This article first appeared in the Intellectual Property Forum journal, published by The Intellectual Property Society of Australia and New Zealand Inc. Jake Palmer, “Current Developments – Europe: United Kingdom: Lidl Trouble in Big Tesco – UK Court of Appeal upholds findings of trade mark infringement and passing off by Tesco but overturns finding of copyright infringement” (2024) issue 136.

Introduction

The UK Court of Appeal has handed down its judgment in relation to a dispute between UK supermarket giants Tesco and Lidl regarding Tesco’s use of Clubcard Price signs.

The first instance decision found Tesco to be liable for trade mark infringement, passing off and copyright infringement through its use of such signs. The Court of Appeal has upheld the findings of trade mark infringement and passing off, but overturned the finding of copyright infringement.

As part of the dispute, Tesco successfully argued at first instance that certain of Lidl’s trade marks were registered in bad faith and were thus invalid. The Court of Appeal upheld this finding.

From a copyright perspective, the case provides a helpful example of a relatively simple logo being protected as a copyright work. Indeed, it was sufficient to establish copyright protection for Lidl to add a blue square background to their pre-existing logo depicting a red-rimmed yellow circle comprising the stylised “LiDL” text. That being said, the case also highlights:

(1) the narrow scope of protection that such works will be afforded; and

(2) the fact that adding elements to pre-existing works will only give copyright protection in relation to such added contributions.

From a trade mark and passing off perspective, the case highlights the importance of consumer evidence, and in particular instances of actual confusion, in assisting the court in making important findings of fact. While the Court of Appeal clarified that evidence of actual consumers cannot stand proxy for the legal concept of the average/ordinary consumer, such evidence may nonetheless be probative as to the perceptions of such legal concepts.

References to the Court of Appeal judgment are to the leading judgment by Lord Justice Arnold, unless stated otherwise.

Background

Tesco and Lidl are widely-known supermarkets in the UK: Lidl is a discount supermarket focusing on low prices, Tesco is a “mid-tier” supermarket offering products over a range of prices.

Since 1995, Tesco have operated a highly successfully “Clubcard” loyalty scheme. The subject of this dispute, however, is a discrete marketing strategy linked to the Clubcard scheme launched in 2020: the Clubcard Prices promotion.

The Clubcard Prices promotion offered discounts on certain products to Tesco Clubcard members at the point of sale. Tesco used the Clubcard Prices signs (the/Tesco’s “CCP Signs”) to indicate the goods that were subject to this promotion and/or to generally refer to such prices being available. The CCP Signs featured a blue square background with varying black text in the centre of a yellow roundel. Examples of CCP Signs are shown below.

Readers who are aware of Lidl’s logo can probably guess where this is going. Lidl objected to Tesco’s use of the CCP Signs relying on their main logo (the “Mark with Text”) and its wordless background (the “Wordless Mark”). These are shown below.

First instance decision

Relying on these logos, Lidl claimed copyright infringement, passing off and trade mark infringement. Tesco claimed that the Wordless Mark was invalidly registered, relying on the grounds of non-use, lack of distinctive character and bad faith. The court of first instance (the UK High Court) found as follows.

• Trade mark infringement. Both of Lidl’s logos were infringed by the CCP Signs, pursuant to section 10(3) of the UK Trade Marks Act 1994. The Court held that the CCP Signs took unfair advantage of Lidl’s reputation as a low-price discounter and damaged the distinctive character of Lidl’s logos by suggesting that the Tesco products were price-matched to those of Lidl.

• Passing off. Under the common law principle of passing off, the goods to which the CCP Signs referred passed themselves off as being equivalent in value to those same products of Lidl: consumers were mistakenly believing that the products were price-matched as a result of Tesco’s use of the CCP Signs and their similarity to Lidl’s logos.

• Copyright Infringement. Copyright was held to subsist in the Mark with Text (Lidl’s main logo); this was infringed by Tesco’s CCP Signs.
• Validity of Wordless Mark. The Wordless Mark was invalid on the basis that it was filed in “bad faith”. This was held on the basis that Lidl had no intention of using the Wordless Mark at the time of filing it.

For more details on the first instance decision, see our earlier note published in Issue 133 (September 2023) of Intellectual Property Forum.

Court of Appeal decision

Trade mark infringement and passing off

Importantly, under the UK appeals system, the Court of Appeal can only intervene with first instance finding of facts where they are “rationally insupportable”. Where the Court of Appeal is evaluating a first instance decision comprising a multi-factorial evaluation, the Court of Appeal can only overrule the first instance judge where that judge has erred in law or principle. This means the Court of Appeal were not assessing whether they agreed with the first instance judge’s findings; rather, they were considering whether the evidence before the first instance judge entitled her to reach her findings.

Central to the first instance findings of trade mark infringement and passing off was the finding that there was “clear evidence” that consumers would believe there was a price match between Tesco and Lidl as a result of Tesco’s use of the CCP Signs (“price match confusion”). It was agreed by the parties that the findings of passing off and trade mark infringement stood and fell together in relation to this ground.

The Court of Appeal was therefore required to consider the specific criticism of the evidence relied on for the finding of such price match confusion. Lidl relied on three strands of evidence referred to by the first instance judge:

(1) messages from consumers, such as on social media and direct messages to Tesco; (2) a survey conducted by Tesco prior to the Clubcard Prices campaign; and

(3) two member of the public witnesses.

The Court of Appeal considered that the first instance judge was “not only entitled to place some weight on each of those strands [of evidence relied on by Lidl], but also to regard each of the three strands as reinforcing the other two” [160].

In doing so, the Court of Appeal was careful to point out that the consumer evidence was relevant because it could assist the court in gauging the perceptions of the legal concept of average/ordinary consumers, not because it could stand proxy for such legal concepts. It is for the Court to attribute appropriate weight to such evidence in making its findings of fact.

Hence, the Court of Appeal did not consider the first instance judge’s finding of price match confusion was rationally insupportable, and so they could not overturn it.

Validity (Wordless Mark)

Lidl owned four trade mark registrations depicting the Wordless Mark, which were found at first instance to be invalid, having been registered in bad faith.

The appeal focused on the initial registration for the Wordless Mark. Once this was found to have been registered in bad faith by Lidl, the invalidation of the subsequent registrations was dealt with briefly.

Lild argued that the first instance judge had been wrong to find that the objective circumstances of the case were sufficient to shift the burden to Lidl to demonstrate that it had applied for the first registration for the Wordless Mark in good faith. However, Lidl had accepted that they have never made use of the Wordless Mark in the form that it was registered and that the reason they applied for it was to get a wider scope of protection (as compared to the protection afforded by the Mark with Text). The Court of Appeal found that these admissions were sufficient to infer that there was no intention by Lidl to actually make use of the Wordless Mark at the time of filing the application and that the registration was intended to be used as a “legal weapon”. This was deemed to be sufficient to shift the burden in the way the first instance court had done.

Overall, the Court of Appeal upheld the first instance court’s finding that all four of Lidl’s trade mark registrations for the Wordless Mark were registered in bad faith and thus were invalidly registered. However, Tesco were still found to have infringed the Mark with Text.

Copyright infringement

The first instance finding was that Tesco’s use of its CCP Signs infringed copyright in the Mark with Text. The appeal was against the findings that:

(1) the Mark with Text was original; and, alternatively

(2) the CCP Signs reproduced a substantial part of the Mark with Text.

The appeal focused on the creation of the Mark with Text, which was done in three stages over a 15 year period, potentially involving different authors:

• Stage 1 – The stylised LiDL text only.
• Stage 2 – The yellow roundel and red rim were added to Stage 1.
• Stage 3 – The blue square background was added to Stage 2. Therefore, Stage 3 is the Mark with Text.

The Mark with Text (the Stage 3 work)

Importantly, Lidl had relied only on the Mark with Text for copyright infringement, which amounted to Stage 3.

In making its decision, the Court of Appeal referred to two important points of law.

First, where an author has created a new work (Work B), but that new work copies a prior work by a different author (Work A), the Work B author will only have protection in relation to the parts original to the Work B author. The Word B author cannot stop others from copying Work A.

To elucidate this concept, at the Court of Appeal hearing, Counsel for Tesco gave the theoretical example of an author adding a blue square background to Caravaggio’s Medusa. This argument is that such an author would only have copyright protection, if they had any, in relation to the added blue square, and they would not be able to prevent others using elements of the Medusa itself, since those would not be original to that author. Tesco argued that this is essentially what had happened at Stage 3.

Secondly, where there is a low degree of creativity in an original work, the “scope of protection conferred by the copyright in that word is correspondingly narrow, so that only a close copy will infringe” [43].

Applying these principles, the Court of Appeal held that the Mark with Text was sufficiently original such that it was a protectable copyright work, while noting the scope of protection would be narrow. The creative choices made by the author of the Mark with Text were the shade of blue, the positioning of the Stage 2 work within the blue square, and the distances between the edge of the Stage 2 work and the blue square. These were creative choices made by the author, and the creation of the Mark with Text was not a “purely mechanical exercise” nor was the result dictated by “technical considerations, rules or other constraints which left no room for creative freedom” [191]. Accordingly, the first instance judge was correct to find the Mark with Text was a protectable copyright work.

However, the Court of Appeal overturned the first instance finding of infringement. In doing so, they referred to the fact that at least two elements that made the Mark with Text original at stage 3 had not been copied in the CCP Signs: namely, the shade of blue and the distance between the yellow circle and the blue square.

Comment

Trade mark infringement and passing off

The first instance finding was surprising to many. On the issue of price match confusion, Lord Justice Arnold recognised that “at first sight” it was “somewhat surprising” that the judge had made a finding that consumers would be “misled by the CCP Signs into thinking that Tesco’s Clubcard Prices were the same as or lower than Lidl’s prices” [160]. Lord Justice Lewison, in his judgment, went further, expressing that if he could avoid this result, he would, and sympathising with Tesco’s position:

I do not consider that a message that Tesco offers good value is anything other than fair competition… 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. [219, 221].

However, the role of the Court of Appeal was not to make its own findings on the evidence, but rather to confirm whether the first instance judge’s finding was rationally supportable. Accordingly, even if the Court of Appeal judges would have reached a different conclusion themselves, that is not sufficient to overturn findings of fact. In his judgement,  Lord Justice Arnold was careful to point out that the first instance judge has the advantage of being “immersed in all of the evidence”, whereas the Court of Appeal only considers selected parts.

This judgment was keenly awaited as it was clear from the Court of Appeal hearing that a major issue for determination was the weight that could be given to evidence of confusion from actual consumers in trade mark and passing off cases. Tesco had argued that some of that evidence should be ignored completely when the court determines whether the average/ ordinary consumer would be confused in the way Lidl had argued. In making this argument, they referred to UK Trade Mark Registry decisions, which are routinely made without any such evidence of actual confusion.

The Court of Appeal has clarified that such evidence remains relevant and can assist the court in gauging the perception of the average/ordinary consumer, though it cannot stand proxy for them. Accordingly, in most cases it is expected to be well worth parties searching for such evidence. Trawls of social media, contacting members of the public who demonstrated confusion and searching Tesco’s internal communications were all methods used by Lidl in finding such evidence in this case.

Copyright

Typically, brand owners have relied on trade mark registrations and goodwill for the purposes of passing off to protect their logos in the UK. This case provides a helpful reminder that copyright can also be of assistance, even for relatively simple logos. While the Court of Appeal did overturn the finding of copyright infringement, this was a result of the staged creation of the Mark with Text, meaning Lidl could only rely on the creative act of adding the blue square background. The simpler the logo, the narrower the scope of protection is likely to be.