Out-Law News 3 min. read

Ruling supports ‘bad faith’ trade mark counterclaims

Assertions that a trade mark has been registered in bad faith should be assumed to be true unless the trade mark holder can provide evidence to demonstrate otherwise, the Court of Appeal has said.

The court made the ruling in a dispute between rival supermarkets Lidl and Tesco. Lidl has accused Tesco of infringing two trade marks it owns. Tesco disputes those claims and has counterargued that Lidl registered one of its marks in bad faith.

The Court of Appeal’s judgment reverses an earlier decision by the High Court to strike out Tesco’s ‘bad faith’ arguments. The High Court will now consider those arguments in a full trial hearing in the case.

Under UK trade mark law, trade marks are prone to be invalidated, wholly or partially, if the application for that trade mark is considered to have been made bad faith. This will essentially be the case if the trade mark owner had no intention of using the mark in relation to the goods and services that the mark had been designated to apply to.

The dispute between Lidl and Tesco centres on a Tesco marketing campaign which involves the use of a sign consisting of a yellow circle on a square or rectangular blue background, with the words ‘Clubcard Prices’ included within the circle.

Lidl owns two UK trade marks that it claims Tesco’s sign infringes. One is a wordless mark consisting of a yellow circle with a red border in a blue square. The other trade mark consists of the same features but with the Lidl logo in the middle of the circle.

Tesco disputes that it has infringed either of Lidl’s marks, but the latest proceedings before the Court of Appeal centred on the counterclaim Tesco has raised in relation to Lidl’s wordless mark.

Lidl has accepted that it has never used its wordless mark in the UK in isolation, without the Lidl logo also being present. Tesco has argued that the purpose of Lidl’s registration of the wordless mark in 1995, and subsequent ‘evergreening’ of the mark through subsequent re-registrations, is to use the trade mark as a “legal weapon”.

The High Court previously considered that Tesco’s arguments to this effect were mere assertions, and that it needed to provide more basis for its claims to avoid them being struck out. However, the Court of Appeal has now overturned that finding.

According to the Court of Appeal, the bad faith intentions that Tesco allege is “a permissible inference from the facts pleaded” and supported by Lidl’s own admission that the mark had been registered in order to obtain broader monopoly rights than those provided by its trade mark with the Lidl word included, which was registered earlier by the company in 1987. It said Lidl cannot disprove the inference pleaded “merely by the counter-assertion that [it was] entitled to obtain a wider scope of protection than that conferred by registrations of the mark with text”.

Lord Justice Arnold said: “Whether obtaining that wider scope of protection was legitimate requires a factual investigation, in particular as to the extent of the reputation and goodwill which attached to the mark with text in 1995 and as to whether the average consumer in 1995 would have perceived the wordless mark as designating the origin of Lidl’s goods and/or services.”

The Court of Appeal said that Tesco’s bad faith counterclaim raises the question of whether Lidl’s filing strategy in relation to the wordless mark amounted to an abuse of the trade mark system.

In this regard, the court said that “it is clear”, from a reading of case law, “that for an applicant to seek unjustifiably broad protection may amount to an abuse of the trade mark system which constitutes bad faith”. Whether it does so “is at least to some extent a fact-sensitive question which depends in large part on the applicant’s intentions”, the court said. It said, though, that there is a real prospect that Tesco’s arguments of bad faith intentions on the part of Lidl can overcome the “presumption of good faith” that applies, meaning the burden will be on Lidl to “explain its intentions”.

The Court of Appeal’s ruling comes ahead of a highly anticipated judgment by the UK Supreme Court on the law on ‘bad faith’ trade mark registrations.

The Supreme Court has granted Skykick, a US supplier of email migration and cloud storage services, permission to appeal against a Court of Appeal ruling of last year that found in favour of trade mark holder Sky, the British broadcaster, telecoms, and broadband provider. The court is expected to clarify when brand owners will be considered to be acting in bad faith by seeking trade mark protection for a broad range of goods and services.

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