Lego Australia Pty Ltd v. Pauls (Merchants) Pty Ltd [1982] FCA 140

Respondent ORDERS JUDGES MAKING ORDERS: Frank1, Deane and Fitzgerald JJ. WHERE MADE: Sydney. DATE: 22 July 1982.

2. The appellant pay the cats of the respondent in this appeal.

NEW SOUTH WALES DISTRICT REGISTRY) NO.G41l of 1982 GENERAL DIVISION )

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA.

Coram: Franki, Deane and Fitzgerald Jd. 22 July 1982

FRANKI J. This an appeal from a judgment of a single judge of this

Court dismissing claims for injunctions under s.80 of the Trade

Practices Act 1974 ("The Act") based upon alleged contraventions of ss.52 and 53 of the Act. The appeal to this Court was limited

"AR corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

The learned trial Judge dealt with the matter in a detailed judgment reported in (1982) A.T.P.R. No. 40-275 and I do

The appellant has sold building blocks for children's toys in Australia since sometime in 1978 when it took over the marketing of these blocks in Australia from British Lego Limited. British Lego Limited had marketed the blocks in Australia since 1962. Very considerable amounts have been spent on advertising the blocks in Australia and the sales have reached a very substantial level. The blocks are imported into Australia and the appellant is a member of a group of companies all of whose

No issue arose concerning the relationship between the appellant and British Lego Limited or any other company in that group of companies. There was evidence that the name 'Lego' as a

name was first used by any of these companies in any country in

The respondent manufactures certain items of hardware and retails those and other hardware items through 5 retail stores in Sydney. The respondent is the distributor of the products of Lego M. Lemelshtrich Ltd. of Israel which manufactures airrigation equipment, the subject of these proceedings. That irrigation equipment 1s sold in Australia and elsewhere under the name 'Lego'. That equipment is suitable for

use in both domestic gardens and in commercial agriculture and

The equipment was first sold in Australia in 1974 and has been solid continuously ever since. Some advertising has also taken place in Australia under the name 'Lego' but this has not been as extensive as that of the appellant. The value of the sales of the irrigation equipment under the name 'Lego' has been far less than that of the appellant's building blocks. It appears that the name 'Lego' was adopted by Lego M. Lemelshtrich Ltd.

It was not suggested that anything turned on the date at

There is no doubt that at any relevant time the appellant's building blocks for toys were widely known to the public in Australia under the name 'Lego'. It is also clear that an relation to such building blocks the name 'Lego' had acquired the secondary meaning that it indicated to the appropriate class of purchaser that such blocks had their trade origin in the appellant. Indeed this was not denied by the respondent. However the respondent sells irrigation equipment under the name 'Lego' and not building blocks for toys. There is no obvious Similarity between building blocks for toys and irrigation equipment. For the appellant to succeed it is necessary for it to identify the respect in which the conduct of the respondent is said to be misleading or deceptive or likely to mislead or

deceive. (Hornsby Building Information Centre Pty. Ltd. v. Sydney

Building Information Centre Ltd. (1978) 140 C.L.R. 216 at p.228).

The respondent's conduct must be tested in the light of what the word 'Lego' means to relevant prospective purchasers of irrigation equipment. I repeat what I said in Annand & Thompson

Pty. Ltd. v. Trade Practices Commission (1979) 25 A.L.R. 91 at

"Broadly speaking it is fair to say that the question 1s to be tested by the effect on a person, not particularly intelligent or well informed, but perhaps of somewhat less than average intelligence and background knowledge, although the test is not the effect on a person who is, for example, quite unusually stupid. The question is not whether the purchaser was deceived but whether the conduct

It is also necessary that the respondent's conduct be misleading or deceptive to "a significant section of the relevant

public" or likely to mislead or deceive such a section. (Snoid

The respondent marketed its irrigation equipment under the name 'Lego'. It was conceded, as it had to be, that merely using the name 'Lego' upon any product would not have entitled the appellant to relief against the user based on s.52 of the Act. It could not be accepted that, without more, the sale of, for example, trucks or shoes under the name 'Lego' would be conduct

deceptive or misleading, or likely to mislead or deceive because

it produced a situation where the irrigation equipment sold under the name 'Lego' by the respondent was marketed in such a way that a name or get up or other feature distinctive of the appellant

had been used? {See generally Paula Brock v. The Terrace Times

It was submitted by senior counsel for the appellant that a significant factor was that the appellant's building blocks were made of plastic and that the major material of which the respondent's irrigation equipment was made was also plastic. It was also submitted that the plastic was of a colourful kand and that this was of significance. However, the order sought in this appeal was directed to prohibiting the respondent from selling, offering for sale, dealing with, displaying or advertising irrigation equipment bearing the name 'Lego' without

restriction to goods made of plastic or of any colour.

Senior counsel for the appellant relied very heavily upon the evidence of certain witnesses and submitted that the evidence established that the respondent's conduct had caused actual deception and that the learned trial Judge had not paid proper regard to this evidence. He questioned the way the learned trial judge had treated this evidence and also a passage

of Smithers J. from McWilliam's Wines Pty. Ltd. v. McDonald's

System of Australia Pty. Ltd. (1980) 33 A.L.R. 394 at p.399 cited

The correct approach to evidence of actual deception was

dealt with by the Full Court in the joint judgment of Bowen C.J.,

Northrop and Morling JJ. in Snoid v. Handley, supra, at p.391 as

"It was also argued that his Honour failed to give weight to the absence of evidence of any actual deception at the point of sale. It was said that such evidence could easily have been adduced had it been available. But such evidence, even if it had been called, would have been of limited importance at the trial. It certainly would not have been decisive. The court must itself determine whether there

is a likelzthood that the relevant persons will be misled."

Reference was made to the same question in the joint

judgment of Bowen C.J. and Franki J. in Paula Brock v. The

Terrace Times Pty. Ltd., supra, at p.43,414. It was said there that "Evidence of deception, whilst unnecessary, is persuasive"

and that " In any event it is always the task of the Court to decide whether conduct is misleading or deceptive or likely to

It is the conduct of the respondent which is relevant.

Senior Counsel for the respondent referred to a judgment of

Neville J. in Nugget Polish Company Ld. v. Harboro Rubber Company (1911) 29 R.P.c. 133 at p.142. This was a passing-off action and at pp.142, 143 and 145 consideration was given to whether it was a reasonable or legitimate inference to draw that rubber heels

sold under the name 'Nugget' were manufactured by or had their

origin in the same company which sold shoe polish under that name. Although there was no evidence of any actual deception in that case I consider it is proper, in examining evidence said to support actual deception, to apply the test whether any inference

drawn by the witness is a reasonable or legitimate inference.

Several witnesses in the case under appeal expressed the view that they had assumed that the irrigation equipment had been made by the appellant because of the name 'Lego', that it was predominently plastic, and that companies appear to diversify. Senior counsel for the appellant relied upon this evidence and no other point of similarity was advanced. Mr. Conway, Major Robertson and Mr. Punch, who gave evidence, might be said to fall into this category. Several other witnesses drew an inference because the name ''Lego' was used by the respondent. I do not think that the use of the name 'Lego' by itself on any product would found any legitimate inference or assumption that that product was manufactured by or had its trade origin in the appellant. In my opinion if one adds to the use of the name, the fact that at least some of the irrigation equipment is made of plastic, no reasonable inference or assumption can be made that the manufacturer of the irrigation equipment and the

An examination of the irrigation equipment distributed by the respondent shows that much of it is made partly of metal

and that many of the plastic parts were coloured black.

The evidence of witnesses on the question of confusion or deception has to be looked at, at least to some extent, after having regard to the entries in the Sydney Telephone Directory at the relevant time. No entry for Lego irrigation equipment appeared in the Sydney Telephone Directory until 1982, when an entry appeared in the "Yellow Pages" only. The entry appeared in a section entitled "Irrigation and/or Reticulation Systems". This entry showed the respondent as the distributor throughout

Certainly before 1978 there was no entry under the words 'Lego' in the Sydney Telephone Directory but there was an entry under British Lego Ltd. in the telephone directories for 1974, 1975, 1976 and 1977. In the 1980 and 1981 directories the appellant's name appeared in the White Pages as "Lego Australia

There was evidence of persons telephoning the appellant concerning irrigation equipment. However all these instances appeared to be after the entry in the telephone directory of Lego Australia Pty. Ltd. It 1s understandable that persons would look

in the telephone directory under 'Lego', and only finding there

the entry of Lego Australia Pty. Ltd., would telephone the appellant. However, I do not consider that any confusion caused

by that can be attributed to the respondent's conduct.

It is for the Court to determine upon all the facts whether the conduct of the respondent is misleading or deceptive or likely to mislead or deceive. I agree with the view of the

learned trial judge that the application should fail.

I would dismiss the appeal and order the appellant to

) NEW SOUTH WALES DISTRICT REGISTRY ) NO. G41 of 1982

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

DEANE AND FITZGERALD JJ: This 1S an appeal from a judgment of a single judge of this Court (McGregor J.) delivered on 26 February, 1982. The proceedings were commenced by the present appellant, Lego Australia Pty. Limited, on 16 October, 1981; an associated claim for passing-off was joined with claims based on ss. 52 and 53 of the Trade Practices Act, 1974 ("the Act"). The learned

The only relief now sought by the appellant is founded upon s.52 cf the Act and is somewhat narrower than that originally claimed. During the hearing of the appeal,

senior counsel for the appellant handed up the terms of the

order which the appellant now seeks. It is as follows:

"An order that the respondent by themselves their servants and agents be restrained from engaging in trade or commerce in conduct that 1s misleading or deceptive or that is likely to mislead or deceive within the meaning of Section 52 of the Trade Practices Act 1974 by selling, offering for sale, dealing with displaying or advertising irrigation equipment bearing the name "Lego" either alone or in conjunction with any other word or words or using the word "Lego" either alone or in conjunction with any other word or words in connection with the sale, offering for sale, dealing with, displaying or advertising of irrigation equipment".

The appellant ("Lego Australia") is the Australian distributor of a well~known children's toy, known as "Lego", which basically consists of colourful plastic toy building blocks which can be yoined together by reason of a distinctive design feature. It is one of a group of companies ("the Lego Group") owned and controlled by a Danish family, the Kirk Kristiansen family. The Lego Group is engaged in the manufacture of the toys in Denmark and Switzerland and their distribution in a number of countries throughout the world. The original business was founded in Denmark almost 50 years ago by Ole Kirk Kristiansen, and the

shares in the companies today are held by his son, Godtfred

Kirk Kristiansen, and his grandchildren, Kjyeld Kirk Kristiansen and Gunhild Kirk Johansen. The business has flourished interrationally with large sums being spent on advertising. Sales in this country are measured in millions of dollars "annually and it is plain that, at all material

times, the toys had and continue to have a very substantial

reputation throughout Australia in connection with the name

Lego Australia has been the Australian distributor of the toys only since 1978: prior to that time, the distribution here was carried out by another company in the Lego Group. The respondent did not, however, suggest that that fact disadvantaged Lego Australia in the present proceedings. The activities of Lego Australia are conducted with the consent of Lego System A/S, which is the manufacturer of the toys and which has in Australia a number of trade marks and trade mark applications relating to "Lego"

The respondent ("Paul's") carries on business as a manufacturer, wholesaler and retailer of hardware items, and has done so for over 50 years. It has 5 retail stores located in the Sydney metropolitan area, offices in New South Wales, Queensland and Victoria, agents in Newcastle, Adelaide and Perth, and resident representatives in the Australian

Capital Territory and Tasmania. The products in which it

-4- deals include both items manufactured by it and items manufactured by others. One of the products of which it is presently the sole Australian distributor and a retail vendor is a range of water sprinkler and irrigation equipment which is manufactured in Israel by Lego M. Lemelshtrich Ltd., a company established in 1906 and described as the founder of Israel's irrigation equipment industry. Paul's introduced the equipment into Australia in 1974 and has sold and advertised it in this country since that year. There is no formal agreement giving Paul's sole Australian distribution rights in respect of the equipment and there was a period between 1977 and 1979 when another company also acted as a distributor of it in Australia. The equipment is presently marketed in 45 different countries, principally the United States of America, Italy, Spain, France, Greece and South Africa. It has borne the brand name "Lego" since 1929. It has always been imported into Australia and sold here under that name, although there 1s some evidence to show that, were 1t necessary, a different name might be able to be adopted. The equipment consists of items of various sizes and shapes suitable for both domestic and commercial usage. It is a feature of the components that they are readily attachable one to the other, so that a system suitable for a particular use is able to be built up from the various spray sprinklers, couplings and sections. For the most part, the equipment is made of plastic, although some items have metal components.

The plastic components tend to be brightly coloured.

Initially, the sales turnover for the Lego irrigation equipment in Australia was small ($4,000 in 1974) but it has recently grown to the point at which it is significant (approximately, $300,000 in 1981). While both the irrigation equipment and the toys include small colourful plastic items, there is no general physical resemblance and the respective interlocking systems are different. There 1s no suggestion that the Australian trade marks which Lego System A/S has, or has applied for, extend or will extend to

It is not claimed by either side that "Lego" has been used by the other with any intention to deceive or mislead. In neither case was the name adopted by reference to the latin "lego" which has a wide range of meanings including the presently appropriate "I arrange" and "I select". "Lego" was first applied to the irrigation products aun 1929 in Israel as a result of a combination of the first letters of the names of the founders of the business of manufacturing them. In so far as the building blocks are concerned, the name was derived in Denmark in 1934 from the Danish words "leg godt" which mean "play well". Nor is it suggested that either product is other than of good guality. While there are some features in connection with the advertising, display, packaging, and sale of Lego irrigation

eauipment which might be pointed to as distinguishing it from

-6~ the appellant's use of ""Lego"™ and others which might be pointed to as having the opposite tendency, neither side has placed real reliance upon them. Lego Australia's complaint is squarely founded upon the use of the name "Lego" in

connection with the irrigation equipment and the nature of

In Taco Company of Australia Inc. v. Taco Bell Pty.

Limited (unreported: 22 July, 1982), a Full Court of this Court had occasion to consider the principles relevant to the operation of s.52 of the Act in the context of a dispute between rival traders concerning the use of a similar name. In our joint judgment in that case, we were at pains to stress that the question whether particular conduct of which complaint 1s made is misleading or deceptive or 1s likely to mislead or deceive is, in the ordinary case, a question of fact to be answered in the context of the evidence as to the alleged conduct and as to relevant surrounding facts and circumstances and that, irrespective of whether conduct produces or is likely to produce confusion or misconception, it cannot, for the purposes of s.52, be categorized as misleading or deceptive unless it contains or conveys in all the circumstances of the case, a misrepresentation. We went on to point out that the difficulty which will commonly arise in a s.52 case is in determining whether the conduct contains or conveys, 1n all the circumstances, a misrepresentation and in assessing the significance to that question of evidence

On the hearing of the present appeal, Lego Australia placed great store on evidence which it had adduced that some members of the public were under the misconception that the Lego irrigation equipment was made by the manufacturer of the Lego toys. Substantially, although some exceptions to the pattern were pointed to, the evidence indicated that any such misconception arose from a familiarity with the use of the name "Lego" in respect of the toys, the fact that both products are plastic or substantially plastic and a knowledge that companies diversify the range of products which they manufacture. Although senior counsel for Lego Australia denied any attempt to obtain for his client a monopoly in respect of the word "Lego" and asserted that there would be products in respect of which that name could be used by others without fear of contravention of s.52, offering one or two extreme examples, no satisfactory indication was advanced of where, on Lego Australia's case, the line ought to be drawn. Indeed, some of the evidence which Lego Australia led, particularly that of a street survey, suggests that the name "Lego" is so well known as being applicable to the Lego toys and is so little known as being applicable to any other products that it would be possible to find some members of the public who would assume that any product at all to which the name was applied

actual confusion or actual misconception in a case under s.52

of the Act has been considered in a number of cases in this

-.-evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct 1s misleading or deceptive or likely to mislead or deceive. The Court must determine that question for itself. The test is objective. (See, generally, Annand & Thompson Pty. Ltd v. Trade Practices Commission (1979) 25 A.L.R. 91, per Franki J. at p. 102; Sterling v. Trade Practices Commission (1981) 35 A.L.R. 59 per Franki J. (with whom Northrop J. agreed) at p. 66 and per Keely J. at p. 69; Snoid v. Handley, (1981) 3 A.T.P.R. 40-247, per the Court (Bowen C.J., Northrop and Morling JJ.); and Paula Brock

v. The Terrace Times Pty. Ltd. [1982] A.T.P.R. 40-267 per Bowen C.J. and Franki J.).

Finally, 1t is necessary to inquire why proven misconception has arisen (Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Limited (1977-78) 140 C.L.R. 216 at p. 228). The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct on the part of the respondent".

The fact that companies may and sometimes do expand

the range of products which they produce cannot of itself warrant a conclusion that a particular company has done so. Logically, of course, the potential for diversification

cannot be confined by reference to a particular substance

from which products are made, such as plastic, and it may be

noted that the order now sought 1s not limited to plastic

-9- irrigation equipment: the explanation offered for this was that, by reason of the respondent's activities to date, an order referring to plastic would now be too restricted to be of practical effect. The appellant's toys have a wide reputation by reference to the name "Lego" but that reputation is related specifically to that particular product. The irrigation equipment shares some common features with the toys, apart from the identical names: substantially plastic composition, relatively small size, a capacity for interlocking (although substantially different

in operation), colour, etc. On the other hand, the toys and

the irrigation equipment are quite different in nature,

The conclusion to which we have come is that Mc Gregor J. was, on the evidence before him, correct in deciding that the conduct of Paul's was not misleading or deceptive or likely to mislead or deceive within the meaning

of s.52 of the Act. That conduct viewed objectively, cannot

properly be seen as 1nvolving or conveying any representation | to the! effect that the manufacturer of the

equipment was connected with the manufacturer of the plastic

Building blocks. Any members of the public who were confused i

decode Fe Asad dt 5 : er under a misconception in that regard were so confused or 2 n i . . x N finder such a misconception as a result of an unwarranted we fy 3 accumptton which they themselves made. 5 238 2 ° iS Ri e > The appeal should be dismissed with costs. wa "A ne) 246 ® a. 5 28 Aa |