Lidl bags a bargain at the Court of Appeal

The Court of Appeal has handed down its keenly awaited judgment in Lidl v Tesco ([2024] EWCA Civ 262). 

In a lengthy judgment given just four weeks after the hearing, it upheld the High Court's findings of trade mark infringement and passing off, and overturned the High Court's finding of copyright infringement.  It also upheld the invalidity of the "Wordless Mark". 

For our analysis of the first instance decision, please see our previous blog here:  High Court rules in Lidl v Tesco: Lidl walks away with a trolley full of victories | Fieldfisher.

The marks and signs in issue

Weighing the evidence

Unfair advantage, detriment and passing off

It is not overly surprising that the Court of Appeal largely upheld the High Court.  It was hard to see how convincing appeal cases could be made from the High Court decision given the majority of findings came from a thorough examination of the facts via the evidence.  Arnold LJ, giving the lead judgment (notably, all three judges delivered a judgment, despite the outcomes being unanimous), confirmed that "in so far as the appeals challenge findings of fact made by the judge, this Court is only entitled to intervene if those findings are rationally unsupportable… in so far as the appeals challenge multi-factorial evaluations by the judge, this Court is only entitled to intervene if the judge erred in law or principle". 

The High Court judge (Joanna Smith J) had found as a fact that a substantial number of consumers would believe from Tesco's signs that Tesco's prices were the same as or lower than Lidl's – that Tesco was 'price-matching'.  Smith J had carefully considered the evidence in coming to this conclusion and on appeal, Tesco argued that she should have either ignored that evidence and reached a conclusion purely from her own common sense and experience, or considered the evidence only once she had reached a preliminary view purely from her own common sense and experience, to check whether the evidence supported or contradicted that view.

This follows Jacob J's guidance on assessing evidence in trade mark infringement and passing off cases in Neutrogena v Golden ([1996] RPC 473): "The judge must consider the evidence adduced and use his own common sense and his own opinion as to the likelihood of deception. It is an overall 'jury' assessment [...] And even if one's own opinion is that deception is unlikely though possible, convincing evidence of deception will carry the day."

Arnold gave Tesco's argument short shrift.  Tesco had not objected to the admission of the evidence at trial and therefore the judge would have made an error of principle in ignoring it.  However, given the judge had not expressed her own view independently of the evidence, it was accepted that her decision could only stand if it was one which was open to her on the evidence.  The Court of Appeal therefore considered the evidence Tesco objected to, "bearing in mind that the question for this Court is not whether we would have reached the same conclusion, but whether there was evidence which entitled the judge to make that finding". 

The judge had been entitled not only to place some weight on the evidence Tesco criticised, but to regard each of the three types of evidence criticised as reinforcing the other two.  The finding that the Tesco signs conveyed a price-matching message was not rationally unsupportable, and as the unfair advantage and passing off claims relied on that finding, the appeals against them failed.

Tesco also challenged the judge's finding of detriment to distinctive character.  It accepted that there was dilution of the distinctiveness of the Lidl marks, but argued that that alone was not enough – there also needed to be a consequential change in the economic behaviour of customers, and that had not been shown on the evidence.

The Court of Appeal held that whether or not the price-matching allegation was made out, the judge had also considered that Tesco's Clubcard Prices campaign had slowed the switch from Tesco to Lidl, and that Lidl had had to undertake corrective advertising.  The judge had been entitled to find that these facts were indicative of a change in economic behaviour, and her subsequent finding of detriment to distinctive character was not rationally unsupportable.

Due cause

Lidl had only claimed infringement under s10(3) Trade Marks Act 1994 which states that "A person infringes a registered trade mark if he uses … a sign … and the use of the sign, being without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark" (emphasis added).    

All three judges considered that it "is difficult to see how use of a sign which takes unfair advantage of the reputation of a trade mark can be with due cause" (Arnold LJ).   Due cause is more than innocently adopting a sign; "there had to be something more which justified its use despite the injury to the trade mark.  As [Smith J] went on to find, in the present case there was nothing more.  Tesco could easily have used a different sign to promote Clubcard Prices" (Arnold LJ).  The judge had not erred in law or in principle and Tesco did not have due cause to use the sign.

Due cause is of course only one of a number of elements to be proven, and there was debate about when due cause should be considered – was it to be considered sequentially, once unfair advantage (or detriment) had been found (which Lewison LJ pointed out made it "extremely difficult to undo that mindset and find that" there was in fact due cause), or at some other point?  Ultimately they declined to draw a conclusion on the issue, with Birss LJ saying "I prefer to leave it for an occasion in which it is decisive". 

Invalidity of the Wordless Mark for bad faith

In the High Court, the judge had invalidated the Wordless Mark on the basis it had been applied for and registered in bad faith.  Lidl appealed against the invalidity on 12 grounds, leading Arnold LJ to say that "[t]he multiplicity of grounds suggests that Lidl are unable to identify any serious flaw in the judge's reasoning".  Unsurprisingly the appeal was dismissed. 

Lidl argued that the judge had erred in law by reversing the burden of proof for bad faith.  There is a general presumption that people have acted in good faith, but where there are circumstances giving rise to a prima facie case of bad faith, the burden of proof is reversed, so that the applicant for registration must explain its intentions at the time of the application.

Here, Lidl had admitted that it had never used the Wordless Mark as registered and that it had applied for that mark to obtain a wider scope of protection than that given by the Mark with Text.  It was therefore proper to infer that Lidl had never intended to use the Wordless Mark and that the application for the Wordless Mark "was made solely for the purposes of using it as a legal weapon and not in accordance with its function of indicating origin" – i.e. that the application had been made in bad faith.  It was then for Lidl to prove the contrary.

However, the earliest application had been made in 1995 and Lidl was unable to adduce evidence as to its intentions at that time; none of the personnel involved remained at the company and there were no contemporaneous documents beyond privileged communications with its trade mark attorneys, in which it declined to waive privilege.  The court cannot draw any inferences one way or the other from a refusal to waive privilege, but it noted that documents had indeed existed and that Lidl could not claim otherwise.

Smith J had found that use of the Mark with Text did amount to use of the Wordless Mark; the Wordless Mark would therefore have been safe from revocation for non-use, but it was not safe from invalidity for bad faith.  There was no evidence to show that anything had changed between 1995 and the Wordless Mark applications made in 2002, 2005 and 2007, and those registrations were therefore also all held to be invalid for bad faith.

Copyright infringement

Tesco appealed against the findings that copyright subsisted in the Mark with Text and that it had infringed by reproducing a substantial part of the work.  It is relevant here to note that Lidl had only asserted copyright in what is known as the "Stage 3 work", described as follows by Arnold LJ at 101: 

"Lidl's unchallenged evidence is that the Mark with Text is the product of a three-stage evolution:

i)  the stylised Lidl text was designed in around 1972/73 ("the Stage 1 Work");

ii)  in around the beginning of the 1980s a circular logo was created in the form of a yellow circle with a red border, with the Lidl stylised text superimposed on it ("the Stage 2 Work");

iii)  in the late 1980s, but prior to 20 November 1987, a square version of the logo was created in the form of a blue square with the yellow circular logo and stylised Lidl text superimposed on it, forming the Mark with Text ("the Stage 3 Work")."

Subsistence of copyright

Tesco disputed that the Stage 3 Work/Mark with Text was original over the Stage 2 Work (originality being required for copyright subsistence) and tried to illustrate this by adding a blue square background, which it argued added nothing, to Caravaggio's Medusa as follows: 

This rather backfired because the court considered that, despite it being a small and simple change in one sense, the addition of the background did in fact change the viewer's perception of the entire work, contrary to Tesco's argument. 

Furthermore, the judge had applied the right test for originality of "author's own intellectual creation" (most recently confirmed by the Court of Appeal in THJ v Sheridan ([2023] EWCA Civ 1354), which was handed down in November 2023, i.e. after the trial but before the Court of Appeal hearing).  There is no requirement for artistic merit, and simplicity of design does not preclude originality.  The judge had been right to find that copyright did subsist in the Stage 3 Work. 

Substantial part

It was on this issue that the Court of Appeal disagreed with the judge, finding that Tesco had not reproduced a substantial part of the copyright work.  Tesco had previously used the shade of blue it chose as part of its corporate livery, and it had previously used yellow circles in its signage.  The distance between its circle and the edges of the blue square were different to those in the Stage 3 Work.  All it had copied, therefore, was the 'idea' of a yellow circle in a blue square.  Arnold LJ pointed out that "[t]his is not an argument which was advanced by Tesco before the judge" but it was nonetheless correct.  The Stage 3 Work did benefit from copyright, but as the degree of creativity was low, the scope of protection was correspondingly narrow.  Tesco had not copied a substantial part of what was original to the Stage 3 Work and had therefore not infringed copyright.

The Court of Appeal's reluctance

The decision gives the strong impression that the Court of Appeal judges would not have decided the claims of trade mark infringement and passing off the same way as the trial judge had, but that their hands were tied.  Arnold LJ said that the judge's finding that a substantial number of consumers would be misled into thinking that Tesco's Clubcard prices were the same as or lower than Lidl's could be seen as "somewhat surprising", but went on to say that it became less surprising when one bore in mind that the judge had found "that the Wordless Mark had become distinctive of Lidl … that the [Tesco signs] would call the Mark with Text to mind and that … Lidl have a reputation for low prices". 

Lewison LJ took this further.  He labelled the finding of fact "surprising" without any caveat, and finished his judgment by saying: 

"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.""

Practice points

This lengthy case gives us some clear learnings:

• be mindful when applying for trade marks that you may need to prove your (good faith) intentions at the time of applying.  Consider making contemporaneous records of conversations had or advice given at the time of the application even where you might not previously have done so;
• keep records; organisations with document retention policies necessitating the destruction of records, whether physical or digital, will need to consider the risk/benefit analysis of adhering to or derogating from the policy for these types of documents.  There will be no mercy just because a document retention policy is in place;
• note that use of a registered mark does not cure what was a lack of intention to use at the time of filing (currently a live issue at the Supreme Court in the SkyKick v Sky case); and
• make your evidence as robust as you possibly can and if you have an issue with the other side's evidence, you must challenge it, ideally with your own robust evidence.

Final points to note

• Two of Lidl's grounds of appeal on trade mark invalidity/bad faith concerned evergreening.  The court found it unnecessary to consider those grounds to decide the issues; they may also have had an eye on the fact that we still await the Supreme Court's judgment in SkyKick v Sky, which is expected to clarify the law in this area.
• This case is slightly unusual because at no point did Lidl argue that customers would be confused between the two retailers; instead the issue was that the message was being given that Tesco was price-matching Lidl, and that was false.  This begs the question of whether this a new type of harm.  Lewison LJ was reluctant to accept that this was harm rather than fair competition, saying there was "no real doubt that the sign does convey the message of discounted prices.  But the obvious comparator for that message is Tesco's non-Clubcard prices.  It is plain that the primary message that Tesco wanted to convey is that by joining Clubcard the consumer would achieve better prices at Tesco than a consumer who had not joined".   However, the judge's finding was not rationally unsupportable and therefore had to stand.
• Arnold LJ made an interesting reference at paragraph 35 to the "average consumer" of trade mark law not featuring in passing off law.  See here for an amusing look at the "VIPs of IP" by the brilliant Anna Carboni:  IP Dramatis Personae | Journal of Intellectual Property Law & Practice.