EXCLUSIVE: Litigation Expert Talks Toys 'R' Us, Cannabis Trademarks And 'The Sex Chamber Of Secrets'

Last month toy company Toys “R” Us filed a lawsuit against cannabis retailer Zaza R Us for violations of state and federal intellectual property laws, including trademark dilution and infringement.

Benzinga spoke with Priya Sopori, founder and co-chair of Greenberg Glusker’s Cannabis Industry Group, who is a partner, litigator and former federal criminal prosecutor.

Sopori explained that infringement occurs when the unauthorized use of a valid brand causes confusion among consumers who might mistake the source or affiliation of the goods. In other words, a customer might believe they're buying reflective tape affiliated with the well-known brand “3M,” when actually they've purchased reflective tape from a completely different brand known as “3N.”

Is Brand Dilution In The Eye Of The Beholder?

Brand dilution does not necessarily cause consumer confusion, said Sopori. "Brand dilution occurs when the use of a lesser-known mark diminishes the capacity or strength of an already famous mark (blurring) or taints an already well-known mark through an association with unsavory or inferior goods (tarnishment)," she explained.

"For example, if adult film producers were selling a series of DVDs under the name 'Hairy Potter' with titles including 'Sex Chamber of Secrets,' 'Ron Weeny’s Broomstick,' and 'Hormone-y & CrookedSkank,' we can imagine the flurry of cease and desist letters that would descend upon the adult film producers via owl post or human messenger." 

The Question Is, Was Zaza R Us Covered Under Parody/Fair Use? 

Appellate courts around the country are divided when it comes to the application of “fair use.” New York's Second Circuit where courts apply a multi-factor test to ascertain the likelihood of consumer confusion and whether the ad was used in good faith.

"In California's appellate district, fair use is an affirmative defense against trademark infringement," Sapori told Benzinga "In order to prove that the fair use doctrine applies, the defendant has the burden of showing that it used the plaintiff’s exact branding in good faith for a purpose other than to describe the defendant’s goods or services, such as a marketplace product comparison or that a defendant uses another’s branding to describe its own product and not as a trademark."

In its complaint, Toys “R” Us does not allege that Zaza R Us is using the identical logo but rather is creating a parody. 

"Generally speaking, true parody relies on the first amendment and should be a playful, ironic interpretation that simultaneously evokes the brand, which is the target of mockery, while also making clear that the product in question would have never originated from it," Sapori explained. "To that extent, parody may be an effective defense against trademark infringement, because successful parody means zero likelihood of consumer confusion, thus negating an essential element of infringement."

When it comes to claims of dilution, however, where it is not necessary to show confusion, courts have held that an amusing riff on another brand in a commercial arena may not be a sufficient defense. At the risk of oversimplifying the analysis, courts appear to weigh the artistic value of the product against the value of the brand being parodied.

Parodi mentioned a 2020 case upheld by a Canadian ruling that while consumers of Toys “R” Us products were unlikely to confuse a Vancouver cannabis dispensary’s name, Herbs R Us, with the toy company, the Toys “R” Us brand had developed sufficient goodwill that any perceived association with Herbs R Us was sufficient to diminish its goodwill.

Less Protection Because Cannabis Is Federally Illegal?

"It’s probable that at least some legal aspects of the Toys “R” Us case will be determined in a settlement rather than in the courtroom. Given the popularity of Toys “R” Us, the court may determine as a matter of law that the logo is famous," Sopori said, adding that a federal court also seems more likely than a state court to determine that a toy company’s affiliation with cannabis "is unsavory for no reason other than that the sale of cannabis remains illegal under federal law. Litigation is more likely to settle out of court when significant risks are present."

Sopori noted that cannabis companies have been forced to toe the line between following state law and licensing regulations while avoiding interstate commerce and illegality under federal law. "Hopefully, important exceptions will be made on the federal level that allows cannabis companies to regularly utilize FDIC-insured banking institutions, as well as other protections and privileges available only under federal law."

Stay tuned!

Photo: Courtesy of Greenberg Glusker’s Cannabis Industry Group