Lidl v Tesco – the discounter and supermarket go head-to-head in the UK trade mark courts

Do consumers think of Lidl when they shop using their Tesco Clubcard? This is the root of the current trade mark dispute between supermarket chains Lidl and Tesco.

More specifically, the question before the Court is whether Tesco’s ‘Clubcard Prices’ logo, which appears in a yellow circle on a blue background infringes Lidl’s logo, which is also in a yellow circle (with a red border) on a blue background. We will need to wait until the case proceeds to a substantive trial next year for a ruling on that issue. However, wranglings in the run up to the main hearing have continued with the Court of Appeal[1] last week allowing Tesco’s counterclaim that Lidl’s trade mark registrations were filed in bad faith to be run as an argument at trial on the basis that it had “real prospects of success”. The counterclaim had initially been struck out by the High Court[2]. Lidl will now have to prove that its own registrations were not filed in bad faith, or risk the trade mark registrations upon which the infringement claim is based, being invalidated.

Background

Since September 2020, Tesco has used a logo consisting of a yellow circle on a square or rectangular blue background (“the Sign”), although only with the words ‘CLUBCARD PRICES’ within the yellow circle:

Lidl alleges that use of the Sign infringes its registered trade marks (shown below), and that it amounts to passing off and copyright infringement, claiming Tesco is ‘seeking deliberately to ride on the coat tails of Lidl’s reputation as a “discounter” supermarket known for the provision of value’.

Tesco denies these claims and issued a counterclaim for a declaration of invalidity of the registration of the Wordless Mark (shown above), and in the alternative, revocation on the ground of five years’ non-use. Whilst Lidl has never used the Wordless Mark (without the word “Lidl” in the circle) in the UK, it argues that use of the Mark with Text (also shown above) amounts to use of the Wordless Mark.

In its counterclaim, Tesco had sought to argue that the Wordless Mark had been registered as a defensive trade mark, and that Lidl had no intention of using it in the course of trade, but instead wished to secure a wider legal monopoly of trade mark protection. Tesco argued that this bad faith application was strengthened by Lidl’s strategy of “evergreening” – applying to re-register the Wordless Mark in a manner that circumvented obligations to prove the commercial use of the trade marks after five years of registration. Lidl applied for this counterclaim to be struck out arguing that it was “disproportionate and hopeless”.

Strike Out

In the High Court on 27 June 2022, Smith J granted Lidl’s strike out application, which prevented Tesco from raising the counterclaim of bad faith and obtaining a declaration of invalidity on that basis. Smith J found that Tesco had not made out a prima facie case for bad faith. Tesco appealed.

Last week, the Court of Appeal adjudicated upon two issues of appeal raised by Tesco: (i) that the High Court Judge failed to apply the correct test under CPR Rule 3.4(2)(a) and consider bad faith as a developing area of law, and (ii) that the judge failed to properly consider the pleaded facts and inferences of the bad faith counterclaim as a whole and in the context of Lidl’s infringement case.

Court of Appeal Decision

On the first issue, the Court of Appeal held that although the judge failed to take account of the fact that bad faith is a developing area of law, Smith J had applied the correct test, and that this alone would not justify the Court of Appeal interfering with the High Court decision.

However, the Court of Appeal unanimously decided that Smith J failed to properly consider the pleaded facts and inferences of the bad faith counterclaim. Smith J had ruled that the allegation that the applications for the Wordless Mark being used solely as a legal weapon were ‘no more than assertion’. Arnold LJ instead found that this was a permissible inference from the facts pleaded.

Secondly, the circumstances under which an applicant seeks an unjustifiably broad protection, and the degree to which this would amount to an abuse of the trade mark system constituting bad faith, was considered fact-sensitive by the Court of Appeal. Furthermore, under the facts in question, Tesco’s pleadings gave rise to a real prospect of the presumption of good faith being overcome, so as to shift the evidential burden to Lidl.

Consequently, the Court of Appeal unanimously considered that Tesco’s bad faith counterclaim had a real prospect of success, and should not have been struck out.

Comment

Although dealing largely with procedural law, this is a useful decision that reaffirms the high threshold for strike out applications, in particular those relating to bad faith claims for trade marks. Tesco needed to show that it had a realistic, not fanciful, prospect of success, so it is unsurprising that the counterclaim has ultimately been allowed to run. The bad faith allegation will stand or fall at trial. A set-back for Lidl, but the main proceedings, to be heard next year, will now provide practitioners and brand owners with further guidance on the practice of evergreening, and the circumstances in which re-filings might amount to bad faith, so will be watched with interest.

Another interesting point that will be addressed at the substantive trial is the treatment of survey evidence. Earlier this year, Lidl successfully applied for permission to rely at trial upon survey evidence said to prove the distinctiveness of its earlier trade marks. Having fallen out of favour post-Interflora, the Lidl case may mark a shift change in the approach to survey evidence taken by the UK courts in trade mark cases.

This article was co-authored by Nick Anning, Trainee Solicitor at CMS

[1] Lidl Great Britain Ltd v Tesco Stores Ltd [2022] EWCA Civ 1433

[2] Lidl Great Britain Ltd v Tesco Stores Ltd [2022] EWHC 1434 (Ch)