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27 October 2008
The battle between Lego, the world's leading construction toy manufacturer, and its competitors regarding the validity of the trademarks protecting the basic Lego bricks has been raging in several jurisdictions, most notably in a high-profile cancellation action before the Office for Harmonization in the Internal Market, the trademark office of the European Union. The actions have centred on the alleged functionality of the bricks. The Hungarian courts have now held that the basic bricks are determined by aesthetic characteristics - they are not functional and do not monopolize the construction toy market, as an infinite number of possible shapes may achieve the same technical result. The decisions of the first instance and appeal courts, which rejected the cancellation claim, were recently upheld by the Supreme Court.
In July 2002 Lego sued CTW Toys Kft, the Hungarian distributor of the Polish toy manufacturer Cobi, for trademark infringement and unfair competition. The Metropolitan Court ordered a preliminary injunction, finding it likely that the construction toys produced by Cobi and distributed by CTW Toys infringed Lego's Hungarian trademark registrations 130712 to 130716.(1) The trademarks are black and white and figurative with a priority date of December 7 1990. The word 'LEGO' does not appear on the knobs of the bricks protected by the trademarks.
In response to Lego's petition, Cobi and CTW Toys filed cancellation claims against Lego's Hungarian trademark registrations on the grounds that the signs:
Cobi and CTW Toys argued that Lego sought to monopolize the construction toy market as the trademarks served to perpetuate the exclusive right in relation to a technical solution even after the expiry of Lego's patents.
Lego, the trademark owner, argued that in line with the EU Trademark Directive (89/104/EEC), the Trademark Act (11/1997) explicitly provides that shapes of goods are capable of functioning as trademarks; therefore, the signs at issue qualified as trademarks. Furthermore, Lego argued and proved that in addition to their intrinsic qualities, the bricks represented the goodwill of the Lego Group and served as a source indicator, which made the signs clearly distinctive.
On the question of functionality, Lego argued as follows:
The Patent Office initially rejected the cancellation claims, but subsequently withdrew its decision and rendered a new decision a few months later, ordering the cancellation of the trademarks due to lack of distinctiveness.
LEGO brought the decision before the Metropolitan Court, which reversed the Patent Office's decision and rejected the cancellation claims. The court essentially accepted all of Lego's main arguments. The court accepted an awareness study by GFK Hungary, a leading market research institution, and established that the Lego bricks serve as source indicator; thus, the trademarks were capable of being distinctive. Furthermore, the court held that the trademarks were not such shapes as would be considered natural by consumers and that the appearance of the trademarks did not follow from the fact that the trademarks represented construction toys; therefore, the trademarks do not follow from the nature of the goods. Regarding the issue of alleged functionality, the court established that the technical solution and the outside appearance of a product must be considered separately. It conducted a detailed comparison of the Lego patent claims and the features of the trademarks, concluding that several features of the trademarks - primarily the round shape of the knobs and the relative proportions of the brick and the coupling mechanism - are not stated in the patent claims, which means that the technical functions can be achieved using several other shapes, not only those protected by the trademarks.
The court also considered that the decision in Philips v Remington does not exclude the examination of alternative shapes in relation to functionality, as the ruling established only that alternative shapes cannot be used to overcome functionality once it is established that the essential features of the trademark are exclusively necessary to achieve a technical result. The court referred to the ECJ's finding in Philips v Remington that the goal of this absolute ground for refusal is to prevent companies from obtaining a monopoly on technical solutions through trademark protection. The court stated that such public interest was not violated in relation to Lego's trademarks, as the shapes protected by the trademarks are not necessary to achieve a technical result, given that the same result can be achieved using several other alternative shapes.
The Metropolitan Court of Appeal upheld the first instance decision. It confirmed that Lego bricks are non-functional and approved the lower court's findings and conclusions in relation to the role of alternative shapes according to the Philips v Remington ruling and the underlying public interest (ie, the trademarks do not unduly restrict free competition, as competitors can use several other alternative possible shapes to manufacture construction toys). The appeal court considered that a comparison of the patent claims and the features of the trademarks was not necessary for the purpose of the functionality test, but it nevertheless established that the main features of the trademarks - primarily the round shape of the knobs and the proportions of the brick and the coupling mechanism - are individual and arbitrarily chosen; they do not serve a functional purpose exclusively, as they also incorporate aesthetic considerations.
Cobi and CTW Toys filed legal review claims against the appeal decisions. In Hungary, such claims can be brought on points of law only. The Supreme Court entirely upheld the appeal court's decisions; no further legal remedies are available.
The battle between Lego and its competitors over the validity of the trademarks protecting Lego's basic bricks across various jurisdictions has brought mixed and generally rather negative results for Lego. The main setback has been the cancellation of the three-dimensional Community trademark protecting the basic brick with 2x4 knobs - Lego's appeal against this decision is pending before the Court of First Instance. The Hungarian courts took an entirely different approach. They clearly established that the Lego basic bricks are non-functional and that they do not monopolize the construction toy market. The Hungarian courts provided detailed and well-founded reasoning to support their conclusions, leading many to conclude that on the issue of the validity of Lego's basic brick trademarks, it is the Hungarian courts that have finally got it right.
For further information on this topic please contact Katalin Szamosi or Peter Lukácsi at SBG&K Patent and Law Office by telephone (+36 1 461 1000) or by fax (+36 1 461 1099) or by email (firstname.lastname@example.org or email@example.com).
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