Authors

Louise Popple

Senior Counsel – Knowledge

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Anneka Dalton

Partner

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Authors

Louise Popple

Senior Counsel – Knowledge

Read More

Anneka Dalton

Partner

Read More

27 March 2024

Brands Update - March 2024 – 1 of 5 Insights

Court of Appeal confirms Tesco's Clubcard Prices logo infringes Lidl's house mark: so what?

  • In-depth analysis

What's happened?

  • The Court of Appeal (CA) has upheld the High Court's (HC) finding of trade mark infringement, passing off and bad faith but overturned the finding of copyright infringement. 
  • This does not alter the overall outcome of the case: Tesco will have to stop using its Clubcard Prices loyalty scheme logo unless permission is granted for a further appeal to the Supreme Court. That seems unlikely – and indeed early indications are that Tesco will accept the ruling and begin to rebrand. It estimates that this will cost in the region of £7 million, emphasising how costly a wrong branding decision can be.
  • The ruling is significant in that it shows that trade mark and passing off laws can be 'stretched' – in this case, to a situation where elements of a third-party brand were used (without permission) to convey a message of equivalence. While the case is an unusual one ("at the outer boundaries of trade mark infringement and passing off", as Lewison put it), the issues it raises are of wider importance. 
  • First, the decision illustrates how difficult it is to overturn first instance decisions in the UK. A key finding of fact by the HC judge was that – on the evidence - the average consumer would view Tesco's logo as indicating price matching with Lidl. This finding helped seal Lidl's victory on both its reputation-based trade mark infringement claim and its passing off claim. Since the trial judge's finding on price matching was not rationally unsupportable, the CA could not interfere with it. This was despite Arnold LJ saying that he found the trial judge's view (at least initially) "somewhat surprising" and Lewison LJ saying that he doubted whether he would have come to the same conclusion as the trial judge. Getting pleadings, evidence, and arguments right first time is therefore key.
  • Secondly, the decision illustrates the important (in this case, decisive) role consumer evidence can play in appropriate cases. Litigants will no doubt pick over the decision to see whether it opens the door to more of this type of evidence in trade mark infringement cases (possibly so).
  • Thirdly, the decision contains a useful discussion on possible differences in the way a change of economic behaviour might be evidenced in a detriment to distinctiveness claim as opposed to an unfair advantage claim and on whether the "without due cause" wording adds anything to a reputation-based claim. 
  • Fourthly, but perhaps most importantly, the decision confirms the HC's extensive rulings on bad faith. This is considered further below but the net result is that brand owners should be recording in writing why each trade mark application was filed at the time of filing (and ensuring that such records do not form part of document destruction policies) to help combat any potential future bad faith allegations.
  • Lastly, the ruling serves as a useful reminder that copyright can subsist in relatively simple designs - important to factor in when clearing new brands for use/registration – and that being able to evidence copyright ownership is key. While the CA ultimately overturned the finding of copyright infringement against Tesco, this was very much due to the fact that Lidl could only prove ownership of copyright in the addition of the blue square to the yellow roundel (since the creators of earlier versions of the logo were unidentifiable).

Want to know more?

What was the case about?

Lidl had trade mark registrations for a yellow roundel, with a red outline, in a blue square as well as the same sign overlaid with the word Lidl. Lidl has never used the wordless mark by itself as a standalone sign; it has always featured the LIDL word element (as below right).

Lidl wordless mark and word element

Tesco began using a yellow roundel against a blue square for its Clubcard Prices loyalty scheme, again nearly always with text overlaid, depending on the price promotion in question (example below right).

Tesco Clubcard roundel

Lidl sued Tesco for trade mark infringement, copyright infringement and passing off. Tesco counterclaimed that Lidl's trade mark registrations for Lidl's wordless marks had not been put to genuine use and had been filed in bad faith.

What did the High Court find?

  • By using its logo, Tesco had infringed Lidl's trade mark registrations under section 10(3) of the Trade Marks Act 1994. Such use took unfair advantage of the reputation of Lidl's marks in that it (erroneously) suggested that Tesco's prices were the same as or lower than Lidl's for the equivalent product. It was also detrimental to the distinctive character of Lidl's marks.
  • The use by Tesco of its logo constituted passing off as to equivalence ie Tesco had misrepresented that the Tesco Clubcard price was the same/lower than the Lidl price for the equivalent goods. That mistaken belief would deceive consumers and cause damage to Lidl because price sensitive shoppers would switch from Lidl to Tesco. 
  • Copyright subsisted in the Lidl logos and had been infringed by Tesco. Given the degree of similarity between the respective logos and the fact that Tesco had access to the Lidl logos, the burden of proving lack of copying passed to Tesco. Tesco's was not able to prove lack of copying, and infringement was found.
  • Lidl had made genuine use of its wordless mark. Applying the ruling in Specsavers v Asda, use of the mark with text amounted to genuine use of the wordless mark because the average consumer had been educated to see the wordless mark (independently) within the mark with text.
  • Lidl's oldest wordless mark had been filed in bad faith and the registration was therefore invalid. Lidl had not had an intention to use the mark at the time of filing the application (despite subsequently putting the mark to genuine use as part of the mark with text, in fact). The mark had been filed as a defensive weapon. If there is no intention to use at the time of filing, subsequent use cannot rectify the position.
  • Lidl had refiled its wordless mark a number of times over 20 years, each application covering much the same specification, in an attempt to circumvent the five-year non-use provisions of trade mark law. This so-called ever-greening practice was inconsistent with honest commercial practices and therefore all but one of Lidl's wordless mark registrations were invalid for bad faith.

What can we glean from the Court of Appeal ruling?

The CA upheld the HC ruling with the exception of the finding of copyright infringement. Key aspects and implications of the CA ruling are as follows:

It is difficult to overturn decisions on appeal in the UK

The CA decision illustrates (again) how difficult it is to overcome first instance decisions in the UK. To understand that, some background is necessary. A key finding of fact by the HC judge was that – on the evidence - the average consumer would view Tesco's logo as indicating price matching with Lidl. This finding was key because such an (erroneous) belief would constitute the necessary link and change in consumer behaviour for the unfair advantage claim and the necessary misrepresentation and damage for the passing off claim.

Tesco had argued that the trial judge was wrong to come to the price matching conclusion - that she'd relied too heavily on the (consumer/survey) evidence without forming her own view and that, in any event, the evidence did not show price matching.

After going through all of the evidence on price matching, the CA could only find one small error in the judge's reasoning on it. Since the CA could only interfere with the judge's finding if it was rationally unsupportable, the CA had no choice but to uphold the HC's finding on price matching – and therefore unfair advantage and passing off. This was despite the fact that Arnold LJ found the judge's price-matching conclusion (at least initially) "somewhat surprising" and Lewison LJ stated that he doubted whether he would have come to the same conclusion as the trial judge and that if he could find a way of avoiding the result in this case, he would.

This is not the first case where an appellate court has upheld a finding of the lower court despite the former casting doubt on whether it would have come to the same conclusion on the facts. Appellate courts and tribunals won't interfere with first instance rulings lightly. Making sure that pleadings, evidence, and arguments are right the first time around is therefore key.

Evidence of consumer behaviour can be important

The decision illustrates the important (in this case, decisive) role evidence can play in appropriate cases. Litigants will no doubt pick over the decision to see whether it opens the door to more of this type of evidence in trade mark infringement cases. Despite casting doubt on the value of survey and expert evidence, the CA does seem to suggest that other types of evidence (such as social media commentary and evidence of the shopping habits of consumers eg whether they are in the habit of reading labels) can be of value, especially if witnesses are called to give evidence.

While this is perhaps nothing new it is as strong a statement on the value of evidence as we have seen - and a rare case where the trial judge's finding (of price matching) did seem to rest almost wholly on the evidence.

Some will question whether the CA was right to - seemingly - allow the judge to come to a view on price matching based on the evidence alone, without forming her own separate view on it at some point. If the CA had intended to disapprove of this practice (as we would have expected it to do), it should have said so more clearly in its judgment.

Bad faith is important – but we will need to wait for the SkyKick decision for more

The fact that the CA upheld the HC ruling on bad faith is of obvious (and perhaps paramount) importance.

Interestingly, the CA quickly dismissed Lidl's argument that it was not realistic for the judge to expect witness or documentary evidence as to why the wordless marks were filed given that this was so long ago. The CA was clear that trade mark applicants are best placed to provide this evidence. This confirms the need for brand owners to record why a particular trade mark application was filed at the time of filing (and to ensure that such records do not form part of document destruction policies) to help combat any potential bad faith allegations (potentially even years in the future). An ex-post facto analysis as to why an application was filed is unlikely to be given any weight (unless perhaps very compelling).

It would have been nice to receive more guidance from the CA on when the burden of proving bad faith will be reversed such that it is for the trade mark owner to show that the application was filed in good faith. However, the circumstances were so unusual here, if the burden of proof had not been reversed, it would be difficult to imagine a scenario where it would be. Brand owners will be hoping for more guidance on this and on the effect of a finding of bad faith from the Supreme Court when it hands down its decision in the SkyKick case (expected soon).

There is still some disagreement on certain elements of the law on reputation-based claims

The decision suggests (obiter) that the "without due cause" element of a reputation-based claim does not add anything, at least where the claim is based on unfair advantage (and possibly also where it is based on detriment). Most commentators agree that it would be a rare case for the "without due cause" element to come into play of itself but the CA suggestion that it might not have to be separately considered would take this one step further.

The decision also potentially suggests that there might be greater scope to evidence a change in the economic behaviour of consumers where detriment is alleged (compared to unfair advantage). This is because Arnold LJ (giving the leading judgment) says (again, obiter) that detriment to distinctiveness would have been made out absent the price matching conclusion. This was on the basis that consumers were more likely to associate Tesco's logo with discounted prices generally and, in consequence, purchase Tesco’s goods and services as being discounted and/or switch away from purchasing Lidl's services to those of Tesco.

Birss LJ strongly dissented on this, saying that this was just another way of saying that there was dilution and that trade mark law had never gone this far and he would not want to encourage it to do so. Nonetheless, those considering detriment-based claims will want to carefully consider this aspect of the ruling. 

Copyright can subsist in relatively simple designs

The decision confirms that copyright can subsist in relatively simple designs – here, the addition by Lidl of a blue square to its yellow roundel with red edging. This emphasises the importance of bearing in mind the possible existence of third-party copyright in designs when clearing new logos for use/registration.

While the CA agreed that copyright subsisted in Lidl's logo, it overturned the finding that Tesco had infringed that copyright. This was largely due to the fact that Lidl had developed its logo in three stages and the creators of stages one and two were unidentified such that the only copyright Lidl could assert was in the addition of the blue square. Since Tesco's blue square was a different shade of blue and there was a different distance between the circle and the square when compared to Lidl's logo, there was no infringement. This shows that being able to evidence ownership of copyright is key (especially where the design in question changes/is updated over time). 

Trade mark and passing off laws can sometimes be stretched

The case is a relatively unusual one (as Lewison LJ said) "at the outer boundaries of trade mark infringement and passing off". However, it shows that trade mark and passing off laws can be 'stretched' in appropriate cases – here, to a situation where elements of a third-party brand were used (without permission) to convey a message of equivalence. 

Getting branding decisions wrong can be costly

Not only will Tesco have to pick up the estimated £7 million or more cost of rebranding its Clubcard Prices loyalty scheme but whatever damages and costs the court awards to Lidl in this case. Getting branding decisions wrong can be costly!

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