Cabo Concepts (“Cabo”) was a start-up in the toy industry. It issued proceedings for damages for loss of profit against MGA Entertainment (“MGA”), a dominant toy manufacturer in the relevant market. Cabo claimed that MGA had engaged in anti-competitive exclusionary conduct. This conduct involved MGA threatening to withdraw the supply of its highly successful L.O.L. Surprise! dolls from retailers who also sold Cabo’s Worldeez product. MGA justified this threat by informing the retailers that Cabo’s Worldeez toys “passed off” its L.O.L. Surprise! dolls product.
“Passing off” is an English tort (civil wrong) where a business falsely misrepresents to the public that its product is associated with another company’s successful product. This is usually achieved by using similar branding, advertising and packaging to the successful product, so that the public will be misled and potentially buy the offending product. The remedies for this unfair competition include injunctions to prevent further distribution, damages or an account of profits and court orders for the delivery up or destruction of the offending products.
Mrs Justice Bacon agreed that MGA’s conduct was an abuse of its dominant position, but ultimately rejected the damages claim. This was because Cabo could not prove that it would have secured the profits it claimed without MGA’s anti-competitive conduct; its marketing campaign was not good enough. The conduct did not cause the loss.
This Chancery Division Intellectual Property List decision is an important reminder of how the combination of intellectual property law and competition law can be deployed to bring and defend claims for extensive damages. It highlights both the risks for dominant firms using legal threats to restrict competition, and the challenges faced by start-ups trying to prove financial harm as a result of such conduct.
What happened between Cabo and MGA?
Cabo Concepts launched Worldeez in 2017. It aimed to secure a share of the growing demand for collectable surprise toys. Worldeez featured small figurines concealed in plastic globes. Cabo hoped to emulate the global success of MGA’s L.O.L. Surprise! dolls. Cabo invested heavily in product development and branding, hoping to secure shelf space with major retailers.
According to Cabo, the introduction of Worldeez was quickly met with resistance from the industry heavyweight. Cabo alleged that MGA had contacted major retailers and threatened that it would stop supplying L.O.L. Surprise! dolls to any retailer that chose to stock Worldeez. Cabo pleaded that these warnings were based on false assertions of intellectual property infringement, which had been made not to protect MGA’s rights, but to stifle a potential rival before it could establish itself.
Was MGA’s behaviour unlawful?
The court found that MGA had abused its dominant position contrary to the Chapter II prohibition of the Competition Act 1988 and contrary to Article 102 of the Treaty on the Functioning of the European Union. Bacon J ruled that MGA’s actions went beyond legitimate protection of its intellectual property. In particular, the threats to withdraw supply constituted exclusionary conduct designed to keep Cabo out of the market.
Mrs Justice Bacon also rejected MGA’s claims of passing off as unfounded. She explained that even if MGA’s fears of intellectual property infringement had been genuine, this could not have justified MGA in its conduct in excluding Cabo from a substantial part of the market.
Why did Cabo fail to recover damages?
Despite proving that MGA’s behaviour was anti-competitive, Cabo’s damages claim did not succeed. The judge found that Cabo had not established that it would have achieved the profits it had claimed without MGA’s exclusionary conduct. Cabo’s marketing strategy was weak, and the evidence suggested that Worldeez would have struggled to succeed regardless of MGA’s conduct.
What are the wider implications?
The case clarifies that dominant companies must act with care when asserting IP rights. Using infringement claims to block competition can lead to findings of abuse of dominant position.
For start-ups, the ruling demonstrates that proving abuse of a dominant position is only one part of the challenge. Proving lost profits requires a solid, well-documented business case and realistic financial projections.
How can 3CS help
At 3CS, we support businesses of all sizes with disputes involving intellectual property and competition law. Whether you need to protect your rights or respond to aggressive conduct by competitors, we provide clear, practical advice tailored to your goals. Get in touch today to see how we can help you.
