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The Court That Gets It

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Friday November 18, 2005
The Supreme Court of Canada yesterday issued its much-anticipated (by trademarks practitioners anyway) decision in the trademark battle between Mega Blocks and Lego (the case is formally known as kirkbi ag v. ritvik holdings inc.)

The unanimous court found for Mega Blocks, ending Lego' s attempts to use trademark law to limit the marketing of a competitive product.  After Lego' s patent on the lego interlocking bricks expired, Mega Blocks, a Canadian toy manufacturer, began selling a competing product that also featured interlocking bricks.  Lego sought to rely on an unregistered trade-mark, the "LEGO indicia", "which consists of the well-known geometrical pattern of raised studs on the top of the bricks as the basis for a claim of passing off" under the Trademarks Act.  Their action was dismissed at trial, the dismissal was upheld on appeal, and now the SCC has again affirmed the initial dismissal.

The first half of the decision involves an analysis of the constitutionality of the Trademarks Act (the federal government relies on its powers under the trade and commerce clause for the statute).  Nothing particularly new here, but the discussion does bring to mind two potential future cases that may raise similar issues: a constitutional challenge to PIPEDA and to anti-circumvention provisions in a future Copyright Act.

More noteworthy is that the court again demonstrates that it clearly gets the marketplace impact of intellectual property rights and the need for balance and limits in how IP rights are addressed.  Copyright does not play a role in this decision (the court obviously discussed the limits and need for balance in Theberge, CCH, and the Tariff 22 cases), but similar concerns appear in patent and trademark law.  

With regard to patents, the court cites with approval language from several years ago that states "patent protection rests on a concept of a bargain between the inventor and the public.  In return for disclosure of the invention to the public, the inventor acquires for a limited time the exclusive right to exploit it."

On the trademark side, the court also notes the limitations to trademark, stating that "trade-marks law is not intended to prevent the competitive use of utilitarian features of products.  .  . In Canada, as in several other countries or regions of the world, this doctrine is a well-settled part of the law of trade-marks.  In the law of intellectual property, it prevents abuses of monopoly positions in respect of products and processes."

In light of the balance and its analysis of trademark law, it forcefully concludes that:

"In the end, the appellant seems to complain about the existence of competition based on a product, which is now in the public domain.  As "LEGO" and LEGO-style building blocks have come close to merging in the eyes of the public, it is not satisfied with distinctive packaging or names in the marketing operations of Ritvik.  It seems that, in order to satisfy the appellant, the respondent would have to actively disclaim that it manufactures and sells LEGO bricks and that its wares are LEGO toys.  The fact is, though, that the monopoly on the bricks is over, and MEGA BLOKS and LEGO bricks may be interchangeable in the bins of the playrooms of the nation - dragons, castles and knights may be designed with them, without any distinction."

It has been apparent now for several years but it bears repeating about the Supreme Court of Canada -- no high court in the world better understands that the right balance in intellectual property law depends as much on the laws' limits as its protections.

Comments (4)add comment

Eric Eggertson said:

Link to Blog Posting
Interesting. I linked to your article on my blog:

http://mutually-inclusive.typepad.com/weblog/2005/11/lego_loses_pate.html

I'll come back and read up on your Sony DRM opinions, as I also wrote several items on that topic.
November 19, 2005

WJM said:

Broader implications
While the case was not a copyright case, there may be broader lessons to draw from it. The Court has poured cold water on the possibility of "cross-pollinating" from one species of IP to another (in this case, using TM as a de facto extension of patent.) The same principle does, will, and should apply, mutatis mutandis, to any attempts -- and they are coming -- to use TM law to perpetuate expired or about-to-expire copyrights.
November 20, 2005

CRF said:

...
I don't think this decision is a blow to Lego, and I think it will end up benefiting the company, allowing it to more clearly focus on the true challenges to its business.

It has been apparent to me that Lego has long realized that its 'brick' business is based more on its branding, its designs, and its novel product development (like MindStorm), its product tie-ins with popular films (Star-Wars, and even its own films), its attempts to tie its play methods (problem solving, construction, fantasy) into computer games: an indication that Lego realizes that the big threats to its business lie in the competion for children's interest in traditional toys versus computer play, and its marketing to schools. I can't see any evidence, aside from these court cases, that it considered MegaBloks to be a very serious competitor, otherwise I thought it would have likely developed and marketed sets similar to MegaBloks': more bricks of often simpler shape than typical Lego sets, at a low price.

I think Lego went ahead with this court case, but really did not putting much stock in winning. If it won, it may have been an apparent benefit to Lego that MegaBloks competion would be reduced, however the more serious competition with Children's playing time I mentioned above would not be reduced, risking Lego's business if they lost focus of this fact in celebrating their victory over MegaBloks. Monopolists (or even just those with a self-perception of a monopolist) often self-stagnate and may see their industry disappear. Competion may itself generate consumer interest, and certainly promotes faster product innovation (in fact, innovation in all facets of the industry).
November 23, 2005

the lego man said:

ridiculous
No matter what fuzz they can make up, the truth is that lego invented their system and kids love it, and everyone was happy but then mega bloks decided that they wanted legoes profit, so they blantantly copied it. Since it is Canadian, mega bloks gave Canada taxpayer money and because of it, Canada made excuses to keep mega going. lego has had to lay off 1,000 employees recently, and we all know one of the reasons. this is discgusting. I am going to boycott mega bloks RIGHT NOW. Join me and save the world from this evil. BOYCOTT MEGA BLOKS!
November 05, 2010

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