Brit sisters in huge £90m court case with US toy rival over claims they destroyed brand

Two British sisters who claimed they lost up to £90m after their toy business was destroyed by a giant US rival have lost a court bid for massive compensation.

Sisters Hayley Michaelson and Lauren Cohen, together with their husbands, Marc Michaelson and Johnny Cohen, came up with their idea for a globe-shaped surprise collectible toy while on a family holiday together in 2014.

The "Worldeez" toy - inspired by their own kids' love of "unboxing" videos on YouTube and "unwrapping" toys like Kinder Eggs - consisted of a globe which when unwrapped revealed gifts themed on individual countries around the world.

They secured start-up funding, online influencer support and planned to launch their product through high street toy giants, Smyths, Toys 'R' Us and The Entertainer, but claimed they ultimately failed after a "campaign" by MGA Entertainment, the world's largest independent toy maker.

A judge in June last year found that the billion-dollar American company - which claimed similarities between Worldeez and their own LOL Surprise collectible - had waged a "campaign" to exclude the rival product from the market.

It included threatening to withdraw their own highly popular LOL Surprise collectibles from Smyths, Toys 'R' Us and The Entertainer if they stocked Worldeez, and "unjustified" threats of patent infringement.

But although MGA was found to have waged an "exclusionary campaign" to keep Worldeez off major store shelves - an "abuse" of its "dominant position" in the market - Mrs Justice Bacon refused to award any damages, finding instead that Worldeez would have failed anyway.

The case was back in court last week, after Cabo - of which the sisters and their husbands are directors - appealed the decision not to award them compensation.

Their lawyers claimed that, if successful, the case could have ended up being sent back to the High Court for a new decision on potential multi-million pound damages.

But top judges at the Court of Appeal in London have now thrown out the sisters' case.

Setting out the background during the hearing of the appeal, Cabo's barrister Stefan Kupper said: "While on a family holiday in 2014, Mr and Mrs Michaelson and Mr and Mrs Cohen came up with the idea of Worldeez: a range of collectible dolls from countries around the world, complemented by other objects associated with each country."

The sisters were both involved in design of the toys, with Mr Michaelson involved, while also leading marketing efforts, and Mr Cohen involved in manufacturing and imports.

The two couples managed to secure investment and, while they were in control of design, the investors provided financial support, logistics and contacts within the toy industry.

"The final design of the ‘hero’ product was the globe, consisting of a pink spherical capsule covered in two layers of plastic wrapping," said the barrister.

"The sphere was divided into two compartments, one of which could be unlocked to reveal two blind bags each containing a Worldeez figurine as well as two small fact cards."

The initial range featured eight countries - UK, France, Italy, Brazil, India, Egypt, Japan and the US - with 15 figurines for each country.

The UK range included a teacup and a Loch Ness monster, while the French Worldeez globe featured a croissant and an Eiffel Tower figurine.

"In terms of marketing, Cabo were negotiating a profit-sharing agreement for TV advertising with Nickelodeon - then the most popular children’s television channel in the UK - while its digital marketing campaign used Tiana, a popular child influencer on YouTube," Mr Kupper said.

But he continued: "On 23 May 2017, within minutes of seeing a Tiana video promoting Worldeez on YouTube, MGA embarked upon a campaign designed to exclude the Worldeez globe from the market, by making clear that MGA would withhold supplies of LOL Surprise from any retailers who stocked the globe.

"Those threats were accompanied by repeated baseless claims that the Worldeez product was a 'knock off' of LOL Surprise and infringed MGA’s intellectual property rights including, in particular, patent rights, and that MGA was going to take, or was in the course of taking, action to protect its rights.

"This exclusionary strategy was highly effective: The Entertainer cancelled the order it had previously placed and neither Toys 'R' Us nor Smyths ever placed an order, despite Toys 'R' Us remaining interested in stocking Worldeez and Smyths having been on the point of ordering."

Worldeez was eventually launched through discount retailer B&M, but despite initial good sales, they tailed off and Worldeez ultimately failed.

Cabo sued and the case reached the High Court last year, where Mrs Justice Bacon found the US toy giant's conduct to involve "coercion" of the three major UK toy retailers as part of "an overall campaign to exclude Worldeez from the market."

"The threats of litigation and disparagement of Worldeez as a 'knock off' should not be seen as freestanding aspects of MGA’s conduct, but as an integral part of MGA’s threats to withdraw supply of LOL Surprise," the judge said.

"Taken as a whole, MGA’s conduct amounted to a strategy to ensure that the Worldeez globe was not sold in any of the major toy retailers in the UK.

"In the present case, MGA’s threats to withdraw supply, reinforced by the accompanying threats of litigation and claims that Worldeez was a 'knock off', were obvious and undeniable obstacles to competition, and precisely the sort of exclusionary conduct which has been consistently regarded...as an abuse of a dominant position."

However, she went on to refuse Cabo's claim for compensation from MGA, finding that even without MGA's involvement, Cabo "would not have traded profitably."

"There is no doubt that Worldeez was in principle an appealing product which had an initially successful marketing campaign, particularly online," she said.

"But it was competing in a crowded market for collectibles, and needed to be more than that to succeed."

Appealing against the ruling, Cabo barrister Mr Kupper said the judge had been wrong to require it to prove the company - a start-up with therefore no track record of sales - to prove it would have traded profitably.

To do so would give the go-ahead for major companies to squash new rivals before they got off the ground, without seemingly any risk of repercussions.

"Overall, the judge’s finding that whilst Cabo, a start-up, was excluded unlawfully from the market, it did not suffer any harm, as it could not show with sufficient certainty that it would have succeeded, sends the unfortunate message to incumbents that there is little risk in excluding fledgling competitors, as long as done early enough," he said.

"In the present case, the judge found that Cabo’s launch had been stifled by MGA’s conduct, which the judge found to be unlawful.

"It lost its order from The Entertainer and was never able to secure orders with Smyths or Toys 'R' Us. Without access to the main retailers and the width of distribution needed for a successful collectible, its success on the limited market entry in B&M it eventually achieved quickly faded.

"As the judge found, this was the likely - and intended - outcome of MGA’s intervention. This alone should have led the judge to conclude that Cabo was likely to have suffered some more than nominal harm and causation was straightforward.

"It should have been plain therefore that the conditions were met for Cabo to be entitled to a quantification of its loss."

But for MGA, barrister Victoria Wakefield KC said that, by its appeal, Cabo is now trying to open the gateway to an open-ended damages award, under which the court would have to take into account the small possibility that Worldeez would have been a huge success.

"By that, what MGA understands Cabo to mean is that, despite the court’s clear finding that Cabo would not have been profitable in the counterfactual, the court should consider the chances that it would have been, for example, highly profitable in the counterfactual and apply those percentages to that level of damages - this is wrong in law," she said.

She accused Cabo of initially going for a "jackpot win" by claiming as much as £90m, but now putting forward a "radically more conservative claim" by relying on arguments it did not put forward at trial.

"At no point did Cabo serve, or indeed rely upon, evidence in support of a claim that it would have been less loss-making," she told the court.

And she disputed the claim that requiring Cabo to prove that Worldeez would have been profitable was wrong.

"Showing that Cabo would have been profitable in the counterfactual is not an 'impossible burden', as Cabo suggests," she said.

"Rather, it is the baseline that it is - and should be - necessary to establish in order for the court to make the type of open-ended damages assessment to which Cabo contends it is entitled."

At the end of a two-day hearing in London, Lord Justice Males, Lord Justice Popplewell and Lord Justice Phillips dismissed Cabo's appeal but said they wouldn't be giving their reasons for doing so until a later date.