Lidl v. Tesco: Supermarket Wars in Court

Supermarkets compete aggressively for our custom. The entry of upstart discount supermarkets Lidl and Aldi into the market has created new pressures on the established brands, including Tesco— ironically, the original “pile it high and sell it cheap” operation.

Supermarkets benchmark their prices against those charged by their competitors and offer loyal customers benefits, including, extremely attractive special offers when customers use their loyalty cards. They are no less aggressive when it comes to using and protecting their trademarks.

Simple and Similar Signs

Tesco’s Clubcard scheme has been around for many years. Not long ago, they started to offer special discounts to Clubcard holders and identified the qualifying goods by a sign consisting of a yellow circle centered on a blue square. Lidl had two distinct registered trademarks protecting its logo – a blue square with a yellow circle centered within it, surrounded by a thin red ring – with and without the name LIDL inside the circle. Several registrations protected the wordless mark.

Lidl sued Tesco for infringement of those registered trademarks and for good measure for passing off and copyright infringement. Tesco retaliated with a counterclaim that the LIDL registered trademarks were invalid because they lacked distinctive character, had been registered in bad faith and should be revoked for non-use.

Taking a Free Ride?

The trademark infringement claim pushed the limits of trademark law: Lidl argued that Tesco’s signs were chosen deliberately to enable the larger retailer to take a free ride on the discounter’s reputation – a form of dilution affecting the value of the trademark itself. They also claimed that customers would be confused about the origin of the goods on the shelf (however unlikely it might seem that Tesco would be selling Lidl products).

In the High Court ([2023] EWHC 873 (Ch) (April 19, 2023)), Lidl won comprehensively – Tesco’s counterclaim succeeded only in that Lidl’s wordless trademark, along with some later trademarks, were held to have been registered in bad faith. The judge was convinced by the evidence, which included Tesco’s internal surveys, unprompted social media posts and customer feedback, and which showed that a link was formed in the minds of consumers. Lidl’s reputation as a discounter was diluted by Tesco’s signs, and the fact that Lidl had responded with price comparison advertising aimed directly at Tesco supported this claim. Tesco had taken unfair advantage of Lidl’s value-for-money reputation, the Tesco signs causing what the judge called a “subtle but insidious” transfer of image, taking a ride on Lidl’s reputation to enhance its own.

‘Evergreening’ a Vulnerable Trademark

Although it made no difference to the outcome of the main claim, Tesco’s argument that the old registrations of the wordless mark were invalid raises important points. IP lawyers are familiar with the process of “evergreening” – the strategic use of trademarks to protect a market after patents for the product itself have expired, commonly encountered in the pharmaceutical sector. Here Lidl were “evergreening” the wordless trademark, keeping the sign on the register but not vulnerable to revocation on the grounds of five years’ non-use – simply by filing a new application from time to time. So, the original 1995 application had been followed by new applications for the same specification of goods and services in 2002, 2005 and 2007. The first was held to be in bad faith as Lidl never intended to use it but were just trying to extend their exclusive rights: the next three were just to thwart a non-use challenge, meaning those applications were also in bad faith. (The final one in the series, filed in 2021, was so long after the previous one that it did not fit the evergreening pattern and the bad faith argument could be rebutted).

Passing Off and Copyright

Lidl’s passing off claim also succeeded, on the basis that Tesco were making a misrepresentation that their prices were as low as Lidl’s, and the trial judge also held that Tesco infringed copyright in the Lidl mark-with-text. Tesco’s evidence about the creation of the designs for their signs contained inconsistencies, and the judge also drew an adverse inference from the fact that Tesco did not call a witness from its outside design agency to explain how the design was made.

The Court of Appeal’s View

The Court of Appeal acknowledged that Lidl’s claims lay at the outer boundary of trade mark protection and passing off, but that the trial judge had evaluated the evidence correctly and given it appropriate weight. The Court of Appeal’s job is not to conduct a new trial, but to consider whether the judge has erred in applying the law: this case turned very much on the evidence and the Court of Appeal had no reason to overturn the judge’s findings on trademark infringement and passing off. The price-matching messaging played an important part in the assessment of the evidence: had Tesco not tried to suggest to customers that, like Lidl, they should be thought of as a discount supermarket, the outcome may have been different.

Copyright infringement, on the other hand, was a different matter: while the judge had been entitled to find that the logo had copyright protection, Lidl’s exclusive rights in such a simple design did not extend very far and Tesco had not come close enough to infringe. But there is little comfort for Tesco in that aspect of the case.

The Importance of the Messaging

Trademarks are all about conveying a message. Usually, that message is about the origin of goods or services, but in the modern consumer society trademarks can do other jobs too, and trademark law has to recognize this. The fact that Tesco used a sign similar to the Lidl logo when matching their prices against Lidl’s put a very different twist on this case, ensuring that the evidence supported claims for trademark infringement and passing off that otherwise might not have succeeded.

Image Source: Deposit Photos
Author: chrisdorney
Image ID: 137764264