Lidl v Tesco Clubcard – a reputation on the line

The recent Court of Appeal decision in the Lidl and Tesco case has been well reported, particularly given the rather surprising success that Lidl has enjoyed. That success may well stick in the throat of many in the food and drink sector given Lidl’s assertive business model being to produce their own lookalike discounted products.

Now that the dust is settling, we assess the outcomes of the case and how trade mark owners might alter their filing and enforcement strategy in future and also in light of another interesting decision at the Court of Appeal regarding the discounter Aldi, with Aldi having been found to have infringed an M&S design registration.  

Background

The Court of Appeal ([2023] EWHC 873 (Ch) and [2023] EWHC 1517 (Ch)) upheld the High Court decision that Tesco’s use of a yellow circle on a blue square infringes the earlier Lidl trade mark even where Tesco’s use includes the words “Clubcard Prices” or “Clubcard Price” together with a price.  Tesco’s use was found to take unfair advantage of the reputation and to be detrimental to the distinctive character of Lidl’s registered trade mark.  Tesco’s use was also found to constitute passing off.

Substantial evidence was submitted at first instance, which seems to have had a strong bearing on the outcome.  The High Court was persuaded that Lidl’s earlier trade mark enjoyed a reputation and therefore there was infringement.  In the appeal, the Court of Appeal acknowledged the high bar that Tesco was unable to clear to have the decision overturned.

Tesco did, however, succeed with the invalidation of Lidl’s “Wordless Mark” so that Lidl lost their registered trade mark protection for that.

These various features of the case are worth reviewing as to how they may affect future filing and enforcement strategy, although it is more what Lidl lost that may be relevant.

Filing strategy

On the face of it, the decision is good news for trade mark owners bearing in mind the wide scope of protection that Lidl has apparently enjoyed. The common received wisdom has been that where the only resemblances between marks are in respect of lowly or non-distinctive elements and where the other dominant and distinctive elements differ, that would be sufficient to overcome an alleged similarity between marks and hence no infringement. 

In this case infringement was found even though the earlier trade mark includes the distinctive word “Lidl” and the only common features between the earlier trade mark and Tesco’s use was a simple circle shape against a square background and sharing the colours yellow and blue.   The fact that Tesco’s use also included different words and did not include the red outer rim of the circle seen in Lidl’s trade mark was not sufficient to defeat Lidl’s action.

As such, this decision might well be a strong precedent for future infringement actions and perhaps, somewhat ironically, against discounters like Lidl themselves.  It may be possible to rely on trade mark registrations incorporating multiple features such as the overarching brand name, devices and colours to restrain copycats.

However, and notably in the Court of Appeal decision, Lord Justice Lewison shared Lord Justice Arnold’s view that the High Court findings of fact were “surprising” and that “I doubt whether I would have come to that conclusion”.  These comments rather suggest that Lidl’s success may have been a one-off based on the specifics of the case (and, in particular, the significant evidence) and that the common received wisdom remains valid.

So, what strategy should be adopted for future filings to provide the broadest scope of protection?

Lidl will have been aware of the rather narrow scope of protection that their trade mark might have been assumed to enjoy and this probably motivated them to file the Wordless Mark to give them a stronger basis to challenge conflicting third party uses of the features of their trade mark such as the yellow circle on a blue square.  However, Tesco was successful with their counterclaim that the Wordless Mark was filed in bad faith “solely for the purposes of using it as a legal weapon and not in accordance with its function of indicating origin” (paragraph 174).  

It is this aspect of the case that may well inform future strategy. Tesco’s counterclaim introduced some practical difficulties for Lidl since the court was persuaded that there was a prima facie case against them so that the burden shifted to Lidl to evidence their own good faith at the time of filing.  That is not an obviously straightforward task and, in Lidl’s case, all the more difficult because their first filing was all the way back in 1995.

Therefore, where brand owners are keen to protect the features of their trade marks with a view to taking action against copycats there are further measures to consider to pre-empt a “legal weapon” bad faith challenge and to evidence good faith.

When filing a trade mark application for a specific feature(s) that is included as part of the wider branding, there must be a genuine intention to use that feature(s) as standalone origin indicator (i.e. to use it as a trade mark).  Internal correspondence and business plans setting out the strategy in this regard can assist in evidencing such an intention. Further supporting evidence demonstrating that such use is underway, or documenting such use when it does arise shortly after filing may also assist (albeit later use does not necessarily mean good faith at filing).

Design protection should also be considered.  The recent M&S and Aldi decision points towards the different filing strategies available to file with line drawings or photographs or combinations thereof to obtain a range of design registrations at different levels of generality.  Even very narrow design protection can provide a great deal of value since it will often be the aim of the third party to produce something as close to the original product as possible.

Evidence strategy

The Court of Appeal decision also identifies options for brand owners to maximise their chances of success when they are collating and preparing evidence to enforce of their trade mark rights.

There is a strong case for going all in at first instance. Succeeding on appeal is difficult; the appeal court can only overturn the original decision if the findings of fact are rationally insupportable, or if the judge erred in law or principle. Furthermore, it can be very difficult to convince a court to allow additional evidence on appeal.

Evidencing a reputation and unregistered passing off rights was fundamental to Lidl’s success and their evidence was subject to rigorous assessment at first instance with the judge’s analysis coming to 317 paragraphs.  The case speaks to the importance and benefit of documenting the use of a trade mark and the success enjoyed, which can include sales and turnover figures, marketing and advertising spend and press and media appearances.

The actions of Tesco were also instructive, as it was demonstrated that they had started to position themselves as offering good value on low prices to win back customers from Lidl (and Aldi).  Documenting the activity of the counter party can also help set the scene in support of the overall case.

The activity within the wider market is also relevant. Once Tesco started using the infringing sign, Lidl was able to evidence that other supermarkets had started using logos that looked like Lidl’s trade mark and so argued that this indicated a dilution of their own trade mark.

It is well documented that surveys are not well received by courts, and neither are expert witnesses opining on whether there is confusion amongst consumers.  However, evidence of the shopping habits of consumers was acknowledged to hold value for the court.

Evidence of actual confusion may assist but if confused customers are called as witnesses then that evidence can carry more weight because the reasons for confusion can be probed. For Lidl, calling only two such witnesses meant that the judge was entitled to treat their evidence as supplementing the evidence of the others (paragraph 145).

If you would like to discuss any aspect of trade mark law or get advice on your own intellectual property, please contact Edward Carstairs or any of GJE’s attorneys at gje@gje.com.