By Blake Brittain
(Reuters) - The U.S. Supreme Court ruled on Tuesday that Disney must face a New Jersey toy creator's lawsuit that claimed the company violated her trademark rights with its character Lots-o'-Huggin' Bear from the blockbuster 2010 film "Toy Story 3."
The justices threw out a lower court's ruling that Disney was protected against the lawsuit from Randice-Lisa Altschul's Diece-Lisa Industries by the U.S. Constitution's First Amendment protections for freedom of speech.
The Supreme Court most recently addressed the intersection of trademark law and free speech in its June 8 ruling for Jack Daniel's in a dispute over a dog chew toy fashioned to resemble the company's distinctive whiskey bottles.
The high court asked the 9th U.S. Circuit Court of Appeals to reconsider Diece-Lisa's case in light of that ruling.
Representatives for the companies did not immediately respond to requests for comment on the decision.
Altschul invented a stuffed animal in 1994 with sleeves that could simulate an animal's hug, and her company Diece-Lisa Industries owns intellectual property rights for a wearable Lots of Hugs bear. Diece-Lisa sued Disney in 2012, saying Lots-o'-Huggin' Bear and Disney's toys based on the character closely resemble Lots of Hugs and infringed its trademark in the "Lots of Hugs" name.
Lots-o'-Huggin' Bear, nicknamed Lotso, is an antagonist in "Toy Story 3," which won the Academy Award for best animated feature film and drew more than a billion dollars at the box office worldwide.
Los Angeles-based U.S. District Judge Terry Hatter ruled for Disney in 2021, citing First Amendment protections. The San Francisco-based 9th U.S. Circuit Court of Appeals in 2022 affirmed Hatter's decision.
Altschul's company told the Supreme Court in October that Disney should not have been protected under a legal construct called the Rogers (NYSE:ROG) test that has allowed artists to lawfully use trademarks without permission when the use has artistic relevance to their work and would not explicitly mislead consumers.
Diece-Lisa said the 9th Circuit's ruling "radically expanded" the test beyond its original intent to protect "culturally significant" marks and titles of artistic works.
The Supreme Court reined in the Rogers test earlier this month when it decided that the First Amendment did not protect a "Bad Spaniels" vinyl chew toy that parodies Jack Daniel's branding.
The case is Diece-Lisa Industries Inc v. Disney Store USA LLC, U.S. Supreme Court, No. 22-347.
For Diece-Lisa: William Delgado of DTO Law
For Disney: Robert Klieger of Hueston Hennigan