Tesco faces an expensive rebranding after losing its closely watched Court of Appeal challenge against a High Court ruling that its Clubcard Prices logo infringed budget rival Lidl’s trademark logo.

The legal tussle – characterised by legal commentators as both unusual and finely balanced – was decided in favour of Lidl by the Court of Appeal in a judgment handed down by Lord Justice Richard Arnold (along with Lord Justice Lewison and Lord Justice Birss) today (19 March).

The court upheld the earlier High Court judgment of trademark infringement and passing off but did allow Tesco’s appeal against the finding of copyright infringement.

The dispute related to Tesco’s adoption in 2020 and subsequent use of its Clubcard Prices logo (the CCP signs) for its discount price scheme. Lidl claimed the logo infringed a number of its IP rights in its Lidl logo which is protected as a trademark in two different forms: a logo which includes the word Lidl and a logo without the word.

Tesco’s main ground of appeal against trademark infringement and passing off was to challenge Mrs Justice Joanna Smith’s finding that the average consumer seeing the CCP signs would believe the prices being advertised had been “price-matched” by Tesco with the equivalent Lidl price.

While conceding that this finding was a “somewhat surprising one”, Lord Justice Arnold concluded: “Standing back, I am not persuaded that her finding was rationally insupportable... It follows that Tesco’s appeal against the finding of passing off must be dismissed.”

The appeals court pointed out that Smith had carefully evaluated the evidence, including surveys and witness statements, and was therefore entitled to reach her view that the CCP signs conveyed the price-matching message. It also found that Smith was entitled to conclude on the evidence that Tesco’s use of the CCP signs had been detrimental to the distinctive character of the Lidl logo.

Tesco did not challenge Smith’s finding its use of the CCP signs diluted the distinctiveness of Lidl’s mark with text. Rather, it contended that this was not sufficient to prompt a change in the economic behaviour of consumers.

Smith’s conclusions had been based on findings that Tesco’s Clubcard prices campaign had been successful in slowing the switching from Tesco to Lidl (and Aldi) that was otherwise occurring and that Lidl had felt obliged to engage in corrective advertising promoting its lower prices compared to Clubcard prices.

The Court of Appeal found that the finding of a change in economic behaviour was made good on the evidence and was “rationally supportable”. 

However, the court overturned Smith’s finding of copyright infringement, agreeing with Tesco that although Lidl’s work was sufficiently original to attract copyright, the scope of protection offered by that copyright was narrow. 

Bird & Bird partner Ewan Grist, who led the team representing Lidl, said that Tesco would now need to rebrand away from the CCP signs to comply with the resulting injunction and, given Tesco’s extensive use of the CCP signs over a period of four years, Lidl was likely to be due substantial damages.

“Unlike most trademark cases which normally turn on whether there is a likelihood of confusion between the claimant’s mark and the defendant’s sign, Lidl never suggested that customers were confused between Tesco and Lidl,” he said. “Rather, Lidl’s main case was that, even where customers were not confused between Tesco and Lidl, Tesco’s CCP Sign conveyed a false price matching message to some customers that Tesco’s prices were as good as Lidl’s.”

A Lidl spokesperson said it was “delighted” with the ruling, adding: “We expect Tesco now to respect the court’s decision and change its Clubcard logo to one that is not designed to look like ours.”

A Tesco spokesperson said it was “disappointed with the judgment”, adding: “We would like to reassure customers that it will in no way impact our Clubcard Prices programme.”

The cost of rebranding Tesco’s Clubcard Prices logo has been estimated at £7.8m.

Richard May, an IP partner at Osborne Clarke, said an appeal to the Supreme Court was unlikely given that there was no major point of legal principle at stake. 

He added that a consensus after the first instance decision that Lidl had been fortunate to succeed was borne out by the subtext of the Court of Appeal’s decision. “The Court of Appeal has basically said ‘if we could find a way of avoiding this result, we would’,” he said. 

He pointed out that the Court of Appeal was only considering whether the first instance decision was “rationally insupportable” and had found that it wasn’t, largely because of Lidl’s impressive evidence.

He added: ”The irony is that Lidl has developed a possible blueprint in how to successfully stop lookalike brands. If you can show that your trademark or get up conveys a particularly specific message, for example around value, that has been shown to be protectable. Although, I’m not convinced this litigation strategy can be deployed widely – as one of the other Court of Appeal judges, Lord Justice Lewison, made it clear – this type of claim is at the ‘outer boundaries of trademark protection’.”

Charlotte Duly, head of brand protection at Charles Russell Speechlys, said that while the Court of Appeal found “elements of the initial decision surprising it was not ‘rationally insupportable’, and demonstrates how finely balanced such issues can be”.

She added: “Corporations must navigate brand identities with caution to avoid legal pitfalls, especially within the fiercely competitive retail sector.”

Ben Milloy, senior IP associate at Fladgate, said the “reluctant upholding” of the judgment will prolong the uncertainty around the scope of protection for marks with reputation, and what constitutes unfair advantage or competition. He added that the evidential focus and peculiarities of the case “involving Tesco criticising evidence it had itself commissioned, may not be repeated any time soon, making it harder to draw any clear guiding principles”. 

Lidl was represented by Benet Brandreth KC and Tristan Sherliker, instructed by a Bird & Bird team led by IP partner Ewan Grist, partner Emma Green and associates Bryony Gold and Sam Peterson.

Tesco was represented by Ian Purvis KC, Hugo Cuddigan KC and Daniel Selmi, instructed by Haseltine Lake Kempner.