Toy Wars - Cabo Concepts v MGA Entertainment

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Jane Lambert

 Patents Court (Mr Justice Mellor) Cabo Concepts Ltd v MGA Entertainment (UK) Ltd and another  [2021] EWHC 491 (Pat) (4 March 2021)

Yesterday I mentioned the cake war between Marks & Spencer and Aldi (see Jane Lambert Cake Wars 17 April 2021 NIPC News).  Today I discuss the litigation between the suppliers of the Worldeez and LOL Surprise! toys,  If you have never heard of either, this video LOLSurprise Lil Sister vs. Worldeez NEW! Who will win!?! by Adulting With Children should enlighten you.  At the very least you should appreciate the children's pleasure as they unwrap their packages.

The Dispute

MGA's LOL Surprise! dolls appear to be well established in the UK market.  They are described at para [6] of Mr Justice Mellor's judgment in Cabo Concepts Ltd v MGA Entertainment (UK) Ltd and another [2021] EWHC 491 (Pat) (4 March 2021).  Cabo Concepts says that it had planned to launch its Worldeez products in the UK but was forced to abandon the market because of certain communications between MGA Entertainment and a number of British toy distributors.  It alleges that  MGA Entertainment (UK) Ltd and its US holding company, MCA Entertainement Inc., entered anti-competitive agreements, abused a dominant position and made unjustified threats.  It has brought an action for damages against those companies for infringements of arts 101 and 102 of the Treaty on the Functioning of the European Union and s.2  and s.18 of the Competiton Act 1998 and also for unjustified threats within the meaning of s.70 of the Patents Act 1977.

The Case Management Conference

CPR 63.2 (2) requires claims to which Section 1 of Part 63 Practice applies to be started in the Patents Court or the Intellectual Property Enterprise Court.   Those cases include any claim under the Patents Act 1977.  Even though it was only a relatively unimportant part of the claim, the threats action was enough to bring it within the scope of CPR 63.2 (2).  In accordance with para 5.3 of the Part 63 Practice Direction, the parties agreed the issues and most of the directions for the trial of the action.  However, there remained three upon which they could not agree:

  • whether there should be a split trial in accordance with the usual chancery practice or whether liability and damages should be decided in one go;
  • whether the case should be transferred to the Competition List or stay where it is for listing before an assigned judge with experience of competition law; and
  • what disclosure should be ordered.
The CMC took place before Mr Justice Mellor on 26 Feb 2021. He delivered his judgment on those  issues on 4 March 2021.

Transfer to the Competition List

The MGA companies applied for the transfer of the case to the Competition List on the ground that the centre of gravity of this claim lies in the competition claims.  His lordship did not agree because the alleged unjustified threats are just some of the communications relied upon. It was, however, agreed that 
  • the time that would be taken up at trial with the IP aspects would be much less than that needed to resolve all other issues, 
  • in terms of technical complexity, this case is at the very lowest end of the scale, 
  • the issues could be tried by any chancery judge and that 
  • it would be desirable for the action to be tried by a judge with expertise in competition law.
The learned judge noted that the Competition List was not a specialist list in the sense that the Patents Court is a specialist list and that the effect of a transfer would be to take a case with a patents issue out of the Patents Court and into the general Chancery Division.  He also noted that 10 judges had been assigned to the Patents Court and 6 of them had experience of competition cases.  He could not docket the case to one of those judges but he was sure that the listing officers would try to place the case before such a judge.   For all those reasons he declined to direct a transfer.

Disclosure

The parties had agreed that the Disclosure Pilot in PD51U did not apply.  The claimant sought "request-led, search-based disclosure by reference to issues and/or categories of documents, and disclosure of known adverse documents". The defendants asked for issue-based disclosure under CPR31.5 (7). Each party filed disclosure reports but the judge did not find either of the reports very helpful.  He pressed the parties to explain their objection to the disclosure pilot. In their responses to the judge, each side agreed to accept the pilot.  His lordship proposed a number of modifications to the pilot in paras [43] and [44] of his judgment.  He directed the parties to try to agree an extended disclosure proposal indicating that he would sit again in an adjourned CMC should they be unsuccessful.

Split Trial

The usual practice in IP cases is to hold a trial to determine liability and an account of profits or inquiry as to damages to determine any pecuniary remedy to which a claimant might be entitled.  However, it is possible to depart from that practice to ensure that proceedings are dealt with justly and at proportionate cost.   Mr Justice Hildyard had propounded the following test in Electrical Waste Recycling Group Limited v Philips Electronics UK Limited and Others [2012] EWHC 38 (Ch) between paras [5] and [8]:

"[5] Where the issue of case management that arises is whether to split trials the approach called for is an essentially pragmatic one, and there are various (some competing) considerations. These considerations seem to me to include whether the prospective advantage of saving the costs of an investigation of quantum if liability is not established outweighs the likelihood of increased aggregate costs if liability is established and a further trial is necessary; what are likely to be the advantages and disadvantages in terms of trial preparation and management; whether a split trial will impose unnecessary inconvenience and strain on witnesses who may be required in both trials; whether a single trial to deal with both liability and quantum will lead to excessive complexity and diffusion of issues, or place an undue burden on the Judge hearing the case; whether a split may cause particular prejudice to one or other of the parties (for example by delaying any ultimate award of compensation or damages); whether there are difficulties of defining an appropriate split or whether a clean split is possible; what weight is to be given to the risk of duplication, delay and the disadvantage of bifurcated appellate process; generally, what is perceived to offer the best course to ensure that the whole matter is adjudicated as fairly, quickly and efficiently as possible.
[6]. Other factors to be derived from the guidance given by CPR Rule 1.4, which reflect a common sense and a pragmatic approach, may include whether a split would assist or discourage mediation and/or settlement; and whether an order for a split late in the day after the expenditure of time and costs might actually increase costs.
[7]. All these sorts of factors seem to me to be potentially relevant and need to be taken into account in what is essentially a pragmatic balancing exercise in assessing how the case is likely to unfold according to whether there is or is not a split.
[8] It follows that each case falls to be assessed by reference to its own facts, features and peculiarities. Further, the assessment has to be made before the Court can responsibly take any reliable view as to the prospects of success, and thus as to whether quantum will be a live issue or not."

Mr Justice Mellor said that the real dispute between the parties centred on two main points which he mentioned at para [48] of his judgment:

"The first main point is whether it is possible to define a split with clarity – or 'a clear demarcation' – so as to avoid duplication and attendant difficulties. The second is whether bifurcation is desirable because of the number of potential permutations of findings at stage 1, each of which, it is said, could or would lead to a different enquiry at stage 2 such that, if you had a split trial, the necessary framework would be identified before embarking on stage 2. As will appear, in this case these are not separate points, but closely related."

After considering the issues in the case, the learned judge decided at [77]:

"........ a split will involve duplication of witnesses and some of the evidence. Furthermore, two trials will inevitably cost more than a single trial and it will take much longer to resolve the dispute. Contrary to the Claimant's submission, considerations of efficiencies, cost savings and time to achieve resolution all point towards a single trial."

For all these reasons the judge concluded that this case should go forward to a single trial at which liability, causation and quantum will all be decided.

Final issues

Mr Justice Mellor ordered the trial to be listed with an estimated time of 4 weeks.  He directed sequential exchanges of skeleton arguments.  He rated the technical complexity at 1 and indicated that it should be tried by a judge with expertise in competition law.

Further Information

Anyone wishing to discuss this article or threats actions or competition law generally may call me on 020 7404 5252 during office hours or send me a message through my contact page.

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