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Tiny firm wins 'Chewy Vuiton' suit, but still feels a bite

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In March, a unit of global luxury-goods powerhouse LVMH Moet Hennessy Louis Vuitton SA sued a small Las Vegas maker of dog toys, claiming trademark infringement. The reason? Louis Vuitton Malletier SA of Paris had a problem with the company, Haute Diggity Dog, putting the name "Chewy Vuiton" on stuffed toys and dog-bed pillows decorated with a pattern reminiscent of Louis Vuitton's logo.

A federal court in Virginia, where Louis Vuitton filed the case, didn't bite. "The fact that the real Vuitton name, marks and dress are strong and recognizable makes it unlikely that a parody -- particularly one involving a pet chew toy and bed -- will be confused with the real product," the judge, James C. Cacheris, wrote in a judgment early this month.

The court sided with Haute Diggity Dog. But the victory came with significant costs. Legal fees, which Haute Diggity Dog had expected to amount to $50,000, skyrocketed to $200,000. The company lost distributors and had merchandise sent back as a result of the legal proceedings. And, Louis Vuitton says it will appeal the verdict. But for now Haute Diggity Dog gets to use the name "Chewy Vuiton" and continue to sell the product.

Was it worth it? Haute's owners say they didn't have a choice. "We decided we had to fight back because we would have had to go out of business," says Pamela Reeder, the co-owner of the business, which has five employees, counting the two owners.

The case illustrates how lawsuits from big companies are a Catch-22 for small businesses. They are forced to go up against deep-pocketed big players and have to decide whether to roll over or fight back. Even if they win, the legal battle takes a tremendous toll on resources.

Haute Diggity Dog's decision to go the legal distance also comes at a time when big companies, protective of their brand names, have become increasingly litigious and are cracking down on counterfeits and copyright and trademark infringements. Last year alone, Louis Vuitton conducted more than 7,200 anticounterfeiting raids around the world and began about 18,000 new legal proceedings.

In legal circles, the Louis Vuitton-Haute Diggity Dog case has created a nervous buzz that's putting other luxury brand names on alert. The case was the first in the nation to test the revised U.S. Federal Trademark Dilution Act that went into effect in early October. The change in the statute favors companies trying to protect their trademarks, lowering the bar for proving damage. Instead of showing that a trademark has actually been "diluted" by unapproved use, the company would have to prove only a "likelihood" this has happened.

"We believe the court's ruling misinterprets the law, which is designed to protect freedom of speech, not to allow companies like Haute Diggity Dog to make money by exploiting the good name and trademark of Louis Vuitton," the company said in a statement.

"Sometimes famous marks don't see the humor that the rest of us see," says Haute Diggity Dog's attorney, Bob Mason of Mason & Petruzzi in Dallas. He based his defense on a precedent set in a 2002 case, when a New York court ruled his client, Nature Labs, could name its perfume for pets "Timmy Holedigger" in a takeoff on Tommy Hilfiger Corp.'s logo. (The company's other fragrances include "Arfmani," "CK-9" and "Miss Claybone.")

The judge, Michael B. Mukasey, wrote that Tommy Hilfiger "is 'advised to chill.'" He cited the "chill" phrase from an opinion in an earlier trademark and copyright case involving Mattel Inc. (NYSE: MAT), maker of the Barbie doll, against MCA Records Inc., which released a song called "Barbie Girl" by the one-hit-wonder Aqua, a Danish dance-pop group.

Mason says he isn't surprised Louis Vuitton plans to appeal, but that he expects the verdict to stand.

The court's decision to side with Haute Diggity Dog is surprising, as big companies typically win in these kinds of disputes, says Leo Stoller, a Chicago trademark expert who has long testified as a witness in cases. "Even though big and small businesses are supposed to be equal under the law, the reality is that the courts go with the larger economic entities nine out of 10 times," he says.

Reeder and Victoria Dauernheim, both 53, dreamed up the concept for Haute Diggity Dog in 2003 when they were working in the retail department of Las Vegas' Mandalay Bay resort and casino. Reeder, a product buyer, noticed the pet industry was beginning to take off. In the fall of 2004, the two dog owners launched their first line of stuffed dog toys, with logos spoofing luxury brands: "Jimmy Chew," "Dog Perignon," "Chewnel 5" and "Sniffany & Co." Reeder's teenage nephew helps come up with the quirky names. The products, at prices ranging from $10 to $249, are sold in pet stores, animal hospitals and veterinarian offices, as well as online.

Louis Vuitton, known for luxury consumer goods, makes a few high-end pet products, such as leashes and collars, selling for between $200 and $1,600.

When Haute Diggity Dog tried to register the name "Chewy Vuiton" with the U.S. Patent and Trademark office last year, Louis Vuitton filed an objection. Haute Diggity Dog was denied official ownership of the name, but continued selling the dog toys. That's when Louis Vuitton filed its trademark-infringement suit.

Still, Reeder says the LVMH suit took the company off-guard. After all, Marc Jacobs boutiques -- majority-owned by LVMH -- sold the company's "Bark Jacobs" toys in U.S. stores last holiday season.

Even with the court's backing, the outcome was something of a pyrrhic victory for Haute Diggity Dog. "It's been a horrible experience," Reeder says. After the suit was filed, the company faced losing some 2,000 distributors after Louis Vuitton sent cease-and-desist letters that ordered the stores to stop carrying the parodied products. Many stores sent merchandise back. The owners, who put up their houses for collateral and opened extra lines of credit to pay their lawyer, reassured their clients by saying they would pick up the tab on all related legal matters.

In another move aimed at assuaging retailers' concerns, Haute Diggity Dog has taken an extra step to make sure its products meet the sniff test by adding disclaimers. At online distributor www.yourdogwilldigit.com, for example, the "Dog Perignon" squeaky plush toy in the shape of a Champagne bottle has a description with this line: "Please note that this Haute Diggity Dog designer parody product is not affiliated, designed or manufactured by Dom Perignon." Dom Perignon is one of several luxury brands owned by LVMH.

Haute Diggity Dog is trying to resurrect its reputation in this niche industry by e-mailing and calling its distributors about the victory.

Before the suit, the company had projected sales would double this year to $2 million. Now, it's hoping to at least match the $1 million made in 2005. And Haute Diggity Dog's owners still don't know if they're getting some or all of their attorney's fees back with their victory.

Nevertheless, they are moving forward, though they could afford to order only half of what they wanted to produce for the holiday season. They are introducing a line of 12 toys, including a "Pawda" bag and a "Growlex" watch.

"It's a great feeling," says Reeder of the court victory. "I'm hoping that it will help other small businesses not have to go through this."

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