Supermarket clash underscores need for clarity from UK Supreme Court on trade mark bad faith

The High Court handed down a controversial judgment in April finding that Tesco’s use of its "Clubcard Prices" branding amounts to trade mark infringement and passing off of Lidl’s logo. Further, Mrs Justice Joanna Smith also held that Tesco copied Lidl's logo during its creation, meaning that Tesco had infringed Lidl's copyright in the logo. Tesco was, however, able to successfully invalidate some of Lidl's marks on the basis that Lidl had filed them in bad faith.

Key points for brand owners

This decision highlights a number of key points for brand owners broadly and particularly those operating in the retail and consumer sector:

• Bad faith is a developing area of law and this case emphasises that these claims can still be successful despite the Court of Appeal in Sky v Skykick setting a high hurdle to successfully make out bad faith. This underscores the need for brand owners to ensure that their filing practices accord with the functions of trade mark law and that they can be appropriately justified.

• Evergreening can play a central role in establishing bad faith, especially admissions as to the intention behind filing practices. Along with ensuring that filing strategies can be appropriately justified, care should be taken when discussing practices internally in non-privileged communications.

• Internal communications, survey evidence and consumer social media posts can be critical to successfully claiming trade mark infringement.

The dispute

Lidl relied on trade mark rights in two versions of its logo. Firstly, the logo with the word "Lidl" (the "mark with text"), which is comprised of a blue square background (bordered in red) with a yellow circle with the word "Lidl" inside. Secondly, the logo without text (the "wordless mark"), which is comprised of a blue square background (bordered in red) with a yellow circle.

Lidl alleged that Tesco's use of its Clubcard Prices branding, which is composed of a blue square background and a yellow circle, infringed its trade marks and copyright in the logo, and amounted to passing off.

In an interim decision in the High Court, Mrs Justice Joanna Smith struck out Tesco's bad-faith claims against the wordless mark. However, this decision was overturned by the Court of Appeal and therefore Tesco was able to make its bad faith claims at this trial.

Trade mark infringement

Lidl’s case for trade mark infringement was based on its reputation, arguing that Tesco's use of its Clubcard Prices branding diluted Lidl's brand, which provided Tesco with an unfair advantage by allowing it to free ride on Lidl's reputation as a low-cost supermarket.

Lidl was successful in its infringement claim because it was able to use consumer evidence to establish a "link" between its own brand and Tesco. This evidence consisted of social media posts from consumers and extracts from both supermarkets' customer communications databases, which the judge said represented the "tip of the iceberg". The creation of this "link" was also strengthened by survey evidence commissioned by Tesco prior to the dispute relating to the impact of Tesco's Clubcard promotion.

The judge also ruled that there was evidence of price match and origin confusion, which were also key for establishing passing off. Both types of confusion were bolstered by email correspondence from Tesco's senior employees, indicating that they recognised a potential association with Lidl's brand.

The judge concluded that Tesco's use of the Clubcard Prices branding did not constitute intentional free riding, rather it caused a "subtle but insidious" transfer of image from Lidl's mark with text, which increased the attraction of Tesco's prices.

Bad faith

Tesco counterclaimed that the wordless mark was filed in bad faith. It argued that it was a "legal weapon" that was registered without any intention to use it and that Lidl's later trade mark filings of the wordless mark were mere "evergreened" versions of the same mark filed in 1995, which Tesco argued was indicative of bad faith.

Mrs Justice Joanna Smith held that she was bound by the Court of Appeal's finding that Tesco's pleadings set out "sufficient objective indicia" of bad faith such that the evidential burden shifted onto Lidl to explain its intentions in filing the initial and subsequent marks.

Although the judge had found that the wordless mark had in fact been used by virtue of the use of the mark with text, she held that the 1995 filing was "a weapon to secure a wider legal monopoly than it was entitled to, with no genuine intention to use it". This was found to be sufficient to amount to bad faith and render the 1995 wordless mark invalid because the crucial question is whether there was an intention to use the mark when the application was made.

As for the wordless marks filed between 2002-2007, the judge held that they were made in part to evergreen and in part to further the objective of registering the wordless mark as a legal weapon. This amounted to bad faith and these marks were also found to be invalid.

Lidl had also made a filing in 2021 but this was not held to be an evergreened mark because of the lengthy gap between registrations and, in any event, the judge accepted that Lidl genuinely believed the mark was being used by this point.

Osborne Clarke comment

This decision confirms that bad faith is a developing area of law. The finding of bad faith, despite the Court of Appeal's judgment in Sky v Skykick, means that bad faith arguments are likely to continue to be deployed in trade mark disputes and oppositions.

For that reason, this decision also serves as a reminder to brand owners to think carefully about which trade marks are asserted against third parties in infringement disputes. Where infringement claims are made, the filing strategy of the asserted marks should be defensible and capable of being supported by evidence.

The release of this decision prior to the Supreme Court's review of bad faith in the Skykick case, and crucially the finding of bad faith, despite the high threshold for bad faith adopted by the Court of Appeal in Skykick, emphasises the need for clarity on the issue.

Although Skykick addresses a slightly different form of expansive trade mark filing strategy – registering for goods that are of no commercial interest and/or having wide specifications, it cannot be ignored that Lord Justice Arnold's lower threshold for bad faith at first instance in Skykick was overturned on appeal.

In this case, Mrs Justice Joanna Smith held that she was bound by Lord Justice Arnold's findings on the strike out application meaning that the good faith assumption was presumptively overcome, shifting the evidentiary burden on to Lidl to prove its filing strategy. The lack of evidence and, indeed, admissions made on behalf of the trade mark owner about extending the scope of protection via the wordless mark were seized on by the judge and used to bolster Tesco's bad faith claims.

The Court of Appeal's approach to the strike out application in this case signalled a softening of approach to bad faith at the interim stage and this appears to have been carried through to the final assessment. Clarity on when the good faith presumption is presumptively overcome and what behaviour amounts to bad faith is needed. Whether the Supreme Court will provide this remains to be seen. The Supreme Court will tackle the issue at the Skykick hearing later this month.