Teddy bear tussle
The fur is flying in the legal wars over who owns the rights to sell make-your-own toys
`The teddy bear has been around for 100 years. There's not much new under the sun," says Eric Woods, owner of the Basic Brown Bear Factory in San Francisco. Woods is being modest. He and his wife, Merrilee, created the concept of stuff-'em-yourself teddy shops, a retailing phenomenon that has revolutionized the plush-toy industry and has set scores of patent attorneys on the prowl.
The Woodses came up with the idea of letting kids help stuff and stitch--and ultimately dress and accessorize--their teddies in 1985. But within the past five years, a cottage industry of more than 200 mostly small operators has sprouted across the country, and it shows no signs of abating: It's estimated that the U.S. market alone could handle 500 to 600 make-your-own-bear shops. The concept works, explains Bob Glaser, publisher of Specialty Toys & Gifts, because "it's an opportunity for a child to go in and create their own unique bear; it gives them a chance to be a part of the process from beginning to end." The basic bears aren't too pricey, usually in the $12-$25 range, but costumes and accessories can quickly bloat the price tag.
Despite its cuddly image, the sector is decidedly "un-fur-iendly." The leader of the pack is Build-A-Bear Workshop, a St. Louis company run by Maxine Clark, former president of Payless ShoeSource. Rivals agree that Clark deserves kudos for merchandizing skills and for fine-tuning the concept, but they growl that her firm relies on dubious claims of intellectual property rights to maul competitors. Notes Eric Woods: "She tries to come across with all this lovey-dovey stuff, but what she really is, is a litigation machine."
Plush profits. Still, there's no doubting Build-A-Bear's success. It opened its first shop in 1997 and its 100th--at the Roosevelt Field Mall in Long Island, N.Y.--in September. In 2001, it had revenue of $107.3 million from 72 stores. Its shops average sales of $700 per square foot, double the U.S. mall-shop average. And while the industry is rife with lawsuits, or threats thereof, the first volley was actually fired by the Woodses. They sued Build-A-Bear in 1999 for misappropriating trade secrets, copyright infringement, unfair competition, and breach of confidence. Build-A-Bear agreed to a confidential settlement last year.
According to Eric Woods and legal filings, Clark approached the Woodses in 1996 with a buyout offer. At the time, the Woodses were ready to expand nationally but realized they needed help in managing. So they began talks, with the notion of selling to Clark but staying on as officers. Clark, who signed a confidentiality agreement with them, made what the Woodses considered a low-ball offer, then walked away. Eric Woods says they were astounded to later learn she used their ideas to create Build-A-Bear.
"We have never claimed that we were the first to have make-your-own stuffed animal businesses in the United States," Clark responds. She says she started the business because none of the "few" other operators at the time were interested in selling. But the Woodses say that they were the only existing operator then and that the myriad rival outlets cropped up only after Build-A-Bear's success. Since Build-A-Bear didn't invent the concept, competitors say it shouldn't stop them from using it. Still, Build-A-Bear seeks, owns, or claims copyrights, trademarks, and patents for nearly every aspect of the business, from the type of stitching to the insertion of a cloth heart in each bear.
Competitors say that many of Build-A-Bear's copyright claims are weak or nonexistent but that fighting them is too costly. "They're claiming copyrights we know they don't have," says Jerry McLean, owner of the Bear Factory, a supplier of stuffing machines and outfits. For example, Build-A-Bear wants McLean to stop selling basketball player and cheerleader costumes, saying it owns those designs. But he insists that clothing--even for toys--can't be copyrighted, which is why fashion designers are helpless when mass marketers knock off their creations.
Clark insists that she's not trying to stifle competition. "We are merely asking competitors to invest the time and resources to create their own distinctive brand and reputation and not copy ours." But Woods says Build-A-Bear hasn't created much on its own. "Her business model is to file copyrights, patents, and trademarks, but she doesn't design a lick." For the foreseeable future, it looks as if the fashion accessory of choice among these bears will be a good lawyer.
This story appears in the November 11, 2002 print edition of U.S. News & World Report.