What "reputation" exactly? And how would it be thrown in the mud? I think you're taking yourself way too seriously dude.
And what they're doing is not illegal in their country. I posted it in another response, but in China it's called "sharing". Did you know that owning a gun in most countries is illegal? So is advertising prescription drugs on television. My point is that laws vary from one country to the next. This is how a diverse world economy works. It doesn't make sense to equate legal/illegal with moral/immoral unless we're talking about actual human rights issues.
Lego is well aware that China has different laws than other countries. Yet they still choose to sell and ship products there knowing that their designs, molds, and IP will be copied and used as though it were fully open source. They even announced a new factory there! Every corporation knows that when you open a factory in China you are unofficially licensing every local Chinese factory to use all of your molds and ideas. This risk clearly isn't stopping them from opening a factory there.
But here you are getting all worked up about something that Lego corporate isn't even worried about. I don't get it.