Battle of the supermarket logos: what could Tesco have done differently?

The UK’s biggest supermarket’s recent loss in its dispute with Lidl is ultimately a costly failed branding campaign. Richard May and Robyn Trigg of Osborne Clarke examine why, and explain how brands can avoid the same fate.

The UK Court of Appeal recently gave a controversial judgment in the “battle of the logos” between supermarkets Lidl and Tesco.

It upheld the surprising first instance High Court finding, from April 2023, that Tesco’s use of its ‘Clubcard Prices’ branding amounted to trademark infringement and passing off.

The Court of Appeal also upheld the finding that some of Lidl's trademarks were invalid as they had been filed in bad faith. However, the High Court's finding of copyright infringement was overturned, although this did not impact the overall outcome for Tesco.

With Lidl the overall winner (assuming Tesco does not appeal), Tesco now faces a costly and time-sensitive de-branding and rebranding exercise. We will explore what Tesco could have done differently and how other brand owners can avoid a similar fate.

Why was the judgment significant?

There are several interesting aspects to this case, in particular the way in which Lidl framed its trademark infringement and passing off arguments and the Court of Appeal’s reluctance to uphold the High Court’s decision.

Price-matching

Lidl did not pursue trademark infringement on the usual basis of confusion (s 10(2) Trade Marks Act). Instead, it claimed under s 10(3), which provides protection for brands with a reputation. Through its trademark infringement and passing off claims, Lidl was able to argue that its trademark and ‘get up’ conveys a specific message about value, which was found to be protectable.

Tesco’s principal ground of appeal was that the judge was wrong to make her ‘price-match’ finding, where she held that the average consumer seeing Tesco’s Clubcard Prices signs would believe that the prices being advertised were price-matched to Lidl.

Tesco maintained that without this finding, the judge would have had no basis for the findings of infringement and passing off. The price-matching finding had underpinned the judge’s conclusion that Tesco had taken unfair advantage of Lidl’s reputation in the context of the trademark infringement claim and misrepresentation in the passing off claim.

Both the High Court and the Court of Appeal acknowledged that Tesco had not intended to take advantage of the reputation of Lidl’s marks for low price value. Nonetheless, Tesco was still held to be liable for trademark infringement and passing off because of the price-match finding.

It is possible that Lidl’s strategy of arguing that its trademark or get up conveys a particular message could be deployed as a ‘blueprint’ for attacking lookalike brands.

However, the Court of Appeal was clear that Lidl’s claims were “at the outer boundaries of trademark protection and passing off”. This suggests that the same outcome might not be achieved in similar cases, although attempts to replicate Lidl’s success are likely.

The Court of Appeal’s reluctance

The uncertainty of whether Lidl’s strategy will be routinely successful is supported by the Court of Appeal’s overt reluctance to uphold the first instance findings. The appeal judges were constrained by Justice Joanna Smith’s price-matching factual finding, which she’d based on the evidence before her.

The Court of Appeal will only be able to intervene with findings of fact if they are “rationally insupportable”. After considering the evidence, Lord Justices Richard Arnold and Kim Lewison found the price-match finding “surprising” but not rationally insupportable.

Lewison LJ doubted whether he would have reached the same conclusion but the appeal test meant that the court could not substitute its opinion; the court’s hands were effectively tied.

De-branding & rebranding

At the first instance consequentials hearing it was concluded that a de-branding and rebranding exercise would cost Tesco between £7.1 million and £7.8 million and take around nine weeks to complete (excluding labelling for its fashion brand F&F, which would take 20 weeks to complete).

Consequently, once the proceedings have come to an end, Tesco will have nine weeks (with a 20-week carve out for F&F) to carry out the de-brand and rebrand to comply with the injunction. Tesco will also have to pay damages and costs to Lidl, which will be separately assessed at a later date.

All in all, this will end up being a costly failed branding campaign for Tesco.

Learnings for other brands: what could Tesco have done differently?

Zero tolerance to lookalikes

Although both the High Court and the Court of Appeal recognised that Tesco had not intended to take advantage of the reputation of Lidl’s mark, it was still found liable for infringement and passing off—even in a market where misattribution is common.

Part of the evidence before the judge was internal communications from Tesco that acknowledged the similarities between the Clubcard Prices sign and Lidl’s trademark. The judge concluded that these communications demonstrated “an appreciation amongst various of Tesco’s employees that there was a danger of confusion”, although it did not amount to an intention to ride on Lidl’s coattails.

However, Tesco could have heeded these internal warnings and taken the opportunity to change its branding strategy before implementation. Tesco could have—and brands should—implement a zero-tolerance strategy to potential lookalikes.

If similarities with other well-known brands are identified during the design and consumer testing phases, brands should design away from these similarities.

The success of implementing this design strategy can be seen in another recent but unsuccessful lookalike decision, Thatchers Cider Company v Aldi Store. In Thatchers, the judge found that Aldi’s get-up was lawful as it had endeavoured to adopt a sign that was a “safe distance away” from Thatchers, a finding that was supported by evidence adduced by Aldi on its design process.

Settlement

Even though the Court of Appeal described the Tesco v Lidl case as at the “outer boundaries” of trademark law, Tesco could have actively engaged with Lidl’s attempts to settle the case. This is especially so because much of the evidence relied on successfully by Lidl had been available to Tesco prior to the commencement of litigation.

Lidl first approached Tesco in September 2020, requesting it to stop using the Clubcard prices sign. Tesco rejected this and continued to roll out the signs across its business. Early in the litigation, Lidl made a Part 36 offer, giving Tesco the chance to change the signs within two months and avoid paying damages. Lidl also made a later Part 36 offer.

Both were rejected. Justice Smith concluded that Tesco had “ignored reasonable offers from Lidl and continued to roll out its [Clubcard Prices] promotion”, despite being aware of the risks attached to doing so.

Settlement also could have been pursued after the first instance judgment, as Tesco's appeal hinged on overturning findings of fact, which is hard to do and was ultimately what constrained the appeal judges.

It is doubtful that Tesco will pursue an appeal to the Supreme Court, as permission is unlikely to be given with no point of legal principle in issue. This means that Tesco is now in a far worse position than if it had accepted some of Lidl’s early settlement offers.

Failure to engage with the evidence

This case ultimately turned on Lidl’s evidence. At first instance, Tesco did not challenge this evidence nor did it adduce rebuttal evidence. Whether this was because Tesco was hopeful that the judge would deem the evidence inadmissible or irrelevant is unclear but, if that was the case, then it was unsuccessful. This left Tesco with an uphill climb on appeal.

On appeal, Tesco attempted to challenge the judge’s consideration of the evidence, but Lord Justice Arnold stated that it would have been an error in principle for the judge to have ignored it, since Tesco had not challenged its admissibility.

Although Tesco argued that the judge was wrong to conclude that the evidence supported a finding of price-match deception, this could only be overturned if the finding was rationally insupportable.

However, Justice Smith’s judgment was praised for containing “an impressively careful and detailed analysis of the issues, evidence and arguments”, which left the appeal judges unconvinced that they could overturn her factual findings.

Lord Justice Arnold emphasised that trial judges are “immersed in all of the evidence”, while appeal courts are “island hopping”, reinforcing the high standard for overturning factual findings based on evidence.

The takeaway from this is that brands should actively engage with trial evidence, particularly as certain types of evidence can cause “difficulty” in trademark cases. Judges must evaluate evidence “with caution” and must not treat it as determinative of an issue, leaving scope for an opposing party to push back.

Final comment

This decision is controversial and its precedential value for lookalike cases should be treated cautiously. The Court of Appeal was overtly reluctant to uphold the first instance decision and it acknowledged that this type of protection is at the far reaches of the law.

It remains to be seen whether Lidl’s success can be replicated.

This was an unfortunate decision for Tesco but there are ways it could have acted differently—and there are steps that brands can take in the future to avoid a similar situation. We can expect more lookalike challenges following Lidl’s ‘formula’, so brands should be prepared.

Richard May is a partner and head of consumer products at Osborne Clarke, and Robyn Trigg is a senior knowledge lawyer at the firm.