TACO BELL TO PAY $11 MILLION MORE IN DOG CASE

Judge Orders Interest Payment on Top of $30 Million Jury Award

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CHICAGO (AdAge.com) -- Taco Bell has been ordered to pay an additional $11.8 million in interest to two executives who sued the chain for allegedly stealing their idea for using a Chihuahua as a marketing mascot.

A federal jury in June awarded the executives $30.2 million. Following yesterday's ruling by U.S. District Judge Gordon Quist, the Yum Brands fast-food chain said it will appeal the entire $42 million award. The judge denied motions by Taco Bell's lawyers to set aside the June verdict or reduce the award.

"We still continue to defend the position

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that the Chihuahua character was created independently and that's why we're appealing the verdict," said a Taco Bell spokeswoman. She said the company is in the early stages of preparing the appeal and has 30 days in which to file it.

Five-year legal battle
Lawyers for Joseph Shields and Thomas Rinks argued that the men were entitled to receive interest payments to cover their losses during their five-year legal battle with Taco Bell over their cartoon character "Psycho Chihuahua." Messrs. Shields and Rinks sued Taco Bell in 1998 for breach of contract after Taco Bell refused to pay them for creating the taco-loving dog. The chain contends that its then-agency, Omnicom Group's TBWA/Chiat/Day, Playa del Rey, Calif., created the mascot, who first appeared in a marketing campaign in June 1997.

Messrs. Shields and Rinks claimed they met Taco Bell executives at a 1995 licensing show, and that the chain subsequently requested ideas for a live-action dog, after which talks broke down after several rounds of creative development.

When the two men filed suit several months later, the court dismissed the case on a technicality. They appealed a year after Taco Bell ended the dog campaign, and in July 2001 the Sixth Circuit Court of Appeals in Cincinnati unanimously reversed the ruling.

Supreme Court
Taco Bell later lost a U.S. Supreme Court appeal that led to the jury trial that ended in June, when the jury ordered Taco Bell to pay the initial $30 million. Yum Brands took a $35 million charge including $5 million for interest, during the second quarter ended June 16 to cover the loss. If the company loses its appeal, it will seek reimbursement from TBWA/Chiat/Day and its insurance companies.

Separately, Yum Brands reported August same-store sales for Taco Bell rose 2%, down a percentage point due to the East Coast power outage. Sales during the earlier year period were up 9%.

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