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

There can be no doubt that MGA’s agreements with The Entertainer, TRU and Smyths did indeed have as their object a restriction of competition. It is therefore not necessary to go further and consider whether there was also a restriction of competition by effect.

According to the established case-law, the “essential legal criterion” for determining whether an agreement involves a restriction of competition “by object” is whether the agreement reveals in itself a sufficient degree of harm to competition that it is not necessary to assess its effects: Allianz Hungária EU:C:2013:160, §34; Case C-67/13 P Groupement des Cartes Bancaires v Commission EU:C:2014:2204, §§57–58; and Case C-228/18 Budapest Bank EU:C:2020:265, §37.

In determining that question, it is necessary to have regard to the content of the agreement, its objectives, and the relevant economic and legal context. That context includes the nature of the goods or services affected, as well as the conditions of the functioning and structure of the market: Allianz Hungária, §36; Cartes Bancaires, §53; Budapest Bank, §51.

Many cases found to be restrictions of competition by object involve horizontal agreements. But it is also possible for a vertical agreement to be found to restrict competition by object. A notable example is Allianz Hungária, which concerned agreements between car insurance companies and car repair shops concerning the hourly charge for car repairs. The court commented there (at §43) that:

“While vertical agreements are, by their nature, often less damaging to competition than horizontal agreements, they can, nevertheless, in some cases, also have a particularly significant restrictive potential. The court has thus already held on several occasions that a vertical agreement had as its object the restriction of competition”.

Although the parties’ intention is not a necessary factor in determining whether an agreement is restrictive by object, it is a factor that may be taken into account: Budapest Bank, §53.

In the present case the transparent purpose of the agreements with The Entertainer, TRU and Smyths was, as I have already found, to exclude Worldeez from the market (see §317 above). MGA was well aware that those three retailers were the most important toy retailers in the UK, and that a successful launch of a new toy on the market would be very unlikely if the product was not stocked by those retailers. MGA ensured, through its coercion of all three of those retailers, that none of them sold the Worldeez globe. As I have already found, it was able to do so through the significant market power which it wielded, which meant that the key retailers had little choice but to accede to MGA’s demands, albeit in the case of The Entertainer very reluctantly and with considerable unhappiness.

The consequence of the agreements was that the main and most important distribution channels were unavailable to the anchor product of the Worldeez range, which in turn significantly reduced the likelihood of a successful launch and market recognition for the range as a whole. Cabo’s only option was to launch the globe in B&M, a discount retail chain which did not (at least at that time) have the market recognition of the leading toy retailers. MGA was, of course, well aware of this, as evidenced by Mr Laughton’s comment to a colleague in August 2017 that the Worldeez globe was “Only selling in a discounter in the UK (B&M Bargains)” and that MGA was “making it extremely hard for [Worldeez] to try and get real estate” (§167 above).

While the agreements were vertical in their nature, as noted above the retailers were told by MGA that its policy regarding Worldeez was being applied to all other retailers who stocked LOL Surprise. Mr Larian also told The Entertainer in terms that all retailers in the UK had confirmed that they were not going to buy the Worldeez globe (§125 above). Whether or not the other retailers were told the same by MGA, it is clear that the retailers monitored the sales of Worldeez in other stores, and were aware of where it was and was not being sold (see the emails at §§122, 123, 130 and 159 above). Each of The Entertainer, TRU and Smyths would therefore have known that the others among them were stocking LOL Surprise and would therefore not be stocking the Worldeez globe. The agreements were thus cumulatively reinforcing at a horizontal level.

As I have also found, MGA’s conduct was explicitly motivated by a desire to eliminate the competitive threat posed by Worldeez (§324 above). For the reasons already set out (§§333–337 above), I do not accept that MGA genuinely believed that the Worldeez globe was passing off LOL Surprise, such that it was trying to protect its rights in that regard.

MGA referred to various decisions concerning single branding agreements (such as the beer supply agreements at issue in Case C-234/89 Delimitis EU:C:1991:91) which were not found to constitute restrictions by object. Those decisions concerned very different types of agreements in very different markets, and provide very little guidance for the assessment of the agreements at issue in the present case. The same applies to the example of a customer in a purchase agreement requiring the supplier not to sell to a particular competing customer, at issue in Seafood v My Fish [2017] EWHC 766 (Ch), also relied upon by MGA. Norris J found in the latter case that that there was no evidence that, having regard to the functioning and structure of the relevant market, competition in that market was significantly weakened (§48). In the present case, however, for the reasons set out above, the agreements were obviously and intentionally significantly restrictive in nature, by completely excluding the Worldeez globe, which was the anchor product of the range, from the main distribution channels in the UK.

The agreement with B&M in March 2018 was rather different. As noted above, by that time Worldeez had either been or was about to be discontinued by B&M, and Cabo’s position was that the brand had failed by that point. The economic context of the market was therefore not such as to indicate a sufficient degree of harm to competition so as to find that agreement had as its object a restriction of competition. As to the effects of the agreement, the economic experts agreed that the agreement between B&M and MGA did not have any material effect on the supply of Worldeez. The B&M agreement was, therefore, not a restriction of competition within the meaning of the Chapter I prohibition.