Cabo v MGA – Toying with the idea of a single trial on liability and quantum in IP disputes?

Introduction

On 4 March 2021, the High Court of England and Wales handed down judgment in Cabo Concepts Ltd v MGA Entertainment (UK) Ltd [2021] EWHC 491 (Pat), which concerns a claim for damages arising from MGA’s alleged breach of competition law and unjustified threats of patent infringement. In the first case management conference in the proceedings, Mr. Justice Mellor was asked to rule on two interesting issues: (i) whether the claim should be transferred from the Patents Court to the Competition List; and (ii) whether the trial should be split into two, dealing separately with liability and quantum (damages), respectively, or whether the claim should be determined at a single trial.

In his judgment, Mr. Justice Mellor gave directions that a single trial would be held to determine liability, causation and quantum (a rarity for Patents Court claims), and that the case should remain in the Patents Court, rather than being transferred to the Competition List, despite the fact that the core of the claim concerned competition law. This decision is of particular relevance, as it provides a clear statement of the test to be applied by the court when considering whether a split or single trial is appropriate, and provides insight into the factors impacting a judge’s determination when faced with a request to transfer proceedings out of the Patents Court.

Background

Both MGA and Cabo offered toy products packaged in spherical ‘surprise’ formats. MGA introduced its ‘LOL Surprise!’ dolls in February of 2017 in the UK, and enjoyed considerable success. Cabo introduced its ‘Worldeez’ product a short time later in April/May 2017, and arranged for a YouTube review of the toy by a well-known ‘child influencer’ and a product launch with three prominent UK retailers.

MGA described the ‘LOL Surprise!’ doll packaging as ‘a surprise format requiring unwrapping of a spherical ball container wrapped with layers of tight plastic material, in a blue “cyan” colour with a pastel palette, and a prominent speech bubble.’ Upon receiving initial complaints from MGA, Cabo changed the wrapping of its own packaging from blue to white in order to ‘further differentiate’ its products from MGA’s LOL Surprise! line. Mr. Justice Mellor also noted that Worldeez’s spherical packaging was smaller than that of the LOL Surprise! toy.

In May of 2017, MGA wrote to Cabo, complaining that Worldeez’s packaging was confusingly similar to that of their own products. Around that time, Cabo alleges that MGA ‘embarked on a campaign to put pressure on UK toy traders not to buy, stock or supply Worldeez toys,’ and that MGA’s reference to ‘knock-offs’ would have been understood to be allegations of patent infringement, bringing them within the scope of unjustified threats under section 70 of the Patents Act 1977. Cabo claimed that MGA’s campaign caused Cabo to abandon its UK launch, resulting in orders being cancelled by retailers and the eventual demise of the product line in early 2018.

In addition to a claim for unjustified threats, Cabo alleges that MGA breached EU anti-trust provisions in Articles 101 and 102 of the Treaty of the Functioning of the European Union (TFEU), and Chapters 1 and 2 of the Competition Act, and claims damages for MGA’s alleged conduct leading to the demise of the Worldeez product line.

In its defence, MGA has argued that the Worldeez product would have resulted in passing off. Whilst MGA admitted to the communications relied on by Cabo, it denies that those actions had a considerable impact on the demise of the product line, as it would not have been successful in any event, but had there been such an impact, it was due to MGA’s right to assert passing off. Due to the allegations of unjustified threats of patent infringement, the claim was issued in the Patents Court in 2020, as required under CPR 63.2.

Application for transfer to the Competition List

MGA had applied, under CPR 30.5(2), to transfer the claim from the Patents Court to the Competition List. 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.’

The UK Patents Court is presided over by specialist patent judges, and patent cases with a technical complexity rating of ‘4 or 5’ are listed before such judges. MGA argued, and Mr. Justice Mellor accepted, that MGA’s claim was largely a competition law matter; the patent technical complexity was assessed to be ‘1’, the very lowest rating on the scale, in view of the claim neither asserting nor challenging the validity of any patent rights.

For the purposes of CPR 30.5(2), unlike the Patents Court, the Competition List is not a ‘specialist list.’ Mr. Justice Mellor noted that the Competition List has no formal status beyond listing cases before suitable and available judges, and in any event, of the ten High Court judges able to sit in the Patents Court, six have considerable competition law experience. As a result, it was held that the claim would remain in the Patents Court, with the goal of listing the matter before a Patents Court judge with competition law experience.

Split or single trial?

Mr. Justice Mellor held that a single trial should be conducted on liability, causation and quantum. For those readers unfamiliar with IP proceedings in the UK, it is generally the case that liability and quantum (damages) are dealt with in separate, split trials. Liability is assessed first, and if infringement is established at trial (and the IP right(s) at issue held to be valid), the matter can then proceed to a ‘damages inquiry.’

In addressing the issue, Mr. Justice Mellor set out the court’s responsibility, and the relevant legal test, for assessing whether there should be a single or split trial. In deciding between the two options, it must be ensured that the case is dealt with fairly, justly, efficiently and with proportionate costs. The test, as set out in Electrical Waste v Philips [2013] EWHC 38 by Mr. Justice Hildyard, is a balancing exercise taking into account the following factors:

• Efficiencies in trial preparation and management;
• Confusion and complexity where a single trial is opted for;
• Inconvenience for witnesses during a split trial;
• Prejudice to a party resulting from a split trial;
• Clearly defining a split trial; and
• The encouragement of settlement between the parties.

In applying the test, Mr. Justice Mellor identified two main factors to consider: First, whether a clear split of liability and quantum was possible, and second, whether a split was desirable, given how the liability trial results could affect the ‘contours’ of the quantum trial.

It was Cabo’s position that the trial should be split, and that the liability trial should seek to establish MGA’s breaches of statutory duty (by showing ‘some harm’) under the competition law claims. According to Cabo, the issue of causation would best be dealt with at the quantum trial.

Conversely, MGA argued that a clean split between the issues was not possible, as the extent of any harm caused to Cabo was tied up with the allegations of competition law infringement. Furthermore, MGA noted that, contrary to submissions by Cabo, it was not ‘normal’ for competition law claims to be split; it is merely that such claims can be determined by way of split trials.

Ultimately, Mr. Justice Mellor held that the case should proceed as a single trial, during which liability, causation and quantum would be decided together, and identified certain key factors impacting his decision, including:

• Repetition of witnesses: Those witnesses who would be providing evidence on liability were likely to be the same witnesses giving evidence regarding Cabo’s decision to cancel their UK launch in relation to quantum;
• The parties’ motivations: Mr. Justice Mellor noted that it was ‘more than a little odd’ that Cabo sought to split the trial, as it would delay their eventual damages payment if successful at trial;
• Evidentiary overlap: The court will have to consider the extent of harm caused by the conduct complained of when examining both liability and quantum;
• Opportunity for settlement: Mr. Justice Mellor considered that splitting the trial would not assist the parties in reaching settlement, suggesting 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.’

Comment

Mr. Justice Mellor’s judgment illustrates the flexibility of the Patents Court, both in dealing with claims that are not solely of an IP nature, and in providing a fair, expeditious and cost-effective approach to trial planning. Outside of streamlined proceedings in the Intellectual Property Enterprise Court (IPEC), litigants are often required to wait well in excessive of a year for a liability trial to be held in IP claims, and longer still in order for a subsequent trial on quantum to take place. Accordingly, Mr. Justice Mellor’s decision will be welcomed by those making use of the Patents Court, as the pragmatic approach adopted will, where appropriate, provide the parties with a faster and more cost effective avenue to the resolution of their dispute.