The dispute in Lidl v Tesco
Lidl sued Tesco for trade mark infringement, relying on its trade mark registrations for the standard LIDL logo, as well as a registration for the same design without any text (the "wordless mark").
In Tesco's defence and counterclaim, it argued that Lidl's registrations for the wordless mark should be declared invalid on grounds of bad faith. Tesco alleged that Lidl had registered the wordless logo as a legal weapon, without any intention to use the mark in trade. Tesco also accused Lidl of "evergreening" by re-registering marks periodically to avoid having to prove genuine use (given that marks are invulnerable from use challenges up until 5 years after registration).
Lidl made an interim application to the High Court:
(1) to strike out the part of Tesco's counterclaim alleging that some of Lidl's registrations should be invalidated for bad faith; and
(2) for permission to rely at trial on survey evidence in relation to the distinctiveness of their trade marks.
The High Court sided with Lidl on both counts. Regarding bad faith, the court held that Tesco had not produced enough evidence or "indicia" of bad faith to shift the evidential burden and overcome the presumption that Lidl had acted in good faith. In particular, the court considered that a mere lack of intention to use the trade mark did not, on its own, indicate bad faith.
As for the survey evidence, the court considered that on a cost-benefit analysis, the survey evidence would add value in answering the question of whether Lidl's marks had acquired distinctiveness. Moreover, the costs of the survey were proportionate and reasonable in the wider context of the litigation and the parties' financial positions. (For a deeper analysis of the High Court decision, read our previous blog post.)
Grounds of appeal
Tesco appealed the judge's decision to strike out the part of its counterclaim regarding bad faith, based on the following grounds:
- First, the judge failed to apply the correct test for strike-out under CPR rule 3.4(2)(a) and failed to take into account the fact that bad faith is a developing area of law.
- Second, the judge failed to properly consider the pleaded facts and inferences of Tesco's bad faith counterclaim as a whole and in the context of Lidl's infringement case, taking into account that no disclosure had yet been given by Lidl as to their intentions when registering the wordless mark.
Court of Appeal Decision
The Court of Appeal allowed Tesco's appeal and reinstated the bad faith portions of Tesco's counterclaim.
Tesco's first argument was dismissed, as the judge had stated and applied the correct test for determining whether to strike out a statement of case (namely, it must "disclose no reasonable grounds for bringing the claim").
However, the court agreed with the second ground of appeal. Tesco had relied upon several indicia, including lack of use – from which it was argued that a lack of intention to use could be inferred – and evidence of Lidl's re-registrations as an example of "evergreening", which had amounted to bad faith in Case T-663/19 Hasbro v EUIPO (the "MONOPOLY" case). The court held that as a matter of law, an intention to obtain unjustifiably broad protection, coupled with a lack of intention to use the mark in trade, may amount to an abuse of the trade mark registration system which constitutes bad faith. Although each of the indicia pleaded by Tesco might not be sufficient on its own, taken together, the court was satisfied that Tesco's pleading did give rise to a real prospect of overcoming the presumption of good faith and shifting the burden onto Lidl to explain its intentions.
Skykick appeal to Supreme Court
In addition to the Lidl v Tesco trial, the highly anticipated Sky v Skykick appeal to the Supreme Court is expected to be heard in June of this year, which should bring some clarity to this area of the law. As we reported last year, the Court of Appeal in Sky v Skykick reversed a High Court decision which had held that Sky’s trade marks were invalid on the grounds of bad faith. Skykick has appealed to the Supreme Court.
In its appeal, SkyKick places great stead upon the function of the trade mark register to convey accurate messages about what trade marks are available and which might block plans to use. It alleges that filing broadly leads to a cluttering of the register and makes clearance of new brands difficult. SkyKick also alleges that it leaves it open to the trade mark owner to use those registrations to enforce widely against competitors. SkyKick suggests that the Supreme Court needs to decide the case, as the Court of Appeal’s pragmatic judgment flies in the face of EU caselaw, but now the CJEU is unable to correct this post-Brexit.
However, the Court of Appeal was very clear in its straightforward application of existing UK caselaw (and retained EU law) based upon policy considerations of “business as usual” for brand owners. The Court of Appeal concluded that to find bad faith there must be both no intention to use the trade mark by the proprietor and also a dishonest intention or other sinister motive, involving conduct which departs from accepted standards of ethical behaviour or honest commercial, such as deliberately seeking to block a third party from entering the market.
In terms of filing with a bona fide intention to use, the Court of Appeal believed it would be onerous upon brand owners to have to formulate a commercial strategy for using the mark in relation to every species of goods or services falling within a general description over the next 5 years, in order to avoid invalidity on the basis of bad faith. Many supported the Court of Appeal’s guidance that the proper way to review trade marks is through the lens of non-use, after the first 5 years. A proprietor is entitled to file a trade mark with a bona fide intention to use, where it has a legitimate belief that the trade mark will be used across at least some of each category of goods and services claimed. That filing should not be challenged unless the goods or services fail to be used in whole or part within the first 5 years, unless there is clearly at the date of filing no intention to use a trade mark in relation to a whole category of goods or services, coupled with some form of dishonest practice. Otherwise, the trade mark proprietor is entitled to see how the business develops around the trade mark filed, without fear of the risk of early challenge on grounds of filing in bad faith.
Arguably, the outcome of the appeal by Tesco in Lidl v Tesco lowers the hurdle for bad faith invalidity claims that was set by the High Court decision. However, the decision is only an interim one. By the time the case gets to trial, the Supreme Court may have ruled in the Sky v Skykick dispute. We expect that the Supreme Court may see Sky v Skykick as an opportunity to set the rules definitively under UK law post-Brexit, in this developing area of law, without recourse to principles from the previous line of caselaw of the CJEU under Lindt. This may in part be a reaction to the Warner v TuneIn decision (a copyright case you can read more about here around the diminishing influence and value of principles derived from past EU caselaw to future UK caselaw. Industry will be keeping a watchful eye out for such guidance from the Supreme Court, not least Lidl and Tesco, for whom the decision could influence the outcome of their dispute.
We will be closely following both Lidl v Tesco and Sky v Skykick, so watch this space for further developments.
Authored by Joel Smith, Penny Thornton, and Sheyna Cruz
Part of this article was first published in WTR Daily, part of World Trademark Review, in (January/2023). For further information, please go to www.worldtrademarkreview.com.