Facts:

This was an appeal from a decision of the High Court (Lang J).

Zuru was a New Zealand-based group of companies which began marketing its own plastic toy building bricks and related products in late 2018 under the trade mark MAX BUILD MORE. By its own admission, Zuru’s business aims and ethos were those of a disrupter [2].  Zuru’s brick components were compatible with Lego’s products.  Zuru initially included on its packaging a compatibility statement “LEGO® BRICK COMPATIBLE”.

The Lego Group took exception to this and Zuru replaced it with the statement “COMPATIBLE WITH MAJOR BRANDS”.

Two years later, on 7 May 2021, Zuru sought Lego’s consent to its proposed use of three variations of its original compatibility statement, all of which used the word LEGO in different font and various formats.  Lego refused consent.  Zuru then filed High Court proceedings seeking declarations that its use of the proposed compatibility statements referring to the LEGO trade mark did not constitute infringement under the Trade Marks Act 2002 (‘TMA02NZ’), did not breach the Fair Trading Act 1986 (NZ) and did not amount to passing off [6] – [7].

Lego counterclaimed alleging that the original compatibility statement did infringe its LEGO registered trade mark in New Zealand, that any use of the proposed compatibility statements would infringe, and that these uses of the LEGO trade mark would also breach the Fair Trading Act (NZ) and amount to passing off.  Lego sought injunctive relief but not damages.

In the High Court  Lang J found that the original compatibility statement infringed the LEGO trade mark under s 89 and thatZuru could not claim the benefit of specific statutory defences under s 94 (comparative advertising) and s 95 (use indicating the quality or purpose of the goods) because Zuru’s use had not been in accordance with honest practices.  The judge did not consider that the compatibility statements were false, confusing or liable to mislead the public into thinking that Zuru’s products were made or otherwise endorsed by Lego. The judge therefore dismissed Lego’s counterclaims.  The judge also declined to make declarations sought by Zuru about whether future compatibility statements infringed, the Court’s reasoning being that such declarations would be inappropriately advisory and uncertain [9].

Zuru appealed the finding of trade mark infringement and the refusal to grant declaratory relief.  Lego supported Lang J’s judgment and cross-appealed the rejection of its claims for passing off and breach of the Fair Trading Act (NZ) [10].

The key issues on appeal were:

(a)    Did Zuru’s use of the LEGO trade mark amount to “use as a trade mark” as required by s 89(2) in order for trade mark infringement to be established?

The competing contentions were [108]:

(i)       the orthodox (Yeast-Vite) function of a trade mark, namely (as Zuru submitted) as a badge of origin in the user, meaning there will be no infringement if the LEGO mark was not used by Zuru in a manner likely to be taken as indicating the trade origin of Zuru’s goods; or

(ii)     a wider concept of a trade mark’s function, namely (as Lego submitted) to act as “a guarantee that all the goods or services bearing it have been manufactured or supplied under the control of a single undertaking which is responsible for their quality”, meaning the mere inclusion of the LEGO mark on Zuru’s products will always constitute infringement.” 

 

(b)    Did the specific defence for comparative advertising  in s 94 apply?

(c)    Did Zuru’s use of the LEGO trade mark constitute passing off or a breach of the Fair Trading Act 1986?

(d)    Should declaratory relief be granted?

Held, allowing Zuru’s appeal and dismissing Lego’s cross-appeal:

A. Trade Mark Infringement – Use as a Trade Mark

Majority Decision (Ellis and Palmer JJ), Cooke J dissenting

 

(i)                      The proper interpretation of ‘use as a trade mark’ was that these words should be interpreted to reflect the orthodox function of a trade mark.  Use of another’s mark will only infringe if it is used as a trade mark in the orthodox sense: as a badge of origin for the user’s goods or services. [146] The reasons were:

(a)    Conflating use of and use as a trade mark: Lego’s wider concept conflated use ‘of’ a trade mark with use ‘as’ a trade mark. The express inclusion of s89(2) in the Act evinced a clear intention to maintain that distinction [110];

(b)    CJEU judgment relied on was an unprincipled extension of the function of a trade mark: Lego’s support for the broader function of a trade mark was based on the CJEU’s decision in Arsenal Football Club v Reed [2002] ECR-I- 10273. This represented an ‘unprincipled’ extension of the function of a trade mark which the New Zealand Court of Appeal had earlier declined to follow [112]. Lego’s reliance on the Bismag decision was also ‘misplaced’ [113-121].

Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd [2015]NZCCZ 602, [2016] 3 NZLR 145 at [162] followed:  Bismag Ltd v Amblins (Chemists) Ltd [1940] Ch 667 (CA) referred to

(c)    If s 89(2) were limited to exempting descriptive use, then here this would afford quasi-copyright protection to the LEGO mark.  Any limiting of s 89(2) to descriptive use was rejected because it “would mean that a trade mark that comprises a made-up word (such as LEGO) would be subject only to the possible availability of a specific defence and would be afforded “quasi-copyright protection” [124], [125]

(d)    Section 14 New Zealand Bill of Rights Act: If there was any residual ambiguity in the meaning of s 89(2), the freedom to impart and receive information confirmed by s 14 New Zealand Bill of Rights Act 1990 also favoured a return to orthodox interpretation.” [126]

(e)    Rejection of effect of s 89)3) on interpretative exercise: Lego’s reliance on s 89(3), which provided that ss 92-98 overrode that section,was misconceived. Such an approach was contrary to dicta that s 89(2) operates as a gateway [129]. 

(f)      As to s 94 TMA02NZ, this defence was only engaged when there had been found to be infringing use as a trade mark under s 89(2). If there were to have been any expansion of the function of use as a trade mark, that would have been preceded by careful policy advice and consideration in Parliament, all of which was absent here [140]

Minority Decision (Cooke J)

(ii)                    Zuru had used the word LEGO as a trade mark under s89(2) [228].  Here the word LEGO was used to identify Zuru’s goods but not in a way that involved any claim of association [228]. The reasons for this were:

(a)    Majority interpretation was inconsistent with Parliament’s intention: It was plain from the text and its purpose that when enacting the TMA in 2002, Parliament intended to both authorise and regulate the use of trade marks for comparative advertising. The reasoning of the Majority “undermine[d]” that purpose.  The Majority interpretation was inconsistent with what Parliament intended. The focus must be on identifying the meaning of the NZ statutory regime. [230]

(b)    On the Majority interpretation s 94 was redundant: On the Majority’s  approach to ‘use of a trade mark’ in s 89(2), comparative advertising “does not involve use of a mark at all, so s 94 need not apply” [238]

(c)    Section 89(3) supported Minority analysis: Support for the Minority analysis was to be found in s 89(3) which expressly provides that ss 92-98 “override this section”. This “indicates that these later provisions set out the requirements for when the categories of conduct they address will involve infringement. These sections were intended to be controlling.”  [239]

(d)    Reasons why the TMA02NZ carried over the ‘use as a trade mark’ requirement:  S 89(2) was the equivalent of s 8(1A)(d) of the TMA53NZ.  Sections 8(1A)(c) and (d) were not carried over. In the face of clear legislative intent to permit and regulate comparative advertising, the carrying over of s89(2) was not to be interpreted to render the subsequent provisions largely irrelevant or to take New Zealand back to the approach in England and Wales in 1934 and the Yeast Vite case. Neither was that step designed to align New Zealand with Australia.  There was no suggestion of such intentions in the materials surrounding the enactment of the TMA02NZ.  Indeed, the legislative materials suggested the opposite [240], [243].

Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA); Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd [2015] NZCA 602 (CA) referred to.

(e)    LEGO was a purely made-up word. It had no descriptive meaning.  So, it was not possible to use this word other than as a trade mark.  This was the ‘evident purpose’ of s 89(2) and explained why the subsections was worded to say use “as a trade mark” and not “use of a trade mark.” [246].

(f)      The elaborate analysis of Majority should not be required.  The meaning of s 89(2) was tolerably clear and, to the extent that it was necessary to go further, the legislative purpose was apparent from the legislative material surrounding the TMA02NZ as well as the Act itself.  Further the conclusion of the Minority was supported by New Zealand cases on comparative advertising [250]

Villa Maria Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 422 (CA); Mitre 10 (New Zealand) Ltd v Benchmark Building Supplies Ltd [2004] 1 NZLR 26 (CA) referred to.

(g)     Majority alternative potential interpretation rejected. The Majority alternative was that s 94 deemed what would otherwise not be an infringement for the purpose of the comparative advertising defence[see [139]].  Section 94 required that there be use as a trade mark, so this alternative interpretation was not available on the plain words. Further this approach would treat s 94 in a different way from s 95 when it seemed clear that these provisions needed to be considered together.  The Majority’s approach effectively rendered all the requirements for the permitted use addressed by these provisions redundant.” [251]

(h)    Rejection of the claim of an inappropriately broad intellectual property protection for trade marks. The Majority suggestion that the interpretation the Minority favoured would bestow an inappropriately broad intellectual property protection akin to copyright was wrong.  [252]

B. Comparative Advertising: section 94

(iii)  (Unanimously)  The orthodox idea of a comparison can logically involve saying that two things are relevantly the same as, or equivalent to, each other, or that aspects of them are the same.  The comparative advertising defence in s 94 was therefore potentially engaged.  [167] [257]

(iv)   (Unanimously) As to the requirement in s 94 that the comparative advertising be in accordance with honest practices, what was stated in Zuru’s compatibility statement was true.  [176] [261]

(v)    (Unanimously) The fact that a competitor wanted to compete by aggressively comparing its goods to other goods and obtain some of the other party’s customers as a consequence, did not mean that the competitor had not engaged in honest practices.  [177-8] [263].

Mitre 10 (New Zealand) Ltd v Benchmark Building Supplies Ltd [2004] 1 NZLR 26 (CA) ; Cable & Wireless plc v British Telecommunications plc [1998] FSR 383 (Ch) referred to.

C. Section 95 defence 

(vi)                 (Unanimously) It was unnecessary for the Court to form any definite view on the section 95 defence.  [183] [265]

D. Passing off and Fair Trading Act 1986

(vii)    (Unanimously) The Court could not discern any error in the trial judge’s conclusion that consumers would not be misled (so as to constitute passing off  or breach of the Fair Trading Act) by Zuru’s packaging.  [212] [219] [265]

(viii)    The contention of initial interest confusion was rejected.  By the time consumers saw the word LEGO on the compatibility statement, they would have already seen the distinctive packaging and the MAX BUILD MORE and ZURU brand elements. These would have led consumers to conclude that they were looking at a Zuru product and would not be misled by the word LEGO. [217]

E. Declaratory Relief

(ix)      (Unanimously) Zuru was entitled to a declaration that the use of the word LEGO in Zuru’s original compatibility statement did not infringe the LEGO registered trade mark. [220] [223]

Aanticipatory declaratory relief around specific terms and layout of future proposed compatibility statements was inappropriate. Such an analysis was intensely factual and contextual.  It was not appropriate to make any kind of generalised, hypothetical conclusion.  [221]

Appeal

This was an appeal from a decision of the High Court (Lang J).

 

JG Miles KC, JWJ Graham and TF Cleary for appellants

AR Galbraith KC, KT Glover and J Oliver-Hood for respondents