A Bitter Battle Over Beanie Babies

Fred Kort’s downtown Los Angeles factory churns out thousands of plastic Frisb--almost slipped!--flying disks. His showroom brims with the vaguely familiar: There are teeny bouncers (think Super Balls) and cosmetics in pink packages (recall Tinkerbell). A phony license plate nailed to the wall of his wood-paneled office captures the spirit: SO SUE ME.

Kort is being sued over his latest innovation: cute animals similar to Beanie Babies, the cuddly, plastic bean-filled ducks, flamingos and other animals that are the toy industry’s current phenomenon.

Proudly, Kort presents a box filled with his cuddly toys but--whoops!--there are also Beanie Babies in it.

“What are they doing in there?” muses Kort, president and founder of Imperial Toys.

Desperate parents aren’t the only people fighting over Beanie Babies. The $5 plush toys have ignited a war not seen since the Gingham Dog tangled with the Calico Cat, pitting Ty Inc.--the zealous maker of Beanie Babies--against competitors accused of making knockoffs. Both sides are seeking as much of the market as possible before children lose interest and move on to the next fad.

Such scraps, often waged behind the scenes, are not uncommon in a hit-driven industry where hot toys are rapidly imitated. The beanbag battles, being aggressively fought in court, on the Internet and through publicity campaigns, expose a seldom-seen side of an industry where producers of cuddly animals for children play hardball for keeps.

Accusations about stealing designs are flying as quickly as Beanie Babies are sold. In the lawsuit involving Imperial Toys, a 12-year-old with 80 Beanie Babies was recruited as an expert witness. A Los Angeles company took out newspaper ads accusing Ty of using its World Wide Web site to encourage children to tattle on competitors who make Beanie Babies look-alikes. In Connecticut, authorities are investigating Ty Inc. for unfair trade practices.

At stake are plush toy sales running into the hundreds of millions of dollars, driven by an ever-expanding assortment of Beanie Babies.

Ty jealously guards its creations and for good reason: The soft, floppy animals small enough to fit in a pocket are believed to account for sales of more than $200 million a year. Until children discovered and started collecting Beanie Babies, 12-year-old Illinois-based Ty was known as a producer of generic cats, bears and other plush toys.

Also driving the fury is one of the fundamental truths of the toy business: Except for a handful of exceptions such as Barbie, what’s hot one minute usually is in the discount bin the next. Last fall, Tickle Me Elmo was the rage. Now it’s Beanie Babies, with parents across the country adding their names to long waiting lists for the toys. In six months, the window of opportunity could be closed with something else taking its place.

Although beanbag animals have been around for decades, they weren’t in demand until Ty created its plastic-pellet-filled version in 1994. Priced low and sold through neighborhood toy and novelty stores, Beanie Babies first were a regional hit in the Midwest.

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They became a nationwide phenomenon through two breaks. Word of mouth was spread not only on the playground, but in cyberspace as children and their parents devoured and traded information on the Internet. In addition, McDonald’s recognized their blossoming popularity and made the toys the cornerstone of a massive promotion of its Happy Meals, resulting in the distribution of 100 million Beanie Babies--more than one for every child in America--in less than a month.

Now parents scour stores to collect all 119 Beanie Babies, which come with birth dates and names like “Felice the Lamb.” Ty has discontinued 29 of the animals, driving up prices on what has become a lively collectors market. Ginger Ward of Century City has dropped $700 on Beanie Babies for her 8-month-old son, although little Jeffrey mostly gnaws on their heads.

“It will be nice for him to have the whole collection,” said Ward, 28. “And we can afford it.”

The success of the toys has rubbed off on Ty competitors supplying retailers that cannot get enough of the scarce Beanie Babies but do not want to lose potential beanbag sales.

A & A Plush of Compton commissioned jets to fly in its Velveteenies from factories in Indonesia and China to supply desperate candy and gift stores. A florist-turned-novelty-importer from Chatsworth expects to make $1 million this year from her Bean Mates.

At Imperial Toys, big orders are rolling in despite the Ty lawsuit. Kmart just called, Kort said--it wants 250,000 of his Friendly Pebble Pets. Before that, Walgreen’s was on the phone--it wants 500,000. Kort expects sales of his beanbag animals to total $20 million this year.

“The business is going berserk,” he said.

Paul Harris Stores, a mid-price women’s clothing chain in the Midwest, reports a brisk business in Bean Sprouts, Floppy Friends and other beanbag animals. Buyer Erik Russell said the chain dropped Beanie Babies in 1995 due to delivery problems and “it hasn’t hurt us one bit.”

“Nothing in recent times has been received this strongly,” Russell said.

All this has led to hardball tactics that contrast with the cuddly image the toys have with children and parents. Dan Kelly, vice president of family-owned Kelly Toys in Los Angeles, accuses Ty of threatening to destroy his Little Mini Bean Pal Babies. He took out an ad in The Times charging that Ty is playing unfairly.

“Enough is enough,” said Kelly.

At the center of it all is a suburban Chicago company run from a nondescript warehouse by an industry veteran enjoying his moment in the sun. Ty Warner, 53, is unapologetic about his company’s defense of Beanie Babies.

Ty has sued half a dozen competitors in U.S. District Court in Chicago for copyright infringement, reaching settlements or obtaining court orders against five of them. In the suits, Ty is defending specific designs: the shape of a nose, the location of seams, the position of the ears.

Besides going to court, Ty is using the Internet to collect reports on beanbag toys similar to Beanie Babies.

“They keep flooding the market, and we have to stop them,” said Warner, leaning against a desk in a cluttered office decorated with framed press clippings and randomly placed stuffed animals.

Warner goes out and searches for knockoffs himself, inspecting toy bins of Chicago-area discount and drugstores. Warner, in one lawsuit, said he went into an Ace Hardware to purchase a hammer and departed with knockoffs of a Beanies Babies platypus, toucan, crab and five other animals.

Asked about his reputation for toughness, Warner seemed amused.

“Look at me,” he said, alluding to his slender build. “Do I look tough?”

It is not unusual for companies with hot products or strong brand names to aggressively protect them. Companies such as Walt Disney and Mattel are especially vigilant in monitoring even the smallest copycats, sales of which account for billions of dollars each year.

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But some say that Ty has no monopoly on the idea for Beanie Babies because beanbag animals are not new. Even Ty itself was sued for copyright infringement over a Beanie Babies design.

In that case, North American Bear Co. of Chicago charged that three Beanie Babies were knockoffs of its magenta, purple and jade Bare Bears. The suit, filed in 1995, was settled confidentially in September; however, Ty has discontinued the disputed Beanie Babies bears.

Kelly said Warner picked a fight with him in February at the New York Toy Fair, a giant trade show where toy makers pitch their products to buyers for retail stores.

According to Kelly, Warner popped into the Kelly Toy booth and examined the Little Mini Bean Pal Babies, stuffed animals attached to suction cups and key chains. Kelly said Warner threatened him by telling Kelly he was No. 1 on his list.

Kelly struck back with new newspaper ads. He accused Ty of using its Internet site to enlist children in its war on knockoffs by having them report Beanie Babies look-alikes. The Ty Web site gives instructions on how children can e-mail information to Ty.

Kelly cited Internet postings on the Ty Web site from Beanie Babies toy Quackers the Duck: “Have you ever seen other beanbag animals that look like Ty’s Beanie Babies? That makes me soooo mad!” Another posting from Quackers said: “Maybe we should start some type of a crusade.”

Kelly accused Ty of swiping its ideas. Kelly said a picture on some McDonald’s Happy Meals bags showing children in overalls with Teenie Beanie Babies in their pockets was copied from a Kelly Toy brochure distributed at the toy fair. The ad asks: “Who is COPYING whom?”

“This guy thinks he is some kind of Goliath, out to crush anyone in his path,” Kelly said in an interview.

Warner said he went to the Kelly Toy booth because attendees at the Toy Fair told him about possible knockoffs. But he refused to comment on Kelly’s assertions.

“Don’t ask me about that guy,” he said. He hesitated before adding: “It’s a sad situation.”

Ty is on the defensive in Connecticut, where authorities are conducting a high-profile investigation into Beanie Babies pricing. The inquiry was prompted by a feisty toy merchant who charged that Ty’s hardball tactics went too far.

Janette Diller said Ty refused to sell her more Beanie Babies because she occasionally put the toys on sale for under $5 at her Westport store. Diller said Ty told her it doesn’t allow discounting.

Beyond that, Diller said, Ty is trying to force her to change the name of her store, Tybran Toys. She said Ty sent her a letter demanding that she “cease and desist” from using Tybran, derived from the names of her son, Tyler Diller, and Brandon Arias, the son of her partner, Susan Powers.

“The boys are distraught that a toy company would pick on them--to the point of trying to make them change their names,” Diller said. “You’d expect people in the toy business to be devoted to kids because children are your consumers.”

A representative of Connecticut Atty. Gen. Richard Blumenthal--who agreed to help Tybran on television’s “Hard Copy”--said Ty is cooperating with the investigation, which centers on whether Ty placed unlawful conditions on retailers. Ty did not respond to a request for comment on the inquiry.

Meanwhile, several of Ty’s competitors have called Diller to express support. A letter to Diller from Kelly Toy said: “It is appalling to see large companies take advantage of the little guys.”

Some competitors of Ty describe their role as a public service because they are making beanbag toys more available.

“The discount stores, the drugstores, the supermarkets, the convenience stores--he won’t sell to them,” Kort said. “Kids who shop there with their parents want toys too. That’s where we come in.”

Ty doesn’t see it that way.

In his lawsuits, Warner has named not only toy producers, but some of the retailers selling alleged knockoffs, including Indiana-based Paul Harris Stores.

A manager of a Cut Rate Toys store in Chicago yanked his entire stock of Friendly Pebble Pets after receiving a call from an attorney for Ty. Imperial Toys was outraged because Ty had sued it over only eight of its 24 Friendly Pebble Pets.

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As part of its defense, Imperial Toys recruited Katy Clune, a perky seventh-grader with a big Beanie Babies collection. She told the court she knew “without anyone telling me” the difference between Beanie Babies and knockoffs.

She knows about Beanie Babies because she now has 108 of them--her collection has grown in the months since she agreed to testify. She gathered them on a coffee table in her parents’ suburban Chicago living room, where they spilled onto the floor in a heap. There were dogs, cats, ducks, lambs, bears, lizards and other animals--including a hard-to-find blue elephant her parents located using the Internet. It cost $80. Mixed in were a few knockoffs Katy bought because they are “cute.”

Katy, known on the Internet as “Queenie Beanie,” said Beanie Babies have smaller heads and fewer pellets inside them than Friendly Pebble Pets--plus Beanie Babies don’t have smiles. Another way to tell the brands apart is by looking at their tags. Pebble Pets, she said, have very large tags.

“I don’t think kids would make a mistake,” she said. “Kids know what they are looking for. Maybe an old grandmother would get confused.”

Imperial is in talks to settle the suit--so it can get on with business, Kort said. Imperial, according to its attorney, has agreed to discontinue the eight Friendly Pebble Pets and pay Ty $290,400--an amount representing the revenue Imperial received from the disputed toys. Imperial, which denies copyright infringement, plans to continue selling other Friendly Pebble Pets--a collection that now includes 150 different toys sold through Kmart, Walgreen’s and other mass merchants that don’t sell Beanie Babies.

Katy is unhappy that a settlement is in the offing. She had hoped to meet Warner in court, where she planned to offer him reassurance.

“You shouldn’t be so worried about them taking the business,” she planned to say. “You are better. Everyone knows that Beanie Babies are cuter.”