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January 23, 1996

TINY LOVE, LTD. and THE MAYA GROUP, INC., Defendants. TINY LOVE, LTD., Plaintiff on the Counterclaims, v. TYCO INDUSTRIES, INC., Defendant on the Counterclaims.

The opinion of the court was delivered by: ACKERMAN

 Ackerman, D.J.

 On March 7, 1995, plaintiff, Tyco Industries, Inc. ("Tyco"), initiated this action by filing a complaint seeking declaratory relief against the defendants, Tiny Love, Ltd. ("Tiny Love") and The Maya Group, Inc. ("Maya") (collectively "Tiny Love" or "defendants"). More specifically, Tyco is seeking a judgment declaring that it is not infringing any rights Tiny Love may have in the design and appearance of the Tiny Love activity gym, which is marketed under the name the GYMINI 3-D Activity Gym ("GYMINI Gym"), under the trademark laws of the United States or New Jersey or under common law, or under the patent laws of the United States.

 Maya filed its answer on April 19, 1995. Thereafter, on May 9, 1995, Tiny Love filed its answer and also asserted four counterclaims against Tyco. Tiny Love asserts claims for trademark infringement pursuant to section 43(a) of the Lanham Act (see 15 U.S.C.A. § 1125(a)), unfair competition pursuant to New Jersey law (see N.J.S.A. 56:4-1 et seq.), unfair business practices and deceptive trade practices pursuant to the New Jersey Unfair Business Practices Act (see N.J.S.A. 56:8-1 et seq.), and various other claims based on the common law of New Jersey.

 This matter now comes before the court upon the application of Tiny Love and Maya for a preliminary injunction enjoining Tyco from manufacturing, promoting, distributing, importing, shipping and/or selling its children's activity gym marketed under the trade name Sesame Street Cozy Quilt Gym ("Cozy Quilt"). In addition, Tiny Love and Maya seek an order requiring Tyco to recall from its customers any such activity gyms which it has sold or previously shipped.

 For the following reasons, defendants' application is denied.

 I. Standard for Preliminary Injunction

 In ruling on an application for a preliminary injunction pursuant to Federal Rule of Civil Procedure 65, a district court must consider (1) the likelihood that the moving party will prevail on the merits; (2) the extent to which the moving party will be irreparably harmed by the denial of such relief; (3) the extent to which the party defending against the motion will suffer irreparable harm if the preliminary injunction issued; and (4) whether granting preliminary relief will be in the public interest. Duraco Products, Inc. v. Joy Plastic Enterprises, Ltd., 40 F.3d 1431, 1438 (3d Cir. 1994) (citing Merchant & Evans, Inc. v. Roosevelt Products Company, Inc., 963 F.2d 628, 632 (3d Cir. 1992) (citations omitted)). The injunction should issue only if the moving party produces evidence sufficient to support a finding that all four factors favor preliminary relief. Id. Accord S & R Corp. v. Jiffy Lube Intern., Inc., 968 F.2d 371, 374 (3d Cir. 1992); Opticians Ass'n of America v. Independent Opticians of America, 920 F.2d 187, 192 (3d Cir. 1990).

 Between October 2 and 10, 1995, this court held an evidentiary hearing on defendants' application for a preliminary injunction. The following constitutes my findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

 II. Findings of Fact

 A. The Parties

 Tyco is a Delaware corporation and has its principal place of business in Mount Laurel, New Jersey. Tyco manufactures, distributes, and sells preschool and other children's toy products and games. Tyco manufacturers, distributes and sells infant toys through its Tyco Preschool division. Unlike Tiny Love and Maya, which are relatively small companies, Tyco is a market leader in the field of preschool toy products.

 B. Tiny Love's GYMINI Gym and Design Patent

 Isaac Oren, who is the president of Tiny Love, invented the GYMINI Gym. The GYMINI Gym is made up of two flexible rods that are wrapped with stuffing and fabric, a blanket, and some hanging toys. The fabric-covered rods are bent to form two arches that go diagonally across the blanket and intersect above the center of the blanket. The arches are inserted into pockets at the corners of the blankets and there are snaps in the pockets in order to affix the arches to the blanket. Where the arches meet above the center of the blanket, there is a snap with which the two arches are connected so that they will stand up. The stuffing and fabric covering is not tightly rapped around the flexible rods. This is necessary so that grommets can be placed through the stuffing and fabric. Each arch has eight grommets -- one near the bottom of each arch and six towards the apex of the arches. Toys are hung from the arches through the grommets. The arches are red and the blanket has pictures on it.

 The GYMINI Gym is used by placing the baby on the blanket on his or her back so that the baby can look up at the toys that are hanging from the arches. Because the rods had to be bent to form the arches, they provide the tension necessary to keep the blanket flat and to prevent the blanket from bunching up. This is important because if a baby is lying on the blanket and it bunches up, there is a possibility that the baby might suffocate. The design also provides for easy portability. This is achieved by rotating the arches so that they are lined up side-by-side. This results in the blanket being folded in half. The sides of the blanket can then be snapped together so that the blanket remains folded in half underneath the side-by-side arches. When in this position, the arches form a handle that is useful in carrying the GYMINI Gym.

 As stated previously, Maya is the exclusive distributor of Tiny Love products in the United States. Maya began distributing the GYMINI Gym for Tiny Love in the United States, on a nationwide scale, in October of 1993, and it accounts for 80% of Maya's business. The GYMINI Gym is sold in catalogs, retail chains, specialty stores, and department stores. The stores that it has been sold in include Price-Costco, Burlington Coat Factory, Baby Super Store, F.A.O. Schwartz, and Nordstrom's. The catalogs include Imaginarium, One Step, Constructive Playthings, The Baby Catalog of America, The Paragon, and Sensational Beginnings. The GYMINI Gym has also appeared in magazines such as Small World and Juvenile Merchandising.

 As of the date of the evidentiary hearing, Maya has spent approximately $ 50,000 in trade advertising. $ 40,000 of this amount was spent with respect to the GYMINI Gym. Also, Maya, for the most part, relies on the appearance of the product in catalogs to reach consumers. Maya has spent only approximately $ 300 on direct consumer advertising. Maya also promotes the GYMINI Gym at trade shows. For example, Maya promoted it at the New York Toy Fair in 1994 and 1995, and also at a trade show in Dallas in 1993 and 1994.

 The GYMINI Gym has won a number of awards. For example, the November 1994 issue of Parenting magazine recognized the GYMINI Gym as one of its "Toys of the Year." The criteria for this award were "safety, durability, and versatility" and "whether [the toy] encourages developmental skills." Defendant's Ex. 5. The GYMINI Gym has also been awarded the Oppenheim Toy Portfolio's Gold Seal Award and was scheduled to receive the Parent Choice Silver Award. There is no evidence in the record regarding the criteria for these awards.

 On February 7, 1994 Tiny Love filed a design patent application in the United States Patent and Trademark Office ("PTO"). The PTO issued Design Patent Des. 359,869 (the "Tiny Love Patent") to Tiny Love on July 4, 1995. The patent claim is for "the ornamental design for a baby's mattress" as depicted in a number of drawings. See Defendant's Ex. 12. Tiny Love argues that the GYMINI Gym is the commercial embodiment of the design claimed in the patent. While there are some differences between the GYMINI Gym and the drawings in the patent, they are substantially similar. Like the GYMINI Gym, the patent drawings depict a blanket connected to fabric-covered, crisscrossing arches. Furthermore, the arches are connected to the corners of the blanket via pockets. The main differences between the design claimed in the patent and the actual GYMINI Gym are that the patent drawing includes more grommets and snaps than does the GYMINI Gym, and also, the patent does not depict any hanging toys. However, for the most part the GYMINI Gym is the commercial embodiment of the Tiny Love Patent.

 C. Tyco's Sesame Street Cozy Quilt Gym

 The defendants allege that Tyco's Cozy Quilt infringes the Tiny Love Patent and the GYMINI Gym trade dress. The Cozy Quilt is without question similar to the GYMINI Gym. Like the GYMINI Gym, the Cozy Quilt is made up of overlapping arches that are connected to a blanket base. The arches provide the tension necessary to keep the blanket flat. Also like the GYMINI Gym, the toys are hung from the Cozy Quilt's overlapping arches. Thus, the Cozy Quilt functions in exactly the same manner as the GYMINI Gym -- they are both used by placing the baby on the blanket on his or her back so that the baby can look up at the toys that are hanging from the arches.

 There are, however, a number of differences between the two products. First the Cozy Quilt does not have any grommets on its arches. Rather, the toys are hung from loops made out of fabric. Tyco did not use grommets for safety reasons. According to Tyco, grommets are undesirable since they may have sharp edges and can separate from a product and be swallowed by babies.

 Second, the appearance of the arches of the two products is dissimilar. As stated previously, in the GYMINI Gym, the stuffing and fabric is not tightly rapped around the rods that make up the arches. This allows the fabric to hang down from the rods so that the grommets could be put through the fabric and stuffing. The result of this is that the GYMINI Gym arches have a soft, fluffy appearance. Also, rather than having a cylindrical appearance, the GYMINI Gym arches have a somewhat flat or oblong appearance. On the other hand, the Cozy Quilt arches are formed by inserting a flexible rod into a shaft formed by extruded foam, then slipping a cover over the rod-foam combination. This method was used by Tyco because it is less labor intensive than the method employed by Tiny Love, and the extruded foam is less likely to allow a broken rod to protrude through. Significantly, this method results in the Cozy Quilt arches having a different appearance from the GYMINI Gym arches. Unlike the fluffy, soft-looking, somewhat flat or oblong GYMINI Gym arches, the Cozy Quilt arches have a sleek, cylindrical appearance.

 Third, the Cozy Quilt arches are attached to the blanket in a different manner than the GYMINI Gym arches. Rather than using pockets and snaps like the GYMINI Gym, the Cozy Quilt uses plastic hooks to attach the arches to the blanket. The GYMINI Gym's use of the pockets results in there appearing to be a more seamless connection between the arches and the blanket than is the case with the Cozy Quilt's use of the plastic hooks.

 Fourth, unlike the GYMINI Gym, the Cozy Quilt does not have snaps on the periphery of the blanket. The snaps on the GYMINI Gym are used to keep the product in the folded, portable position. Rather than using snaps, the Cozy Quilt uses plastic clips to keep it in the folded position.

 Fifth, the Cozy Quilt is different from the GYMINI Gym in that the Cozy Quilt takes advantage of a licensing agreement Tyco has with Sesame Street. The pictures on the Cozy Quilt blanket, the hanging toys, and the packaging all feature Sesame Street characters. This is important because if comparable products differ only in the use of a popular licensed theme, the product with the popular licensed theme, is more appealing and produces more sales.

 Significantly, the differences described above are equally valid descriptions of the differences between the Cozy Quilt and the Tiny Love Patent. The patent drawings depict the use of grommets; fluffy, soft-looking, somewhat flat or oblong arches; the use of pockets to connect the arches to the blanket; and snaps on the periphery of the blanket. None of these features are present in the Cozy Quilt. The Sesame Street license is irrelevant to the design patent issue.

 Given the manner in which Tyco developed the Cozy Quilt it is no surprise that the two products have a number of similarities. Prior to 1993, Tyco already had two baby gyms on the market. In 1988, it introduced what it refers to as its basic gym and in 1989, it introduced a musical gym. The Tyco basic gym has produced sales between $ 40 and $ 50 million since its introduction and is still on the market. The musical gym, however, experienced declining sales. As a result, in early 1994 Tyco began looking for a replacement. Mr. Stanley Clutton, Tyco Preschool's vice-president of marketing, testified that Tyco was "looking for an expensive, high-end gym to take [the musical gym's] place" that would sell at a retail price between $ 20 and $ 30. Tr. at 236, 239.

 Prior to designing their new product, Tyco examined a number of competing baby gyms. One of the competing products that was examined was the GYMINI Gym, which Tyco became aware of in approximately January or February of 1994. Because Tyco was interested in "the idea of a soft gym" (Tr. at 264) and because the GYMINI Gym was such a gym, on March 24, 1994, Tyco sent a GYMINI Gym to Hong Kong in order to get an evaluation of how much it would cost to produce a product like this. See Plaintiff's Ex. 1. The design of the GYMINI Gym was to be the "starting point" for the design of Tyco's product. See id. Apparently, when toy companies are developing new products, it is not unusual for toy companies to evaluate the cost of potential competing products in this manner. In this case, however, the only product that Tyco sent for costing was the GYMINI Gym. *fn1" This evaluation resulted in the finding that it would cost too much to produce a baby gym like the GYMINI Gym and keep the retail price in the $ 20 to $ 30 range. Tr. at 270.

 Tyco did explore a number of designs that did not as closely resemble the GYMINI Gym but that incorporated the results of the survey (i.e., a product that folded easily, was easily carried by the mother, and was self-erecting, soft and safe). See, e.g., Plaintiff's Ex. 20, 21, 22. However, all of the alternative designs either did not function as well as a design that was based on overlapping arches connected to the corners of a blanket or were too costly to manufacture. Most of the alternative designs ...

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