Mr Justice Mellor in toy land orders single liability and quantum trial in Cabo v MGA toy battle

The AmeriKat playing with her
spherical toy while considering 
how many patents judges
make a full Court

The first three months of 2021 have so far been pretty active for the UK Patents Court.  With now two specialist Patents Court judges installed in the form of Mr Justice Mellor and Mr Justice Meade, the already busy dockets are churning through more interim and trial decisions.  So far on Bailii there are 9 cases, but there are several more interim hearing decisions from various application and case management hearings.  Of the 9 on Bailii:  3 decisions involved telecoms, 4 life sciences, 1 in the electronic cigarette space...all standard stuff.  And then one that caught the AmeriKat's attention - toys.  

In Cabo Concepts v MGA Entertainment [2021] EWHC 491 Mr Justice Mellor had to decide three main issues in the first case management conference between Cabo Concepts - who were planning to market small plastic collectible character toys and cards called "Worldeez"  - and MGA - who market the LOL Surprise! line of dolls who are "characterised by proportionately oversized and cartoon-like head and eyes".   The three main issues were:

1. Should the judge transfer the case from the Patents Court to the Competition List?
2. What should the approach to disclosure be?
3. Should the trial be split between liability and quantum or held as a single trial?

Before we get to the first and third issues [Merpel hissed when the AmeriKat started to explain the second issue] it is important to explain the context of the dispute which factors into the decision on the issues.  

Background

Both parties' product lines include products that are contained in fun, spherical surprise formats.  In the Cabo Worldeez product, their flagship product is a globe that when opened with a collectible key reveals two Worldeez characters and collectors' cards that are hidden inside.  The LOL Surprise! line is encased in "a spherical ball container wrapped with layers of a tight plastic, in a blue "cyan' colour with a pastel palette, and a prominent speech bubble".  The judge commented that the Worldeez globe was smaller than the LOL Surprise! product. The LOL Surprise! line went on sale in the UK in February 2017 and was extremely successful.  Cabo attempted to launch its product 2-3 months later in April/May 2017 by arranging for [and Merpel hates that this is now a thing] a "child influencer" to review the toy on YouTube.  It had also lined up 3 major UK retailers to launch the product and said that certain orders had already been placed. 

But, in May 2017, MGA wrote to Cabo complaining that the packaging was confusingly similar to that of the LOL Surprise! products.  It was around the time of the letter that Cabo alleges MGA "embarked on a campaign to put pressure on UK toy traders not to buy, stock or supply Worldeez toys" such that they allege that they had to cancel their launch and their orders were cancelled. This resulted in the "demise" of the product in early 2018.  Cabo complains this conduct included unjustified threats of patent infringement.  Cabo issued proceedings in May 2020.  There is also US litigation between the parties.

The claims brought by Cabo include a claim for unjustified threats under section 70 of the Patents Act (1 page in its Particulars of Claim) and competition claims (10 pages).  Those competition claims included breaches under Articles 101 and 102 of the TFEU (and domestic equivalents).  The thrust of Cabo's causation and loss argument was that the alleged threats of patent infringement proceedings "caused the exclusion of the Worldeez product line from the relevant markets and its eventual demise" as a result of the lost sales and licensing revenues.  In their Defence, MGA alleged that the Worldeez product would have resulted in passing off.   Although, according to the Judge, MGA appears to "largely admit the communications" that Cabo rely on in their claim, MGA denies that their actions had any or any great impact on the Worldeez line including because: (1) many new products fail; and (ii) copycat products do not succeed. In any event, MGA argue that if their actions had any impact it was a result of their legitimate right to assert passing off.  As to the alleged patent threats, the only communication MGA say that Cabo identified was with The Entertainer which related to MGA asserting their rights in passing off.  In response, Cabo contends that "references to 'knock-offs' would have been understood by recipients as including an allegation of patent infringement."  Mr Justice Mellor commented here that "This is a short point which the trial judge will have to decide".

Issue 1:  Should the judge transfer the case from the Patents Court to the Competition List?

No - it stays where it is but with the goal of the trial being listed before a Patents Court Judge with competition law experience.  [Note for non-UK litigators:  the Patents Court is staffed by judges that are specialist patent judges (Mellor J and Meade J) and other "Chancery Division" judges that are designated to sit in the Patents Court.  For patent cases with a technical complexity rating of "4" or "5", those cases should be listed before a specialist patent judge.]

MGA applied under Civil Procedure Rule 30.5(2) to transfer the case from the Patents Court to the Competition List. By the time of the hearing, both parties agreed that ideally the case would be tried by a judge with dual experience, but with greater experience in competition law.  Mellor J accepted MGA's argument that the core of this case concerned competition law and that with no justification to the unjustified threats claim by way of a patent infringement action, the patent technical complexity was "at the very lowest scale" - being "1".  The Judge also agreed that the passing off and patent threats claims could be dealt with by any of the judges in the Chancery Division.  

CPR 30.5(2) provides that:  "a judge dealing with claims in a specialist list may order proceedings to be transferred to and from that list".  However, although the Patents Court "is a specialist list", the Competition List is not.  It exists only for listing purposes (i.e. for identifying what judges are available and can/are best to hear the case). Mellor J said that he understood that the Competition List had "no status beyond that".  In any event, 10 full High Court Judges are able to sit in the Patents Court, 6 of them being experienced competition law specialists.  

Accordingly, Mr Justice Mellor held:  

"...although it is not appropriate for me to allocate this case to any particular judge or a sub-group of those Judges able to sit in the Patents Court, in the usual way I am sure that the Listing Office will endeavor, so far as is possible, to list the trial of this action before a Judge with competition law expertise."

Of note is that although he also declined to docket the case to a named judge "at the moment", he did "not rule out the fact that it may, at some later stage, become apparent that this case requires active case management from an allocated Judge, and in that regard the parties will have to keep the situation under review."

Issue 3:  Should the trial be split between liability and quantum or a single trial?

It should proceed as a single trial.  [Note for non-UK litigators:  For IP cases, normally our liability and damages (quantum) cases are bifurcated or split.  Liability goes first and then, only if infringement and validity are established, will we proceed to a "damages inquiry".]

The legal test, the Judge noted, was to ensure that the proceedings were dealt with justly, fairly, efficiently and at proportionate cost.  The test was a balancing exercise depending on the circumstances in the case, taking into account the factors, set out by Mr Justice Hildyard in Electrical Waste v Philips [2012] EWHC 38.  Those factors include:  costs savings if liability is not established; efficiencies in trial preparation and management; unnecessary inconvenience and strain on witnesses if a split trial; confusion and complexity if a single trial; prejudice to a party if a split trial; can a split be defined clearly; encouragement of settlement.  

There were two main issues:  (1) whether there could be a clear split; and (2) whether the split was desirable in light of the number of potential permutations flowing from the liability trial that could change the contours of the quantum trial.  

Cabo argued that the case should be split between liability and quantum, but that the liability trial would have what it called "basic causation", i.e. establishing the breaches of statutory duty in the competition claims by showing "some harm".  Most of the other causation issues would be dealt with at the quantum trial, explained Cabo.  Although this split generally was the same as the split in most IP cases (see note above), Mellor J held that this did not mean that there was a clear demarcation between the issues and the evidence. 

MGA argued there was no clean split; the extent of harm is tied up with the alleged competition law infringements.  MGA also pointed out that contrary to Cabo's submissions, it was not the "normal" order that competition law cases be split - merely that the case law said that competition cases "can be split off" and such splits were "not uncommon"(see decision of the CAT (Roth J as President) in Sportradar AG v Football Dataco Ltd [2020] CAT 25 at [58]).

Mellor J reached what he called a "firm conclusion" that the case should proceed as a single trial where liability, causation and quantum would all be decided.  There were multiple factors going to this decision.  The key ones being:

• overlap of witnesses:  the witnesses who will be centrally involved in giving evidence on liability, are also likely going to be the witnesses giving evidence as the decision to withdraw from the market [69];
• the court will have to consider the extent of the harm caused by the conduct complained of when examining liability (i.e. did the representations have an anti-competitive effect), which is the same question that will have to be considered in  quantum; thus, there was likely further evidence overlap between liability and quantum [72];
• motivation for the split: the Judge found it "more than a little odd" that it was Cabo, not MGA who was seeking to split the trial as he thought Cabo would want their damages as quickly as possible [75];
• settlement opportunity:  the Judge did not consider that a split trial would assist in settlement, as the parties would be none the wiser as to "the realism of the Claimant's very large claims for damages".  The Judge continued that "there is at least a suspicion that the Claimant sees a split trial as desirable because it can hold the threat of the large damages claim over the head of the Defendants for longer" [76].

The judgment also interestingly ordered the provision of sequential skeleton arguments for trial - which to the AmeriKat appears to be a good idea in certain cases and would joyously avoid the too often "ships passing in the night" sensation.  

So, perhaps with 6 experienced competition law judges in the Patents Court, Mr Justice Birss' (as he then was) proposal of an IPCat, has finally come to life (albeit the other way around - a CatnIP)?