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22 March 2024

Supermarket Wars: Episode 2

Following on from the hearing in the High Court (see our article here), the Court of Appeal has this week handed down its decision in Tesco’s appeal in its dispute with Aldi.[1] The majority of Tesco’s appeals were dismissed, but it was successful in overturning the first instance finding of copyright infringement.

Background

The dispute related to Tesco’s use of its Clubcard Prices logo (‘CCP Signs’) in 2020 for its discount pricing scheme. Lidl claimed this infringed its intellectual property rights associated with its well-known logo. Lidl’s logo, protected as a trade mark in two distinct forms, stood as a symbol of the brand’s identity and reputation.

In April 2023, Joanna Smith J. issued a ruling in favour of Lidl. She determined that Tesco’s use of the CCP Signs not only violated Lidl’s trade marks but also constituted passing off. Moreover, the judge concluded that the CCP Signs were replicas of Lidl’s logo, constituting an infringement of Lidl’s copyright. However, amidst these victories, some of Lidl’s historical trade mark registrations faced scrutiny, as the court ruled they were filed in bad faith due to insufficient evidence demonstrating Lidl’s genuine intent to use these marks at the point of filing of their applications.

Following the initial ruling, both Lidl and Tesco appealed the decision. The appeals were heard before Arnold, Lewison, and Birss LLJ in February 2024, in a trial lasting several days. On 19 March 2024, the Court of Appeal gave judgment upholding Lidl’s victory, providing us with some additional learning on the core issues.

Trade mark infringement and passing off

Tesco’s appeal against the findings of trade mark infringement and passing off was dismissed by the Court of Appeal. Arnold LJ, delivering the lead judgment, praised the High Court’s analysis and emphasised the appellate court’s limited scope in challenging factual findings. While he found the finding of fact to be potentially “somewhat surprising,”[2] he was “not persuaded that her finding was rationally insupportable,”[3] which is the requirement for an appellate court to overturn a finding a fact. Levison LJ agreed on both points.

Consumer evidence

In addressing the matter of trade mark infringement and passing off, Tesco’s primary challenge to the trial judgment centred on the treatment of evidence by the trial judge. Arnold LJ reviewed the various types of evidence commonly encountered in trade mark cases, outlining their respective roles, and potential pitfalls. The types of evidence he considered were: survey evidence, expert testimony, trade evidence, and consumer feedback.

In this case, the trial judge was tasked with evaluating a spectrum of consumer evidence, including various different reactions to the CCP Signs. Arnold LJ found that, unless there were indications of idiosyncratic consumer behaviour, such evidence could assist the court[4] but required cautious evaluation. He stressed that the judge must not regard it as conclusive but rather consider its weight within the context of the case.[5]

Arnold LJ highlighted the pivotal role played by the price matching allegation, asserting that it formed the basis for the trial judge’s conclusions on unfair advantage and misrepresentation. He proceeded to scrutinise three main strands of evidence examined by the trial judge in the context of the passing off analysis:

  1. Testimony from two consumer witnesses regarding their reactions to the CCP Signs.
  2. The ‘Vox Populi’ of other consumer reactions upon encountering the CCP Signs.
  3. A market research survey commissioned by Tesco to gauge spontaneous responses from consumers seeing the CCP Signs for the first time.

The trial judge’s interpretation of this evidence led her to conclude that the CCP Signs indeed conveyed a price matching message. Arnold LJ affirmed that the trial judge carefully evaluated each piece of evidence without affording undue weight to any single element. Consequently, she was justified in her determination that the CCP Signs communicated the price matching message to the average consumer, based on the available evidence.

Unfair Advantage and Due Cause

Arnold LJ also offered clarity to s10(3) of the part of the Trade Marks Act 1994 which refers to infringing use of a trade mark with a reputation.” He said:

“It is difficult to see how use of a sign which takes unfair advantage of the reputation of a trade mark can be with due cause, although it is perhaps easier to see how use which is merely detrimental to the distinctive character of the trade mark may be.”[6]

This calls to mind the recent case of Thatchers v Aldi (see our article here) which focussed on the point of unfair advantage, without the need for a separate argument on ‘due cause.’

Copyright infringement

During the trial, it was determined that copyright existed in the Mark with Text as an original artistic work, and Tesco’s design agency had copied a substantial part of it when creating the CCP Signs. Critically, in the trial judgment, the trial judge heavily criticised Tesco’s evidence regarding the creation of the CCP Signs, finding it to be inaccurate, misleading, and intended to obscure crucial aspects of the actual process.

Although Tesco’s appeal did not contest the trial judge’s conclusions regarding copyright subsistence or copying, Tesco did challenge whether a ‘substantial part’ of the work had been appropriated, an argument not fully presented before the trial judge. The Court of Appeal agreed with Tesco on this point, determining that the protection afforded to the work was narrow due to the minor level of creativity that went into it. Arnold LJ found:

“In my judgment Tesco are correct on this issue. Although the [Lidl logo] is sufficiently original to attract copyright, the scope of protection conferred by that copyright is narrow. Tesco have not copied at least two of the elements that make the [Lidl logo] original, namely the shade of blue and the distance between the circle and the square … I conclude that Tesco have not infringed the copyright in the [Lidl logo].”

Bad Faith

During the trial at first instance, the judge had ruled that Lidl’s trade mark registrations for its Wordless Marks from 1995, 2002, 2005, and 2007 should be invalidated due to bad faith, despite acknowledging that the Wordless Mark was distinctive of Lidl and that Lidl was using the mark. In response, Lidl cross-appealed this point to the Court of Appeal.

The Court of Appeal determined that the circumstances surrounding the filing of these marks raised a prima facie indication of bad faith because:

  1. Lidl had never utilised the Wordless Mark in the registered form;
  2. It could be inferred that Lidl did not intend to use the Wordless Mark in the registered form;
  3. If Lidl’s argument that the use of the Mark with Text constituted use of the Wordless Mark was correct, there would have been no need to register the Wordless Mark unless the intention was to provide Lidl with broader or different protection; and
  4. It could be inferred that the application to register the Wordless Mark was made primarily for legal leverage rather than its intended function of indicating origin.

In these circumstances, the evidential burden shifted to Lidl to clarify its intentions when submitting these applications. The Court of Appeal agreed with the trial judge that Lidl had failed to demonstrate, at the time of filing each of these marks, the necessary intention to use the mark or establish its reputation. Consequently, the Court of Appeal affirmed the trial judge’s decision that Lidl had not met the burden of proving good faith.

Commentary

Arnold LJ described the trial judgment as an impressively thorough examination of the issues, evidence, and arguments at hand. It is a firmly established principle that, unless there are glaring errors in law or principle, or conclusions that are irrationally unsupported, the Court of Appeal should refrain from intervening in the trial judge’s findings. As Lewison LJ observed in Fage v Chobani:[7]

“In making his decisions, the trial judge will have regard to the whole of the sea of evidence presented to him, whereas an appellate court will only be island hopping.”[8]

This principle held true in this instance as well. Save for one aspect concerning copyright infringement, the Court of Appeal largely upheld the trial judgment without alteration.

With victories secured in trade mark infringement and passing off, Lidl emerges as the victor. Consequently, Lidl will now enjoy the benefits of an injunction against Tesco’s utilisation of the CCP Signs and, given Tesco’s extensive use of the CCP Signs spanning four years, a significant damages award is likely.  This does not mean that the case did not involve significant challenges for Lidl. Unlike typical trade mark disputes, which often hinge on whether there is a likelihood of confusion between the claimant’s mark and the defendant’s sign, Lidl did not assert that consumers were confused between Tesco and Lidl (although some evidence of origin confusion did surface). Instead, Lidl’s case focused on the reputation its trade marks enjoyed, necessitating the demonstration that Tesco’s CCP Sign conveyed a false price matching message to certain consumers and/or induced some alteration in economic behaviour.

This judgment shows Arnold LJ was interested in consumer behavioural evidence, and he noted; “When deciding issues such as likelihood of confusion, it can be of value for the court to receive evidence as to the shopping habits of consumers of the relevant goods or services: for example, as to whether they are in the habit of reading the label on an item before selecting it for purchase or whether they simply rely upon the appearance of the packaging.”

Ultimately, Lidl prevailed in a notoriously difficult claim of infringement of a trade mark with reputation. This success was attributed to the extensive evidence that Lidl presented to the trial judge, enabling her to comprehend the real-world ramifications of Tesco’s employment of the CCP Signs within the distinct context of supermarkets vying to attract and retain customers.

This case shows that the power of a registered trade mark coupled with good evidence can be a highly effective tool to protect or disrupt a business.

 

[1] Lidl Great Britain Limited and anor v Tesco Stores Limited and anor [2024] EWCA Civ 262

[2] Ibid. at 160.

[3] Ibid. at 160.

[4] Ibid. at 120.

[5] Ibid. at 120.

[6] Ibid. at 168.

[7] Fage UK Ltd v Chobani Ltd [2014] EWCA Civ 5

[8] Ibid. at 114.