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

MGA advanced both general and specific criticisms of Mr Colley’s approach, which I will consider in turn.

General points. The first general criticism was that Mr Colley’s analysis was not in any sense an application of the SSNIP test, since he had not considered the question of whether it would be profitable for a hypothetical monopolist in his postulated market, or indeed any market, to sustain a small but significant price increase.

I agree that Mr Colley’s approach was not an application of the SSNIP test, as such. Rather, it was an assessment of substitutability based primarily on a qualitative assessment of product characteristics, in circumstances where (as the experts agreed) there were no data available to conduct a SSNIP analysis as such. There is, however, nothing inherently wrong with that approach – as explained above, in many or even most cases it will be necessary to look at alternative evidence of substitutability, rather than conducting a SSNIP analysis.

MGA’s second general criticism was that Mr Colley did not iteratively assess whether products competed with the focal product. Rather, he simply populated his product market on the basis of his proposed set of key characteristics.

Again, that is true but I do not consider that there is anything wrong with that approach. If one starts (as Mr Colley did) with the narrowest possible focal product, namely the specific product under investigation, a definition of a broader relevant product market does not necessarily require the addition of successive individual products. Rather, if there is an identifiable group of products which can be said to exercise an immediate and effective competitive constraint on the relevant focal product, that group as a whole can properly be added as to the relevant market. Nor is there anything wrong with defining the relevant market by reference to the characteristics of that group of products, if the available evidence indicates that the only products which exert an immediate and effective competitive constraint on the focal product are products with the identified characteristics of that group.

The third general criticism was that Mr Colley had not in fact conducted an economic analysis of the disputed product market. Rather, his assessment was almost entirely based on an assessment of product characteristics drawn mainly from Ms Munt’s evidence.

It is fair to say that Mr Colley’s assessment of product characteristics was based heavily on the evidence of Ms Munt, together with references to other factual material, such as the factual witness statements and contemporaneous documents. Mr Colley did, however, conduct some analysis of price trends and overall sales revenues in different NPD market segments, which he said provided some support for his analysis, although he pointed out the limitations of reliance on patterns of sales revenues (a point which I address further below). There is nothing unusual in an economic report on market definition addressing both qualitative and quantitative evidence, particularly where there is an interplay between the two, and commenting on the insights that could be drawn from each of those types of evidence.

I do not, therefore, accept the general criticisms of Mr Colley’s approach. The important question is whether the results of his analysis stand up to scrutiny. That is the subject of MGA’s specific criticisms.

Specific points. MGA’s first specific criticism was that Mr Colley’s boundary between a “sophisticated unwrapping experience” and what Ms Munt described as a “simple element of surprise” was unclear and arbitrary.

There is in my judgment some force in that point. Ms Munt’s witness statements on this point were not entirely consistent, and when cross-examined her evidence came down to an assertion that there was a material difference between a “single” and a “double” element of surprise. So, for example, for collectible toys designed for the target group, a product in a single blind bag would be outside Mr Colley’s market, whereas a product in a blind bag within a blister pack would be within the market. Mr Colley, likewise, maintained that (in principle) a product inside a plain capsule would be outside his market, whereas the same product in a capsule with a layer of plastic shrink-wrap would be inside his market.

Both Ms Munt and Mr Colley struggled to articulate a coherent reason why consumer demand for a surprise collectible toy, as a substitute for LOL Surprise, would turn on the sort of distinctions which they drew in their evidence. Ms Munt could not explain why, for example, consumer demand would have been materially different for a toy inside a capsule, compared with the same toy in a blind bag in the same capsule. Mr Colley eventually simply said that, in a highly differentiated product market, with a chain of substitution along a continuum, he had to draw the line somewhere.

The point that it may be difficult to draw a clear line between products inside and outside the relevant market where the case concerns highly differentiated products is not controversial. As discussed above, that is why a simplistic analysis based on market definition and market shares is unreliable in a highly differentiated product market. While it may be necessary, as Mr Colley said, to draw the line somewhere, that should not lead to the arbitrary exclusion from the competitive assessment of products falling outside the defined market, which in some cases may exert a competitive constraint that is very similar to that of products within the market.

In the present case, there was no evidence to support the suggestion that the distinction between a single and double element of surprise would have made a significant difference to the pattern of consumer demand, so as to produce a significant difference in the strength of the competitive constraint on LOL Surprise. By contrast, there was no dispute that having at least some element of surprise was a highly relevant feature for consumer demand.At most, MGA said that account should be taken of supply substitution, given that a non-surprise collectible could relatively easily be packaged with a surprise element, for example by putting it in a capsule or blind bag.

On that latter point, it was apparent that minor changes to toy packaging could be implemented relatively quickly if necessary. Cabo itself changed its outer packaging after MGA objected to the original design of the Worldeez globe, including repackaging an initial batch of figurines in blind bags for the launch of the product in The Entertainer. There was, however, no evidence before the court which suggested that non-surprise collectibles exerted an effective and immediate competitive constraint on LOL Surprise arising from the fact that it might in theory have been possible to repackage and redesign them as surprise collectibles. Nor was there any evidence of that ever having occurred in fact. I do not, therefore, consider that Mr Colley was wrong to base his market definition on products with at least some element of surprise, even if (as set out above) I do not consider that a hard line may be drawn between products with more or less sophisticated unwrapping experiences.

Secondly, MGA criticised Mr Colley’s selection of characteristics on the grounds that it ignored the doll play potential of LOL Surprise. MGA pointed, in that regard, to the evidence of both of the toy experts that one of the particularly appealing features of LOL Surprise was that it was a mini-doll which enabled a classic doll play pattern.

There is no doubt that the play experience of LOL Surprise was an important characteristic of the product. It was not, however, clear how “doll play potential” could meaningfully be used to define products that exerted an “immediate and effective” competitive constraint on LOL Surprise, when in any event all of the products under consideration (on both Mr Colley and Mr Parker’s market definitions) fall within the dolls market. That is perhaps why, although it was common ground between the toy experts that the “doll” features of LOL Surprise were both appealing and popular, the evidence indicates that the unwrapping experience of LOL was a more important driver of consumer demand than the doll play experience. Ms Munt said that the surprise unboxing experience was “a key part of what girls love” about LOL, and Mr Harper said that a “key innovation in the LOL product was to make the packaging, the unwrapping of the product, a key part of the product experience”.

Contemporaneous MGA internal documents likewise identified the “surprise and unwrapping” of the multiple layers of packaging as the elements most liked by girls buying into the brand, and listed “The extended and engaging consumer unboxing experience” as a feature that made LOL Surprise unique. MGA recorded its preference test findings as showing that “Unwrapping the surprise is the preferred play pattern over other toy elements, second is the doll itself”. Those conclusions appear to have been based on external research conducted by the market research company SSI, which found that 63% of girls ranked the unwrapping experience as their favourite element of LOL Surprise. Consistent with those findings, in evidence filed in support of MGA’s application for a US patent for LOL Surprise, MGA’s vice president of business affairs and planning (Sam Khare) stated that:

“The remarkable success achieved by the LOL Surprise product was driven by the originality of the unboxing play pattern experience that kids have come to enjoy on their own and in online videos combined with the excitement created by the blind bag toy experience.”

Thirdly, MGA placed considerable emphasis on the source of LOL’s revenue growth, a point that was explored by Mr Colley in his analysis of toy sales revenues. Mr Colley noted that LOL Surprise revenues increased by £80m between 2017–18, and that around £36m of that growth appeared to have come from within brands within the playset dolls and collectibles NPD subclass. In cross-examination, Mr Colley accepted that it could be inferred that around half of that growth would have come from products within his candidate market – i.e. that the growth in revenues of LOL Surprise cannibalised sales that would otherwise have been made by those products. MGA contended that since, on that analysis, the majority of the sales of LOL Surprise came from outside Mr Colley’s market, that suggested that the market was wrongly specified.

I do not accept that criticism. As Mr Colley noted, when cross-examined on this point, an analysis of revenue patterns across different categories of dolls might show a correlation between changes in different segments, but that does not establish causation, and is therefore no more than “weakly suggestive” of demand switching. Given that the dolls market is characterised by rapidly changing consumer preferences and trends, and highly differentiated products at different price points, the sources of the revenue growth of LOL Surprise cannot reliably be deduced from such an analysis. Indeed, even if the evidence had directly shown switching (which it did not), the Market Definition Notice makes clear that this would be less informative for demand substitution if it resulted from a change of consumer preferences: see §204 above.

The decline in the overall toys market revenue during the same period is a further complicating factor. Mr Colley explained that the fact that the dolls segment revenue remained (by contrast) fairly constant could indicate that LOL Surprise increased the revenue of the dolls market compared with what would otherwise have occurred, rather than diverting revenue that would have gone to other dolls. There is, moreover, an asymmetry problem: that even if switching from certain categories of dolls to LOL Surprise could be identified, it does not follow that there would be a switch back from LOL Surprise to the same categories of dolls in response to a price rise for LOL. As Mr Colley noted, a finding of an asymmetric competitive constraint may arise, in particular, where a new superior product diverts sales from an existing product.

Ultimately, the cross-examination of Mr Colley on this point reflected the difficulty of seeking to draw inferences on switching from general data on changes in revenue patterns, for which there could be many different explanations. That is why Mr Colley was (properly, in my judgment) cautious regarding the conclusions that could be drawn from this sort of analysis.