UNITED STATES INTERNATIONAL TRADE COMMISSION WASHINGTON, D.C. In the Matter of CERTAIN TOY FIGURINES AND TOY SETS CONTAINING THE SAME

Investigation No. 337-TA-______ (Docket No. 3054)

PROPOSED RESPONDENT’S STATEMENT ON PUBLIC INTEREST In response to the Notice of Receipt of the Complaint and the Solicitation of Comments Relating to the Public Interest published in the Federal Register on February 12, 2015, Fed. Reg. 2015-7878, proposed respondent MEGA Brands Inc. (“Mega Brands”) submits the following public interest statement relating to the Complaint filed by LEGO A/S, LEGO System A/S and LEGO Systems, Inc. (collectively “Lego”) in Certain Toy Figurines and Toy Sets Containing the Same, Docket No. 3054. Lego is a privately held company based in Billund, Denmark that is owned by a Danish family, namely, the Kirk Kristiansen family.

Its global

headquarters are in Denmark and its manufacturing of its products takes place outside the United States, primarily in China. As such, there is a real and serious question about its ability to meet the domestic industry requirement under Section 337. Accordingly, Mega Brands respectfully suggests that this Investigation is a prime candidate for inclusion in the Commission’s Pilot Program for Early Disposition of Certain Section 337 Investigations ("Pilot Program").1 The Pilot Program furthers the public interest in streamlining Section 337 proceedings and avoiding unnecessary litigation through the early resolution of dispositive issues, such as whether the economic prong of the domestic industry is met. See Press Release, Pilot Program Will Test Early Disposition of Certain Section 337 Investigations, https://www.usitc.gov/press_room/documents/featured_news/337pilot_article.htm; see also Certain Products Having Laminated Packaging, Laminated Packaging, and Components Thereof, Inv. No. 337TA-874, Comm'n Op. at 23 (Sept. 3, 2013) ("Laminated Packaging") (terminating investigation based on complainant's failure to establish the existence of a domestic industry in the United States). 1

Mega Brands reserves the right to submit additional comments on public interest issues in response to any further Commission notices.

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Lego’s allegations that it satisfies the economic prong of the domestic industry requirement under 19 U.S.C. § 1337(a)(2) and (3) are on their face suspect in view of Commission precedent. Indeed, what can be gleaned from the publicly available materials suggests that Lego is a Danish company that manufactures its product abroad. See, e.g., Annual Report 2013, pp. 6-7 (reporting Lego’s core creative team of more than 180 designers reside at Lego’s headquarters in Billund, Denmark) (available at http://www.lego.com/enus/aboutus/lego-group/annual-report); Press Release, March 18, 2013 (announcing a “3 digit million Euro figure” investment to build a manufacturing facility in China, along with current factories in Denmark, Czech Republic, Hungary, and Mexico). While Lego at one time did have a U.S. manufacturing facility, it closed in early 2007, and production was moved from Enfield, Connecticut to the Mexican factory. See Lego Picks Up the Pieces

After

Layoffs

and

Moves,

New

York

Times

(Apr.

15,

2007),

http://www.nytimes.com/2007/04/15/nyregion/nyregionspecial2/15ctmain.html. Because the economic prong of the domestic industry is a case dispositive issue, it would be beneficial to the Commission, as well as the private parties, to determine at an early stage in the investigation whether Lego satisfies the domestic industry requirement. Lego must establish, at the time of the filing of the Complaint, that a sufficient industry in the United States exists or is in the process of being established. 19 U.S.C. § 1337(a)(2); see also Certain Video Game Systems and Controllers, Inv. No. 337-TA-743, Comm'n Op. at 4-6 (Jan. 20, 2012), aff'd sub nom., Motiva, LLC v. ITC, 716 F.3d 596, 601 n.6 (Fed. Cir. 2013) (affirming that the date of filing of the complaint is the relevant date at which to determine whether the domestic industry requirement of Section 337 is met). This may be demonstrated by, with respect to articles protected by the patent(s), (a) significant investment in plant and equipment; (b) significant employment of labor or capital; or (c) substantial investment in its exploitation, including engineering, research and development or licensing. 19 U.S.C. § 1337(a)(3). "A complainant's investment in plant and equipment or employment of labor or capital must be shown to be 'significant' in relation to the articles protected by the intellectual property rights concerned." Certain Printing and Imaging Devices and Components Thereof, Inv. No. 337-TA-690, Comm'n Op. at 26 (Feb. 17, 2011) (emphasis added). After determining the extent to which the complainant's investments fall within these statutory parameters, the

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Commission evaluates whether the complainant's qualifying investments are "substantial" as required by the statute. Id. In the present case, Lego bases its domestic industry primarily, if not exclusively, on its allegations that it “has undertaken an extensive and substantial licensing program related to the Domestic Toy Industry.” Complaint, ¶ 108. Commission precedent requires Lego to demonstrate that investment related to “licensing” must occur in the United States. See Certain Multimedia Display and Navigation Devices and Systems, Components Thereof and Products Containing Same, Inv. No. 337-TA-694, Comm'n Op. at 7-8 (Aug. 8, 2011) (Corrected Public Version). Lego alleges that investments in its “overall licensing operations” include activities of employees who “negotiate license agreements, draft license agreements, oversee licensing strategy, and perform marketing activities focused on developing relationships with actual and potential licensees.” Lego further alleges that it “has also invested significant amounts in marketing and sales in the United States.” Id. at ¶¶ 109, 111. Apparently viewing the facts alleged in the Complaint as insufficient, Lego was asked by OUII to provide additional support for its domestic industry allegations. See Letter from Elizabeth A. Alquist to the Honorable Lisa R. Barton (February 18, 2015). The Supplemental Declaration of Soren Torp Laursen (“Laursen Suppl. Decl.”) accompanying the letter from Lego’s counsel cites activities such as “identifying potential licensing partners, negotiating license agreements, approval and quality control of licensed products, and approval of any marketing or advertising of licensed products proposed by licensed partners”; the “design and placement of products, including licensed products, in retail outlets such as Toys-R-Us and Wal-Mart”; “interact[ing] with consumers directly in stores, answer[ing] questions and perform[ing] quality control for products, including licensed products”; and “communicating directly with customers, for example, regarding questions, quality control, and safety issues regarding products, including licensed products” Laursen Suppl. Decl. at ¶¶ 6, 7, 9. Also referenced are “identifying potential infringement of intellectual property assets of LEGO” and “identify[ing] potential licensing partners.” Id. at ¶ 10. While Mega Brands does not have access to the details of Lego’s allegations, which have been designated as confidential, the public portions of the Complaint and Supplemental Declaration suggest that Lego

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is relying primarily, if not exclusively, on licensing activities as its domestic industry.

This investigation

involves claims by Lego that the Respondents’ competing line of children toy products violate certain limited design patents and/or copyrights over figurines of human beings. Notably absent from any public disclosures by Lego are whether the purported licensing activities relate to the design patents and copyrights asserted in this Investigation.2 Mega Brands respectfully submits that the vague allegations of licensing activity fail to establish that Lego has licensing activity within the United States that is related to the asserted patents and copyrights, let alone that such activities are substantial – all as required by Commission precedent. Here, Commission precedent is clear and unequivocal -- Lego has the burden of showing that the asserted investments and activities have a sufficient nexus to the asserted design patents and copyrights. Certain Semiconductor Chips and Products Containing Same, Inv. No. 337-TA-753, Comm’n Op. at 44-51 (Aug. 17, 2012) (reversing finding of domestic industry because complainant did not sufficiently establish a nexus between its investments in licensing and the asserted patents). Similarly, Lego has the burden of demonstrating that any investments and activities that are properly included in the domestic industry, and that relate to the asserted intellectual property involved, are “significant” or “substantial” under the statute. See InterDigital Commc'ns, LLC v. Int'l Trade Comm'n, 707 F.3d 1295, 1299 (Fed. Cir. 2013) (clarifying that the substantial investments in licensing of patents need to be tied to the goods practicing the patents). In the instant Investigation, Lego relies almost exclusively on generalities, which on their face are not only suspect, but clearly fail to establish its burden of tying the relied upon licensing activities to the asserted patents and copyrights – let alone to establish that such linked activities are substantial. A careful review of those allegations – including the following: reliance on sales and marketing (Laursen Suppl. Decl. at ¶¶5-6), “approval of any marketing and advertising” (id. at ¶6), “design and placement of products … in retail outlets” (id. at ¶7), “interact[ing] with consumers directly in stores, answer[ing] questions and perform[ing] quality control for products” (id.), and “communicating directly with customers, for example, regarding questions,

2

Based on public searches on the U.S. Patent and Trademark Office’s and U.S. Copyright Office’s online databases, Lego is the current assignee of more than a hundred patents (with a majority being design patents), and more than two hundred copyrights. See, e.g., U.S.P.T.O. Assignment Database (available at http://assignment.uspto.gov/); Copyright Catalog (available at http://www.copyright.gov/records/).

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quality control, and safety issues regarding products” (id. at ¶9) – demonstrates the thin nature of the domestic industry allegations relied upon. Given the foregoing significant concerns about Lego’s ability to meet the domestic industry requirement for standing before this Commission, Mega Brands respectfully submits that the Commission should investigate this issue first – before any unnecessary expenditure of resources by any party – and, as such, Mega Brands submits that this Investigation is ideally suited for the Commission’s Pilot Program. While Lego has prevented scrutiny of the specific evidence in support of its domestic industry by designating that information as confidential, Mega Brands believes, based on what information can be gleaned from the public version of the Complaint and Supplemental Declaration, as well as the nature and structure of Lego’s business, that it is highly likely that the evidence will show that the economic prong of the domestic industry requirement has not been satisfied. The Pilot Program was designed to identify case dispositive issues such as the domestic industry issue in this investigation where early consideration of that issue will streamline the investigation and conserve valuable Commission and private party resources. Inclusion of this case in the Pilot Program will avoid the need to litigate the infringement, scope and validity of the asserted design patents and copyrights if indeed Lego is unable to meet its burden of proving a domestic industry. Accordingly, Mega Brands respectfully submits that this is an ideal case for the Commission to further the laudable goals that prompted the Commission to launch its Pilot Program in the first place, and that the public interest favors an expedited review of the domestic industry issue in this investigation. Dated: February 20, 2015

Respectfully submitted, By:

/s/ Gary M. Hnath Gary M. Hnath Mayer Brown LLP 1999 K Street, N.W. Washington, DC 20006-1101 202-263-3000 A. John Mancini Mayer Brown LLP 1675 Broadway New York, NY 10019-5820 212-506-2500 Counsel for MEGA Brands Inc.

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CERTIFICATE OF SERVICE I certify that on February 20, 2015, copies of the foregoing PROPOSED RESPONDENT’S STATEMENT ON PUBLIC INTEREST was served upon the following parties as indicated: The Honorable Lisa Barton Secretary U.S. International Trade Commission 500 E Street, S.W., Room 112 Washington, DC 20436

Via EDIS

Margaret Macdonald Director Office of Unfair Import Investigation U.S. International Trade Commission 500 E. Street, S.W., Suite 401 Washington, D.C. 20436

Via Hand Delivery

Elizabeth A. Alquist Eric TeVelde Day Pitney LLP 242 Trumbull Street Hartford, CT 06103

Via Express Mail

Cecilia Zhang Stiber One Canterbury Green Day Pitney LLP Stamford, CT 06901 Counsel for Complainants LEGO A/S, LEGO System A/S, and LEGO Systems, Inc. Tom M. Schaumberg Michael L. Doane Adduci, Mastriani & Schaumberg, L.L.P. 1133 Connecticut Avenue, NW Washington, DC 20036

Via Express Mail

Counsel for Complainants LEGO A/S, LEGO System A/S, and LEGO Systems, Inc. /s/ Robert E. Rude Robert E. Rude

707688396