What’s in a Name? Establishing Irreparable Harm to Brand Equity Can Help Support a Preliminary Injunction

July 23rd, 2019

SUMMARY: To obtain a preliminary injunction in a copyright, patent, or trademark infringement case, a party must establish, among other things, a likelihood of success on the merits of its claims and irreparable harm resulting from the infringement.  The party may demonstrate irreparable harm through evidence showing lost brand equity, likely consumer confusion, lost goodwill, and/or lost market share.  Specifically, as recently held in LEGO A/S v. ZURU Inc., No. 3:18-cv-2045 (AWT) (D. Conn. July 8, 2019), a party may demonstrate irreparable harm to its brand equity by establishing its share of brand equity in the market, the quality of its reputation, and the effort it expended to build up its brand equity would be harmed by the allegedly infringing activity.

In LEGO, the U.S. District Court for the District of Connecticut recently granted a preliminary injunction based on the plaintiff’s showing of likelihood of success on the merits and irreparable harm to its brand absent an injunction. Id.  In particular, the court relied on evidence that harm to the brand equity of the plaintiffs (collectively, “LEGO”) resulting from infringement by the defendant (“ZURU”) would be immeasurable, generational harm. Id. at 40–41.

To determine whether to grant a preliminary injunction in copyright and patent cases, district courts under the U.S. Court of Appeals for the Second Circuit apply a four-factor test consistent with Supreme Court precedent. Salinger v. Colting, 607 F.3d 68, 77, 79 (2d Cir. 2010) (discussing Winter v. NRDC, Inc., 555 U.S. 7 (2008); eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006)).  First, the movant must demonstrate “either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant’s favor.” NXIVM Corp. v. Ross Inst., 364 F.3d 471, 476 (2d Cir. 2004) (citing ABKCO Music, Inc. v. Stellar Records, Inc., 96 F.3d 60, 64 (2d Cir. 1996)).  Second, the movant must demonstrate it is likely to suffer irreparable injury absent an injunction. Salinger, 607 F.3d at 79–80 (quoting Winter, 555 U.S. at 20).  Third, the movant must demonstrate the balance of hardships between the movant and the defendant tips in the movant’s favor. Id. at 80 (citing Winter, 555 U.S. at 20; eBay, 547 U.S. at 391).  Finally, “the court must ensure that the ‘public interest would not be disserved’ by the issuance of a preliminary injunction.” Id. (citing eBay, 547 U.S. at 391).

LEGO is “an industry leader in designing and manufacturing toys and play materials for children of all ages worldwide, including toy building elements, figurines, and toy sets in the construction toy category.” LEGO, slip op. at 2.  LEGO owns various copyrights, design patents, and trademark registrations protecting figurines, bricks, and building elements. Id. at 2–3, 16.  ZURU sells toy sets that include figurines and building bricks. Id. at 4.  LEGO sued ZURU, asserting copyright, patent, and trademark infringement of LEGO’s protected figurines and bricks, and moved for a preliminary injunction to restrain ZURU from “manufacturing, selling, offering for sale, displaying, and importing” allegedly infringing products. Id. at 1.

With respect to the first factor of the preliminary injunction test, the court found LEGO demonstrated a likelihood of success with respect to its copyright, patent, and trademark infringement claims. Id. at 6–37.  For example, the evidence showed “the total concept and feel” of ZURU’s allegedly infringing figurines was substantially similar to LEGO’s copyrighted figurines. Id. at 10, 11–12.  Particularly, a side-by-side comparison and an overlay of images of the figurines “demonstrated there is very little in terms of differences” between LEGO’s and ZURU’s products. Id. at 10–11.

Further, the court concluded LEGO likely would succeed on its trademark infringement claims. Id. at 16–26.  Specifically, the evidence demonstrated it was likely LEGO would establish each of the eight factors of Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 429 (2d Cir. 1961) to show a likelihood of confusion between LEGO’s trademarked Minifigure figurine and ZURU’s allegedly infringing figurine and, thereby, demonstrate trademark infringement. Id. at 16–17; see also id. at 18–26 (analyzing Polaroid factors).

Moreover, after construing the design patent claims, the court concluded the evidence showed ZURU’s bricks likely infringed LEGO’s design patents. Id. at 26–33.  In particular, the court conducted a side-by-side comparison of a “physical specimen of each of the LEGO bricks paired with the relevant Infringing Brick,” and found that “the bricks in each pair are indistinguishable except for extremely small letters identifying each as either a LEGO or ZURU product.” Id. at 32–33.  Also, the evidence, including testimony from LEGO’s expert witness, demonstrated the design patents likely were valid. Id. at 33–37.  Thus, the evidence supported LEGO would likely succeed on the merits of its claims.

Turning to the second factor, the court concluded LEGO demonstrated it was likely to suffer irreparable harm absent an injunction. Id. at 37–38.  Specifically, LEGO’s showing of a likelihood of confusion with respect to its trademark established irreparable harm, in addition to its likelihood of success. Id. at 38 (quoting Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 73 (2d Cir. 1988) (“The most corrosive and irreparable harm attributable to trademark infringement is the inability of the victim to control the nature and quality of the defendant’s goods.”).  Further, LEGO presented testimony that ZURU’s allegedly infringing products were of inferior quality and would cause immeasurable, long-term harm to LEGO’s brand: “‘[I]f you have a child that has a poor experience and they never start playing with Lego, then they are probably not going to be introducing that to their children.  So we don’t just lose that one person’s engagement in our brand, we lose potentially generations of that.’” Id. at 40 (citation omitted).

Notably, the court found ZURU’s expert provided evidence that supported LEGO’s assertion of immeasurable harm to LEGO’s brand. Id. at 40–41.  ZURU’s expert “prepared a chart of the top ten toy companies in terms of brand value” that showed LEGO was “way ahead all other toy companies in terms of brand equity and . . . there was a substantial difference between it and the second place company.” Id. at 40.  Based on his chart, ZURU’s expert agreed LEGO had the “largest amount of brand equity to lose,” which resulted from LEGO’s reputation “‘and a lot of hard work.’” Id. at 40–41 (citation omitted).  The court concluded that, without a preliminary injunction, LEGO would lose market share and ZURU could “establish relationships with customers for whom [LEGO] competes.” Id. at 41–42.  Therefore, the evidence demonstrated LEGO would likely suffer irreparable injury without an injunction.

Finally, the court considered the last two factors, the balance of hardships and the public interest. Id. at 42–45.  Based on LEGO’s showing with respect to the first two factors, the court concluded the balance of hardships was in LEGO’s favor and the public interest favored issuing the preliminary injunction. Id. at 43, 44.  Particularly, the court found any hardship to ZURU resulted from its own deliberate acts despite cease and desist letters from LEGO. Id. at 43.  Further, the court found the public has an interest in fair competition, which would be impeded by ZURU continuing to sell its likely infringing products. See id. at 44–45.

Accordingly, when seeking a preliminary injunction in a copyright, patent, or trademark infringement case, a movant may consider the potential harm to its brand equity by the defendant’s infringing activity.  Particularly, the movant may consider introducing evidence showing how the defendant’s actions may cause customer confusion; long-term, generational customer disengagement with the movant’s brand; and the resulting potential loss in market share and/or competitiveness.  In opposing a preliminary injunction motion, a party should carefully consider whether its evidence would bolster the movant’s position, particularly as to brand equity, goodwill, reputation, and market share.