Lidl v Tesco: a turning point for evergreening?

Evergreening—the periodic re-filing of new trademark applications for the same goods and services—is frequently adopted by brand owners, but an interim judicial decision has potentially cast a withering look at its use as a defensive strategy.

Last week, the  Court of Appeal of England Wales, in an interim ruling, said that Tesco could use an argument of ‘bad faith’ in its dispute against Lidl, a decision that lawyers predict could have long-term ramifications for many brand owners.

Back in June, the German discounter sued Tesco alleging that a sign used for the latter’s clubcard scheme—a yellow circle on a blue square with the words ‘Clubcard Prices’—infringed Lidl's IP rights.

Tesco countered by accusing its rival of bad faith trademark filing, given that it has never used the wordless mark in the form in which it was registered—27 years since Lidl had first applied for it.

Critically, it also argued that Lidl was “evergreening” the mark as a defensive strategy by reapplying for the mark periodically to evade the rule concerning ‘non-use’ provisions, which means that marks that haven’t been used for five years can be revoked.

According to Tesco, this meant that the mark was on the register purely to extend Lidl's monopoly over the mark, and had therefore been filed in bad faith.

The High Court of England and Wales dismissed these bad faith arguments, finding that Tesco needed more to substantiate its arguments of bad faith.

But the Court of Appeal upheld them last week, finding that Tesco “had a real prospect of success”.

This is notable because evergreening is relatively common practice for IP owners to use to extend the safeguards provided by registered trademarks, so the outcome of this case may have significant consequences on how filing strategies evolve.

A serious decision for TM owners

Richard Kempner, partner at Haseltine Lake Kempner, who represented Tesco, hailed the decision as an “important one” for trademark owners.

“The implications of this decision for trademark owners are serious. To the extent that they and their advisers may have thought that it was legitimate to file and re-file marks that they are not actually using to extend or protect their rights, and/or avoid the non-use provisions.

“It is now clear, if ever, there was any doubt, that such a practice is not necessarily legitimate, and may well constitute bad faith trademark filing.”

This means that Tesco is equipped with two strong arguments based on ‘bad faith’ to argue at trial at its disposal, namely that Lidl filed its mark solely for use as a legal weapon to assert against others, and never with the intention of ever using it in trade.

Second, it can also point to the discounter’s periodic re-filing of applications to register its wordless mark as a trademark as part of its evergreening strategy as being in bad faith.

A sharp spotlight

According to Carl Steele, partner at Ashfords, this development could be a turning point for brand owners who favour evergreening.

“It may be only from an interim hearing but it is guidance from the appeals court. Depending on who is the judge that hears the case at trial, my hunch is that Tesco may well succeed with both of these lines of argument. But all will become clearer after Lidl has given disclosure on these issues and its witnesses have been cross-examined by Tesco’s counsel at trial.”

The decision comes at a time when the spotlight is on what constitutes or defines a bad faith filing, and if evergreening should fall into this category.

In December 2021, the Court of Justice for the European Union (CJEU) confirmed in a keenly watched case that Hasbro’s evergreening of the mark ‘Monopoly’ represented a bad faith filing.

Croatian board game company Kreativni had applied to cancel one of Hasbro's filings, a 2010 registration of ‘Monopoly’, arguing that the mark was invalid due to Hasbro acting in bad faith when it filed the application.

The General Court upheld a decision by the EU Intellectual Property Office’s Second Board of Appeal, prompting Hasbro to appeal unsuccessfully to the CJEU.

Juilus Stobbs, founding partner of Stobbs IP, believes that the Hasbro decision may provide further scope for the UK registry and/or UK courts to deal with evergreening issues, and provide more clarity on what is allowed.

“Everyone was interested in that case because it is specifically about evergreening, refiling the same mark to try and keep it away from non-use provisions. That was the case to watch,” he observes.

“In essence, the Court of Appeal accepted that the findings in Hasbro are certainly arguable that under English trademark law, that ‘evergreening’ is bad faith, because it amounts to an abuse of the trademark system,” adds Steele.

According to Steele, however, an ‘elephant in the room’ is the UK Supreme Court’s impending hearing of the long-running Sky v Skykick case.

In 2020, Justice Richard Arnold scaled back Sky’s trademark registrations for goods and services such as ‘computer software’ at the High Court, finding they were too broad and had been registered in bad faith.

Sky claimed that SkyKick was infringing five of its UK and EU trademarks for 'Sky' by providing its services under the sign ‘Skykick’. SkyKick denied infringement and counterclaimed for a declaration that Sky's marks were invalidly registered due to bad faith.

Arnold ordered that Sky’s trademarks be refined to cover more specific forms of computer software, a decision viewed as heralding a “significant rethink for trademark owners”.

But in September 2021, the Court of Appeal reversed this finding of bad faith, leading to the UK Supreme Court agreeing to hear the case next year.

“It's a slightly different set of factual circumstances, but it could deal with a broad issue of what is and what isn't bad faith, and what is the legal test,” Steele suggests, adding that the outcome could further exert influence on the outcome in Lidl v Tesco.

Keep the faith

In Kempner’s view, however, the Court of Appeal’s decision in Lidl v Tesco  is a landmark one, and is unlikely to be impeded by any unexpected turns in Sky v Skykick.

“The Supreme Court is going to look at what constitutes bad faith. What it is really interested in is the idea that a defensive mark, a mark that goes beyond denoting the origin of goods, is an abuse of the trademark system.

“So Sky allegedly files for every good and services possible to ensure they are getting more protection than they actually use the marks for,” he reflects.

Lidl, he argues, has gone one step further.

“Lidl has done the same, not by extending it onto goods and goods and services that they don't necessarily use, but by extrapolating their logo to a blank mark—just a blue square, a yellow circle with a red ring around it—that they’ve never used as registered in the UK. We say that is a defensive mark done to extend their monopoly.”

Fundamentally, he believes that the appeals court has tackled questions concerning what is the minimum that needs to be pleaded in order to avoid the case being struck out, and what is the minimum required to be able to put the onus on the trademark proprietor to justify its position.

“I don't think Sky v Skykick is going to touch on these points. I think the answer is going to continue to be defined by what the Court of Appeals has said, and that isn’t going to change,” Kempner observes.

A ‘crystal clear’ message

Mark Caddle, partner and trademark attorney at Withers & Rogers, agrees, predicting a conundrum for many trademark owners.

“Some existing trademark registrations could be vulnerable to cancellation on the grounds of bad faith. In overturning the High Court’s decision not to allow Tesco’s bad faith allegations against Lidl’s wordless logo mark, the Court of Appeal has cleared the way for issues surrounding bad faith, particularly the practice of ‘evergreening’, to be heard at trial.”

Stobbs, however, takes a more cautionary view, emphasising that this case is in its early stages.

“Issues and the developments relating to bad faith are really fascinating. But it is critical not to jump the gun. In essence, the court has said that bad faith is an arguable point. At the moment it's difficult to read too much into this decision.”

But he notes that while such predictions concerning the long-term implications of the decision remain “quite speculative”, if realised, they could herald a marked change in the trademarks field.

“If a blanket ruling emerged stating that you can't file part of your mark defensively as part of your IP strategy, then that would certainly be significant,” he adds.