Diece-Lisa Indus., Inc. v. Disney Enters., Inc.

943 F.3d 239

DIECE-LISA INDUSTRIES, INCORPORATED, Plaintiff - Appellant

v.DISNEY ENTERPRISES, INCORPORATED; Disney Consumer Products, Incorporated, Defendants - Appellees

Diece-Lisa Industries, Incorporated, Plaintiff - Appellant

v.Disney Store USA, L.L.C.; Disney Shopping, Incorporated ; Buena Vista Home Entertainment, Incorporated; Walt Disney Studios Motion Pictures; Buena Vista Theatrical Group, Limited; Disney Interactive Studios, Incorporated; Disney Licensed Publishing-Disney Book Group, L.L.C.; Walt Disney Records; Disney Destinations, L.L.C.; Walt Disney Parks ; Resorts U.S., Incorporated; Magical Cruise Company, Limited; Magic Kingdom, Incorporated, Defendants - Appellees

No. 17-41268

c/w No. 17-41271

United States Court of Appeals, Fifth Circuit.

FILED November 19, 2019

Richard L. Schwartz, Esq., Thomas Franklin Harkins, Jr., Esq., Whitaker Chalk Swindle & Schwartz, P.L.L.C., Fort Worth, TX, for Plaintiff-Appellant.

Robert N. Klieger, Hueston Hennigan, L.L.P., Los Angeles, CA, Roy W. Hardin, Locke Lord, L.L.P., Dallas, TX, for Defendants-Appellees in 17-41268 and 17-41271.

Stephen David Wilson, Locke Lord, L.L.P., Dallas, TX, Deborah J. Race, Tyler, TX, for Defendants-Appellees in 17-41268 and Defendants-Appellees Disney Store USA, L.L.C. and Disney Shopping, Incorporated in 17-41271.

Before STEWART, DENNIS, and WILLETT, Circuit Judges.

JAMES L. DENNIS, Circuit Judge.

Plaintiff Diece-Lisa Industries, Inc. (Diece-Lisa) filed two separate lawsuits against various Disney corporate entities alleging that those entities’ use of the "Lots-O’-Huggin’ Bear" (aka "Lotso") in the movie Toy Story 3 and sales of merchandise depicting Lotso infringed on Diece-Lisa’s "Lots of Hugs" trademark. The two cases were consolidated, and more than three years of litigation ensued. Diece-Lisa appeals three of the court’s rulings in the consolidated case. We AFFIRM in part, VACATE in part, and REMAND with instructions.

I.

Diece-Lisa holds a trademark issued in 2008¹ for "Lots of Hugs" as a word mark for use in connection with "[t]oys, namely, puppets" and sells stuffed toy bear products branded with the mark. In 2010, Disney released Toy Story 3 , an animated film featuring Disney heroes Sheriff Woody and Buzz Lightyear. In the film, Woody and Buzz battle Lotso,² a hot pink teddy bear with a big nose and a Southern accent. The film was a critical and commercial success, becoming the highest-grossing film of 2010. Toy Story 3 gave rise to many consumer products, including toys depicting various characters from the picture. The Lotso character has been sold as a stuffed toy and a plastic figurine, as well as incorporated into a variety of other consumer products.

Diece-Lisa brought suit in the United States District Court for the Eastern District of Texas, alleging that the sales of Lotso merchandise by various Disney entities infringed on Diece-Lisa’s "Lots of Hugs" trademark.³ There are two primary groups of Disney defendants relevant to this appeal: (1) the retail entities, consisting of Disney Store USA, LLC (DSU) and Disney Shopping, Inc. (DSI); and (2) the IP entities, consisting of Disney Enterprises, Inc. (DEI) and Disney Consumer Products, Inc. (DCP). The retail entities (DSU and DSI) sell merchandise modeled on characters from Disney and Pixar movies. DSU owns brick-and-mortar retail stores that sell the merchandise, while DSI sells similar merchandise online at disneystore.com. As for the IP entities, DEI owns intellectual property rights in Disney characters, and, along with DCP, grants licenses to third parties—including the retail entities—to manufacture and sell merchandise based on those characters.

Diece-Lisa first filed suit in 2012 against the retail entities, DSU and DSI, (docketed as case No. 2:12-CV-00400, referred to herein as the 400 case), alleging federal trademark infringement and unfair competition based on sales of toy bears and other merchandise marked with the Lotso name.⁴ In 2014, Diece-Lisa filed a separate suit in the same court (docketed as case No. 2:14-CV-00070, referred to herein as the 70 case), this time against the IP entities, DEI and DCP, claiming trademark infringement based on the IP entities’ granting licenses to third parties who manufacture and sell Lotso merchandise. The IP entities moved to dismiss the 70 case for lack of personal jurisdiction and improper venue, arguing that their only activities relating to Texas—granting non-exclusive licenses to third-party licensees who chose to conduct business in Texas—were insufficient to confer personal jurisdiction over the IP entities.

The district court consolidated the 400 case and the 70 case. Soon after consolidation, the magistrate judge⁵ granted Diece-Lisa leave to file a third amended complaint (3AC) that would serve as the complaint in both cases, overruling objections from Disney defendants (both the IP and retail entities). The 3AC increased the number of corporate subsidiary Disney defendants from four to fourteen and expanded the action from claims based on sales of merchandise marked with the allegedly infringing Lotso name to claims based on uses of the Lotso character in the Toy Story 3 movie, video games, CDs, books, ice shows, and other live productions. The consolidated suit then had ten new Disney subsidiary defendants (the "New Parties") and several new infringement claims based on the use of a character, rather than on the alleged use of the "Lots of Hugs" mark. All the New Parties moved to dismiss, arguing that venue was improper and that Diece-Lisa failed to state a cause of action. Five of the New Parties moved to dismiss for lack of personal jurisdiction. As we explain further below, the court never ruled on these motions.

While these motions from the New Parties were pending, the court turned its focus to the IP entities, denying their pre-consolidation motion to dismiss the 70 case for lack of personal jurisdiction. Because the parties had yet to conduct jurisdictional discovery, the court reasoned, Diece-Lisa had to make only a prima facie showing of personal jurisdiction. While Diece-Lisa had not necessarily "proven personal jurisdiction by a preponderance of the evidence," the court found it met the prima facie standard. The IP entities filed a motion for reconsideration, again urging that they were not subject to personal jurisdiction because their only contact with Texas was their grant of non-exclusive licenses to third parties who conducted business in Texas.

Following the IP entities’ motion for reconsideration, the district court and magistrate judge took a number of actions relevant to this appeal with respect to the various parties in the consolidated action, which we set out in the order they occurred.

First, nearly a year after granting Diece-Lisa leave to file the 3AC, the magistrate judge vacated that order sua sponte and without prior notice or a hearing, effectively removing the New Parties, and Diece-Lisa’s claims against them, from the suit. This vacatur occurred while motions to dismiss based on personal jurisdiction and failure to state a claim were pending that, if granted, would have removed the New Parties from the suit. The magistrate judge said he had "improvidently granted" Diece-Lisa’s motion for leave to file the 3AC, reasoning that the 3AC "resulted in needless complication and delay" and "changed the nature of the case." The magistrate judge found the claims alleged in the 3AC were less connected "to the original claims than the court originally perceived" and noted "serious issues of personal jurisdiction and venue" that arose under the 3AC. The effect of the district court’s vacatur order was that Diece-Lisa’s claims against the New Parties were eliminated, the New Parties were removed from the litigation, and the New Parties’ pending motions to dismiss were moot.

Diece-Lisa filed objections to the magistrate judge’s order in the district court.

Second, the district court stayed the case on the parties’ agreed motion. Specifically, while awaiting a ruling from the district court on Diece-Lisa’s objections to the magistrate judge’s vacatur of the 3AC, Diece-Lisa and the defendants submitted, and the district court entered, an agreed order that closed fact discovery and prohibited further "assertion of additional claims, defenses, or theories of liability or damages." Despite this agreed order, Diece-Lisa filed a fourth amended complaint (4AC), which alleged new theories of contributory trademark infringement and vicarious liability and attempted to revive the character-based infringement claims eliminated by the vacatur of the 3AC. Diece-Lisa also issued deposition notices for fact witnesses and requests seeking production of a broad array of documents. The magistrate judge granted defendants’ motion to strike the 4AC and quashed notice of the depositions, finding that Diece-Lisa violated the agreed order.

Third, the district court adopted the magistrate judge’s order vacating the 3AC, overruling Diece-Lisa’s objections.⁶ Like the magistrate judge, the district court focused on how the 3AC changed the nature of the case from one alleging misuse of a mark to one alleging misuse of the Lotso character . Diece-Lisa raised concerns of prejudice "in light of the extensive discovery and completed expert reports related to the most recently added defendants," but the district court found these concerns "both minimal and outweighed by the considerations favoring denial of leave to amend." The district court explained that Diece-Lisa was free to use any discovery it obtained while the 3AC was pending "in a separate action" but also noted that "the statutes of limitations applicable to [Diece-Lisa’s] claims may significantly and negatively impact its rights."

Fourth, and finally, the district court turned its attention back to the IP entities’ motion for reconsideration of its personal jurisdiction order. The court granted the motion and dismissed the IP entities for lack of personal jurisdiction,...