaintiffs’ copyrighted works and trademarks with respect to popular characters including Mickey Mouse; Elsa and Anna from the motion picture “Frozen”;  Captain America, Hulk and Iron Man from “The Avengers”; and various “Star Wars” characters. CFH, which is owned and managed by Sarelli, promotes, advertises, produces and sells themed entertainment party services, which include costumed characters, for private events. Plaintiffs alleged that defendants copied and used the images, likenesses, personas and names of plaintiffs’ characters and plaintiffs’ trademarks to promote and advertise CFH’s services online and to provide their customers with the live, costumed actors portraying the trademarked characters. Plaintiffs moved for partial summary judgment in connection with the federal trademark and copyright infringement claims, the issue of “willfulness,” and their claim for trademark dilution under New York state law, arguing that CFH’s use of plaintiffs’ marks and its live, costumed actors are likely to cause consumer confusion as to the origin, source or sponsorship of CFH’s unlicensed services. Defendants sought summary judgment dismissing all claims asserted against them, arguing that plaintiffs’ alleged copyrighted works are based on prior works in the public domain and that their alleged use of plaintiffs’ trademarks is fair use.  

With respect to plaintiff’s trademark claims, the court rejected defendants’ descriptive and nominative fair use defenses. Under the Lanham Act, descriptive fair use is an affirmative defense where “the use was made (1) other than as a mark, (2) in a descriptive sense, and (3) in good faith.” Defendants argued that they used the marks in a descriptive sense to describe the services they were providing — for example, a Frozen Theme Party. The court found that in their promotional materials, defendants do not use the marks in a descriptive sense but to evoke in consumers’ minds plaintiffs’ “renowned marks and characters in an effort to trade on their popularity and goodwill,” because a reasonable consumer reviewing an advertisement for a Frozen Theme Party would understand the nature of the services offered only by reference to plaintiffs’ marks. Under the doctrine of nominative fair use, a defendant is permitted to “use a plaintiff’s trademark where doing so is necessary to describe the plaintiff’s product and does not imply a false affiliation or endorsement by the plaintiff of the defendant.” Because defendants use plaintiffs’ marks to describe their own character-for-hire services rather than any of plaintiffs’ goods or services, the court rejected defendants’ nominative fair-use defense.  

Nevertheless, the court granted defendants’ motion for summary judgment and dismissed plaintiffs’ claims for trademark infringement, false designation of origin and unfair competition, while denying the remaining issues on the cross-motions for summary judgment. Focusing its inquiry on likelihood of consumer confusion, the court applied the eight nonexclusive Polaroid factors: (1) strength of the trademark; (2) similarity of the marks; (3) proximity of the products and their competitiveness with one another; (4) evidence that the senior user may “bridge the gap” by developing a product for sale in the market of the alleged infringer’s product; (5) evidence of actual consumer confusion; (6) evidence that the imitative mark was adopted in bad faith; (7) respective quality of the products; and (8) sophistication of consumers in the relevant market. On balance, the Polaroid factors weighed in favor of defendants.

The court found only the first two factors weighed in plaintiffs’ favor. There was no dispute that plaintiffs’ marks are some of the most recognizable marks in entertainment and that costumed characters that CFH advertises and supplies its customers are identical or virtually identical to plaintiffs’ characters “in image, costume, name, and/or total ‘look and feel.’” The court noted, however, that in its advertisements CFH used few of plaintiffs’ marks with their original fonts, styles and colors and that CFH identified costumed characters on its website using facetious names clearly distinct from plaintiffs’ marks, and thus it concluded that an ordinary, reasonable consumer would not affiliate defendants’ services and advertisements with plaintiffs’, so the second factor favors plaintiffs only slightly.

The court concluded that all the remaining factors weighed in favor of defendants. The focus of the inquiry of the third and fourth factors is both market and geographic proximity in order to determine whether the two products or services have an overlapping client base that creates a potential for confusion. The court found no evidence that the parties compete in the same market or that they have an overlapping customer base. Plaintiffs present their costumed characters at theme parks in Florida and California and their target audience is children, while defendants offer their character-for-hire services for private parties to the adults who plan the parties. 

With respect to the fifth factor, actual consumer confusion as to the origin of CFH’s services and whether CFH is affiliated with or sponsored by plaintiffs, plaintiffs argued that there was anecdotal evidence of actual consumer confusion because CFH’s customers used the names of plaintiffs’ characters rather than the names listed on CFH’s website in their online reviews. The court found, however, that none of these reviews showed actual confusion as to the origin, affiliation or sponsorship of CFH’s services and that plaintiffs also failed to offer any statistical evidence showing instances of consumer confusion. Indeed, that plaintiffs and defendants have used similar marks over a substantial period of time without ever producing a single recorded instance of consumer confusion is evidence that there is no likelihood of actual consumer confusion. 

The sixth factor focuses on bad-faith intent — whether defendants intended to deceive customers into believing that defendants’ products and services products were related to plaintiffs’. The court found that this factor weighed in favor of defendants, reasoning that CFH’s event contract disclaimer and its edits to customer reviews to remove references to plaintiffs’ characters are likely to put customers on notice that CFH’s services were not sponsored by or affiliated with plaintiffs and, in fact, support a finding that defendants actively sought to avoid deceiving customers. Defendants’ failure to comply with plaintiffs’ cease and desist letters and their prior knowledge of plaintiffs’ marks also did not evidence bad faith. 

The seventh factor focuses on the quality of defendants’ products. Where the quality of a junior user’s product is low compared with that of the senior user, there is an increased chance of actual injury when there is confusion. On the other hand, a marked difference in quality actually tends to reduce the likelihood of confusion, because buyers will be less likely to assume that the senior user whose product is high quality will have produced the lesser-quality products of the junior user. Though there were a few customer complaints regarding CFH’s services, CFH received many positive reviews, and none of the reviews cited show any sign of consumer confusion or suggest that plaintiffs’ reputations are being tainted as a result of being confused with defendants’ allegedly inferior services. The court concluded that in light of plaintiffs’ well-established and highly regarded reputation, if defendants’ services are in fact of a lesser quality, it is likely that ordinary consumers will assume plaintiffs are not responsible for them.

As to the final factor, consumer sophistication, the court rejected plaintiffs’ argument that the target audience for defendants’ services — unsophisticated children — are likely to believe they are being entertained by genuine Disney/Marvel/Lucasfilm characters. Plaintiffs failed to offer any evidence supporting that assertion, the actual sophistication of defendants’ clients or the relative prices charged for defendants’ services. 

The court denied defendants’ motion for summary judgment on plaintiffs’ claim for trademark dilution under New York state law, which provides protection against an “injury to business reputation or of dilution of the distinctive quality of a mark or trade name.” To prevail on a claim for trademark dilution, plaintiffs must show “(1) that it possesses a strong mark, one which has a distinctive quality or has acquired a secondary meaning such that the trade name has become so associated in the public’s mind with the plaintiff that it identifies goods sold by that entity as distinguished from goods sold by others, and (2) a likelihood of dilution by either blurring or tarnishment.”  

Noting that it was undisputed that plaintiffs’ trademarks are strong, the court found that while the record did not support a finding of likelihood of blurring (which occurs when a defendant uses or modifies a mark to identify the defendant’s goods and services, i.e., Buick aspirin tablets, Kodak pianos, DuPont shoes), there was a genuine issue of material fact as to whether CFH’s use of plaintiffs’ marks in connection with its services tarnishes plaintiffs’ marks. “[D]ilution by tarnishment ‘arises when the plaintiffs trademark is linked to products of shoddy quality, or is portrayed in an unwholesome or unsavory context likely to evoke unflattering thoughts about the owner’s product.”’ Plaintiffs argued that defendants have a reputation for “shoddy” services that are “inimical to plaintiffs’ positive reputation for customer care.” While the record was inconclusive on the quality of defendants’ reputation in the marketplace, the court found that if defendants’ character-for-hire services are of poor quality, a jury could reasonably find that plaintiffs’ marks might suffer from the negative association.  

Finally, the court also found an issue of material fact as to whether the images and videos on CFH’s website and the alleged public performances by defendants’ characters were substantially similar to plaintiffs’ characters, their personas and their story lines, precluding summary judgment on the copyright infringement claims. Because the court denied summary judgment with respect to the copyright infringement claim, the court also declined to make a determination as to defendants’ willfulness.

Summary prepared by Linna Chen and Ava Badiee

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