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Lego Systems Inc.'s decision to wait 13 years before filing a lawsuit against a company that sells miniature figures similar to Lego's copyrighted products may ultimately preclude the company from succeeding on its copyright infringement claims, the U.S. District Court for the District of Connecticut said July 11 (Lego A/S v. Best-Lock Construction Toys Inc., D. Conn., No. 3:11-cv-01586-CSH, 07/11/12).
However, the court refused to make a determination on whether Lego's claim was barred by laches based on the record presently before it. It said discovery was needed in order to determine if, after learning of the allegedly infringing product, Lego unreasonably delayed in filing its suit.
The court also rejected the defendant's argument that the Lego's miniature figures are functional and thus not subject to copyright. Some elements of the toys, such as the straight legs of each figure, are functional, the court said. However, other elements, such as the cylindrical shape of the head and the trapezoidal shape of the body are sculptural elements subject to copyright protection, the court said.
Lego Systems Inc. is the U.S. affiliate of the Denmark-based toy manufacturer Lego Group.
Since 1978, Lego has manufactured and sold “minifigures.” These figures all have the same human-like shape, but have varying two-dimensional facial expressions and clothing. The toys are designed so that they can be disassembled in order to mix and match different parts. Each minifigure has a cylindrical head, a cylindrical neck, a trapezoidal torso, bent arms, hooked hands, and square block-like feet. The figures are also designed to attach to Lego's other products.
Lego in 1994 registered two copyrights for its minifigures with the U.S. Copyright Office (VA 655-104, VA 655-230).
Best-Lock Construction Toys Inc. is a Lancashire, England-based toy manufacturer that in 1998 began selling its own minifigures in the United States. Best-Lock's toys are compatible with Lego's products, and are the same size and shape as the Lego minifigures. In fact, the Best-Lock toys are similar in almost every way to the Lego figures except that they are different colors, have different two-dimensional facial representations, and have different clothing.
Best-Lock estimated that its minifigures have yielded over $50 million in revenues since being launched in 1998.
In July 2011, the U.S. Customs and Border Protection for the first time seized a Best-Lock shipment of toys bound for the United States. CBP sent Best-Lock a letter stating that the seizures was being conducted because the toys infringed the '104 copyright.
In October 2011, Lego filed the instant action asserting claims of copyright infringement, defamation, and violation of the Connecticut Fair Trade Practices Act. Lego seeks a injunctive relief preventing Best-Lock from making or selling its minifigures in the United States. Lego also seeks damages.
In Best-Lock's answer, it attached a counterclaim seeking declarations that the relevant copyrights are invalid, and that its products do not infringe. Best-Lock also seeks damages and an injunction based on CBP's seizures,
Best-Lock later moved for a preliminary injunction in order to prevent Lego from asserting its copyrights, and to prevent CBP from seizing and detaining Best-Locks's products. In that motion, Best-Lock argued that the copyrights were invalid and therefore Lego was estopped from asserting them.
The court sua sponte raised the issue of laches, entering an order directing the parties to respond to the question of whether Lego's copyright infringement claim was barred by its delay--from 1998 until 2011--in filing its lawsuit. The instant order addresses those supplemental filings.
Senior Judge Charles S. Haight Jr. began his analysis by noting that in Salinger v. Colting, 607 F. 3d 68, 94 USPQ2d 1577 (2d Cir. 2010) , the Second Circuit adopted the four-factor test for preliminary injunctions that was set forth by the Supreme Court in eBay Inc. v. MercExchange LLC, 547 U.S. 388, 78 USPQ2d 1577 (2006) (97 PTD, 5/19/06). Accordingly, in order to prevail Best-Lock needed to demonstrate a likelihood of success on the merits, that it would suffer irreparable harm if the injunction did not issue, that the balance of the hardships weighed in favor of the issuance of an injunction, and that the public interest would be harmed by an injunction.
As to the first factor, Best-Lock argued that it was likely to succeed because: (1) Lego is foreclosed by the doctrine of equitable estoppel from enforcing its copyrights in the minifigures; (2) the allegedly protected elements of the toys are functional and thus the copyrights are invalid; (3) Best-Locks's products do not infringe the Lego copyrights; and (4) laches bars all of Lego's claims.
The court examined each argument.
The court noted that in order to prevail on laches a defendant need only prove that the plaintiff unreasonably delayed in filing its suit and that the defendant suffered prejudice as a result of this delay. However, while the doctrine of laches is relatively straight forward, the court said its potential application to this case was anything but. The court said that the supplemental briefings raised “a number of questions,” including:
(1) Does the equitable doctrine of laches apply at all to an action for copyright infringement, such as the one at bar?
(2) Assuming that laches is applicable in principle to this case of copyright infringement, and assuming further that Lego has been guilty of laches, what is the effect in practice of laches upon (a) Lego's equitable claim for an injunction, and (b) its claims at law for damages caused by Best-Lock's infringements?
As to the first question, the court found instructive two decisions by the U.S. Court of Appeals for the Second Circuit.
In the first case, West Publishing Co. v. Edward Thompson Co., 176 F. 833 (2d Cir. 1910), the Second Circuit refused to grant an injunction against Thompson despite rival legal publisher West's clear demonstration that Thompson's publications were infringing. West waited more than 16 years after learning of the infringement before bringing its suit, and thus an injunction would unduly prejudice Thompson, the court held.
More recently, the court in New Era Publications International v. Henry Holt and Co., 873 F.2d 576, 10 USPQ2d 1561 (2d Cir. 1989), refused to enjoin the publication of a biography that contained unflattering information about the L. Ron Hubbard, the founder of the Church of Scientology. Though the biography contained material that infringed certain copyrights, the plaintiff's delay of over two years in filing a suit--which it only filed after the defendant had shipped its first printing of the book--prejudiced the defendant, New Era held.
These two cases demonstrate that laches can clearly be used to prevent a plaintiff from prevailing on a claim for injunctive relief, but the court noted that the question on damages was less clear. On this point, the court again returned to the New Eraopinion, quoting, among other passages, the following: “Such severe prejudice, coupled with the unconscionable delay already described, mandates denial of the injunction for laches and relegation of New Era to its damages remedy.”(emphasis added by court).
This clearly suggests that while laches can prevent injunctive relief, it may leave intact damages that are caused by copyright infringement, the court said.
There is no whiff of dicta in the Second's Circuit's decision mandating “relegation of New Era to its damages remedy.” The case clearly holds that denying New Era an injunction did not automatically disentitle it from recovering damages at law. West is to the same effect: That a copyright plaintiff may recover damages at law, even if barred by laches from obtaining an injunction, is powerfully articulated by the court of appeals as a matter of policy.
Thus, even if laches prevents Lego's prayer for injunctive relief, it cannot bar the company's entitlement to damages, the court said.
The court then noted that while West and New Era are instructive on whether damages can be barred by laches, they “do not resolve” the related question presented by this case. The court articulated that question as: “Whether laches may in any circumstances bar a legal claim for damages in a copyright infringement case is complicated by the statute of limitations in the Copyright Act, 17 U.S.C. § 507(b), which provides: 'No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.' ”
The court said that though Best-Lock began selling its product in 1998, Lego's action would be timely under Section 507(b) for any infringement that occurred within three years of the filing of its complaint.
Best-Lock argued that laches barred even claims that were timely filed under the Copyright Act. The court was unconvinced. It noted that the two opinions in the U.S. District Court for the Southern District of New York in 2006 noted that while the Second Circuit has not yet weighed in, there is a circuit split over whether timely filed claims under the Copyright Act can be barred by laches.
The courts of appeals that have addressed the application of laches to copyright infringement claims have reached different conclusions. The Ninth Circuit allows laches to bar copyright infringement claims whether the relief sought is legal or equitable. The Fourth Circuit has ruled that the doctrine of laches never bars a timely infringement claim. The Tenth Circuit takes a third approach, ruling that laches is available to bar a timely infringement claim in 'rare cases.' The Second Circuit has not decided the issue.
Similarly, the second opinion, Price v. Fox Entertainment Group Inc., 86 USPQ2d 1378 (S.D.N.Y. 2007) (22 PTD, 2/2/07), noted, “The circuits are split on this issue and the Second Circuit's silence has led to some confusion within this district as well.”
In the case at bar, and in the absence of Second Circuit authority compelling a contrary conclusion, I am not prepared to hold that laches can never be a bar to a copyright infringement claim for damages filed within the Act's three-year limitations period. The existence of laches vel non depends upon the facts of each case. There must be a further factual inquiry in this case.
The factual inquiry must resolve whether Lego unreasonably delayed before filing its suit, the court said. If Best-Lock can demonstrate that the allegedly infringing minifigures first appeared in commerce in 1998, and that those products were marketed and competed directly with Lego's products, then it very well may prevail on laches, the court said. On the other hand, the court said that Best-Lock would have a more difficult time succeeding on laches if the evidence demonstrates that the allegedly infringing minifigures did not appear in commerce until 2011.
“The problem is that the present record does not reveal with sufficient clarity when Best-Lock first introduced into commerce the allegedly infringing figures, or when Lego first became aware of them,” the court said. It concluded that discovery was necessary to “explicate” these issues.
Best-Lock's equitable estoppel argument also to some extent required it to demonstrate that Lego failed to act once it learned of the sale of the allegedly infringing product. Specifically, the court noted:
A copyright defendant invoking equitable estoppel must show that (1) the plaintiff had knowledge of the defendant's infringing acts, (2) the plaintiff either intended that the defendant rely on his acts or omissions or failed to act in such a manner that the defendant had a right to believe that it was intended to rely on the plaintiff's conduct, (3) the defendant was ignorant of the true facts, and (4) the defendant relied on the plaintiff's conduct to its detriment.
Best-Lock argued that Lego's failure to asserts its copyrights from 1998 until 2011 induced it to continue to manufacture the minifigures. Lego countered that Best-Lock has not established that the minifigures that debtued in 1998 are similar to the current versions, and thus there is no evidence of “continuous, long-term” infringement.
The court determined that though Best-Lock's “minifigures have changed over the years, they have consistently had an appearance very similar to that of Lego's minifigures.” Indeed, the court noted that the minifigures Best-Lock sold between 1998 and 2005 “had cylindrical heads, hooked hands, bent elbows, trapezoidal torsos, straight legs, square feet, and painted-on facial features, and were similar in size to the figures sold at present.” It added, “These are essentially the characteristics that, in Lego's view, infringe its copyrights.”
Given that Best-Lock began selling its product in the United States in 1998, and that Lego is a large company that is presumably aware of its competition, “it strains credulity to imagine that during this 13-year period (1998 to 2011), Lego was blissfully unaware of the activities of Best-Lock, a significant competitor in this specialized toy market,” the court said. Nonetheless, the court said that its inability to determine, on the present record, if Lego unreasonably delayed in its suit after learning of the alleged infringement complicates Best-Lock's equitable estoppel defense in much the same was as it complicated the laches defense.
However, even without reaching a conclusion on the first element, the court said Best-Lock was not entitled to prevail on its equitable estoppel theory. Both the second factor and the third factor weighed against Best-Lock, the court concluded.
Specifically, the court found that at least some of Lego's minifigures were affixed with copyright notices, and therefore there was no omission upon which Best-Lock could rely, and so it failed to establish the second element of the doctrine.
Best-Lock also failed to establish that it was unaware that Lego's minifigures were copyright protected, the court said. Accordingly, the third element was not met. Thus, although Best-Lock did establish that it relied on Lego's conduct to its detriment, the court said that alone did not entitle it to relief under equitable estoppel. Rather, “Best-Lock must satisfy all four elements of the test for equitable estoppel to establish that Lego is estopped from enforcing its copyrights in this action.”
Best-Lock argued that the elements that Lego sought to protect through its copyright registrations were functional, and thus not subject to copyright protection. The court disagreed.
The relevant standard is found in Section 102(a)(5) of the Copyright Act which extends protection to “pictorial, graphic or sculptural works.” This provision, however, is limited by Section 101's exclusion from protection “works of artistic craftsmanship insofar as their form but not their mechanical or utilitarian aspects are concerned.”
Quoting Hasbro Bradley Inc. v. Sparkle Toys Inc., 780 F.2d 189, 228 USPQ 423 (2d. Cir 1985), the court noted that relevant case law “has established that toys can be 'pictorial, graphic or sculptural works.' ”
The Second Circuit has also determined--though the court noted that the determination has not been widely accepted by other circuits--that if an element is “conceptually separable” from the underlying product then it is eligible for copyright protection.
The court noted that conceptual separability doctrine was most recently, and most forcefully, upheld when the Second Circuit reversed, remanded, and criticized Judge Kimba Wood of the U.S. District Court for the Southern District of New York for concluding on a Rule 12(b)(6) motion that Halloween costumes are not eligible for copyright protection as a matter of law. Chosun International Inc. v. Chrisha Creations Ltd., 413 F.3d 324, 75 USPQ2d 1309 (2d Cir. 2005). The lower court should have given the plaintiff the opportunity to demonstrate whether Halloween costumes had separable design elements that afford them copyright protection separate from their “clothing” function as useful articles, Chosun said.
Here, the court both praised Judge Wood, and took a dig at the conceptual separability doctrine, which it acknowledged was controlling.
“While one may admire the intellectual courage Judge Wood displayed in Chosun by declining to consider conceptual separability, I do not enlist under her banner, which proclaimed the incoherence and unworkability of conceptual separability in copyright cases,” the court said. It added, “The Second Circuit has effectively shredded that banner.”
The question is, “What is the utilitarian function of a toy?” the court said. The court again noted that there are no Second Circuit cases providing guidance for how to determine the functionality of a toy. Nonetheless, other district court cases led the court to conclude, “ '[F]unctional' aspects of the minifigures are those that enable the attachment of one piece to another or movements such as the movement of the legs relative to the torso.”
With this definition in mind, the court determined that just three of the 12 elements identified by Lego were functional. Those three were the straight legs, the size of the minifigures, and the proportions of the features in relation to the figure as a whole. The remaining elements, including the shape of the head, the trapezoidal body, and the square feet, were sculptural.
The court determined that the copyrights were valid, and that Best-Lock had not demonstrated a likelihood of success on the merits. Accordingly it declined to issue a preliminary injunction.
Lego is represented by Catherine Dugan O'Connor of Day Pitney, Stamford, Conn. Best-Lock is represented by Dena M. Castricone of Murtha Cullina, New Haven, Conn.
Opinion at http://pub.bna.com/ptcj/111586July1112.pdf
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