HP-2020-000016 - [2025] EWHC 1451 (Ch)

MGA suggested, albeit somewhat half-heartedly, that retailers were able to exercise countervailing buyer power on the basis that they hold the power to space in their stores. I do not accept that submission: It is apparent that the key retailers held no such power in relation to MGA in the present case.

It was clear from the toy expert evidence that the balance of bargaining power between manufacturers and toy retailers is fact sensitive and dependent on prevailing market trends, conditions of supply and demand, and the size of the manufacturers. In the present case LOL Surprise was, from spring 2017 onwards, a must-stock product, in the sense that the main toy retailers realistically had to stock it in order to avoid substantial diversion of sales and customers to their rivals. The case-law recognises this as a relevant factor when assessing dominance. In Socrates v Law Society the CAT commented at §123, in relation to the Law Society’s Conveyancing Quality Scheme, providing accreditation for solicitors engaged in residential conveyancing, that:

“By ‘must-have’ product we do not mean that the product was so essential that no residential conveyancing solicitors firm could operate outside the CQS: we use the term to describe the situation where for the majority of conveyancing solicitors there was little option but to seek CQS accreditation.”

Similarly in its decision in Case AT.40134 AB InBev C(2019)3465 final, in relation to brands of beer, the Commission stated at §24 that:

“Some branded beer products are considered so important by consumers in a particular country in a particular point in time that a retailer or convenience store in that country considers it needs to put these particular products on the shop shelves to avoid a substantial loss of sales and/or customers.”

The Commission then noted at §75 that:

“The three large retailers have stated that some of AB InBev’s products … are ‘Essential Products’. In other words, in their view they would lose significant sales and/or clients if they did not obtain them. This prevented these three large retailers from being able to strongly bargain on these products …”

That is the sense in which the concept of a “must-stock” toy product is relevant in the present case. The “must-stock” label is in this sense something of a misnomer, because it is common ground that not every retailer will inevitably stock a “must-stock” product. Rather, what it signifies is a product with such consumer popularity that retailers are aware that if they do not stock it they are likely to lose significant revenue, as well as losing market share to other retailers. That puts them in a weak bargaining position in relation to supplies of that product. It should also be emphasised that “must-stock” status is not binary: within the range of very popular products that might be labelled “must-stock”, some will be even more popular than others, creating an even stronger imperative for retailers to stock them. Mr Harper therefore referred to a “spectrum of must-stock toys” at any given point in time, depending on how well particular products are selling. His view was that a toy retailer would have to take a meaningful percentage of the top sellers, even if it did not stock all of them.

The consistent evidence was that LOL Surprise was, by May 2017, a “must-stock” product for UK toy retailers, and indeed at the top of the must-stock spectrum for toys. In other words, the demand for LOL Surprise was stronger than for any other comparable product. As set out at §77 above, it was well-known that the product had been an extraordinary success in the US market. The Forbes website reported in April 2017 that LOL surprise was the “hottest new craze in the collectible doll world” and had been ranked as the top selling doll since January. Since the US market is a good predictor of success in the UK, retailers in this country could and did expect LOL Surprise to go on to be successful here. Mr Harper said that LOL Surprise was “always destined for success” in the UK, given the social media interest in the US.

That expectation proved well-founded: the product was an outstanding success in the UK market as soon as it launched in February 2017, selling out within weeks of its launch. By May 2017 it was the highest selling doll in the UK. Ms Munt’s evidence was that all retailers would have been “desperate to stock this red hot ‘must have’ range immediately”. Mr Harper agreed that LOL Surprise would have been considered by retailers as a must-stock item by May 2017, and that it was “probably at the top of the spectrum” because of the potential shown by its US sales.

The toy experts’ assessment was consistent with the factual evidence: Stuart Grant said that by May 2017 LOL was “the number one brand in the industry”, and Mr Smyth said in his witness statement that he considered it to be a must-stock item when it was launched. The further problem for retailers was that the demand for LOL Surprise vastly outstripped supply, creating a scarcity situation. Stuart Grant explained:

“we were in a situation with LOL where … they couldn’t make enough. So it didn’t matter whether they gave us double our market share of allocation, I still needed four times our market share because the demand was just so high …”

Stuart Grant agreed that these factors gave MGA greater bargaining power than the toy retailers, shifting the power dynamic that would otherwise have prevailed in a normal relationship where supply was matched with demand. That evidence was amply borne out by MGA’s conduct in the present case, as considered below.

Mr Colley took account both of the “must-stock” status of LOL Surprise and the conditions of scarcity of supply in his assessment of MGA’s market power. Mr Parker disagreed, disputing that these factors were relevant indicators of market power. Mr Colley’s approach is, however, supported by the authorities and is sound as a matter of principle: the extent to which retailers regard a product as “must-stock”, and the conditions of supply and demand on the market, are factors which are relevant to the assessment of countervailing buyer power and, more generally, to the broader economic context which is a necessary part of the analysis of dominance.