UK High Court finding on trade marks and bad faith 'evergreening' set for appeal

A recent interim decision by the High Court struck out a bad faith counterclaim by UK supermarket group Tesco in a dispute with rival Lidl over alleged infringement of Lidl's logo trade marks, passing off and copyright infringement. The judge held that Tesco's bad faith "evergreening" allegation had no real prospect of success.

The decision serves as a reminder that bad faith allegations, in particular on the basis of "evergreening", are not to be made lightly; they must be properly pleaded with appropriate supporting evidence. Merely drawing inferences of bad faith from conduct that could otherwise be legitimate is not sufficient to overcome the presumption of good faith.

Although the bad faith strike-out application was successful at first instance, the Court of Appeal has recently granted Tesco permission to appeal the bad faith finding. With an appeal on the horizon, it remains to be seen if such a strict understanding of the bad faith concept will endure.

Trade mark rights

Lidl relied on trade mark rights in two versions of its logo: the logo with the word "Lidl" (the "mark with text"), and the logo without the word (the "wordless mark"). It alleged that Tesco's use of a new sign in its "Clubcard Prices" marketing was an infringement of these marks.

Tesco disputed Lidl's claims and counterclaimed that the wordless mark should be declared invalid because Lidl never intended to use it and, as such, the supermarket's true intention was to register the mark as a "legal artifice". Tesco said that this led Lidl to engage in "evergreening" by subsequently registering identical marks to gain new five-year grace periods without the need to show use, which it argued was indicative of bad faith.

Alternatively, Tesco argued that the wordless mark was devoid of distinctive character and had not been used so had not acquired distinctiveness; furthermore, there had been no genuine use of the wordless mark in the UK. Lidl disputed Tesco's non-use contention, relying on Specsavers to maintain that the Wordless Mark had been used in conjunction with the mark with text.

The application was made on the basis that the allegation was redundant because it would fail where Tesco's non-use revocation argument also failed, and it was bad law because the facts did not support the arguable case of commercial dishonesty required to make out the claim.

The law on bad faith

Drawing on the Court of Appeal's decision in Sky v Skykick, Mrs Justice Joanna Smith reminded that bad faith as a ground for invalidity requires the trade mark system be used in a manner inconsistent with "honest practices or acceptable commercial behaviour". A presumption of good faith exists unless the contrary is proved, the burden of which lies with the party alleging bad faith.

In considering the role that intention to use a trade mark plays in the bad faith assessment, Mrs Justice Smith again drew on Sky v Skykick reminding that a lack of intention to use is a factor that may be relevant when there is no other rationale for the application – but it must be accompanied by "objective, consistent and relevant indicia of bad faith".

Mrs Justice Smith held that the central issue for determination was whether Tesco's bad faith pleading raised sufficient objective circumstances to surmount the presumption of good faith. In order to assess the matter, the judge proceeded on the basis that Tesco might be right that there has been no use of the wordless mark, but that that alone does not indicate bad faith; nor, without more, does a lack of intention to use the mark.

She held that Tesco's allegation that the wordless mark was designed as a legal weapon was "no more than assertion" and was "inextricably tied" to the contention that lack of use infers lack of intention to use.

Tesco's attempts to couple that assertion with the subsequent registration of the Mark with Text and the allegation of "evergreening", were not enough to overcome the prima facie assumption of good faith. No use and subsequent re-registrations are not enough in themselves to establish bad faith.

Osborne Clarke comment

As well as the Court of Appeal granting Tesco permission to appeal the bad faith finding, the Supreme Court has also given permission to appeal the Sky v Skykick decision. Bad faith will continue to be a hot topic for the foreseeable future.

Nevertheless, this case reminds that a bad faith allegation is serious. Such claims in court, but also UK Intellectual Property Office proceedings, must be properly pleaded and supported by objective, relevant and consistent indicia showing bad faith.

Interestingly, the judge noted that requiring what is pleaded to be consistent only with bad faith would be "an extremely exacting standard at a preliminary stage". Instead, she stated that the relevant test at the preliminary stage is whether the allegation is or may be sufficient to rebut the presumption of good faith thereby shifting the evidentiary burden. Even on this "lower" standard, Tesco failed to raise a prima facie case of bad faith.

However, with two important appeals on the horizon just what shape the concept of bad faith will take remains to be seen.