LEGO wins major Intellectual Property lawsuit in China

On 29 December 2020, Shanghai High People's Court rendered the final judgment on the case of "LEPIN" (乐拼) counterfeiting "LEGO", which involves the amount of illegal business operation up to RMB 330 million (USD 50 million approx.). It marks a significant legal victory for the Lego Goup to combat against imitators.

This judgment signals that after a long and arduous effort, LEGO, the Danish toy producer and one of the most popular brands in this world, finally claims its victory over its Chinese rival LEPIN in the copyright infringement case.

Retrospect
This is not the first time that LEGO starts combat against its imitators at China’s courts.

According to the information published on the China Judgment Online website, in May 2017 the Guangzhou Intellectual Property Court made final decisions on the 18 cases regarding copyright infringement and 1 unfair competition case where LEPIN manufactures were held liable for imitating the three-dimensional art works of 18 LEGO sets, multiple LEGO mini-figurines, as well as for carrying out unfair competition acts. The Court ordered the four defendants to immediately cease producing, selling, exhibiting or in any way promoting the infringing products and pay LEGO approximately RMB 4.5 million as damages.

Subsequently in October 2017, LEGO won a case at Shantou Intermediate Court against Bela (博乐), a Chinese toy manufacturer, for infringing the copyrights of the LEGO Group and for unfair competition.

In another case decided in July 2017, the LEGO logo and the LEGO word mark were recognized by the Beijing High Court as “well-known” trademarks (in Chinese: 驰名商标) in China allowing the extended protection on its trademark right under Chinese Trademark Law¹ .

Close look
In the recent final judgment released by the Shanghai High People's Court, the court dismissed the appeal filed by the defendant Li and others, and affirmed the original judgment. According to the original judgment, Li was sentenced to six years in prison for the crime of copyright infringement along with a fine amounting RMB 90 million. The other eight defendants who were hired by Li in conducting the infringement were respectively sentenced to imprisonment ranging from three to four years and six months with different amounts of fines being imposed accordingly.

Since 2015, by imitating, producing and selling toys nearly same as those of LEGO under the brand name “LEPIN”, the 9 defendants started their infringing act intentionally. The methods of conducting such infringement were  not too sophisticated – the defendants began with dismantling and examing the new LEGO sets after purchasing, then put into production the exact copies of those toys at a 1:1 scale in their factories. Eventually, those counterfeits flowed into the market at full blast.

Except for the toys, the packaging design and manuals on LEPIN’S products were also duplicated from those used by LEGO. In addition, the defendants also filed a series of registration of trademarks in classification of toys.

According to the appraisal issued by forensic accounting, the defendants, by means of online and off-line selling, sold out nearly 4.25 million boxes of LEGO counterfeit toys with a  turnover worth over RMB 330 million, including 634 different models from September 2017 to April 2019.

It is held by the court that the nine defendants reproduced and distributed LEGO’s copyrighted artwork for profit without the permission of the copyright owner. Such act has constituted crime of infringement of copyright under Chinese Copyright Law. The court also held that the defendants’ behaviour seriously jeopardised the economic order of the market and the criminal facts and circumstances in this case are severely perilous.

Legal grounds
Pursuant to Interpretation of Supreme People's Court and Supreme People's Procuratorate on Several Issues Concerning the Specific Application of Law in Handling of Criminal Cases of Intellectual Property Infringement effective as of 14 September 2020, courts can impose a fine in accordance with the law by taking into consideration  the circumstances of illegal income derived from the crime, the volume of the illegal business operations, loss caused to the intellectual property rights owner and the harmful effects on the society. The amount of the fine shall be subject to a range between 100% and 500% of the amount of the illegal proceeds or between 50% and 100% of the turnover of the illegal business operations.²

Outlook
LEGO’s winning at China’s courts has marked a continuously progressing IP protection system under China’s legislation. It is expected that, with more revision of laws and regulations being rolled out in the IP arena in the coming years, China is determined to crack down on IP infringement, in particular against international companies and brands.

Meanwhile, for foreign investors who have already or are currently contemplating entering the Chinese market, the lesson that can be learned is that it is critical to have a proactive and comprehensive approach to their company’s IP and trademark protection.

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¹ The second-instance administrative judgment of Shanghai Deguang Trading Co., Ltd., the Trademark Review and Adjudication Board of the State Administration for Marketing Regulation and LEGO JURIS A/S

² Article 10 of   Interpretation of Supreme People's Court and Supreme People's Procuratorate on Several Issues Concerning the Specific Application of Law in Handling of Criminal Cases of Intellectual Property Infringement