The other day I mentioned Lego’s longstanding financial problems and why I think it has had such problems earning profits. One thing I left out was Lego’s focus on silly lawsuits. All other things being equal, a company that decides to deal with its competitors in the legal arena rather than the marketplace is a company that has completely lost its direction.
Lego’s trademark lawsuit against rival Mega Bloks was especially egregious. Lego’s patents on its plastic bricks began running out in the 1970s — in Canada it lost its patent protection in 1988.
Rather than try to out-compete Mega Bloks and other competitors, however, Lego has tried to exclude them from the marketplace with ridiculous trademark lawsuits. Since its patent has run out, Lego has claimed that it has a trademark on the look and feel of its plastic bricks, and that any companies that make plastic bricks compatible with Legos are violating that trademark.
The Canadian Supreme Court unanimously rejected this bizarre line of reasoning, correctly noting that,
Trademark law should not be used to perpetuate monopoly rights enjoyed under now-expired patents.
. . .
The fact is . . . that the monopoly on the bricks is over, and Mega Bloks and Lego bricks may be interchangeable in the bins of the playrooms of the nation — dragons, castles and knights may be designed with them, without any distinction.
Unlike the privately-held Lego, which is bleeding money, the publicly traded Mega Bloks recently posted a $20.4 million profit in the 3rd quarter of 2005. On the other hand, the general view among plastic brick aficionados is that Lego bricks are much higher quality and Mega Bloks are, in general, cheap Lego knock offs.
Also some of the stories referenced here incorrectly state that Mega Bloks bricks are not compatible with Legos. Mega Bloks, like Lego, manufactures a number of different sized bricks, and its “Micro” bricks are, in fact, compatible with standard Legos.
Mega Bloks wins SCOC ruling on Lego trademark. CBC News, November 17, 2005.
Lego can’t block toy maker Mega Bloks, says Supreme Court of Canada. Allan Swift, Canadian Press, November 17, 2005.