Federal Circuit Discusses the Meaning of "Irreparable Harm" in LEGO Case

The case, decided last week, is LEGO A/S v. Zuru, Inc. (nonprecedential opinion by Judge Clevenger, joined by Judges Wallach and Hughes), and involves allegations of copyright, trademark, and design patent infringement.  More specifically, the plaintiff asserted copyright and trademark claims against defendant's action figures; design patent claims against defendant's bricks; and a copyright claim directed against an image, allegedly substantially similar to that of a LEGO figurine, found on the packaging of defendant's "Toy Tape" product.  The court affirms the entry of the preliminary injunction against the action figures on copyright grounds (not reaching the trademark claims).  I'll omit the discussion of substantive copyright law here, but note the Federal Circuit's discussion of irreparable harm:

. . . the district court found that: (1) “the construction toy market is highly competitive and . . . selling products that infringe on . . . LEGO[’s] . . . copyrights would allow ZURU . . . to increase its sales and market share, and would also enable it to establish relationships with customers for whom . . . LEGO . . . competes,” . . .  and (2) LEGO would likely suffer lost goodwill and damaged reputation absent an injunction. With respect to the latter finding, the district court relied on a social media post noting that while ZURU’s Action Figures were “[a]wesome,” a problem is that “the bod[ies] come[] apart extremely easily.” . . . The risk of consumers associating defective products with the LEGO brand-name is apparent. According to the district court, “[t]hese injuries are unquantifiable.” LEGO, 2019 WL 4643718, at *17.

Harm might be irremediable, or irreparable, for many reasons, including that a loss is difficult to replace or difficult to measure, or that it is a loss that one should not be expected to suffer. Salinger, 607 F.3d at 81. Thus, where LEGO’s “losses would be difficult to measure and monetary damages would be insufficient to remedy the harms,” the Second Circuit has found that irreparable harm is likely. WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 286 (2d Cir. 2012).

Accordingly, we find that the district court did not abuse its discretion in finding a likelihood of irreparable harm to LEGO absent a preliminary injunction.

As for the design patent claim, however, the court vacates the injunction despite the defendant's not disputing that LEGO is likely to succeed on the merits.  The problem lies with the lack of evidence of irreparable harm on this claim:

At oral argument, counsel for LEGO stated that the district court relied on two things to show irreparable harm: (1) that absent an injunction, LEGO would effectively be forced into a compulsory license; and (2) that LEGO would suffer a loss of goodwill and brand equity because the accused Max Build More Bricks’ “clutch power,” i.e., their ability to remain stuck together, is inferior. . . . However, counsel for LEGO admitted that the compulsory license argument is circular, because the result of not being enjoined necessarily entails allowing the alleged infringer to continue selling their accused products in every case. . . . Additionally, when pressed, counsel for LEGO could not point to any record cite supporting the notion that the Max Build More Bricks, as opposed to the ZURU Action Figures, had inferior “clutch power.” . . . After reviewing the evidence of record, this Court finds that the only references to “clutch power” are with respect to the allegedly infringing ZURU Action Figures, not the Max Build More Bricks. Thus, LEGO’s compulsory license and “clutch power” arguments are insufficient to show that LEGO would likely suffer irreparable harm absent a preliminary injunction on the allegedly infringing Max Build More Bricks.

In support of its finding, however, the district court also found that LEGO has “shown that the patent infringement will lead to . . . LEGO . . . losing market share.” . . . Specifically, the district court found that LEGO’s bricks covered by the Asserted Patents and the corresponding Max Build More Bricks are virtually indistinguishable . . .  and that, as a result, LEGO is at risk of losing sales and market share to the defendant. However, as counsel for LEGO admitted at oral argument, there is no evidence of this. 

Accordingly, because every stated rationale for the district court’s finding is either incorrect or unsupported, we find that the district court abused its discretion in finding that LEGO would likely suffer irreparable harm absent a preliminary injunction with respect to its design patent infringement claims. . . .

For the reasons discussed above with respect to the ZURU Action Figures, the district court did not abuse its discretion in finding that ZURU’s injuries result solely from its own deliberate acts of alleged infringement. Nevertheless, because we find that the district court incorrectly found that LEGO would be irreparably harmed absent an injunction directed to the allegedly infringing Max Build More Bricks, ZURU’s own inability to show harm does not prevent us from finding that LEGO, as the party seeking a preliminary injunction, failed to demonstrate that the balance of equities tips in its favor.

As for the remaining copyright claim, the court agrees that there is a likelihood of success on the merits, but again vacates for lack of irreparable harm:

ZURU alleges that the district court abused its discretion in finding that LEGO would likely suffer irreparable harm because: (1) there is no evidence that the MAYKA Toy Tape is lacking in quality or in any way inferior to LEGO products; (2) the LEGO witness testimony and one customer comment on which the court relied was not directed to the MAYKA Toy Tape; and (3) LEGO does not sell a product similar to the MAYKA Toy Tape. We agree.

The court also finds, however, that the balance of hardships favors the defendant on this claim.

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In other non-patent, but remedies-related news, here is the transcript of last Tuesday's oral argument in the Romag case, dealing with the question of whether disgorgement of profits in a trademark case requires a showing of willful infringement.  For previous discussion on this blog, see here.  An article on the oral argument is available on Law360.