Federal Circuit affirms preliminary injunction against toymaker on grounds that its figurines infringed on copyrights of Lego, but vacated the injunction as it related to toy bricks based on Lego’s patent infringement claim, finding that Lego failed to show irreparable harm relating to those products.
Zuru, Inc., a Hong Kong-based toymaker, began distributing a line of action figurines and plastic play bricks in Walmart stores throughout America and on the store’s website in October 2018. Plaintiff Lego filed an action against Zuru in December 2018, alleging that the figurines and bricks infringed on its long-held copyrights, trademarks, and design patents for Lego figurines, bricks and packaging, and simultaneously sought a temporary restraining order and preliminary injunction. After granting the requested temporary restraining order, the district court held a full round of briefing and a hearing on the preliminary injunction in February 2019; it issued its decision on July 8, 2019, granting Lego’s request for an injunction on the grounds that Lego had shown a substantial likelihood of success on its copyright and trademark infringement claims, as well as on its design patent claim. Zuru appealed to the Federal Circuit. Agreeing with the district court that the Zuru figurines were substantially similar to Lego’s copyrighted action figures, the Federal Circuit affirmed the preliminary injunction as to the action figurines. The court disagreed with the district court’s finding that Lego had shown a likelihood of irreparable harm as regards the play bricks and packaging, however, and vacated the injunction with regard to the sale and distribution of those products.
The Federal Circuit Affirms the Injunction on Distribution of Action Figures Based on Copyright Infringement Claim
The court first addressed the district court’s grant of an injunction based on Lego’s claim that Zuru’s action figures infringed Lego’s Basic Minifigure. Turning first to the question of Lego’s likelihood of success on the merits of its claim, the court agreed with the district court that Lego was likely to succeed. In so doing, the appellate court rejected Zuru’s arguments that (1) the district court’s analysis of Lego’s likelihood of success was flawed because the district court relied on a comparison of the figurines themselves, as opposed to a comparison between Zuru’s figurine and the copyrighted images of the Basic Minifigure, and (2) the court had made clearly erroneous factual findings that Zuru’s action figures were substantially similar to Lego’s Basic Minifigure. Zuru contended that by crediting Lego’s expert’s comparison of Zuru’s action figure to Lego’s sculptural Basic Minifigure, as opposed to the copyrighted image of the Basic Minifigure, the district court had improperly compared Zuru’s product with an unregistered derivative work. The court observed that the translation of the copyright registration image into the physical Basic Minifigure did not add enough originality to warrant additional copyright protection as a derivative work; rather, the Lego Basic Minifigure was just the physical embodiment of the copyrighted images, and thus the comparison was proper. The Court likewise rejected Zuru’s second argument, that the district court improperly relied on a vague concept of a similar feel between the works, and did not give enough weight to the differences between Zuru’s action figures and Lego’s Basic Minifigure. The Court observed that this argument was in direct conflict with the Second Circuit’s guidance to assess the “total concept and feel” of works at issue in determining substantial similarity, and reasserted that the standard was “whether an ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them and regard the aesthetic appeal the same” Because Zuru failed to argue, much less demonstrate, that the products were different in total concept and feel, the Court saw no reason to disturb the district court’s ruling.
The court next addressed Zuru’s argument that Lego had not shown a risk of irreparable harm, insofar as Lego’s claimed harm was too speculative, and that a benefit to Zuru did not necessarily mean harm to Lego. The Court found this argument unavailing, in light of the district court’s findings that the construction toy market was highly competitive, and that Zuru’s sales of infringing action figures would enable it to establish relationships with customers for whom Lego competes. Because these losses would be hard to measure, irreparable harm was likely.
Turning last to the balance of harm, the court rejected Zuru’s argument that the balance of harm tilted toward Zuru. Agreeing with the district court that all the purported harms that Zuru would experience were a result of its own infringing behavior, the court found that the district court did not abuse its discretion in finding that this factor, too, weighed in favor of granting the preliminary injunction.
Because the parties had agreed that upholding the injunction on either copyright or trademark infringement grounds would have the same result, the court declined to discuss the trademark infringement claims.
The Federal Circuit Vacates the Injunction on Distribution of Blocks Based on Patent Infringement Claim
The court next addressed the district court’s grant of an injunction based on Lego’s claim that Zuru’s Max Build More Blocks infringed on Lego’s design patents. Zuru did not dispute that Lego was likely to succeed on the merits of its patent infringement claim, but disputed the district court’s finding that Lego would suffer irreparable harm in the absence of an injunction. While evidence of lost sales alone does not demonstrate irreparable harm, loss of goodwill and market position does. Finding that there was nothing in the district court record to support Lego’s assertions that Zuru’s blocks had inferior “clutch power” (the ability of the blocks to stay locked together), the court ruled that Lego had not submitted sufficient evidence of reputational harm to justify the imposition of the injunction. The district court’s finding that Zuru’s patent infringement would lead to Lego losing market share was also not supported by any record evidence. Accordingly, the court held that the district court had abused its discretion in granting the injunction against Zuru’s distribution of the Max Build More Blocks.
The Federal Circuit Vacates the Injunction on Certain Packaging Based on Copyright Infringement Claim
The court then addressed the district court’s injunction on Zuru’s Makya Toy Block Tape. While Zuru argued that the district court improperly found substantial similarity between its Makya Toy Block Tape packaging and Lego’s Friends line of toys packaging, the court found that the district court’s decision was supported, for the same reasons as discussed with regard to the action figures. Nevertheless, the court found that there was no support for a finding of irreparable harm because Lego had not presented any evidence that the Makya product was inferior to Lego products, and thus there was no potential loss of goodwill. Moreover, Lego does not sell any similar product and cannot show any loss of market share. As with the bricks, the court found that in the absence of irreparable harm, Lego, as the party seeking the injunction, had failed to show that the balance of harm tipped to it. The court found that the district court, in light of the above, abused its discretion in issuing the injunction against Zuru’s Makya Toy Block Tape packaging.
The Federal Circuit Affirms the Bond Amount
Last, the court addressed, and summarily dismissed, Zuru’s argument that the bond amount of $25,000 was insufficient. Observing that the burden falls to the nonmoving party to demonstrate the amount of a bond necessary to prevent the harm of a wrongful issuance of an injunction, and that Zuru had nowhere argued for any appropriate bond amount, the court affirmed the district court’s imposition of a $25,000 bond.
Summary prepared by David Grossman and Erin Smith Dennis.