Zuru New Zealand Ltd v Lego Holdings A/S [2025] NZCA 650 (10 December 2025)
In brief:
- The NZ Court of Appeal has upheld Zuru’s appeal against the High Court’s decision that a compatibility statement used by Zuru on its building block products infringed Lego’s trade mark.
- The Court of Appeal’s decision harmonises NZ and Australian law on what constitutes “use of a trade mark” in s 89(2) of the Trade Marks Act 2002 (TMA), with the majority finding that trade mark infringement only occurs if the mark is used as a badge of origin for the user’s goods. The Court of Appeal’s decision is consistent with the approach taken by the High Court of Australia in Allergan.[1] Prior to the decision, there was a marked difference between NZ and Australia on what constituted trade mark infringement, with New Zealand law appearing to be more favourable to trade mark owners than that of Australia.
- The Court of Appeal’s decision also brings welcome clarification to the scope of the comparative advertising defence to trade mark infringement, with the Court of Appeal taking a broader view than the trial judge.
- Further, in rejecting Lego’s cross-claim for passing off and breach of the Fair Trading Act 1986 (FTA), the Court of Appeal gave consumers of the products in this particular case credit for being brand aware and savvy, concluding that the trial judge was right to accept that only an implausible chain of reasoning would cause a consumer to be misled, and stating that: “Consumers in the 21st century are not easily fooled, are brand-aware, and would not reasonably think Zuru’s products were made by or associated with Lego”.
Background
Zuru began marketing its plastic toy building bricks under its MAX BUILD MORE trade mark in late 2018. It was not in dispute that ZURU’s plastic bricks are compatible for use with Lego’s products. To inform consumers of that fact, ZURU initially included the statement “LEGO® BRICK COMPATIBLE” (the original compatibility statement) on its packaging. The original compatibility statement included LEGO’s word mark but not the LEGO log mark.
Lego immediately objected to the original compatibility statement and Zuru preplaced it with “COMPATIBLE WITH MAJOR BRANDS”.
Two years later, Zuru sought Lego’s consent to three proposed variations of the original compatibility statement, all of which used the word LEGO. Lego objected.
Zuru commenced proceedings in the High Court, seeking declarations that the use of compatibility statements using the LEGO trade mark did not constitute trade mark infringement, breach of the FTA or passing off.
Lego opposed the declaratory relief sought by Zuru and filed a counterclaim, arguing that the original compatibility statement did infringe Lego’s trade mark, that any use of the proposed compatibility statements would also infringe, and that these uses of the LEGO mark would also breach the FTA and amount to passing off.
The High Court found that the original compatibility statement infringed Lego’s trade mark and that Zuru was not entitled to the defence of comparative advertising (s 94) or use indicating the quality or purpose of the goods (s 95) because its use of the LEGO mark had not been in accordance with honest practices. However, Lego failed on its FTA and passing off counterclaim. The High Court declined to make declarations about whether possible future compatibility statements would infringe.
Use as a trade mark
Under s 89(1)(a) of the TMA, a person infringes a registered trade mark if the person does not have the right to use the registered trade mark and uses in the course of trade a sign that is identical with the registered trade mark in relation to any goods or services in respect of which the trade mark has registered. However, s 89(2) provides that subsection (1) only applies if the sign is used in such a manner as to render the use of the sign as likely to be taken as being use as a trade mark.
The majority[2] described the key legal question for the Court of Appeal as being whether use as a trade mark in s 89(2) is concerned with:
- The orthodox (Yeast-Vite[3]) function of a trade mark as a badge of origin, meaning that use by Zuru would avoid infringement if it had not used the LEGO mark in a manner likely to be taken as indicating the trade origin of Zuru’s products (the approach for which Zuru contended); or
- A wider concept of a trade mark’s function, namely acting as “a guarantee that all the goods or services bearing it have been manufactured or supplied under the control of a single undertaking which is responsible for their quality”, so that merely including the LEGO mark on Zuru’s products would constitute infringement (the approach for which Lego contended.
The majority held that the former interpretation is correct. The majority also held that none of the defences referred to in s 89(3) will come into play unless and until there has been infringing use as a trade mark under s 89(2) in the badge of origin sense.
In reaching that conclusion, the majority:
- Stated that the wider concept of use for which Lego advocated seems to impermissibly conflate use “of” a trade mark with use “as” a trade mark.
- Disagreed with Lego’s submission that the type of use exempted by s 89(2) is limited to use of an ordinary descriptive word in accordance with its established common meaning, which other traders might use independently of its trade mark significance.
- Stated that another difficulty with limiting the reach of s 89(2) to descriptive use would mean that a trade mark comprising an inventive word such as LEGO would be afforded quasi-copyright protection. Further, any rule that suggests that any reference in the course of trade to a made up word mark will always infringe could not be correct.
- Found that the New Zealand Bill of Rights Act 1990 also favours a return to the orthodox interpretation.
Relationship with the defence provisions
In support of its argument for a narrow interpretation of s 89(2), Lego had also relied on s 89(3), which provides that “sections 92 to 98 override [section 89]”, submitting that sections 92 to 98, not s 89, determine the question of infringement or not in respect to circumstances encapsulated by ss 92 to 98”. In rejecting that submission, the majority found:
- That the submission was contrary to dicta to the effect that s 89(2) is a gateway to the question of infringement under s 89(1) and thus also the defence provisions, noting the consistency with the Australian position on this point;
- That it was clear from the nature and content of the vast majority of the ss 92 to 98 “defence” provisions that they are necessary only because the uses to which they relate might otherwise be seen as constituting infringing use as a trade mark, so s 89(3) means that there will be no infringement notwithstanding that there may have been a prior (gateway) assessment of infringing use as trade mark.
- Although ss 94 and 95 “’muddied” the waters (because use of a trade mark in the manner contemplated by those sections does not necessarily constitute infringing use as a trade mark at all, under an orthodox interpretation of s 92(2)), on balance, like the other defences, ss 94 and 95 are only engaged where there has first been infringing use as a trade mark under s 92(2).
Zuru’s original compatibility statement did not use LEGO as a trade mark
The majority agreed with a number of findings that the trial judge had made but considered that the trial judge had erred by not focusing squarely on whether Zuru was using the LEGO mark as a badge of origin for its own goods. “The key question should have been: was Zuru using the LEGO mark in a way that would cause relevant consumers, on seeing the use of the sign in the compatibility statements to think: ‘this mark is telling me the trade source of the bricks inside this packaging”?”
The majority agreed with the trial judge that:
- The LEGO mark was relatively prominent on Zuru’s packaging, although not nearly as prominent or centrals as the “MAX” brand.
- The word LEGO is larger than the rest of the descriptive phrase “BRICK COMPATIBLE” and a closer look might be required to see that it forms part of a compatibility statement.
- The compatibility statements do not have the variations as to the font and size that were present in the use of “instant BOTOX® alternative” in Allergan, although there is variance as to placement.
- Again, by contrast with Allergan, the word “LEGO” appears at the beginning of the compatibility statement.
- There is a relevant “market” distinction to be drawn between the use in Allergan because consumers would use the Zuru bricks in the same ways as Lego bricks, whereas the Self Care product in Allergan could not be used like the Botox product.
- By contrast with Mainland[4] (VINTAGE) and to some extent with Tasman[5] (BATTS), the LEGO mark had no meaning beyond its connection with Lego’s products, noting commentary to the effect that where a mark has no ordinary meaning, non-infringing descriptive use may be more difficult to establish.
In relation to the final point, majority noted that the arguably descriptive use of non-distinctive words in Mainland was found to infringe, whereas the descriptive use of distinctive words was found not to infringe in Yeast-Vite and in Allergan, because in Yeast-Vite and Allergan (but not Mainland), the trade mark formed part of a descriptive phrase, just as LEGO did in the original compatibility statement. The majority emphasised this point by adapting for the ZURU case the words used by the High Court of Australia in Allergan:
“[LEGO® BRICK COMPATIBLE”] was a descriptive phrase that had an ordinary meaning and included within it the trade mark [LEGO] (identified as such with a ® symbol). It was descriptive of a product to which it was attached as an alternative product. While a sign can both be descriptive and serve as a badge of origin, the better view is that the use of the phrase, consistent with its ordinary meaning, had only a descriptive purpose and nature.”
Whilst acknowledging the trial judge’s point that the word “compatible” may link Lego’s products to ZURU’s in a purchaser’s mind in a way that “alternative” may not, the majority noted that that is, of course, the point of descriptive use in a comparative context. The majority considered that consumers seeing such a statement would not think that the sign was being used to indicate the bricks’ trade source but rather the sign was being used to indicate: “these MAX bricks are not LEGO bricks but can be used with them”.
Comparative advertising defence
Having concluded that Zuru’s original compatibility statement did not use the LEGO mark as a trade mark under s 89(2), it wasn’t strictly necessary for the majority to consider the specific defences under ss 94 and 95. Nonetheless, the majority addressed them briefly.
The majority adopted a broader view of what constitutes “comparative advertising” than the trial judge, who had held that such advertising requires “an express, and not inherent or implied, comparison involving a claim of superiority”. Because Zuru’s original compatibility statement didn’t claim that its product was superior to Lego’s, the trial judge had held that the defence did not apply.
The majority noted that Parliament chose not to define “comparative advertising” on the basis that its meaning was well-understood. On an ordinary meaning, the concept involves contrasting two or more things and identifying their similarities and differences. Reviewing past NZ and UK case law, the majority noted that courts have found that comparative advertising can include both indirect comparisons as well as advertising that does not involve superiority claims (e.g., “YEAST TABLETS as a substitute for YEAST-VITE”, or showing a Villa Maria bottle next to a Montana bottle, with text praising the qualities of each of the wines).
The majority concluded that the original compatibility statement constituted comparative advertising in the relevant sense, with LEGO being used as a comparator for, or to describe, a feature of the Zuru bricks.
The trial judge had also found that Zuru’s original compatibility statement did not constitute honest use in terms of either s 94 or s 95. The trial judge had referred to relevant factors identified by Arnold J in Samuel Smith[6]. The majority did not accept that those principles (or at least all of them) were appropriate in this case, and considered that the principles seem to channel a more “European” idea that the concept of a trade mark includes advertising and investment functions. In particular, the majority found it difficult to see how Zuru’s knowledge of Lego’s mark could have a logical bearing on honest practices here:
“In a comparative advertising case, there will always be such knowledge: the comparison is predicated on it. So too with knowledge of the trade mark’s reputation, which is inherent in a comparative advertising case, there being little utility in making a comparison with a brand that has no reputation.”
The majority noted that what was said in the compatibility statement was true and that there was no puffery or hyperbole that might confuse consumers.
The majority was also inclined to agree with Zuru that the trial judge’s reasons show an element of moral judgement about Zuru’s wider business practices, even though the trial judge had formed the view that the compatibility statements themselves were not dishonest misleading. That confirmed the majority’s view that the conclusion that that those practices were not honest was in error.
Accordingly, if the majority had concluded that s 82(2) was satisfied, the s 94 comparative advertising “defence” would have applied.[7]
The section 95
The majority was inclined to agree with the trial judge that the use of LEGO did indicate a characteristic of Zuru’s product (namely, compatibility with LEGO bricks), but not a relevant intended purpose. However, the majority also saw some force in Lego’s submission that s 95(c)(i) concerns descriptive, non nominative use, of a trade mark. However, in light of the majority’s conclusion that the s 89(2) gateway had not been passed, and that Zuru could rely on the s 94 in any event, it was not necessary for the majority to form a definitive view on those points, so it declined to do so.[8]
Passing off and breach of the FTA
Lego’s cross claim for passing off and breach of the FTA turned on whether Zuru had used the LEGO trade mark so as to confuse or deceive the relevant public. Lego did not directly challenge any of the trial judge’s specific factual findings, just his ultimate conclusion. In particular, Lego submitted that the trial judge was wrong to reject the evidence of its expert and also emphasised the likelihood of initial interest confusion.
The majority agreed with the trial judge that the issues of deception and misleading conduct in this case were not ones on which expert evidence was likely to be substantially helpful.
The majority noted that the compatibility statements were not false.
The majority also noted Zuru’s submission (referring to comments made by Jacob LJ in the Court of Appeal of England and Wales): “a touch of reality is called for here. Consumers are not stupid”.
The majority found no error in the trial judge’s rejection of Lego’s expert’s argument that consumers would be misled by Zuru’s packaging in breach of the FTA because:
- The majority accepted the “common sense proposition” that reasonable consumers would view packaging as a whole and so would see the combination of prominent brand elements (ZURU, MAX BUILD MORE, distinctive colours and logos which together make it clear that the products are Zuru’s, not Lego’s). By the time the consumer sees the small, single, word “LEGO”, they already know they are looking at Zuru’s products.
- LEGO is not a perfectly diagnostic element because Lego makes non-brick products.
- The majority agreed with Zuru that Lego’s expert’s suggestion that MAX and BUILD MORE were descriptive and would not be seen as brand elements was difficult to sustain, finding that MAX BUILD MORE is a registered trade mark and its use on the packaging is highly suggestive of that.
The majority[9] concluded that the trial judge was right to accept that only an implausible chain of reasoning would cause a consumer to be misled, stating that: “Consumers in the 21st century are not easily fooled, are brand-aware, and would not reasonably think Zuru’s products were made by or associated with Lego”.
The majority also rejected the contention of initial interest confusion.
For essentially the same reasons, the passing off appeal also failed.
Going forward
This case harmonises NZ and Australian law on what constitutes use of a trade mark for infringement purposes. The square focus on whether a trade mark is being used as a badge of origin will give traders in NZ greater latitude to use third party trade marks in a non-infringing manner.
The decision also provides welcome clarity to the scope of the comparative advertising defence.
The decision is also noteworthy for the credit given to the intelligence and brand-savviness of consumers of the relevant products in this particular case, as well as the “common sense” approach to whether consumers were likely to be misled or deceived.
[1] Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186.
[2] Ellis and Palmer JJ. In his minority judgment, Cooke J framed the two competing interpretations somewhat differently, expressing the view that both potential interpretations involve the use of the mark as a badge of origin.
[3] Irving’s Yeast-Vite v Horsenail (trading as The Herbal Dispensary) (1934) 51 RPC 110 (HL).
[4] Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA).
[5] Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd [2015] NZCA 602, [2016] 3 NZLR 145.
[6] Samuel Smith Old Brewery (Tadcaster) v Lee (t/a Cropton Brewery) [2011] EWHC 1879 (Ch), [2012] FSR 7.
[7] Cooke J agreed with the majority that the comparative advertising defence in s 94 applied, finding that the trial judge had interpreted comparative advertising too narrowly. Cooke J also agreed with the majority that the trial judge had erred in his assessment of honest practices.
[8] Cooke J also preferred not to express an opinion on whether s 95 applied.
[9] Cooke J agreed with the majority’s views in relation to passing off and the FTA.
