Zuru New Zealand Ltd v LEGO Juris A/S
[2023] NZHC 1808
•12 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-875
[2023] NZHC 1808
BETWEEN ZURU NEW ZEALAND LIMITED
First Plaintiff and First Counterclaim Defendant
ZURU TOYS NEW ZEALAND LIMITED
Second Plaintiff and Second Counterclaim DefendantZURU INC
Third Counterclaim DefendantAND
LEGO JURIS A/S
Defendant and First Counterclaim Plaintiff
LEGO A/S
Second Counterclaim Plaintiff
Hearing: 8-11, 15-18 and 22-23 May 2023 Appearances:
J W J Graham and T Cleary and L C Bercovitch for Plaintiffs and Counterclaim Defendants
K T Glover and J Oliver-Hood for Defendant and Counterclaim Plaintiffs
Judgment:
12 July 2023
JUDGMENT OF LANG J
This judgment was delivered by me on 12 July 2023 at 11.30 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
ZURU NEW ZEALAND LTD v LEGO JURIS A/S [2023] NZHC 1808 [12 July 2023]
TABLE OF CONTENTS
Background [5]
The LEGO trade mark and logo [25]
The compatibility statements [27]
The pleadings
ZURU’s claims [32]
LEGO’s counterclaim [35]
Approach [38]
Issues [47]
A The alleged trade mark infringement
Issue 1: Would the use of the word “LEGO” in the original compatibility statements be likely to be taken by a substantial number of prospective purchasers as being use of the word as a trade mark?
Relevant principles [49]
Analysis [78]
Conclusion [103]
The proposed compatibility statements [109]
Issue 2: Did Zuru use the LEGO trade mark in accordance with honest practices in commercial matters? [114]
Relevant principles [115]
Analysis [119]
Conclusion [131]
Issue 3: Would the use of the LEGO trade mark in the original
compatibility statements be protected by s 94 of the Trade Marks Act? [135]
Did the use occur in the context of comparative advertising? [138]
Did the use of the LEGO trade mark, without due cause, take unfair advantage of or cause detriment to, the distinctive character or the
repute of the trade mark? [157]
Issue 4: Is the use of the word “LEGO” in the original compatibility
statement protected by s 95 of the Trade Marks Act? [162]
Does the use of the LEGO trade mark indicate a characteristic of
ZURU’s products? [165]
Is it reasonably necessary for ZURU to use the LEGO trade mark
to indicate the intended purpose of its products? [169]
B Passing off [177]
Does LEGO’s trade mark possess an element of reputation or goodwill? [178]
Has ZURU used the LEGO trade mark so as to confuse or deceive
the relevant public? [179]
CBreach of the Fair Trading Act 1986 (FTA) [221]
Section 9 [222]
Section 10 [225]
Section 13 [229]
Section 16 [232]
Result [236] Relief [239] Costs [240]
[1] The parties to this proceeding are both involved in the manufacture of plastic toy building bricks, figurines and baseplates. The defendant and counterclaim plaintiffs (together, LEGO) have been the dominant player in this field for many years. The patents and copyright they held on their products expired many years ago but the registered trademark LEGO remains in force. The plaintiffs and counterclaim defendants (together, ZURU) are relative newcomers. They did not begin marketing their products until the latter part of 2018.
[2] One of the selling points of ZURU’s products is that they are compatible for use with LEGO’s products. To emphasise this fact ZURU originally included on its packaging of products sold in New Zealand a notice, or compatibility statement, stating “LEGO BRICKS COMPATIBLE”. LEGO immediately took exception to this and ZURU replaced the compatibility statement with a notice stating that its products were “COMPATIBLE WITH MAJOR BRANDS”.
[3] Two years later ZURU attempted to revert to the original form of the compatibility statement. It immediately met the same response from LEGO. ZURU does not accept it can be prevented from referring to LEGO bricks on its compatibility statements. In this proceeding it seeks declarations that this will not infringe LEGO’s trademark.
[4] LEGO resists ZURU’s claims. It claims that past and future use of compatibility statements containing the word “LEGO” constitutes infringement of its trade mark. LEGO also advances counterclaims alleging that the use of any compatibility statement containing the LEGO trade mark has led and will lead to ZURU passing off its products as LEGO products and breaching the Fair Trading Act 1986.
Background
[5] LEGO has been manufacturing toy building bricks for nearly 90 years. It was founded in 1932 and has always had its registered office in Billund, Denmark. It now sells its products in 140 countries worldwide.
[6] LEGO concentrated on the development of plastic bricks during the 1950’s as plastic began to be widely used in the manufacture of commercial products. It began selling its products in New Zealand in 1971. It is by far the largest manufacturer of toy building bricks products for sale in New Zealand.
[7] LEGO organises its toy products by theme. Each of these is based on a central concept. LEGO also collaborates with third parties to produce ranges of product based on the characters and stories created by those parties. Examples of this include LEGO Star Wars, LEGO Disney and LEGO Harry Potter. It also incorporates content licensed by third parties into its own internally developed themes.
[8] LEGO has established market dominance by insisting on the highest standards of quality for all its products. It has implemented stringent controls on part design, mould manufacture, part manufacture and product testing. These are designed to optimise the quality and safety of LEGO’s products. Safety is an important consideration given that the products are likely to be used extensively by children and young persons.
[9] One of the central features of LEGO’s products is that every item retains its clutch power. Clutch power is the ability of bricks and figurines to interlock with each other. The clutch power of LEGO’s products will not diminish with age or repeated use. This gives customers the comfort of being able to purchase new products in the knowledge that they will be compatible with LEGO products they already own. It also means they will be compatible with any products LEGO may manufacture in the future. This feature enables LEGO to describe its products as a system or platform.
[10] LEGO has achieved its prominence not only through the quality of its products but also by establishing strong marketing and distribution networks throughout the world. LEGO’s relationships with its distributors mean that LEGO products are invariably displayed in prominent locations within stores. LEGO’s logo and packaging are also universally recognised.
[11] ZURU describes itself as a “disrupter”. By this I take it to mean that ZURU specialises in entering established markets and endeavouring to obtain market share at
the expense of established participants. It does so by establishing points of difference between its products and those currently available.
[12] ZURU decided to enter the toy building brick market after it saw how successful LEGO had been in the manufacture and distribution of its products. ZURU concluded that, although LEGO’s existing competitors were selling their products at a considerable discount to the prices charged by LEGO, their products were inferior in quality to those manufactured by LEGO. It saw an opportunity to capture market share by producing a product that was also of very high quality, but which could be produced at a significantly reduced cost. This could be done by the extensive use of robotic labour, coupled with durable machine tools that did not need to be replaced often.
[13] ZURU was also aware that it could not develop low-cost high-quality bricks unless it could manufacture and sell them in large quantities. If it could not do both, it would not generate the margins necessary to make the undertaking profitable.
[14] In March 2017 Mr Nicholas Mowbray, one of ZURU’s two directors and joint chief executive officers, approached Walmart, the largest retailer in the United States. He saw Walmart as possessing the distribution network necessary to create the volume of sales required to make the production of bricks by ZURU commercially viable. Walmart was interested in the concept Mr Mowbray proposed and subsequently issued a formal request that ZURU provide it with a proposal. The request explained that Walmart was interested in distributing products that had complete compatibility with LEGO’s products and which were both of high quality and competitively priced.
[15] The request led to ZURU putting together a detailed proposal to build a product range under the name “MAX Build More”. The feedback from Walmart was positive and after further negotiations ZURU entered into an agreement to supply Walmart with toy building bricks. This required ZURU to deliver the products to Walmart for release in the United States no later than October 2018. ZURU aimed to launch its products worldwide in November 2018.
[16] By December 2017 ZURU had developed sample packaging for Walmart’s consideration. After taking Walmart’s suggestions into account, ZURU then added a
compatibility statement to the packaging. This stated that the bricks were compatible with LEGO bricks. ZURU also added a sample brick in a blister pack on the outside of the packaging so that customers could satisfy themselves as to the nature of the bricks inside the packaging.
[17] At this point Walmart told ZURU that it did not want the compatibility statements to mention LEGO by name. ZURU therefore had no choice but to amend the compatibility statements for products that it supplied to Walmart. It amended the statements to read “COMPATIBLE WITH MAJOR BRANDS”.
[18] Walmart launched the MAX Build More range of products in its stores in the United States in mid-October 2018. ZURU then launched its products internationally during the following month.
[19] ZURU began selling its products in New Zealand through stores operated by The Warehouse New Zealand Ltd (The Warehouse). The packaging for products sold in The Warehouse stores contained compatibility statements that read “LEGO® BRICKS COMPATIBLE”.
[20] It did not take long for LEGO to react to the fact that ZURU was using its trade mark. LEGO’s attorneys in the United States sent “cease and desist” letters to ZURU and The Warehouse in November and December 2018.
[21] This resulted in The Warehouse withdrawing ZURU’s products from sale on 27 December 2018. The Warehouse advised ZURU that it would only re-stock the products if the situation could be resolved with LEGO. The Warehouse maintained this stance despite ZURU endeavouring to persuade it that LEGO’s assertions were wrong. ZURU also said that it would defend any claim by LEGO and indemnify The Warehouse against any liability it might have as a result of selling ZURU’s products.
[22] When ZURU was unable to resolve the situation with LEGO it redesigned its compatibility statements to remove any reference to LEGO. The compatibility statements now stated that the MAX Build More products were “COMPATIBLE WITH MAJOR BRANDS”. ZURU advised LEGO and The Warehouse that it had
taken this step. This resulted in The Warehouse agreeing to re-stock its stores with ZURU’s products in January 2019.
[23] Two years later, in February 2021, ZURU decided to reintroduce its original compatibility statements for MAX Build More products sold in New Zealand. LEGO reacted to this in March 2021 by requesting The Warehouse to remove products containing the new compatibility statements from its shelves. The Warehouse immediately notified ZURU of LEGO’s concerns. It told ZURU that, unless it provided a satisfactory explanation for why the compatibility statements had been amended, The Warehouse would withdraw ZURU’s products from sale at ZURU’s cost until further notice.
[24] Attempts to resolve the situation with The Warehouse and LEGO were unsuccessful. LEGO refused to agree to any compatibility statement that contained its trade mark. ZURU therefore had no option but to reintroduce compatibility statements that did not contain any reference to LEGO. It then filed the present proceeding.
The LEGO trade mark and logo
[25] LEGO is the proprietor of two LEGO word marks registered in New Zealand in 1961 and 1998. The word marks are registered in relation to toys, toy parts and toy accessories (amongst other more specific toy descriptions). One or the other has been used on every product it has sold since the 1940’s. This includes the products it has sold in New Zealand since 1971. Every stud on every LEGO brick bears the LEGO mark in word form. The LEGO name and logo are also used extensively on its packaging as well as advertising and promotional material.
[26] The LEGO stylised logo, which is displayed prominently at the top left hand corner of the packaging of all LEGO products, is as follows:
The compatibility statements
[27] ZURU’s original compatibility statement was as follows (the original compatibility statement):
[28]ZURU placed this compatibility statement on the following products:
15 MAX Figures 759 MAX Bricks
253 MAX Bricks 250 Wheels, Windows & Doors
MAX Base Plate
[29] Following the communications between ZURU, LEGO and The Warehouse in December 2018 and January 2019 ZURU replaced the original compatibility statement with the following version:
[30] On 7 May 2021 ZURU’s solicitors sought LEGO’s consent to use the following compatibility statements (together, the proposed compatibility statements) on its packaging:
Proposed Statement 1 Proposed Statement 2 Proposed Statement 3
[31] Consent was not forthcoming. In this proceeding ZURU seeks declarations that one or more of these compatibility statements will not infringe the LEGO trade mark.
The pleadings
ZURU’s claims
[32] ZURU advances three causes of action.1 In the first cause of action it seeks a declaration that the use of compatibility statements that refer to the LEGO trade mark does not constitute an infringement under s 89(1) of the Trade Marks Act 2002 on three bases:
(a)The use of the word “LEGO” in the original and proposed compatibility statements would not be taken by consumers as being a use of the LEGO trademark.
(b)If such use constitutes use as a trade mark, it constitutes a form of comparative advertising and therefore does not infringe the LEGO trade mark by virtue of s 94 of the Trade Marks Act.
(c)Such use indicates a characteristic of the MAX Build More products and/or is reasonably necessary to indicate the intended purpose of those products. It therefore does not infringe the LEGO trade mark by virtue of s 95 of the Trade Marks Act.
[33] ZURU’s second cause of action seeks a declaration that the proposed compatibility statements will not breach the Fair Trading Act 1986.
[34] ZURU’s third cause of action seeks a declaration that ZURU’s use of the proposed compatibility statements would not amount to ZURU passing off its MAX Build More products as those manufactured by LEGO.
1 ZURU abandoned a fourth cause of action at the end of the hearing. This alleged that LEGO breached s 9 of the Fair Trading Act 1986 by making false and misleading statements to The Warehouse in March 2021. These were to the effect that the compatibility statements breached LEGO’s intellectual property rights because they contained the LEGO trade mark.
LEGO’s counterclaim
[35] LEGO’s counterclaim contains three causes of action.2 The first alleges that ZURU’s use of the LEGO trade mark in the original compatibility statement amounted to use of its trade mark and therefore infringed the trade mark under s 89(1) of the Trade Marks Act. LEGO alleges that any use of the proposed compatibility statements in the future would also constitute infringement under s 89(1). LEGO seeks remedies in the form of injunctions restraining ZURU from using the LEGO trade mark in any compatibility statement relating to its MAX Build More products. However, LEGO does not seek damages as a result of the alleged infringement of the trade mark between November 2018 and January 2019 and in March 2021.
[36] The second cause of action alleges that the original compatibility statement and the proposed compatibility statements breach ss 9, 10, 13 and 16 of the Fair Trading Act because they falsely represent that ZURU’s MAX Build More products are manufactured by LEGO or are otherwise associated with, or licensed or endorsed by, LEGO. LEGO seeks injunctions to prevent the future use of compatibility statements in this form.
[37] The third cause of action alleges that ZURU’s use of the word LEGO on its original and proposed compatibility statements results in ZURU passing off its MAX Build More products as products manufactured by LEGO or that they are otherwise associated with, or licensed and/or endorsed by, LEGO.
Approach
[38] There is no difficulty in determining the claims and counterclaims that relate to ZURU’s use of the original compatibility statement. They arise from the original compatibility statements ZURU placed on the packaging of its MAX Build More products between November 2018 and January 2019 and March and April 2021.
2 At the end of the evidence LEGO abandoned two causes of action arising out of communications between the parties during January 2019. These alleged that the parties entered into a binding agreement at that time under which ZURU agreed it would not use the word “LEGO” in its compatibility statements in the future. The causes of action were based on alleged breach of the settlement agreement and estoppel.
[39] I consider ZURU’s claims for declarations relating to the proposed compatibility statements are problematic. ZURU has never labelled its products with these compatibility statements so no dispute has arisen about them to date. ZURU is therefore seeking declaratory relief in relation to a course of action it may (or may not) undertake in the future. In effect, ZURU is asking the Court for its advice or opinion on these issues.
[40] ZURU seeks declarations pursuant to the Court’s inherent jurisdiction. In dismissing an application by LEGO to strike out ZURU’s claims Associate Judge Sussock noted that non-infringement declarations may be available in intellectual property cases under the Court’s inherent jurisdiction in appropriate circumstances.3 As a novel form of intellectual property relief in New Zealand,4 authorities from the United Kingdom provide the leading statement of principles: 5
(a)The correct approach to the question of whether to grant negative declarations was one of discretion rather than jurisdiction.
(b)The use of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose, but where such a declaration would help ensure that the aims of justice were achieved, the court should not be reluctant to grant a negative declaration.
(c)Before a court can properly make a negative declaration, the underlying issue must be sufficiently clearly defined to render it properly justiciable.
[41] I agree with the Associate Judge’s analysis that the declarations sought in the present case may serve a useful purpose in providing ZURU with a degree of certainty moving forwards.6 However, I consider they go beyond asking the Court to declare the law and instead require it to apply the law to an insufficiently defined future issue. Declaratory relief relates to the current rights and obligations of the parties to a proceeding.7 The Court does not use its power to grant declaratory relief to give advisory opinions in this way.8 The precise circumstances and manner in which
3 ZURU New Zealand Ltd v LEGO JURIS A/S [2022] NZHC 1549, [2022] NZCCLR 16 at [46]-[54].
4 New Transducers Ltd v Slab Technology Ltd CA 71/01, 14 May 2001 at [11]. In obiter, the Court of Appeal considered that a declaration for non-infringement of a patent, if otherwise justified, would not seem misplaced.
5 Nokia Corporation v Interdigital Technology Corp [2006] EWHC 802 (Pat), [2006] All ER (D) 182 at [20].
6 ZURU New Zealand Ltd v LEGO JURIS A/S, above n 3, at [68]–[70].
7 Peters v Davison [1998] NZAR 309 (HC) at 329.
8 Simpson v Whakatane District Court (No 2) [2006] NZAR 247 (HC) at [22].
ZURU would place the proposed compatibility statements on a variety of current, and likely future, products is unknown. The wording of the proposed declaration necessarily reflects this, as ZURU seeks to use an acceptable compatibility statement in a manner “substantially similar” to the packaging before this Court.
[42] The possibility that the format of ZURU’s packaging may change over time is reflected in the fact that by the time of the hearing ZURU had amended its tagline or brand name from MAX Build More to “MAX BUILD MORE FOR LESS”. I do not consider this alteration makes any material difference for present purposes but it demonstrates that packaging format does not necessarily remain static. A declaration as to future use of a compatibility statement may encounter difficulties where the format of the statement is not precisely in accordance with that for which ZURU now seeks declarations of non-infringement.
[43] The inappropriateness of declaratory relief in this case is further reflected in ZURU’s submission that it is open to the Court to grant a declaration with changes to the format and location of the proposed compatibility statements as the Court finds necessary. In other words, it asks the Court to find a means by which it may avoid breaching LEGO’s trade mark. The unfairness of such an approach has been recognised in the United Kingdom,9 and would undermine LEGO’s ability to respond to any changes that may be suggested by the Court.
[44] I therefore propose to determine the claims and counterclaims relating to the original compatibility statements. To the extent I am able, I will consider the proposed compatibility statements in this context. However, I will not reach any firm conclusions or grant any relief in relation to them.
[45] I also propose to deal with LEGO’s passing off claim before dealing with its claim under the Fair Trading Act. This is because the factual findings I am required to make for the former will largely apply also to the latter. It is simpler to deal with those issues in the context of the passing off claim.
9 Millen v Karen Millen Fashions Ltd [2016] EWHC 2104 (Ch), [2017] FSR 7 at [265]–[267], citing Skyscape Cloud Services Ltd v Sky Plc [2016] EWHC 1340 (IPEC), [2016] All ER (D) 28 at [12]– [15].
[46] Finally, I consider injunctive relief is unnecessary to protect LEGO’s position given ZURU’s assurances to LEGO and the Court during the course of the trial that it will not use the word “LEGO” in its compatibility statements without a declaration being made permitting it to do so.
Issues
[47] There is considerable overlap between the issues raised in ZURU’s claim and LEGO’s counterclaim in relation to the issue of trade mark infringement. I therefore propose to deal with the claim and counterclaim together. This will require me to determine the following issues:
A Alleged trade mark infringement
1.Would the use of the word “LEGO” in the original compatibility statement be likely to be taken by a substantial number of prospective purchasers as being use of the word as a trade mark?
2.If so, did ZURU use the trade mark in accordance with honest practices in commercial matters?
3.If so, does the original compatibility statement constitute “comparative advertising” so as to be subject to the protection afforded by s 94 of the Trade Marks Act?
4.Is the use of the word “LEGO” in the original compatibility statement protected by s 95 of the Trade Marks Act?
[48] I will then deal with LEGO’s remaining claims individually. These raise the following issues:
B Passing off
a)What is the nature and extent of LEGO’s goodwill in its trade mark for toy building brick products in New Zealand?
b)Does ZURU’s use of the LEGO trade mark in the original compatibility statement constitute use of the LEGO trade mark that is likely to confuse or deceive the relevant public?
c)If so, is that use likely to damage LEGO’s goodwill in the trademark for toy building brick products in New Zealand?
C Fair Trading Act 1986
a)Did the use of the original compatibility statement breach ss 9, 10, 13 or 16 of the Fair Trading Act 1986?
A The alleged trade mark infringement
Issue 1: Would the use of the word “LEGO” in the original compatibility statements be likely to be taken by a substantial number of prospective purchasers as being use of the word as a trade mark?
Relevant principles
[49]The Trade Marks Act relevantly defines “trade mark” as follows:10
trade mark—
(a)means any sign capable of—
(i)being represented graphically; and
(ii)distinguishing the goods or services of one person from those of another person; and
(b)includes,—
except in section 85, a certification trade mark; and
(i)except in section 85, a collective trade mark
[50]It defines “sign” as follows:11
sign includes—
10 Trade Marks Act 2002, s 5.
11 Section 5.
(a)a brand, colour, device, heading, label, letter, name, numeral, shape, signature, smell, sound, taste, ticket, or word; and
(b)any combination of signs.
[51]Section 6 of the Trade Marks Act relevantly defines “use” of a sign as follows:
6Meaning of use of sign
In this Act, unless the context otherwise requires, every reference to—
(a) the use of a sign in relation to goods is a reference to the use of the sign on, or in physical or other relation to, goods:
…
[52] Section 7(1) of the Trade Marks Act relevantly defines “use” of a trade mark as follows:
7Meaning of use of trade mark
(1)In this Act, unless the context otherwise requires, use, in relation to a trade mark, includes—
(a)use in a form differing in elements that do not alter the distinctive character of the trade mark in the form in which it was registered; and
(b)applying the trade mark to goods or services or to materials for the labelling or packaging of goods or services in New Zealand solely for export purposes; and
…
[53] The infringement of trade marks is governed by s 89 of the Trade Marks Act, which provides:
89Infringement where identical or similar sign used in course of trade
(1)A person infringes a registered trade mark if the person does not have the right to use the registered trade mark and uses in the course of trade a sign—
(a)identical with the registered trade mark in relation to any goods or services in respect of which the trade mark is registered; or
(b)identical with the registered trade mark in relation to any goods or services that are similar to any goods or services in
respect of which the trade mark is registered, if that use would be likely to deceive or confuse; or
(c)similar to the registered trade mark in relation to any goods or services that are identical with or similar to any goods or services in respect of which the trade mark is registered, if that use would be likely to deceive or confuse; or
(d)identical with or similar to the registered trade mark in relation to any goods or services that are not similar to the goods or services in respect of which the trade mark is registered where the trade mark is well known in New Zealand and the use of the sign takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the mark.
(2)Subsection (1) applies only if the sign is used in such a manner as to render the use of the sign as likely to be taken as being use as a trade mark.
(3)Sections 92 to 98 override this section.
[54] There is no dispute that ZURU used the word “LEGO” in its compatibility statements in the course of trade. LEGO relies on s 89(1)(a). It says that the word “LEGO” as used by ZURU in its compatibility statements is identical to the registered trade mark that it holds in relation to the word LEGO. Further, ZURU used that word on its packaging for toy products. These are the precise goods for which LEGO holds its trade mark. In other words, LEGO says this is a case of double infringement.
[55] ZURU relies on s 89(2), which excludes from infringement any use of a trade mark that would not be likely to be taken as use as a trade mark.
[56] The leading New Zealand case on use of a trade mark in this context is the judgment of the Court of Appeal in Mainland Products Ltd v Bonlac Foods (NZ) Ltd.12 That case was decided under the Trade Marks Act 1953 (the 1953 Act), but the approach the Court took remains relevant to cases of alleged infringement under the present legislation.
[57] In Mainland, the respondent, Bonlac Foods (NZ) Ltd (Bonlac), had begun marketing a mature cheddar cheese that contained the word “Vintage” on its label in several places. The appellant, Mainland Products Ltd (Mainland), sought an
12 Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA).
injunction restraining Bonlac from using that word on the ground that it held a registered trade mark for the word “VINTAGE” with respect to cheese. Bonlac resisted the application on the basis that its use of the word “Vintage” was not such as was likely to be taken as use as a trade mark. Bonlac claimed it had used the word not as a trade mark but to describe the character or quality of its own product.
[58] The Court described the manner in which Bonlac used the word “Vintage” on its labelling as follows:13
Bonlac’s product is packed in clear shrink-wrap plastic upon which labelling is printed. [His Honour then referred to an illustration appended to the original judgment and continued.] On the top the word “Vintage” appears twice. It is used in prominent yellow lettering within the oval which is a dark blue colour surrounded by a lighter coloured border. Beside the oval the words “Aged Natural Vintage Cheese” appear in lettering of the same dark blue colour. Beneath the oval [Bonlac’s] trade mark BEGA appears prominently in red beside a pictorial representation of a cheeseboard with a glass of red wine, a cup and another container. The background to that picture also is a dark blue. The information beneath this is in dark blue lettering. On each side of the block there appear only the trade mark BEGA in red and the word “Vintage” within the same dark blue oval. The rest of the label forms the bottom of the pack.
[59] The Court of Appeal noted that the reputation and goodwill held by the owner of a trade mark are irrelevant in an infringement case.14 The very purpose of obtaining trade mark registration is to avoid the need for the owner of the trade mark to prove those issues. The Court then went on to observe:15
The essential question then is whether this use of the word “Vintage” by Bonlac is likely to be taken as use as a trade mark. Taken by whom? Plainly it is persons to whom the product is presented in the course of trade. That will include persons engaged in the relevant trade such as wholesalers and retailers as well as retail customers. To establish infringement it is not necessary to show that the use complained of will likely be taken by everyone encountering it in the course of trade as infringing use. Just as when determining whether the resemblance of marks is such as to be likely to deceive or cause confusion, it is sufficient to constitute infringement if it conveys or is likely to convey to a substantial number of prospective purchasers the significance deemed to infringe – in this case trade mark significance.
13 At 345.
14 At 343.
15 At 345.
[60] In dealing with the concept of a sign being seen as the use of a trade mark, the Court of Appeal noted:16
The likelihood of the manner of use of a word being taken as indicating a (not necessarily identifiable) trade connection will depend on all the circumstances of that use. The normal meaning (if any) of the word will be a primary consideration. The way it is used in relation to the particular goods will be another. Also relevant will be the nature of the market, the kinds of customers and the general circumstances of trade in the goods concerned. These matters are to be discerned from the evidence including any direct evidence of what the usage has conveyed to relevant members of the trade or public.
[61] This passage makes it clear that an assessment of whether use is likely to be taken as use of a trade mark involves close consideration of the context in which the use occurs.
[62]Applying these principles, the Court concluded:17
The view we have formed is that the appearance as a prominent visual feature on the top and side panels of the label of the word “Vintage” highlighted within a distinctive oval would be taken by at least a substantial number of prospective buyers of cheese as a means for distinguishing the particular cheese from the equivalent types of cheese supplied by others as opposed to a mere description of the cheese or its attributes.
[63]The Court of Appeal also made the following observation:18
It is not difficult to envisage use of the word “Vintage” on a cheese wrapper in a purely descriptive sense. An obvious example mentioned during the hearing is the incorporation of a statement such as “The perfect complement to vintage wine”. That is the kind of usage contemplated by the statutory exclusion from infringement of the exclusive right to use a word trade mark. While care must be taken not to extend unduly the ambit of protection of registered marks which are known words with meanings suggestive of relevant goods or services, care also must be taken to prevent erosion of the distinctiveness of a good trade mark by competitors with strategic motives claiming descriptive use. …
[64] This passage confirms that the purpose of s 89(2) is to exclude non-distinctive, or merely descriptive, uses of a trade mark from the scope of infringement. The focus is not on whether the trade mark may confuse or deceive prospective customers regarding the origin of the goods or services to which the trade mark relates.
16 At 345–346.
17 At 351.
18 At 351.
[65]I also derive assistance from the following observations made by Wylie J in
Coca-Cola Company v Frucor Soft Drinks Ltd:19
[133] The fact that a feature of an article may have a functional purpose does not however mean that that feature cannot also serve as a trade mark. A sign may fulfil more than one function, and a mark can have a descriptive element, but still serve as a badge of trade origin. Similarly, a sign may have multiple uses that are not mutually exclusive. The issue is essentially whether those to whom the use is directed are being invited to purchase the goods of the alleged infringer, which are to be distinguished from the goods of other traders, partly because they have the feature in question.
[66] The principles enunciated in Mainland were subsequently applied in litigation involving two manufacturers of insulation materials. Tasman Insulation New Zealand Ltd (Tasman) had registered the trade mark “BATTS” in 1973. It had earlier registered a trade mark for the word “PINK”. The term “PINK BATTS” then became widely known throughout New Zealand after Tasman began marketing an insulation product under that name.
[67] In July 2011 Knauf Insulation Ltd (Knauf) began exporting an insulation product to New Zealand under the brand “EARTHWOOL”. The word “BATT” appeared on a label stuck to rolls of this product. Other information printed on the packaging and installation instructions included the words “batt”, “Knauf batts”, “batts”, and “BATT/PACK”. Similar words were also contained on the Earthwool website and in the HTML code for the website. At first instance, Brown J held that only the words used on the HTML code would be likely to be taken by those in the relevant marketplace as use as a trade mark.20 The remaining words were of such small size and/or such insignificant position on the packaging or website for that to be the case.
[68]Brown J began his analysis of these issues with the following observations:21
[211] Applying the Mainland dicta I am required to form a view as to how the defendants’ use of the words in the four instances would have appealed to those encountering them in trade. It is a matter of impression taking careful account of the Mainland considerations and the circumstances in which the
19 Coca-Cola Company v Frucor Soft Drinks Ltd [2013] NZHC 3282, (2013) 104 IPR 432 (footnotes omitted).
20 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd [2014] NZHC 960, 108 IPR 162 at [211]-[223].
21 Footnotes omitted.
product is sold. I am mindful also that members of the public and lawyers may differ in their views on what a trade mark is or what a brand name is.
[212] I do not proceed on the basis that there is no “normal meaning” of the word “batt”. It is a word which appears to have a descriptive or nominative quality in other jurisdictions as designating a piece of insulation: it is not a fancy or invented word. The fact that, presumably because of Tasman’s trade mark registration, the word has not been frequently used by others in New Zealand does not change the descriptive/nominative nature of the word. While proprietorial control observes national boundaries, the meaning of words does not.
[213] Nor do I consider that the high profile of the trade mark means that all instances of use will be perceived by the relevant public to be trade mark use. Tasman submits that the relevant purchasing public would be likely to take the word as a badge of origin having regard to the nature of the New Zealand insultation market and “the place of Tasman’s iconic BATTS® brand in that market”. However as with Sanitarium’s argument, that proposition does not pay regard to the whole context.
[69] The Judge’s analysis of the relevant circumstances relating to the three instances in which he found infringement not to have occurred is encapsulated in the following paragraphs of the judgment:22
The installation instructions on the packaging
[214] The names or brands which appear on the packaging in the nature or promotional labelling are EARTHWOOL® and “Knaufinsulation”. They would both be perceived by the public to be brands. However the words “batt” and “batts” only appear in the quite densely written installation instructions, in the same print size and colour as all the other words in those instructions. The wording is small as Ms Roberts acknowledged. The words are in lower case and a capital “B” is only used when the word commences a sentence. Twice the word “batt” is preceded by “Knauf”.
[215] In my view the public would not perceive that manner of use of the words “batt” and “batts” in that context as being use as a trade mark.
The packaging label
[216] Again the words on this label which present as brands or trade marks are EARTHWOOL® (with the tag line “the feel good insulation”) and “Knaufinsulation” (with the tag line “its time to save energy”.) Both names are printed in dual colours.
[217] The phrase “BATT/PACK” appears in two columns which provide specification details of the product and is fifth in the list. Each of the items is in capital letters and five of the other items of information are followed by an indication of measurement or weight. Each of the items is very much smaller than the related information in large black numerals (and the letter in the case of the Product Code).
22 Footnote omitted.
[281] In my view the public would not perceive that manner of use of the word “BATT” as being use as a trade mark.
[70] The Court of Appeal considered the Judge was correct, for the reasons he gave, to find that three of the four instances in which the word “Batt” was used would not be taken as a use of the word as a trade mark.23 The Court also held there was insufficient evidence to enable the Judge to conclude that the use of the term “batt” on the HTML code would be likely to be taken as use of the word as a trade mark.24
[71] Counsel for ZURU place heavy reliance on the approach taken recently by the High Court of Australia in Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd.25 In that case the owner of the trade mark BOTOX had challenged claims by the manufacturer of two competing products that the products were an “instant Botox® alternative”. These statements were made on the competing manufacturer’s website and on the packaging of its products. One of the issues the High Court was required to determine was whether the Full Court of the Federal Court of Australia had wrongly determined that the statement made in relation to one of the competing products, known as Inhibox, amounted to use of the BOTOX trade mark.
[72]The products in question were packaged as follows:
23 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd 2015 [NZCA] 602, [2016] 3 NZLR 145 at [168]-[174].
24 At [193]-[194].
25 Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8, (2023) 408 ALR 195.
[73] The High Court of Australia reversed the decision of the Federal Court. The High Court noted that a trade mark is a badge of origin indicating a connection in the course of trade between the goods in question and the person who applies the mark to the goods.26 In determining whether a person other than the owner has used a trade mark so as to infringe the owner’s rights the Court observed:27
Whether a sign has been “use[d] as a trade mark” is assessed objectively without reference to the subjective trading intentions of the user. As the meaning of a sign, such as a word, varies with the context in which the sign is used, the objective purpose and nature of use are assessed by reference to context. That context includes the relevant trade, the way in which the words have been displayed, and how the words would present themselves to persons who read them and form a view about what they connote. A well-known example where the use was not “as a trade mark” was in Irvings Yeast-Vite Ltd v Horsenail, where the phrase “Yeast tablets a substitute for ‘Yeast-Vite’’’ was held to be merely descriptive and not a use of “Yeast-Vite” as a trade mark. Therefore, it did not contravene the YEAST-VITE mark.
[74]The Court continued:28
The existence of a descriptive element or purpose does not necessarily preclude the sign being used as a trade mark. Where there are several purposes for using the sign, if one purpose is to distinguish the goods provided in the course of trade that will be sufficient to establish use as a trade mark. Where there are several words or signs used in combination, the existence of a clear dominant “brand” is relevant to the assessment of what would be taken to be the effect of the balance of the label, but does not mean another part of the label cannot also act to distinguish the goods.
[75] In the case before it the Court concluded that the appellant had not used the BOTOX trade mark as a sign for the following reasons:29
Of particular significance was that the phrase “instant Botox® alternative” appeared alongside two clear badges of origin, namely the umbrella. This diminishes the likelihood that the phrase “instant Botox® alternative” could be objectively understood to indicate origin in itself. This is because its use was not as dominant as the use of the other signs, FREEZEFRAME and INHIBOX. This is most evident on the packaging. On both Packaging A and Packaging B, “instant Botox® alternative” appeared only once, on the front of the box, in much smaller font than FREEZEFRAME and INHIBOX. FREEZEFRAME and INHIBOX were also featured prominently on the left and right sides of each box. Further, unlike FREEZEFRAME and INHIBOX, “instant Botox® alternative” did not feature on the product visible through the clear plastic window on Packaging A (a syringe-like applicator containing the
26 At [23] and [53].
27 At [24] (footnotes omitted).
28 At [25] (footnotes omitted).
29 At [56]-[57] (footnotes omitted).
cream itself.) The phrase “instant Botox® alternative” was more prominent on the website, but also evidences the inconsistency with which the phrase was used.
The FREEZEFRAME and INHIBOX script style and presentation is also significant. FREEZEFRAME and INHIBOX were both distinctive and stylised signs that were apt to be perceived as brands. In contrast, “instant Botox® alternative” was a descriptive phrase that had an ordinary meaning and included within it the trade mark BOTOX (identified as such with a ® symbol). It was descriptive of the product to which it was attached as an alternative product. While a sign can both be descriptive and serve as a badge of origin, the better view is that the use of the phrase, consistent with its ordinary meaning, had only a descriptive purpose and nature. As the primary judge found, the phrase amounted to “ad-speak”.
[76] Mr Glover sought on LEGO’s behalf to distinguish the facts, law and reasoning in Allergan. He also suggested the approach taken by the Full Court of the Federal Court was to be preferred. In particular, Mr Glover pointed out that the comparable Australian legislation, s 120 of the Trade Marks Act 1995 (Cth), does not contain an equivalent provision to s 89(2). However, as Brown J pointed out in Tasman, although s 120 does not include the phrase “use as a trade mark”, this is a necessary prerequisite for trade mark infringement.30 The Court of Appeal also observed in Tasman that the Australian authorities provide useful guidance on the issue of use as a trade mark.31
[77] I see no need to distinguish the approach taken by the High Court of Australia in Allergan because I do not consider it differs in any material way from that taken in the New Zealand authorities to which I have referred. The High Court of Australia objectively examined the circumstances in which the appellant had used the word “BOTOX”, including the font, size and location in which it appeared on the appellant’s packaging. This is entirely consistent with the way in which the New Zealand courts approached the issue in both Tasman and Mainland. The fact that two senior Australian courts differed on the issue in Allergan merely reflects the fact that reasonable minds may differ on an issue such as this. This is because the factors that underpin the assessment often turn on questions of fact and degree.
30 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd, above n 20, at [197], citing Global Brand Marketing Group Inc v YD Pty Ltd [2008] FCA 605, (2008) 76 IPR 161 at [49].
31 At [162].
Analysis
[78] I propose to adopt the approach suggested in Mainland as applied by Brown J at first instance in Tasman. This requires me to form a view as to how ZURU’s use of the word “LEGO” in the original compatibility statements would have been taken by those who viewed it. As Brown J observed in the passage set out above,32 this is a matter of impression taking careful account of the Mainland considerations and the circumstances in which the product is sold.
[79] I begin by observing that there is no dispute that the use of the word “LEGO” on the original compatibility statement is obviously the use of a sign as that term is defined in the Trade Marks Act.
[80] As the Court of Appeal observed in Mainland, the natural meaning of a word used as a sign is a primary consideration.33 That issue is more straightforward in the present case than was the case in both Mainland and Tasman. In Mainland, the word “Vintage” had a natural meaning that did not relate exclusively to cheese or any other product. It could be used, for example, to describe wine or cars.
[81] In Tasman, the High Court and Court of Appeal appeared to differ as to whether the word “Batt” had a meaning beyond the product manufactured by Tasman. In the High Court Brown J appeared to accept that the word had a meaning beyond its association with PINK BATTS in the passage set out above.34 The Court of Appeal took a slightly different view:35
Conclusions on the s 89(2) issue
[165] We agree with Mr Miles that the Judge’s conclusion that there is no “normal” meaning of the term “batt” is open to question. While we accept that the term “batt” has a descriptive meaning in Australia and in other overseas jurisdictions as referring to a segment of glasswool insulation, it is the meaning to consumers and others in New Zealand that counts. Our conclusion at [119] above is that “batts” was not widely used in New Zealand until after 1973 when Tasman’s trade mark was first registered. It then became a term strongly associated in the public mind with Tasman’s PINK BATTS insulation product.
32 Above at [67].
33 Mainland Products Ltd v Bonlac Foods Ltd, above n 12, at 345–346.
34 Above at [67].
35 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd, above n 23 (footnotes omitted).
[166] But it does not follow that whenever the terms “batt(s)” or “BATT” are used, they are used in such a manner as to render it likely they will be taken as use as a trade mark in terms of s 89(2). That would be so only if the word or words used are inherently incapable of being used other than in a proprietary sense. That may be the case for where, for example, the word at issue is a made-up or “fancy” word having no normal or descriptive meaning. And, as Gault J indicated in Mainland, even if the impugned word has not found its way into ordinary parlance, it may still be used descriptively rather than in a trade mark sense depending on the circumstances of the case.
[167] Here, the evidence demonstrates there is no clear dichotomy between the use of the term “batts” in a descriptive sense and in the proprietary sense as a badge of origin to distinguish the insulation products of one person from those of another. It therefore becomes necessary to consider whether, in all the circumstances, the impugned words are likely to be taken by a significant number of prospective users as having trade mark significance in the sense described in the authorities. That is to be determined objectively and is a matter of impression.
[82] There is no such dichotomy in the present case. The word “LEGO” has no meaning beyond its connection with LEGO’s toy products. It was created by those who founded LEGO exclusively for use in marketing their products. It has never had any other use in everyday language.
[83] In addition, the word LEGO in the original compatibility statement was followed immediately by the generic symbol for a registered trade mark: (®). This may indicate to some consumers that ZURU has permission to use the LEGO trade mark. It is also a strong indicator that the word was being used as a trade mark and not in any descriptive sense.
[84] These factors are reinforced by the nature of the audience likely to view the word “LEGO” in compatibility statements on the packaging of ZURU’s products. This will principally comprise retail customers who have an interest in acquiring toy bricks and figurines either for themselves or as gifts for others. Given that ZURU does not advertise extensively, prospective customers are likely to see ZURU’s products for the first time whilst they are in the toy section of a store operated by The Warehouse. I consider trade mark significance is likely to be conveyed to a significant proportion of these retail customers.
[85] These three factors point strongly to the likelihood that those who see “LEGO®” displayed prominently on ZURU’s containers and packaging will take it as
a use of LEGO’s trade mark. As a means of cross-check, however, I propose to go on to consider the context in which the word appears in the compatibility statements.
[86] In the present case, as in Mainland, Tasman and Allergan, several labels appeared on ZURU’s containers and packaging. In Allergan this fact, together with the location and lesser size of the label referring to BOTOX, supported the High Court of Australia’s view that the word “BOTOX” was used as a description rather than as a trade mark. The same factors led the High Court and Court of Appeal to reach the same conclusion in Tasman. In Mainland, on the other hand, the prominent use of the word “Vintage” within a blue oval near Mainland’s trade mark BEGA led the Court of Appeal to conclude the word was likely to be taken as being use as a trade mark.
[87] ZURU contends the facts in the present case are most analogous to Allergan. Counsel for ZURU went so far as to suggest that the observations made in Allergan would apply equally to this case if the relevant brand names were swapped. I do not agree with this contention, as the following four factors distinguish Allergan from the present case.
[88] First, the prominence of the badges of origin on the packaging. In both cases the trade mark appears alongside two badges of origin, here “MAX BUILD MORE” and “ZURU”. The High Court in Allergan considered this factor to be of particular significance.36 However, while the name of the product “MAX BUILD MORE” is obvious to prospective buyers, the umbrella brand “ZURU” is displayed much less prominently. The brand “ZURU” is, in fact, displayed in a small font, in a size comparable to that of the word “LEGO”.
[89] Second, the presentation of the trade marks. In both cases the trade marks appear in a non-stylised font, differentiating them from the badges of origin. However, in Allergan the “BOTOX” trade mark appeared at the bottom right-hand corner, in a smaller font than the badges of origin. Here, and as discussed in greater detail below, the LEGO trade mark appears in more prominent positions on ZURU’s packaging, at the top or centre of ZURU’s products, and in a comparatively larger font.
36 Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd, above n 25, at [56].
[90] Third, the phrasing of the statements. A key difference is that the “BOTOX” trade mark in Allergan appeared within a sentence and was phrased as an “alternative” product. The original compatibility statement and two of the proposed compatibility statements include the word “LEGO” at the beginning of the phrase that is described as “compatible”. These two factors link LEGO’s product to ZURU’s in a purchaser’s mind.
[91] Fourth, the relevant sales markets. As discussed above, ZURU’s products are sold to retail customers interested in purchasing toys for their own use or as a gift. They will be shopping in stores operated by The Warehouse that are likely to stock products manufactured by both ZURU and LEGO. By comparison, those who viewed the packaging in Allergan comprised persons seeking to buy a cosmetic product that they could apply themselves. This differed from Allergan’s pharmaceutical product, which is required to be professionally administered.
[92] As this analysis demonstrates, the inquiry under s 89(2) is intensely context specific. It is therefore appropriate to further consider the location of the word LEGO and its physical characteristics (including size and colour) when compared to the remaining features of the containers and packaging. For convenience, I set out again both the original compatibility statement and examples of the manner in which it was used on the packaging of ZURU’s products:
[93] As can be seen, the compatibility statement is located on the right hand side of the front panel of the container. It is situated in the upper middle section, directly across from the word “MAX”, which is written in considerably bigger letters and different colours. This side of the container is known in marketing terms as the “hero panel” because it is the side that customers will see when they look at the container on the shelf in a retail store. It will obviously be designed to have maximum impact on potential customers.
[94] The compatibility statement for the base plate is to be found on the bottom right hand corner of the packaging. It is therefore well below and to the right of the words “MAX Build More”:
[95] The compatibility statement for ZURU’s figurines is located on the top right hand corner of the packaging, immediately to the left of the word “MAX”:
[96] On all three forms of packaging the word “LEGO” is written in font that is significantly larger than that used for the words “BRICK COMPATIBLE”. The word “LEGO” also appears at the top of the compatibility statement. This gives the word immediate prominence within the compatibility statement. It means that the word “LEGO” is likely to be the first word noticed by prospective customers viewing the compatibility statement.
[97] Although it is not readily visible in the photographs, a red plastic brick similar to those produced by LEGO is displayed in a transparent blister pack immediately adjacent to the compatibility statement on the container and the packaging of the figurines. This protrudes from the side of the front panel and significantly enhances the prominence of the compatibility statement.
[98] On all three forms of packaging the words used in the compatibility statement are in upper case, or capital letters, and are written in black font against a yellow background. The only other labelling that is in the same, or similar, colours is the diagonal band at the bottom left hand corner. These labels contain information about the contents of the containers and packaging. They differ from the compatibility statements in that they are slightly darker and have a diagonal white margin on the top and bottom surfaces. The compatibility statements do not have a white margin.
[99] The brand name “ZURU” is difficult to make out in the photographs. On the container it is to be found written in bright yellow letters within the red studs that crown the word “MAX”. On the packaging for the base plate and figurines it is to be found immediately above the word “MAX”. There are no studs crowning the word “MAX” on that packaging. The word “ZURU” is approximately the same size as the word “LEGO” in the compatibility statements.
[100] The rear panel of the plastic container is largely taken up with lists of the bricks that are to be found within the container. These are listed numerically according to shape and colour as follows:
[101] The rear panel of the base plate packaging contains illustrations of models that can be built using the base plate:
[102] The rear panel for the packaging containing the figurines contains photographs of the figurines contained within the packaging:
Conclusion
[103] The starting point for present purposes is the fact that the word “LEGO” has no meaning beyond its association with products made by LEGO. It is also highly likely that prospective customers will be well acquainted with the LEGO trade mark. Those who see it will immediately take the compatibility statements as a reference to the LEGO brand.
[104] Further, the original compatibility statement containing the word “LEGO” is a very prominent feature of all three forms of packaging. It is not the central feature because that distinction undoubtedly belongs to the “MAX” label. However, the eye is immediately drawn to the word “LEGO” due to its size and the distinctive colours used in the compatibility statement. I therefore consider it to be the most prominent feature of the panel other than the word “MAX”.
[105] The fact that the word “LEGO” is significantly larger than the words “BRICK COMPATIBLE” also means it is not immediately apparent that it comprises part of a compatibility statement. That fact only becomes evident when the compatibility statement is read as a whole. The prominence of the compatibility statement on the plastic container and the packaging for the figurines is further enhanced by the presence of the red brick in the blister pack protruding from the container and packaging.
[106] Viewing these factors in combination, I consider that a substantial number of consumers would be likely to take the use of the word “LEGO” in the original compatibility statements as more than a description of ZURU’s products. That may be one of its functions but many prospective customers would be likely to perceive the word “LEGO” in the compatibility statements as being use of that word as a trade mark.
[107] Furthermore, ZURU is using the word “LEGO” to distinguish its products from others in the field. Therefore, its use is not in a purely descriptive manner. The compatibility statement advises consumers that ZURU’s products are different from competing products because they are compatible with those made by LEGO, indicating its use as a trade mark.
[108] It follows that I am satisfied the use of the word “LEGO” in the original compatibility statement falls outside the exclusionary scope of s 89(2). It will constitute an infringement of LEGO’s trade mark unless ZURU can avail itself of the protection offered by either s 94 or s 95 of the Trade Marks Act.
The proposed compatibility statements
[109] Although my views regarding the proposed compatibility statements will not be binding, or even necessarily persuasive, in the future, I propose to make some brief comments about them in light of my conclusions thus far.
[110]For convenience, I set the proposed compatibility statements out again:
Proposed Statement 1 Proposed Statement 2 Proposed Statement 3
[111] I consider that Proposed Statements 2 and 3 confront an obvious obstacle because they begin with the word “LEGO”. Proposed Statement 2 is particularly troublesome because of the prominent position of the word at the top of the three words that comprise the statement. “LEGO” is also written in a slightly larger font than the word “BRICK” and a much larger font than the word “COMPATABLE” in Proposed Statement 2. Those who view either of these statements are likely to immediately consider them to be a use of the LEGO trade mark for the reasons I have already given.
[112] Proposed Statement 1 does not pose this problem because the word “LEGO” is contained in the body of the statement. In addition, the word “COMPATIBLE” is at the top of the statement and the word “BRICKS” is written in larger font than the words in the top two lines. The generic symbol for a registered trade mark (®) also does not follow the word “LEGO”. But for one factor, the word “LEGO” in Proposed Statement 1 is likely to be taken by prospective customers as a statement describing one of the characteristics or features of ZURU’s product rather than use of the LEGO trade mark.
[113] The factor that is likely to prevent s 89(2) from applying to Proposed Statement 1 is the likely location and size of the compatibility statement on the packaging of ZURU’s products. As I understand the position, ZURU intends to place the proposed compatibility statements on the front panels of its products in approximately the same locations as the original and existing compatibility statements. However, I consider that the prominence of the current location, size and colour of the compatibility statements means that even Proposed Statement 1 would command significant attention when viewed by consumers. Prospective purchasers would still be likely to
take it as being use of a trade mark rather than a description of ZURU’s product. It may therefore be necessary for ZURU to reduce any compatibility statement in size and move it from its current location. This could be done, for example, by moving the compatibility statement to the rear panel of the container and packaging. It would then form part of the information about the contents that is already on the rear panels of the containers and packaging. This may mean it is more likely to be taken by a substantial number of prospective purchasers as a purely descriptive use of the LEGO trade mark.
Issue 2: Did Zuru use the LEGO trade mark in accordance with honest practices in commercial matters?
[114] I address this issue before considering whether ZURU can avail itself of the protection offered by either ss 94 or 95. I do so because both sections refer to use of a trade mark in accordance with honest practices in commercial or industrial matters. I view the present case as engaging practices in commercial matters rather than industrial matters.
Relevant principles
[115] The wording used in both ss 94 and 95 makes it clear that this issue must be determined objectively. It does not matter whether the person using the trade mark believes that it accords with honest practice in commercial matters. The Court of Appeal held in Tasman that the test is whether reasonable members of the trade concerned, having knowledge of all the relevant facts that the defendant knew, would say that the use complained of is honest.37
[116] In Tasman,38 the Court of Appeal cited with approval the following principles identified by Arnold J in Samuel Smith Old Brewery (Tadcaster) v Lee (t/as Cropton Brewery) as being relevant to the Court’s enquiry:39
[114] First, the requirement to act in accordance with honest practices in industrial or commercial matters “constitutes in substance the expression of a duty to act fairly in relation to the legitimate interests of the trade mark proprietor”.
37 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd, above n 23, at [200].
38 At [201].
39 Samuel Smith Old Brewery (Tadcaster) v Lee (t/as Cropton Brewery) [2011] EWHC 1879, [2012] FSR 7 (Ch) (citations omitted).
[115] Secondly, the court should “carry out an overall assessment of all the relevant circumstances”, and in particular should assess whether the defendant “can be regarded as unfairly competing with the proprietor of the trademark”.
[116] Thirdly, an important factor is whether the use of the sign complained of either gives rise to consumer deception or takes unfair advantage of, or is detrimental to, the distinctive character or repute of the trademark. If it does, it is unlikely to qualify as being in accordance with honest practices.
[117] Fourthly, a mere likelihood of confusion will not disqualify the use from being in accordance with honest practices if there is a good reason why such a likelihood of confusion should be tolerated.
[117] The Court of Appeal also noted40 the following additional factors that Arnold J identified as assisting to determine whether the actions of an alleged infringer amounted to honest practice in commercial matters:41
(a)whether the defendant knew of the existence of the trade mark, and if not whether it would have been reasonable for it to conduct a search;
(b)whether the defendant used the sign complained of in reliance on competent legal advice based on proper instructions;
(c)the nature of the use complained of, and in particular the extent to which it is used as a trade mark for the defendant’s goods or services;
(d)whether the defendant knew that the trade mark owner objected to the use of a sign complained of, or at least should have appreciated that there was a likelihood that the owner would object;
(e)whether the defendant knew, or should have appreciated, that there was a likelihood of confusion;
(f)whether there has been actual confusion, and if so whether the defendant knew this;
(g)whether the trade mark has a reputation, and if so whether the defendant knew this and whether the defendant knew, or at least should have appreciated, that the reputation of the trade mark would be adversely affected;
(h)whether the defendant’s use of the sign complained of interferes with the owner’s ability to exploit the trade mark;
(i)whether the defendant has a sufficient justification for using the sign complained of; and
(j)the timing of the complaint from the trade mark owner.
40 Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd, above n 23, at [202].
41 Samuel Smith Old Brewery (Tadcaster) v Lee, above n 39, at [118].
[118] In the case before it, the Court of Appeal concluded that the use of the trade mark “BATT” had not been honest for the following reasons:42
[210] We are satisfied that the proper inference to draw from Knauf’s conduct as a whole is that it set out in an aggressive manner to undermine the distinctive character of Tasman’s valuable and widely recognised trade mark. It did so with full knowledge of the existence of Tasman’s trade mark and the detrimental effects Tasman was likely to suffer to its trade mark as well as the likely damage the company would suffer in the market place. That is evident from Knauf’s immediate response to Tasman’s “cease and desist” letter in which Knauf asserted that the term “batts” had become generic in New Zealand. Our conclusion is also supported by Knauf’s response to Tasman’s infringement proceedings in which it sought to have Tasman’s trade mark revoked on the grounds of genericism. Use of a trade mark with an ulterior motive, such as the “assiduous efforts of an infringer” to undermine a trade mark by rendering it generic, will not meet the honest practices test.
[211] Knauf’s objective is also confirmed by a press release it issued soon after the High Court judgment was delivered. The press release included these words:
“Knauf’s Insulation is proud to have led the way for descriptive use of the word ‘batts’ in the New Zealand building industry.”
[212] While Knauf may have believed that “batts” should be regarded as a descriptive term, it must have appreciated that the commencement of trading in New Zealand using that term would inevitably draw a strong response from Tasman and that, at the least, it was setting out on a difficult road with significant uncertainty of result. If it considered the trade mark had become generic, Knauf could have applied to revoke it. Instead, it chose to launch its product in the market using the term “batts” without first obtaining a ruling.
[213] This is not a case where a defendant can claim to have acted innocently, unaware of the existence of the risk of infringement. Rather, Knauf has acted deliberately and with knowledge of the risks involved. We are satisfied that Knauf’s conduct went well beyond the bounds of fair competition and was not in accordance with honest practices in terms of s 95.
Analysis
[119] Mr Mowbray stated on several occasions when he gave evidence that ZURU sought to use the word “LEGO” in its compatibility statements to enable potential customers to make an informed choice as to whether to purchase ZURU’s products. ZURU therefore included the word “LEGO” in its compatibility statements to provide express confirmation that ZURU’s MAX Build More products were compatible with
42 Footnotes omitted.
those produced by LEGO. This meant that consumers who were seeking to augment their existing stocks of LEGO bricks could purchase ZURU’s products knowing they would be able to use them with bricks produced by LEGO.
[120] There is no dispute that ZURU knew of LEGO’s reputation for making high quality products and its dominant position in the toy building brick market worldwide. Mr Mowbray confirmed that ZURU decided to enter that market because it saw an opportunity to gain market share by selling products of similar quality to those made by LEGO at a significantly cheaper price. This would inevitably involve ZURU acquiring some of LEGO’s market share.
[121] ZURU is also currently involved in proceedings in the United States in which it is endeavouring to have LEGO’s trade mark revoked in the United States on the basis that the word “LEGO” has become generic. Mr Mowbray says that he believes the word “LEGO” has now become generic in the same way as words such as “CELLOTAPE” or “VELCRO”. The concern must be that ZURU intends its actions in New Zealand to bolster the proceedings it has commenced in the United States. If so, this would amount to use of the trade mark for a collateral purpose.
[122] Further, ZURU did not advise or obtain the consent of either LEGO or The Warehouse to the use of the word “LEGO” in its compatibility statements when it launched the MAX Build More products in New Zealand. By that stage ZURU knew that Walmart was not prepared to allow the word “LEGO” to be used on the compatibility statements affixed to packaging of ZURU’s products sold in the United States. ZURU also knew that LEGO guards its intellectual property assiduously. ZURU therefore took a calculated risk by including the word “LEGO” in the compatibility statements on the packaging of its New Zealand products.
[123] As Arnold J pointed out in the passage set out above,43 the fact that an alleged infringer has used a trade mark after obtaining competent legal advice based on proper instructions may be taken into account when assessing whether such use was in
43 Above at [117].
accordance with honest commercial practices. In this context Mr Mowbray’s brief of evidence contained the following paragraphs:
46Of course, in deciding to use a compatibility statement on the MAX Build More products that referenced the Lego Group’s products, I did not just rely on my own views about the permissibility of compatibility statements. ZURU already had general legal advice around the use of compatibility statements before ZURU started the MAX Build More project. But, around the time we were proposing a compatibility statement on the MAX Build More products, ZURU also sought and obtained specific legal advice on the permissibility of the specific compatibility statements that ZURU used on these products.
47While ZURU is not prepared to disclose the content of that legal advice, which is privileged, I confirm that it was based on this advice that ZURU proceeded with its “LEGO® Brick Compatible” statements that were used on the MAX Build More products sold everywhere else other than in Walmart.
[124] These paragraphs of Mr Mowbray’s brief evidence are clearly designed to give the impression that ZURU obtained general legal advice about the legality of compatibility statements at an early stage. It then subsequently obtained specific legal advice about the compatibility statements it was proposing to use on its MAX Build More products.
[125] During the hearing I ruled that Mr Mowbray’s evidence on this point meant that ZURU had waived privilege in relation to the specific legal advice to which Mr Mowbray referred in his brief of evidence.44 I therefore directed ZURU to provide counsel for LEGO with a copy of that advice. This led to ZURU providing a one-page document prepared by its Legal Team.
44 ZURU New Zealand Ltd v LEGO JURIS A/S [2023] NZHC 1127 at [15].
[126]The document read as follows:
[127] After counsel for LEGO viewed this document, they sought a direction that Mr Mowbray be recalled so he could be cross-examined about the legal advice he had received. I granted this request. However, when Mr Mowbray was questioned about the document he could not recall seeing it. He could only recall general discussions about the legality of ZURU using the LEGO trade mark on its compatibility statements in New Zealand.
[128] If the letter set out above is any indication of the quality of the legal advice ZURU received, it was manifestly inadequate given the importance of the issue. The advice was provided by an internal legal team seemingly without assistance from any external provider. It did not refer to the legal position in New Zealand as governed by the Trade Marks Act or to relevant case law on the use of trade marks in this country or Australia. Nor did it refer to the wording ZURU intended to use in compatibility statements to be placed on the packaging of its products for the New Zealand market. I do not consider that such legal advice as ZURU received was sufficiently thorough
to provide it with any legal justification for the use of LEGO’s trade mark on the compatibility statements.
[129] It is also noteworthy that ZURU has not adopted the same approach in relation to other toy products that it sells in New Zealand. By way of example, it has developed a range of toy dart guns under the XSHOT brand. These compete with similar dart guns marketed under the NERF brand. ZURU also sells packets of darts that are compatible both with its own dart guns and those sold under the NERF brand. These packets are labelled “COMPATIBLE WITH ALL MAJOR BRANDS”. ZURU’s persistence in seeking to use the LEGO trade mark on the compatibility statements for its MAX Build More products suggests that it sees particular value in aligning those products closely with those manufactured by LEGO.
[130] I am also satisfied that ZURU used the LEGO trade mark in part to provide customers with an assurance that its products were of comparable quality to those manufactured by LEGO, as distinct from other brands being sold at prices comparable to those charged by ZURU. Ms Coco Chan, ZURU’s New Product Development Director, effectively confirmed this when she explained why ZURU did not want to be restricted to compatibility statements that stated the product was compatible with major brands:
I[f] you are saying the product is compatible with major brands, they will think at the low costs as well so they are buying the Shantou products similar price as our MAX product, they will think the quality of the MAX product is similar to their Shantou product. Actually, in opposite what we offered is the quality’s similar or the clutch power, the quality, the looking and everything else is similar to LEGO products and then we give the price as affordable price at the lower, like, price point, maybe a little bit higher than the Shantou product but not much higher, so if we are putting that major brand on the packaging it may be creating a confusion that: “Oh, this is another crap product in the market just like what my dad has been buying for me, it’s like the Shantou thing.”
Conclusion
[131] I am satisfied ZURU sought to use LEGO’s trade mark on the compatibility statements to gain leverage from the reputation LEGO had built up over many years both in New Zealand and worldwide. It sought to do so by positioning the LEGO trade mark in a prominent location, size and colour on the front panel of its containers and packaging to draw the attention of prospective customers to its products. ZURU
sought not only to inform consumers that its products were compatible with LEGO products but also to reassure them that they were of similar quality.
[132] I have therefore concluded that ZURU acted in a similar manner to the respondent in the Tasman case. ZURU no doubt designed its compatibility statement in the reasonable expectation that prospective customers who were drawn to the MAX Build More products would then compare ZURU’s prices with those charged by LEGO for comparable products. ZURU reasonably anticipated that some customers would purchase ZURU’s products because they were cheaper than those manufactured by LEGO.
[168] I consider the use of the word LEGO in the original compatibility statement satisfies this element. The compatibility statements do not identify the MAX Build More products. Rather, they alert the consumer to one of the principal characteristics of those products, namely their compatibility with products made by LEGO. Therefore, had ZURU’s use of LEGO’s trade mark been in accordance with honest practices, which I have found it was not, ZURU could qualify for protection pursuant to s 95(c)(i).
Is it reasonably necessary for ZURU to use the LEGO trade mark to indicate the intended purpose of its products?
[169] ZURU contends that it was important for prospective purchasers to know that its products were compatible with LEGO products. This was especially important for consumers who already had an existing collection of LEGO products. Those persons would be unlikely to run the risk of purchasing ZURU’s products unless they could be certain they were compatible with LEGO products.
[170] However, the intended purpose of ZURU’s products is, and has always been, the construction of models and structures. That purpose would be evident from the containers and packaging used for ZURU’s products. Further, the purpose does not necessarily involve the use of LEGO’s products. The MAX Build More products will function perfectly well regardless of whether they are used in conjunction with LEGO products. In this respect the position is completely different, for example, than the use of cellphone accessories. There would be no point in a consumer buying a case or a charging cord for a cellphone unless the consumer knew it would be compatible for use with his or her cellphone. I therefore do not accept that it was reasonably necessary in terms of s 95(d) for consumers to be advised of the compatibility of ZURU’s products with those made by LEGO.
[171] Even putting this issue to one side, it was not reasonably necessary for ZURU to use the LEGO trade mark in such a prominent way on the front panels of its
containers and packaging. If my earlier observations about the proposed compatibility statements are correct ZURU could, for example, have placed a smaller compatibility statement similar to Proposed Statement 1 on the rear, rather than the front, panels of the containers and packaging. This would have been consistent with the other informative material on the rear of the containers and packaging.
[172] I also accept the submission by counsel for LEGO that there were several other ways in which ZURU could have brought this information to the attention of consumers without using the word “LEGO” in its compatibility statements. By way of example, ZURU has now complied for nearly five years with Walmart’s directive that it not refer to LEGO’s products on the packaging of products sold in the United States. Notwithstanding this fact Mr Mowbray confirmed during cross-examination that sales of the MAX Build More products in the United States remain “moderate to strong”.
[173] ZURU also appears not to have suffered any significant detriment from the fact that it has sold its MAX Build More products in New Zealand for the most of the period since January 2019 using the same compatibility statements as those used for products sold in the United States: “COMPATIBLE WITH MAJOR BRANDS”.
[174] ZURU’s experts expressed a concern that this type of wording will leave doubt in the minds of prospective purchasers. They said that consumers may treat compatibility statements worded in this way as a negative cue. Some consumers may wonder why the compatibility statements do not refer expressly to LEGO’s products if they are compatible with LEGO’s products. Others may conclude that ZURU’s products are not in fact compatible with those manufactured by LEGO.
[175] I do not accept that these concerns are warranted. Prospective purchasers will inevitably know that LEGO is by far the dominant toy building brick brand in New Zealand. LEGO is without doubt a “MAJOR BRAND”. There are, in fact, very few other competitors in this field. They will also see the bricks in the blister packs attached to the front panels of ZURU’s containers and the packaging for figurines. These look very much like bricks made by LEGO. I consider it unlikely that a significant proportion of purchasers will be hesitant about, much less dissuaded from,
purchasing ZURU’s products merely because LEGO is not expressly named in the compatibility statements.
[176] It follows that it was not reasonably necessary for ZURU to use the word “LEGO” in its original compatibility statement to explain the purpose for which its products were intended to be used.
B Passing off
[177] The tort of passing off requires the plaintiff, here LEGO, to establish the following elements:58
1.the plaintiff’s name, mark or get-up possesses an element of goodwill or reputation;
2.the defendant has used the same or a deceptively similar name, mark or get-up so as to confuse or deceive the relevant public or, if unrestrained, is likely to do so; and
3.damage has been or is likely to be caused to the plaintiff’s business, reputation or goodwill.
Does LEGO’s trade mark possess an element of reputation or goodwill?
[178] This element is not in dispute. ZURU accepts that LEGO’s trade mark has acquired very strong goodwill and reputation in the field of toy building bricks in New Zealand and worldwide. The evidence establishes that this is the case beyond any doubt.
Has ZURU used the LEGO trade mark so as to confuse or deceive the relevant public?
[179] It is not necessary for the owner of a mark to demonstrate instances of confusion to succeed in a claim for passing off although, if such instances are shown,
58 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [16], citing Tot Toys Ltd v Mitchell
[1993] 1 NZLR 325 (HC) at 334.
they will enhance the plaintiff’s case.59 It is also not necessary to show an intention to deceive, although proof of intention is a powerful evidentiary factor.60
[180] In the present case LEGO has not sought to provide any evidence about actual confusion by consumers who have purchased toy building brick products. LEGO’s argument under this cause of action rests on an assertion that the use of the word “LEGO” in the compatibility statements is likely to cause a significant number of persons who view them to be confused about, or deceived as to, whether ZURU’s products are made by LEGO or are endorsed in some way by LEGO.
[181] LEGO relies for this assertion principally on the evidence of Professor Klein. She explained that a great deal of research has been done to examine how people assign stimuli to categorise objects. Research has found that people use cues (attributes or features) to assist them in this task. A cue with a high validity is known as a diagnostic cue. She said that in the context of brand identification, a perfectly diagnostic cue will allow a person to identify a product as belonging to a particular brand every time.
[182] Professor Klein said that a brand name is a highly diagnostic cue because it is a perfect predictor of brand identification. Consumers rely on brand names on products to indicate that the product in question is sold by or associated with that brand.
[183] Professor Klein said that, in the case of consumer products, the brand name is usually the most diagnostic cue and will often be perfectly diagnostic. She said that other cues, such as shapes, images, colours, fonts and layout will vary in their ability to be diagnostic for brand identification depending largely on context. Whether a particular cue is diagnostic for brand identification in relation to a particular product, and to what extent, will depend on numerous factors including the context of the market for similar goods and consumer awareness of the uniqueness of the cue. Professor Klein said that two key factors are likely to determine whether a cue is diagnostic for brand identification. These are the extent to which a cue varies within
59 NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 59, at [17].
60 Tot Toys Ltd v Mitchell, above n 59, at 354.
a brand and the extent to which there is overlap in the use of a cue upon packaging by more than one brand.
[184] Professor Klein also considered that, in the field of construction toy products, LEGO was a perfectly diagnostic cue for those products. This is because LEGO has been selling products under its trade mark for so long and with such success. Consumers are therefore extremely familiar with the brand name and will expect it to appear only on products originating from, or endorsed by, LEGO.
[185] Professor Klein also pointed out that a brand name can only be perfectly diagnostic if it appears on the packaging of a single brand. Having the LEGO brand name on packaging produced by other competitors could weaken the effectiveness of the LEGO trade mark as a diagnostic cue. It could lead to consumers identifying the competitor’s products as being made by, or related, to LEGO. It could also lead consumers believing the products are associated with LEGO in other ways such as through licensing or endorsement. Professor Klein considered that the placement of LEGO’s trade mark on the packaging of ZURU’s products will harm LEGO’s brand because its brand name is its most powerful diagnostic cue. She considered that other potential cues such as packaging, colour, shape and layout were not diagnostic in relation to LEGO’s products.
[186] Professor Klein also explained the concept of confirmatory bias. This arises because people often see what they expect to see. When consumers see the LEGO brand name, they will associate the product with the LEGO brand. She says that is because people tend to see what they expect to see, once they see it they move on to something else. This means that, when consumers see the LEGO brand name on ZURU’s products, they will immediately assume that the product is made by, or associated with, LEGO and will not consider the issue any further.
[187] Professor Klein said that, even if consumers read the compatibility statement in full, they are nevertheless still likely to conclude that ZURU’s products are associated with LEGO in some way. This is because consumers have effectively been trained over many years to associate products bearing the LEGO trade mark with the LEGO brand.
[188] Professor Klein said this is likely to occur even though the LEGO logo is not displayed on ZURU’s products. She said that consumers are much less likely to be aware of the absence of something than the presence of something. The fact that people tend to notice things that are consistent with their expectations, rather than things that are inconsistent with them, means that consumers are unlikely to notice the absence of the LEGO logo once they see the LEGO name.
[189] Professor Klein also disagreed with evidence given by ZURU’s marketing experts about the likely effect of the presence of the LEGO name in close proximity to ZURU’s “MAX Build More” label. ZURU’s experts said this fact made it less likely that consumers would conclude the products were either made or endorsed by LEGO. Professor Klein observed that, in the absence of extensive advertising, consumers would not readily recognise ZURU’s brand. This increased the likelihood that they would view its products as being associated in some way with LEGO.
[190] Professor Klein said this risk was heightened by the fact that consumers were used to seeing the LEGO name being used alongside other names. LEGO’s range includes numerous themed products, including LEGO CLASSIC, LEGO CITY, LEGO ICONS and LEGO ARCHTECTURE. This meant that, where consumers saw the word “LEGO” near the words “MAX Build More”, they may assume that ZURU’s products are further examples of LEGO’s themed products.
[191] These observations need to be viewed in context. I have no doubt that consumers are extremely familiar with the LEGO logo because they have seen it for many years. It is always placed at the top left hand corner on the packaging of LEGO’s products. The experts agreed that, for people educated in the West, the human eye is trained to read from left to right beginning at the top of a page. This means the logo is the first thing seen when viewing a container of LEGO products.
[192] Consumers will also be familiar with the word “LEGO” but, where it appears at all, it is located in significantly less prominent positions than the stylised logo. Consumers are therefore likely to be less accustomed to seeing the word “LEGO” than the LEGO logo.
[193] As I have already observed, the word “MAX” is by far the most prominent feature on ZURU’s containers and packaging. It is distinctive not only by its size but also by its white colour set against a black background. It is also drawn in three dimensions and has bevelled edges. The word “MAX” is also often crowned by studs similar in shape to those used on the products manufactured by both LEGO and ZURU.
[194] I therefore agree with ZURU’s marketing experts, who considered that consumers’ attention is most likely to be drawn immediately to the word “MAX” when they first see ZURU’s products. The word “MAX” has the same effect as the LEGO logo but for slightly different reasons. It depends on its location and distinctiveness for its prominence whereas the LEGO logo is instantly recognisable because of its level of recognition in the toy building brick market.
[195] Once consumers study the packaging or container further, I consider they are likely to see the words “Build More” because these are situated immediately below the word “MAX” and are more striking than the word “ZURU”. That word is less prominent because it is written in slightly smaller font and is often located within the studs that crown the word “MAX”.
[196] The manner in which LEGO’s products are displayed in stores operated by The Warehouse is also significant in this context. LEGO provides those who retail its products with a detailed plan setting out the order in which its products are to be displayed. LEGO’s instructions about the manner in which its products are to be stored are not merely guidelines. LEGO expects retailers to follow the instructions and its representatives visit their stores to ensure this is being done.
[197] The guidelines require LEGO’s DUPLO products, which are designed for younger children, to be displayed at the beginning of the aisle. Next to these are containers of LEGO’s CLASSIC product, which is its entry level bulk building brick product. LEGO CLASSIC is sold in bright yellow plastic containers that have studs protruding from the lid. Thereafter LEGO’s themed products are displayed in the order prescribed by LEGO to its retailers. On the front of the partition dividing each
shelf is a yellow band that LEGO provides to The Warehouse. This displays the prices for the products on the shelf above the band.
[198] Whilst Professor Klein was giving evidence it was agreed that counsel and I would visit five stores operated by The Warehouse in the Auckland area.61 Professor Klein and representatives of the parties accompanied us. The object of the exercise was to gain a first-hand impression of the manner in which the products of each party were being displayed for sale. I also hoped to be able to gain a greater impression of the scale of the respective displays than was possible from the photographs taken by the witnesses.
[199] The site visits confirmed that LEGO’s products are displayed in signposted areas within the toy section of each store. They were invariably displayed in the order prescribed by LEGO’s guidelines. This means that, as customers approach the area, they will see a sign confirming the location of LEGO’s products. There is also often a LEGO promotion at the end of the aisle. The following photograph, taken by Dr Starr, shows the signposting and a promotional display at the beginning of an aisle:
61 These were the stores situated at Newmarket, Royal Oak, Auckland Airport, Mt Roskill and Albany.
[200] Other photographs taken by Dr Starr demonstrate the manner in which LEGO’s products are displayed along the aisle:
[201] Viewed individually, these photographs do not convey an accurate impression because they only depict segments of the shelves whereas, as the customer views them, the shelves are in a continuous line. When shoppers enter the aisle they see yellow containers of LEGO’s DUPLO product at the beginning of the aisle, followed by
yellow containers of the LEGO CLASSIC base product. These are shown in the top two photographs. These are followed by blue boxes containing the LEGO CITY themed product as shown in the third photograph. Thereafter follow a series of themed products in different colours, ending with the darker coloured boxes at the end of the aisle. These are shown in the fourth photograph.
[202] I therefore agree, in general terms, with Professor Klein when she said that colour is not a strong diagnostic cue for LEGO’s products. However, the yellow bands between the shelves and the fact that the aisle begins with two products in yellow containers means that shoppers may well associate the colour yellow with LEGO products.
[203] The colour red is not used to any great extent on the packaging of LEGO’s products. The only boxes of LEGO products in which red is a dominant colour are the NINJAGO, BATMAN and SUPER MARIO themed series, which are depicted below in photographs taken by Professor Klein:
[204] On the bottom shelf of one of the stores a single container of bricks in the NINJAGO series was displayed. The container was coloured bright red and bore a striking resemblance to that used for ZURU’s 250 brick product.62 There were no further examples of this container in that store or in any of the other stores that were the subject of a site visit. The evidence also suggests that this product was manufactured after ZURU began selling its MAX Build More products in
62 Depicted above at [91].
New Zealand. I do not consider the existence of this particular product to be of any significance for present purposes.
[205] ZURU’s MAX Build More products are invariably displayed in substantially smaller quantities than LEGO’s products. They are not displayed in any particular order, and generally occupy no more than one relatively small segment of shelving. ZURU’s products are displayed either at the far end of the aisle in which LEGO’s products are displayed or in another aisle nearby. The following photographs taken by Dr Starr demonstrates how ZURU’s products are generally displayed:
[206] As the right hand photograph shows, LEGO’s products may sometimes be displayed in the same section as ZURU’s products. In one store LEGO base plates were displayed in the same section as ZURU’s products. However, this is the exception rather than the rule. In most cases ZURU’s products were in a different aisle to LEGO’s products. As the left hand photograph demonstrates, the shelving on which ZURU’s products are displayed will not generally have a yellow band between the shelves.
[207] As the photographs above demonstrate, I consider colour to be a strong diagnostic cue for ZURU’s products. ZURU’s containers are bright red in colour and red is also the dominant colour on most of ZURU’s packaging. The fact that ZURU’s products are universally displayed in red containers or packaging means they will be readily distinguishable from LEGO’s products. I therefore consider that prospective purchasers will readily recognise the distinction between ZURU’s products and those
made by LEGO. They will have no difficulty appreciating that they are not made by the same manufacturer.
[208] I accept Professor Klein’s evidence that ZURU’s products are unlikely to be known to most consumers before they enter the store. However, I also accept the evidence of ZURU’s marketing experts who said that, once prospective purchasers encounter ZURU’s products, the first thing they are likely to notice is the distinctive “MAX Build More” label. They are also likely to notice the “ZURU” brand name, although this is obviously less prominent than the “MAX Build More” label. I therefore consider that the prominence and distinctive nature of the “MAX Build More” label is likely to be a strong diagnostic cue for prospective purchasers.
[209] The experts discussed the phenomenon of consumer involvement whilst shopping for products. In general terms, consumers will not spend a great deal of time considering the merits of products they purchase regularly and are very familiar with. Involvement is likely to increase with the level of expenditure required and in circumstances where the consumer is less familiar with the products in question. I agree with ZURU’s experts that prospective purchasers of toy building brick products are likely to have at least a moderate level of involvement in their purchases. They will either be purchasing the products for themselves or as a gift for someone else, most probably a child or young person. Either way, the consumer is likely to be concerned to purchase a product that is suitable for the recipient’s age and likely ability to use the product. This means they are likely to take some care in choosing the products they wish to purchase and will recognise that those displayed under the MAX Build More label are different products to those made by LEGO.
[210] Taking these factors into account I do not accept Professor Klein’s evidence that the presence of the word “LEGO” on the original compatibility statement was likely to confuse or deceive consumers who viewed ZURU’s products for the first time in the store. Nor do I accept that confirmatory bias is likely to play any role in this context. Rather, I accept the evidence of ZURU’s experts who said that consumers will be easily able to place the original compatibility statement in context. They will realise that the words “LEGO® BRICK COMPATIBLE” do not mean that the products are likely to be made by or associated with LEGO. They will understand that
the words “LEGO® BRICK COMPATIBLE” mean only that the words indicate that the products are compatible with LEGO bricks.
[211] Professor Klein also considered the use of the word “LEGO” may suggest to consumers that ZURU’s products are endorsed by, or part of a joint initiative with, LEGO. There was a considerable amount of evidence during the trial about initiatives undertaken by manufacturers who combine forces to design and market products that build on the popularity of both brands. In this context I accept the evidence of ZURU’s experts who said that in these situations consumers will be accustomed to seeing the logos of both parties on the jointly marketed product. An example of this is a joint initiative between the manufacturers of “BARBIE” doll products and MEGA Blocks, a competitor of both LEGO and ZURU. This resulted in the two companies marketing the product shown in the photograph below:
As can be seen from the photograph, both companies used their respective logos on the packaging of the product.
[212]
ZURU engaged in a project of this type when it marketed its “MINI BRANDS” products in conjunction with the Disney Corporation. The two companies marketed the resulting products in the following way:
In this photograph the “Disney” logo is prominent, as is ZURU’s “MINI BRANDS” product label immediately above. The “ZURU” brand name is in much smaller type at the top of the label to the left of the “MINI BRANDS” label.
[213] The absence of the LEGO logo, coupled with the fact that the word “LEGO” is only used in the compatibility statement, is in my view sufficient to ensure consumers do not conclude that the MAX Build More products are part of a joint initiative between LEGO and ZURU.
[214] I am therefore satisfied that the use of the word “LEGO” on the original compatibility statements was not likely to confuse or deceive prospective purchasers.
[215] I reach this conclusion without relying on the evidence given by Dr Starr regarding interviews he carried out with 10 persons who had purchased toy brick products within the last 12 months. ZURU relied on this evidence to support its argument that prospective purchasers will understand the compatibility statement and will not be confused or deceived into thinking that ZURU’s MAX Build More products were made by or are associated with LEGO.
[216] Dr Starr conducted the interviews in a room in which the person being interviewed was sitting at a table. In each case the interviewee had been provided with a hot drink and something to eat. After some introductory comments Dr Starr showed the person being interviewed a container of LEGO’s CLASSIC bricks. He then asked some questions about that product before placing a container of ZURU’s MAX Build More bricks on the table. He asked the interviewee who made this product, and each said that it was ZURU. Dr Starr then asked further questions about the product, including questions about what the interviewee would take from the compatibility statements.
[217] Dr Starr described the interviews as being a form of qualitative research conducted by means of semi-structured interviews, each of which was approximately 30 minutes in length. He distinguished this from quantitative research, which involves asking a series of prescribed questions and recording the answers, most or all of which will require the answer “Yes” or “No”.
[218] Mr Glover challenged Dr Starr in cross-examination about numerous aspects of his approach to the interviews. These included the research he conducted before the interviews, his choice of questions and other aspects of his interviewing technique. LEGO also called evidence from Mr Richard Dunbar, who has expertise in conducting market research. Like Mr Glover, Mr Dunbar criticised many aspects of Dr Starr’s approach to the interviews. Mr Dunbar considered the deficiencies he identified were so significant that it was impossible to draw any valid conclusions from the interviews.
[219] It is not necessary for me to engage with this issue. I consider the evidentiary value of the interviews to be questionable because of the circumstances in which they took place. To be of value any interview or survey would need to be conducted very shortly after consumers had examined and/or purchased toy building brick products in a store environment. Research undertaken when a shopping experience is fresh in consumers’ minds may well provide valuable insight into their impressions about the products and the way in which they were packaged. I do not consider interviews conducted weeks or months after the event, and in a completely different environment, can provide any meaningful assistance regarding the issues raised in this proceeding. The most that can be said about the interviews is that none of the persons interviewed mistook a product made by ZURU for a product made by LEGO.
[220] It follows that LEGO has failed to establish that ZURU has used the LEGO trade mark so as to confuse or deceive the relevant public, or that it is likely to do so if not restrained. Its claim under this cause of action must therefore fail.
C Breach of the Fair Trading Act 1986 (FTA)
[221] LEGO contends that by using the LEGO trade mark on its MAX Build More products ZURU has breached ss 9, 10, 13 and 16 of the FTA.
Section 9
[222]Section 9 provides as follows:
9Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[223] LEGO’s pleadings allege that the compatibility statements are likely to mislead or deceive because they will cause relevant members of the public to believe that ZURU’s products are products made by LEGO or are products licensed or endorsed by LEGO in some other way. In his closing submissions Mr Glover confirmed that LEGO relied on the same submissions and evidence to establish its claim under s 9 as it relied on for the claim of passing off.
[224] I have already concluded that, taken in context, the use of the word “LEGO” in the original compatibility statement would not confuse or deceive those who read it by causing them to erroneously believe that ZURU’s MAX Build More products are made or endorsed in any way by LEGO. For the same reasons I am satisfied the use of the word “LEGO” in that statement does not constitute conduct that is misleading or deceptive, or is likely to mislead or deceive, in terms of s 9 of the FTA.
Section 10
[225]Section 10 of the FTA provides as follows:
10Misleading conduct in relation to goods
No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods.
[226] LEGO alleges that relevant members of the public have been and will be liable to be misled or deceived as to the nature of ZURU’s products and their characteristics. This is because the use of the word “LEGO” in the original compatibility statement indicates to consumers that the product is made by or associated with LEGO.
[227] I do not accept this argument for the reasons already given. As I have already observed, the original compatibility statement disclosed one of the principal characteristics of ZURU’s MAX Build More products.63 This is their compatibility with products made by LEGO and it is not a false or misleading representation.
[228] The packaging of ZURU’s products also makes clear the nature of ZURU’s MAX Build More products. The compatibility statement adds to this by stating that
63 Above at [155].
the products are compatible with those made by LEGO. I therefore do not accept that the original compatibility statements were liable to mislead the relevant public by causing them to believe that ZURU’s products are made or otherwise endorsed by LEGO.
Section 13
[229]Section 13 of the FTA relevantly provides as follows:
13 False or misleading representations
No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,—
(a) make a false or misleading representation that goods are of a particular kind, standard, quality, grade, quantity, composition, style, or model, or have had a particular history or particular previous use; or
…
(e)make a false or misleading representation that goods or services have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits; or
…
[230]LEGO contends that the original compatibility statements breached s 13(a) and
(e) because they amounted to false or misleading representations that ZURU’s MAX Build More products were made or otherwise endorsed by LEGO.
[231]This allegation cannot be sustained for the reasons already given.
Section 16
[232]Section 16 of the FTA relevantly provides as follows:
16 Certain conduct in relation to trade marks prohibited
(1)No person shall, in trade,—
(a)forge any trade mark; or
(b)falsely apply to any goods any trade mark or sign so nearly resembling a trade mark as to be likely to mislead or deceive; or
(c)falsely use in relation to the provision of services any trade mark or sign so nearly resembling a trade mark as to be likely to mislead or deceive.
…
[233] LEGO relies on s 16(1)(b). In his closing submissions Mr Glover contended that this cause of action “reflects ZURU’s conduct in falsely applying the LEGO trade mark to the MAX products without consent or authorisation.” Mr Glover also pointed out that s 16 does not contain any dispensation for comparative advertising or use in accordance with honest practices.
[234] However, Mr Glover’s submission fails to capture the totality of what s 16 requires. It requires not only the false use or application of a trade mark but also that this be done so “as to be likely to mislead or deceive”.
[235]For the reasons already given this cause of action cannot succeed.
Result
[236]ZURU’s claim fails in its entirety.
[237] LEGO has succeeded in establishing its cause of action based on infringement of its trade mark. I have held that the use of the word “LEGO” in the original compatibility statements would be likely to be taken by potential purchasers as being use of the word as a trade mark in contravention of s 89(1) of the Trade Marks Act.
[238] LEGO has failed to establish its remaining claims under the counterclaim based on passing off and alleged breaches of the FTA.
Relief
[239] I do not consider it necessary to grant injunctive relief because ZURU has assured LEGO and the Court that it will not use the word “LEGO” in its compatibility statements unless the Court confirms this would not infringe LEGO’s trade mark. LEGO has leave to apply for injunctive relief on 48 hours notice if ZURU departs from this assurance.
Costs
[240] I regard LEGO as being the successful party overall because it successfully defended ZURU’s claims and succeeded in establishing one of its counterclaims.
[241] If the parties cannot reach agreement regarding costs they have leave to file concise memoranda dealing with that issue and I will determine the issue of costs on the papers.
Lang J
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