Clubcard rebrand incoming as Tesco loses legal battle against rival supermarket Lidl

The legal battle between supermarkets Lidl and Tesco dealt with many interesting aspects of trade mark infringement, copyright infringement and passing off — all while highlighting the need for businesses to clear and register any marks and signs that they use to protect their brands and reputations and avoid costly litigation and rebranding exercises.

Here, Dana Samatar, Hayley Morgan and Colin Bell explore the key learnings.

Tesco accused of ‘free riding’

The case Lidl Great Britain Ltd v Tesco Stores Ltd [2024] EWCA Civ 262 revolved around Tesco’s use of signs made up of a yellow circle on a square (or sometimes rectangular) blue background (the CCP signs) as part of its Clubcard Prices promotion. 

Since around 1987, Lidl has used a logo consisting of a yellow circle edged in red on a square blue background with the word ‘LiDL’ within it. Lidl owns registered trade marks for both the logo including the word LiDL (the Mark With Text) and the logo without the word (the Wordless Mark), referred to collectively as the ‘Lidl marks’. 

Lidl had applied for registration of the Wordless Mark in 1995, 2002, 2005, 2007 and 2021.

Although Lidl has never used the Wordless Mark, it argued that the Wordless Mark has been used by using the Mark With Text (images below).

Tesco has been using the CCP signs as part of its Clubcard Prices promotion since September 2020. Its use often incorporates the words “Clubcard Prices” or “Clubcard Price”, together with a price.

The proceedings in the High Court involved allegations by Lidl of trade mark infringement, copyright infringement and passing off.

Lidl argued “that the graphical device forming the Wordless Mark is distinctive of its service and goods quite apart from the name ‘Lidl’ and that it has generated a huge reputation and goodwill in both the Mark With Text and the Wordless Mark”. 

Essentially, Lidl contended that Tesco was 'free riding’ on Lidl’s reputation as a discount supermarket. Lidl contended that “Tesco deliberately copied the artworks that comprise the Lidl Marks to achieve the transfer of reputation for good value that [it maintains] is occurring”. 

The claim in passing-off advanced by Lidl was that Tesco’s use of the CCP signs meant that Tesco was misrepresenting that products it sells are sold at the same or equivalent price as Lidl products or otherwise suggests price matching. 

Tesco defended the claims and counterclaimed, alleging that some of the Lidl trade marks were liable to be declared invalid on the basis that they were registered in bad faith and/or that they should be revoked for non-use and/or that they have no distinctive character.

Infringement

The acts amounting to infringement are set out in section 10 of the Trade Marks Act 1994. 

Unusually, Lidl didn’t rely on either section 10(1) or (2) in this case, instead relying on section 10(3). This subsection protects trade marks that have a reputation in the UK when a person uses a sign which is identical or similar to it and the use of the sign, being without due cause, constitutes unfair advantage or detriment to the distinctive character or repute of the mark. 

High Court decision 

The High Court found that the average consumer perceiving the Mark With Text and the CCP signs “as a whole would regard them as similar”. 

Infringement under section 10(3) requires a degree of similarity between the trade mark and the sign, such that the average consumer finds a link between the mark and the sign. The Court found that “there was clear evidence of both origin and price match confusion/association together with evidence that Tesco appreciated the potential for confusion”.

The Court rejected Lidl’s assertions of subjective intent by Tesco to ‘free ride’ on Lidl’s reputation as a ‘discount’ supermarket. However, this was no impediment to Lidl’s claim, as there is no requirement for intention under section 10(3).

The Court found that the link between the CCP signs and the Lidl marks had the objective effect of Tesco taking unfair advantage of the Lidl marks’ distinctive reputation. 

Tesco alleged that Lidl’s registrations for the Wordless Mark are liable to be invalid because they were applied for in bad faith. Importantly, it was held that at the time of application for the 1995 Wordless Mark Lidl didn’t have a genuine interest to use it. The mark was registered as legal weapon to secure a wider monopoly for Lidl. This amounted to bad faith and the 1995 Wordless Mark was held to be invalid. 

Lidl had subsequently applied for the Wordless Mark for partially duplicated goods/services on a number of occasions in 2002, 2005, 2007 and 2021. Tesco alleged that this practice of ‘evergreening’ was an abuse of the trade mark system and proved that the applications were made in bad faith to avoid the proof of use requirement triggered five years after registration. 

It was found that Lidl’s registrations of the Wordless Mark in 2002, 2005 and 2007 were all filed in bad faith. They were therefore declared invalid on the basis that the filing constituted an intent — at least in part — to ‘evergreen’ the Wordless Mark. 

The 2021 application hadn’t proceeded to registration at the time of the original case and so its examination was stayed at that time. However, during the court case, the High Court found that the 2021 mark didn’t form part of the evergreening — and therefore wasn’t filed in bad faith — because the Court accepted that by the date of filing for the 2021 mark, Lidl believed that the Wordless Mark was in genuine use. 

The Court also established passing off. It was found that the evidence proved there were consumers who had been deceived as a result of the link they made between the CCP signs and Lidl marks. Essentially, it was proven that there were consumers who thought that Clubcard prices were the same or lower than Lidl’s prices for equivalent goods, which caused Lidl to suffer damage. 

Lidl was also successful in its claim for copyright infringement. 

Court of Appeal decision 

Tesco’s principal ground of appeal against the findings of passing-off and trade mark infringement was “that the judge was wrong to find that the average consumer seeing the CCP Signs would be led to believe that the price(s) being advertised had been ‘price-matched’ by Tesco with the equivalent Lidl price, so that it was the same or a lower price.”

The Court of Appeal made clear that the Judge’s conclusions can only be overturned if they are rationally insupportable. Although the Court of Appeal expressed surprise towards the High Court decision, it didn’t find this to be rationally insupportable. Accordingly, Tesco’s appeals against the finding of passing-off and trade mark infringement were dismissed.

Arnold LJ delivered the main decision of the Court of Appeal. In support, Lewison LJ noted that he “found the trade mark claim and the passing off claim very difficult, at the outer boundaries of trade mark protection and passing off … Like Arnold LJ, I find the judge's finding of fact surprising. Although I doubt whether I would have come to that conclusion, that is not the question on appeal, as Arnold LJ has rightly said. It is not open to us simply to substitute our own evaluation. The question is whether the judge's finding was rationally insupportable. For the reasons that Arnold LJ has given, I do not think that we can say that it was. The upshot is that despite Tesco's wish to differentiate itself from Lidl and to promote the value of its own very distinctive brand, it has found itself liable for trade mark infringement and passing off. I find myself in the position of Lord Bridge of Harwich in the Jif Lemon case at 495:

"If I could find a way of avoiding this result, I would. But the difficulty is that the trial judge's findings of fact, however surprising they may seem, are not open to challenge. Given those findings, I am constrained ... to accept that the judge's conclusion cannot be faulted in law. With undisguised reluctance I agree ... that the appeal should be dismissed."”

The finding that Tesco’s use of the CCP signs was without due cause was also upheld. Arnold LJ states, “As the judge explained…it was not enough that the sign complained of was innocently adopted: there had to be something more which justified its use despite the injury to the trade mark. As she went on to find, in the present case there was nothing more. Tesco could easily have used a different sign to promote Clubcard Prices. There is no error of law or principle in that reasoning, and the conclusion is one that the judge was fully entitled to reach.”    

Tesco’s appeal against copyright infringement was, in part, upheld. Although it was held that copyright subsisted in the work, it was held to be a narrow scope of protection and that Tesco hadn’t copied a substantial part of Lidl’s copyrighted works. 

The Court of Appeal found that Tesco hadn’t copied at least two of the elements that made Lidl’s Mark With Text original — “namely the shade of blue and the distance between the circle and the square… Although Tesco have copied the visual concept of a blue square surrounding (among other material) a yellow circle, that is all they have done.” Therefore, the Court of Appeal concluded that Tesco had not infringed Lidl’s copyrighted works. 

The Court of Appeal upheld the findings that Lidl’s registrations of the Wordless Mark in 2002, 2005 and 2007 were all filed in bad faith and invalid. The High Court’s finding that the 2021 mark didn’t form part of the evergreening (and was therefore not filed in bad faith) wasn’t challenged by Tesco. 

In conclusion, although Tesco was successful in appealing copyright infringement and a number of Wordless Mark registrations were invalidated, Tesco was still held to have infringed Lidl’s valid registered trade mark and be liable for passing-off. It will now have to redesign its Clubcard loyalty scheme and pay damages (to be assessed by the Court if not agreed by the parties). 

Key learnings 

This case serves as a reminder that the Court of Appeal won’t intervene unless the first instance findings are rationally insupportable. This is a high bar to overcome. 

We consider that Tesco may feel a little hard done by in the overall decision. Had the Judge found in favour of Tesco in the first instance, it’s unlikely that the Court of Appeal would have overturned it on appeal in favour of Lidl. 

The case also highlights the many nuances to copyright law. The Court of Appeal was able to address the subtleties which resulted in the rejection of the earlier ruling. 

This case highlights the need for businesses to consider whether all marks being used are registered so as to attract independent protection. Had Tesco successfully registered its own CCP marks — although we would query whether these would have been accepted by the UKIPO — it may have been able to rely on the defence to trade mark infringement conferred by section 11 of the Trade Marks Act 1994, which provides that a registered trade mark isn’t infringed by a later valid trade mark registration.

Equally, businesses should ensure that they have a genuine intent to use all marks that they seek to register. Continued use of registered marks is also key to ensure that registrations don’t become vulnerable to cancellation. 

When adopting new brands and signage, we recommend that a trade mark clearance search is conducted to seek to identify any earlier potentially conflicting rights. This ‘belt and braces’ approach will minimise the risks of infringing the rights of third parties which — if and when discovered — can result in significant time and cost implications. 

Our IP team is on-hand to advise on all aspects of brand protection, registration, clearance, infringement and litigation.