It intended to put a "compatibility statement" on its packaging saying its building bricks could be used with the Danish mega-brand Lego, but Walmart said it did not want Lego mentioned by name.
Zuru – founded by Cambridge siblings Anna, Mat and Nick Mowbray – changed the sign on the American-sold product to say it was "compatible with major brands".
However, Zuru did use the statement "Lego brick compatible" on the product sold in New Zealand through The Warehouse.
It did not take long for Lego to react. US lawyers for Lego sent "cease and desist" letters to Zuru and The Warehouse in November and December 2018.
The Warehouse took the Zuru bricks off the shelves, and they were replaced with products that contained the general compatibility statement and did not mention Lego.
However, Zuru reintroduced the Lego reference on its branding in 2021, leading to another round of legal letters and warnings between the two toy companies and The Warehouse.
Zuru New Zealand Ltd then went to the High Court in Auckland seeking declarations that it was not breaching trademark law.
It also wanted the court to make a declaration that it was not breaching the Fair Trading Act by "passing off" its Max Build More products as Lego.
The decision of Justice Graham Lang has now been released. He has dismissed Zuru’s case in its entirety.
He described Zuru’s reintroduction of the Lego-linked compatibility statement as "aggressive" and "not in accordance with honest practices in commercial matters".
He also agreed with a counterclaim by Lego on the trademark issue.
"I have held that the use of the word ‘Lego’ in the original compatibility statements would be likely to be taken by potential purchasers as being use of the word as a trademark in contravention of … the Trade Marks Act," Justice Lang said.
However, he did not agree with Lego on two other counterclaims, based on the "passing off" issue and other alleged breaches of the Fair Trading Act.
"I regard Lego as being the successful party overall because it successfully defended Zuru’s claims and succeeded in establishing one of its counterclaims," Judge Lang said.
Zuru has steadily built up a multi-million global toy business over the past two decades. Most of its manufacturing and 5500 staff are in China and Hong Kong.
The judge said it considered itself a "disrupter", endeavouring to obtain market share at the expense of long-standing players by establishing points of difference in its products.
In the case of its building bricks, it saw an opportunity to capture market share by producing a high-quality product but at a significantly reduced cost, relying on robot labour and durable machine tools that did not need to be replaced often.
The Danish company Lego has been manufacturing building bricks for nearly 90 years and sells them in 140 countries.
The patents and copyright Lego held on its products expired many years ago, but the registered trademark Lego remains in force.
Justice Lang said Zuru had given an assurance to Lego and the court that it will not use the word Lego in its compatibility statements without the declarations it had sought, and failed to get.
- Ric Stevens, Open Justice reporter
