Without patent, copyright, trade mark or design right protection for its famous building bricks in Canada, Lego tried a “passing off” action on rival Megabloks.
Topic: Unfair competition
Who: LEGO Canada Inc. and Anor –v- Ritvik Holdings Inc and Anor
When: May 2002
Where: Federal Court of Canada – Trial Division, Toronto, Ontario
LEGO Canada brought what was effectively a passing off action against the makers of MegaBloks. This was not the first time that the Scandinavian toy maker had been in dispute with its direct competitor. Here, however, the bone of contention was Ritvik's "MICRO" line of MegaBloks, which were effectively interchangeable with the famous LEGO standard-sized brick. This had been made and marketed in Canada by Samsonite under licence from the LEGO Group between 1961 and 1988. Samsonite's Licence then terminated and LEGO took over the operation direct. Ritvik's MICRO line of building blocks was introduced in Canada in 1991 and these toys now represented approximately one half of Ritvik's worldwide sales. In 2001, Ritvik was the largest toy maker in Canada and was marketing its toy products to more than 100 other countries.
With its patent on the famous LEGO brick expired and no copyright or trademark protection available, LEGO staked this claim on a "passing off" argument, accusing Ritvik of having "directed public attention to its wares soon to be likely to cause confusion in Canada between its wares and the wares of the LEGO Group of companies". The tort of passing off in Canada is very much the same as that in the UK, and the Court had little difficulty in finding that LEGO had established sufficient of the requisite goodwill in the shape of the standard LEGO brick. The next question to deal with was whether Ritvik's use of a similar brick shape in its micro MegaBloks product was giving rise to deception of the public due to a misrepresentation. On the basis of the voluminous survey and other evidence before him, Gibson J was satisfied that LEGO Canada had met the onus on them to establish at least a likelihood of confusion and indeed actual confusion in the Canadian marketplace between the LEGO and Ritvik products.
It is at this point, however that the judgment diverges from the approach that any UK judge would have adopted. In Chancery here in the UK, this finding would have been sufficient to enable the Court to go on to deal with the third element of passing off, namely whether the confusion found was causing the claimant actual or likely damage. Gibson J, however, presumably on the basis of the Canadian approach in this area, felt himself obliged to deal with the question of whether Ritvik had consciously conducted itself so as to induce the confusion which the Court had already found. Here, the Judge was not satisfied that Ritvik had adopted a "deliberate strategy" to generate confusion in the marketplace. Accordingly there was no "misrepresentation" the Court could find, and therefore LEGO's case failed at that point, without a need to deal with the question of damage.
Gibson J went on to rub salt in LEGO's wound by suggesting that "to a very real extent" the LEGO Group had been the author of its own misfortune in the Canadian market place. "Its marketing strategies and practices have been so good", the Judge went on, "that it has left little room, if any, for a competitor such as Ritvik, adopting the purely utilitarian or functional features of the LEGO brick, to distinguish its MICRO MegaBloks from LEGO's bricks", despite the fact that Ritvik had consistently marked its product with the differentiating designation MEGABLOKS.
Having got this far, the Judge might have taken pity on LEGO and opined no further on the now academic question of whether the confusion was causing damage to LEGO. However, the Judge felt impelled to deal with the question having received evidence on it and, to compound LEGO's discomfort, did indeed find that if he had held Ritvik to have consciously misrepresented its products as connected with LEGO's, LEGO would have won the case as a whole. This was because of the Judge's clear view that there was a clear case that LEGO had suffered damage by reason of Ritvik's entry into the Canadian toy market with its MICRO MegaBloks line.
On top of this, Gibson J also held quite clearly that despite LEGO's delay in bringing action against Ritvik, who had launched their product as long ago as 1991 in Canada, this did not operate so as to give Ritvik any form of laches or acquiescence defence, although LEGO would not have been able to recover damages in respect of any Ritvik activity earlier than 6 years before this action had been started.
Why this matters:
The civil wrong of passing off is notoriously difficult to establish. This is the case here in England, even without a need for the claimant to establish that the defendant intentionally promoted or sold the product in question so as to give rise to confusion in the marketplace and damage to the claimant. Assuming Gibson J's understanding of the Canadian law of passing off is correct, (a point which will one suspects be sorely tested on appeal) it can be seen that although this tort survives in Canada as well as other parts of the Commonwealth, it is clearly even more difficult to establish in Canada than in the UK given the apparent need to prove what is effectively intention on the part of the defendant.