Unpackaging Unjustified Threats Damages Claims in the Fickle Toy Trading Industry

In Cabo Concepts Ltd v MGA Entertainment (UK) Ltd 2025 EWHC 1451, despite findings of abuse of a dominant position and unjustified threats of patent infringement against MGA, Cabo’s claim for damages failed as the Judge held on a counterfactual basis that Cabo would not have traded profitably in any event.

Background
Cabo was incorporated in the UK in August 2016 with the aim of commercialising the founders’ 2014 idea for a range of collectible dolls from countries around the world, complemented by other objects associated with each country. Following internal product development and engagement with advisers Cabo entered into discussions with various retailers for its collectible toy range – Worldeez. The anchor product in the Worldeez range consisted of a pink spherical capsule covered in two layers of plastic wrapping having a globe like appearance. The capsule contained two compartments, with the first compartment containing a key that unlocked the second compartment that contained two figurines and two fact cards. The initial range featured eight countries with fifteen figurines for each country: a boy and girl figurine, plus thirteen figurines of associated cultural items. Cabo also entered into discussions with the popular children's television channel Nickelodeon to market the collectible toy range, which it planned to launch in late May and early June 2017.

MGA is an established US based toy manufacturer. In December 2016 it launched its LOL Surprise! toy range in the USA, followed by the UK in January 2017, both of which were outstanding commercial successes. A LOL Surprise! toy is comprised of a collectible doll and associated items packaged in a spherical plastic container and wrapped in multiple layers of plastic wrapping. When the first two layers of wrapping are removed paper ‘teasers’ to the contents of the sphere are revealed. The removal of further layers reveals recesses in the sphere that contain wrapped miniature toy accessories, such as a baby bottle, shoes and clothes. Finally, there is the plastic sphere which opens revealing the doll.

On 23rd May 2017, when many of the parties were at the Las Vagas toy fair, MGA commenced its allegations of passing off and asserted that it had a patent pending for its LOL Surprise! product. The next day MGA emailed a cease and desist letter which again mentioned that MGA has a patent pending and that the Worldeez packaging, shape, colour, and art work, as well as the product concept, marketing methods, features, and play pattern would lead the public to mistakenly believe that Worldeez is connected with LOL Surprise!. MGA also contacted various retailers to discourage them from stocking the Worldeez product, stating that they had pending patent rights and would not supply their LOL Surprise! product to retailers who stocked the Worldeez product.

Despite the threats it made, MGA never brought proceedings against Cabo for infringement of any intellectual property rights related to its LOL Surprise! product. Nonetheless, Cabo took MGA’s threats seriously, cancelling the planned launch and having the Worldeez globes repackaged before launching on 1st July 2017 at a large UK discount retailer chain which did not stock LOL Surprise!. The Worldeez sales did not meet the retailer’s expectations, and they stopped reordering by the end of 2017. There were also modest sales of Worldeez through other outlets, but the large retailers Cabo initially sought to launch through still would not stock Worldeez. Two of Cabo’s substantial shareholders left the company and the Worldeez toy was discontinued in 2018.

Cabo initiated several actions against MGA, claiming that the commercial failure of the Worldeez toy was due to: MGA’s abuse of its dominant position in the relevant toy market; MGA making unlawful agreements; and making unjustified threats regarding a pending patent. As the UK was subject to EU law when Cabo initiated its proceedings against MGA EU law applied for the first two grounds, although it was agreed that there were no material differences in post-Brexit UK law.

Abuse of Dominant Position
After considering the expert’s evidence the Judge found the evidence supported a non-hard edged market definition of the wholesale market for multi-surprise collectible toys focussed towards girls in the 6–9-year age range. The competitive analysis of such a market should also include consideration of the sensitivity of that market to competition from single surprise collectible toys. In the main market and the market including single surprise collectible toys MGA’s market share at the relevant times were respectively found to be highly indicative and indicative of dominance. MGA’s threats to withhold supplies of LOL Surprise! from retailers was found to meet another hallmark of dominance – the ability to act independently of competitors and customers – as several retailers capitulated to that threat with great reluctance. After considering several tests for market dominance the Judge found the conclusion that MGA was dominant in the relevant market at the relevant time to be inescapable. MGA's threats to withdraw supply to its customers if they stocked the Worldeez product was found to be exclusionary conduct that qualified as an abuse of a dominant position.

MGA sought to justify its threats to withdraw supply by characterising them as a legitimate and proportionate response to an attack by Cabo on its commercial position by way of passing off and unfair or objectionable conduct – despite not bringing a passing off action against Cabo. The Judge found there was no misrepresentation capable of founding a claim in passing off – even when the Worldeez globe was in its original packaging – as consumers would not be misled as to the origin of the product. Absent passing off the Judge found there to be no basis in tort for MGA’s unfair or objectionable conduct claim. Cabo was entitled to market and promote the product, and the key retailers were entitled to stock it and advertise it to their customers. While MGA could compete on the merits, such as by offering a superior or more innovative product, or by implementing a better marketing campaign, it could not stifle legitimate competition by exercising its market power. The Judge also noted that MGA’s founder and CEO made withdrawal of supply threats before he even saw the Worldeez product and that the threats were sustained even after the Worldeez packaging was changed.

Unlawful Agreements
Cabo separately alleged that MGA’s conduct was prohibited by the unlawful agreements provisions of the EU/UK competition legislation, which prohibits agreements, decisions or practices which have as their object or effect the prevention, restriction or distortion of competition. The Judge readily found that MGA’s withdrawal of supply threats led to agreements with various toy retailers. While most agreement to restrict competition cases involved horizontal agreements between competitors, the Judge noted that vertical agreements between suppliers and purchasers can also be anti-competitive. Further, given that the retailers knew MGA was applying that threat to all significant toy retailers, the agreements were cumulatively reinforcing at a horizontal level as well. The Judge proceeded to find the agreements anti-competitive as MGA’s transparent purpose for the agreements (at least with the three most important UK toy retailers) was to exclude Worldeez from the market.

The unlawful agreements findings raised the question of whether MGA had a defence under the EU Vertical Block Exemption Regulation (VBER) (now no longer in-force), which identified permissible practices for vertical agreements under EU competition legislation. The Judge rejected all of Cabo’s arguments for why the VBER did not apply. Most notably, Cabo’s argument that the agreements did not fall within the scope of the VBER was rejected on the basis that the agreements were not simply agreements that the retailers would not stock Worldeez; rather the entire purpose of the retailers’ agreeing to MGA’s demands was to obtain supplies of LOL Surprise!. The Judge also noted that practices which the VBER Regulations deemed permissible could nonetheless be anticompetitive, in which case the Regulations allowed a Member State to withdraw the benefit of the VBER.

Patent Threats Claim
The unjustified patent threats claim was brought under the version of section 70 of the UK Patents Act 1977 which applied before it was amended on 1 October 2017. At the time when the threats were made MGA had (amongst others) filed a European patent application, although it was not granted until 19 June 2019. The patent was subsequently revoked on 21 March 2023 following an opposition filed by Cabo. The Judge stated a number of principles regarding what qualifies as such a threat.

• In order to be a person aggrieved by a threat, the claimant must show that its commercial interests have been, or were likely to be, adversely affected by the threats in a real, as opposed to a fanciful or minimal, way.
• However, it is not required that the threat be made against the recipient of the communication that contains the threat. The threat does not have to be an express threat, but may be veiled, covert, conditional or future.
• Whether a communication amounts to such a threat is an objective test, and is determined by reference to what a reasonable person, with knowledge of all the relevant circumstances at the date of the communication, would have understood the communication to mean, in the context of the communication as a whole.

Applying those principles the Judge found that Cabo’s commercial interests were adversely affected by MGA’s threats, which were made in order to interfere with Cabo's commercial relationships with the toy retailers, and so found MGA to have made unjustified threats of patent infringement.

Eligibility for Compensatory Damages
Having successfully established that MGA’s exclusionary campaign involved abuse of a dominant position and unjustified threats of patent infringement, Cabo also needed to establish some actionable harm or damage caused by those breaches on a balance of probabilities basis in order to be eligible for its damages claim. Once causation of harm or damage is established, damages are assessed on a compensatory basis, to place Cabo in the position in which it would have been had the breach not been committed. This requires Cabo to show on a balance of probabilities basis that Worldeez would have traded profitably in the counterfactual case in order to be eligible for compensatory damages.

The Judge also found that if MGA’s conduct resulted in any losses to Cabo, those losses would be the result of the combination of MGA’s refusal to supply threats and the patent infringement threats, both of which were necessary to produce the result of losses to Cabo caused by MGA.

In assessing whether Cabo would have traded profitably in the counterfactual case the Judge found the evidence indicated that the main toy retailers perceived Worldeez quality to be good enough to stock or at least worthy of consideration for stocking. Regarding how it compared to other products on the market the Judge noted the experts’ agreement that the toy tapped into the then-unfolding craze for unwrapping multi-surprise collectibles, had a good brand name, was lightly educational and had appealing packaging. On the negative side the experts considered the figurines to be similar to others on the market, including toys that also referenced iconic elements from countries around the world, and had less post-unwrapping play appeal compared to competitors’ toys.

While the evidence showed Cabo had an impactful initial marketing campaign, it did not maintain consumer momentum after the first 6-weeks, which the Judge considered indicated the product’s appeal was insufficiently strong to go on to achieve a significant degree of commercial success. Its television marketing budget was comparatively low for the launch of a successful new collectible toy, and the Judge agreed with one of the experts who considered the sales targets would have required a far higher overall marketing budget than Cabo had available to it. Even on assumptions favourable to Cabo, Worldeez would have had to have maintained sales figures over three times higher than its best week just to break even during 2017. The Judge found that the evidence did not indicate that Worldeez could have achieved success of that magnitude even if it was also available through other notable toy retailers. Rather, it was just another instance of failure in the fickle toy market where more toys fail than succeed. Consequently, Cabo's claim for damages failed. Nonetheless, the Judge considered it appropriate to grant Cabo’s request for a declaration that MGA's conduct constituted unjustified threats of patent infringement proceedings.

Concluding Remarks
Starting out on a business venture is never child’s play. While the initial idea can feel like a welcome gift, bringing the idea to market will involve a lot of unpacking, with multiple surprises along the way. Not only is it important to protect your own IP, it’s also important to understand how close is too close when it comes to the IP of others, and to understand when another party is overstepping in their attempts to curtail your endeavours. While there are laws that discourage anti-competitive conduct, the presence of anti-competitive conduct does not guarantee a successful damages claim if the business idea fails. Early professional advice in all of these areas is recommended.

Historically, Australia and New Zealand’s commercial law legislation and jurisprudence has drawn heavily on UK law. This case should be of significant interest to AU and NZ IP and competition law practitioners. The case provides good examples of arguments and interpretations of facts. The facts of the case provide a good example of an abuse of market power that could be persuasive in the Australian and New Zealand context. With regard to the unjustified threats of patent infringement finding, while Australia has similar provisions, it is noteworthy that New Zealand no longer has an equivalent provision, with the groundless threats provisions of the Patents Act 1953 not being emulated in the Patents Act 2013. While the plaintiff in this case was found on a counterfactual basis to be ineligible for compensatory damages, in Australia and New Zealand they could have applied for exemplary or punitive damages for the egregious conduct of the abuse of market power.

Authors: Quinn Miller and Ian Rose

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