Lego vs Lepin: An Intellectual Property Battle

The long-standing conflict between LEGO, the Danish toymaker and LEPIN, a sub-brand Guangdong Loongon Animation & Culture Co., Ltd. (广东小白龙动漫文化股份有限公司) has recently etched another judgement to the long line of decisions laid down in the courts in regards to intellectual property rights of foreign entities. Litigation between these two parties tells an all too familiar story for foreign brands investing in the Chinese market, in which opportunistic counterfeiters take advantage of the reputation of a brand, imitate their products and ultimately deceive the public with products of inferior quality, which may bring safety hazard to final users.

Background

The LEGO Group or LEGO, the Danish toy production company, is perhaps best known for the manufacture of LEGO-brand toys, its amusement parks (Legoland), as well as LEGO branded retail stores, movies and video games.

The group has long been fighting counterfeiters in the Chinese courts and it should be noted that LEPIN is not the only counterfeiter of its products in the Chinese market ( e.g. Lele, Bela). In a landmark move in 2017, the Beijing Higher Court passed a ruling to recognize the LEGO logo and the LEGO name in Chinese (乐高) allowing the largest protection on a trademark right under Chinese Trademark Law and ultimately placing LEGO in a better position to pursue trademark infringements.

Upon that basis we may revert back to 2016, when LEGO pursued LEPIN in court, claiming that LEPIN’s manufacturers and sellers plagiarized its copyrighted works, on its packaging and decoration, constituting unfair competition. During the trial, the court outlined that the three-dimensional model and the corresponding LEGO minifigures belonged to the category of art works protected by China’s Copyright Law and as the products of LEPIN are almost identical to that of the LEGO products, the court subsequently ruled that LEPIN had infringed LEGO’s copyright.

Additionally, as the packaging and decoration of LEPIN toys were deemed to be very similar to LEGO, such similarity was deemed enough to lead to confusion among consumers, such behavior may lead LEPIN to obtain transaction opportunities which were not of their own making, damaging LEGO’s trading opportunities and competitive edge violating the Anti-Unfair Competition Law of the Peoples Republic of China. The court ordered that the LEPIN immediately ceased “producing, selling, exhibiting or in any way promoting the infringing products,” and LEGO were to receive around 4.5 million RMB in damages.

A Continuing Struggle

Last January, LEGO received favorable final decisions from the Guangzhou Intellectual Property Court against the appeals raised by defendants of the first-instance rulings on the 18 copyright infringement and one unfair competition cases as outlined in the previous paragraph, the decisions entered into legal effect immediately upon issuance.

Subsequently, on September 2nd, 2020, the Shanghai No.3 Intermediate People’s Court sentenced nine defendants who had designed, produced and sold LEPIN products deemed similar to LEGO products regarding their packaging, design and building instructions to serve prison sentences. The main culprit of which was sentenced to six years and with a fine of 90 million RMB.

The crimes identified by the court reached an amount of more than 330 million RMB, which is an exorbitantly high amount of illegal business revenue in IPR enforcement cases. The court held that the nine defendants had reproduced or distributed LEGO’s copyrighted artwork in their packaging, design and sold for profit without the permission of the copyright owner and had therefore constituted the crime of infringement of copyright.

Conclusion

The above mentioned case history between LEGO and it’s counterfeiters in the Chinese territory is unfortunately not unique, however in examining LEGO’s long arduous route of the protection of its intellectual property, brand owners may be further encouraged to take effective action in order to protect their intellectual property by taking the initiative in reporting evidence of a crime or criminal suspicions to the public security authorities, procuratorate, or ultimately pursuing such counterfeiters in litigation in the People’s Court.

Protection of intellectual property rights is fundamental to protecting the brand reputation of a company. However, as the old idiom goes, prevention is always better than the cure, and although it’s impossible to guarantee that counterfeiters will not seek to infringe upon a company’s brand, foreign investors should keep the following points in mind when seeking to ensure a proactive approach to their company’s intellectual property protection: Effective registration of trademarks, patents & copyrights (although voluntary, it is strongly recommended should your company expect to license or enforce the copyright-protected work), professional assistance for contracts pertaining to any commercial transactions with third parties and especially instances in which a company is engaging in the licensing, or franchising of their intellectual property.

If your company is seeking to register its intellectual property rights, wishes to take the initiative in asserting the protection of its intellectual property rights or is seeking to remedy the infringement of such rights, D’Andrea & Partners has a specific department specialized in the area of protection and utilization of intellectual properties, feel free to email us at info@dandreapartners.com in order to understand how we may assist your company’s IPR needs.