Taco Bell Is Ordered to Pay Up in Dog Fight

Taco Bell felt the Chihuahua’s bite Wednesday.

A federal jury in Michigan ordered the Irvine-based fast-food chain to pay $30 million to two men who said the company stole their talking Chihuahua character, which ended up captivating consumers in a wildly popular three-year ad campaign.

The verdict against Taco Bell, a division of Yum Brands Inc., is the latest chapter in a lawsuit first filed in 1998 by Joseph Shields and Thomas Rinks. The two Michigan marketing executives said the chain used an offspring of their “Psycho Chihuahua” character after breaking off negotiations.

The high-strung talking dog starred in Taco Bell television commercials beginning in 1997, becoming a cult hit, with Web sites and chat rooms devoted to the animal.

Yum, which also owns the KFC and Pizza Hut chains, said it will appeal the verdict, but will take a second-quarter charge of 6 cents a share, excluding interest, as a result of Wednesday’s jury award.

The company also said that if its appeal is unsuccessful, it will seek reimbursement from its insurance carriers and from its former ad agency, TBWA/Chiat/Day.

“Taco Bell continues to strongly believe that the Chihuahua character was created by the Chiat/Day advertising agency, not the plaintiffs,” the company said.

The ads featured a live Chihuahua named Dinky that would say “Yo quiero Taco Bell,” Spanish for “I want Taco Bell.” The campaign, which ended in 2000, led to the company licensing toys, T-shirts and other products featuring the tiny animal.

In one ad, the canine was seen cavorting on a basketball court and proclaiming “Hasta la vista, Whopper” as it promoted the chain’s Mexican fast food over rival Burger King’s sandwich.

In another ad, the dog tries to lure movie monster Godzilla by saying “Here, lizard, lizard,” then sees the beast and notes, “Uh-oh, I think I need a bigger box.”

Rinks and Shields said they developed the Chihuahua as a live-action character at Taco Bell’s request.

“After Taco Bell approached us, they just went ahead and used the character that we had created without paying for it,” Rinks said. The U.S. District Court jury agreed.

The award was based on a percentage of the $500-million campaign, Rinks and Shields said.

“Now that we’ve been vindicated, we plan to aggressively pursue licensing opportunities with our Chihuahua character,” Rinks added.

Shares of Yum Brands, which is based in Louisville, Ky., rose 42 cents to $28.06 on the New York Stock Exchange.