An ‘own goal’ or the right decision? Experts react to Lidl’s victory over Tesco

Lidl won its legal battle against rival Tesco yesterday (19 April), with the High Court ruling the supermarket giant copied the discounter’s logo to “deceive” customers. Tesco has now been ordered to change how it markets its Clubcard Prices loyalty proposition.

The dispute began back in 2020, when Lidl sued Tesco for adopting yellow circle symbols to promote its Clubcard Prices discount scheme that offers lower prices to loyalty members. Lidl claimed the move was an attempt to make shoppers think Tesco was matching the discounter’s prices.

Judge Joanna Smith ruled Tesco had “taken unfair advantage of the distinctive reputation” Lidl had for its lower prices, in a “passing off” offence.

Lidl comes out on top as Tesco ordered to drop Clubcard logoWas this verdict expected? “It’s a surprising outcome, let’s put it that way,” Aaron Wood, trademark attorney at law firm Brandsmiths, tells Marketing Week. However, he notes it’s more complicated than that.

Lidl was relying on two trademarks in the battle, one with the yellow circle and red outline on a blue background, and one with the Lidl name on the logo. “The fact they won on both marks is surprising,” says Wood. “Because usually it’s the word elements that matter more.”

However, given both Lidl and fellow discounter Aldi have a reputation for creating lookalike brands – although Wood notes it’s often Aldi that gets into to more hot water for it – the result of this lawsuit could set an unwanted precedent for both as they have been “getting away with it” for years.

“Lidl has scored a spectacular own goal in the battle against lookalikes,” says Geoff Steward, head of litigation at asset management company Stobbs. “They have established beyond doubt that the brand name is far less important than colour and appearance, something which consumer behavioural science has been been saying for years.”

Lidl has scored a spectacular own goal in the battle against lookalikes.

Geoff Steward, Stobbs

“This is now one of the best legal authorities to use in order to eradicate lookalike packaging,” Steward adds.

Wood reckons most intellectual property lawyers would have looked at the Lidl trademark and considered it dissimilar to the Clubcard logo, “because the words are really different, and the background is of lesser importance”.

But in the context of the evidence put forward by Lidl, it’s unsurprising that the judge ruled in favour of the discounter, particularly when it comes to the consumer evidence, Wood says. “When you see the evidence that Lidl put forward from the public, it’s not massively surprising that they concluded they would be either confused or that Tesco is trying to take advantage of Lidl,” he explains.

Lidl shared evidence of consumers believing incorrectly Tesco was price matching Lidl, in addition to its Aldi Price Match.

“It’s important to note that this case wasn’t about whether customers were confused between Lidl and Tesco,” Ewan Grist, partner for Intellectual Property Group at Bird & Bird, who represented Lidl in the case, tells Marketing Week.

Tesco claims its ‘relentless focus’ on value is paying off despite profits halving“Instead it was about whether Tesco’s use of the Clubcard logo took unfair advantage of Lidl’s reputation for great value by making some customers think that Tesco was price matching against Lidl, when Tesco wasn’t actually doing any price matching,” he says.

Lidl’s evidence included a survey demonstrating that “most” shoppers recognised the Lidl logo without the word ‘Lidl’ written across it. The discounter also compiled proof from consumers that they were confused by the similarities, and Lidl had two shoppers give evidence of that at the trial.

Tesco didn’t do itself many favours either with internal documents that showed the supermarket was “fully aware of the similarity between the logos and the fact that some customers were making the link to Lidl, but went ahead with the Clubcard launch anyway”, says Grist.

In her comments on the case, Judge Smith referenced the role of Tesco’s design agency, Wolff Olins, in creating the logo. She accepted Lidl’s case that Tesco’s evidence “appears to have been designed to obscure the involvement” of the agency, to “distract” from its “obvious focus on producing a design that would signal value”.

“However, looking closely at the evidence, Tesco provided instructions to Wolff Olins which plainly invited them to focus on achieving a perception of value and, among other things, to look at how Lidl (among other ‘discounter’ competitors) went about doing this,” Smith said.

You would’ve expected to see much more evidence to see the innocence of it, at least at the outset.

Aaron Wood, Brandsmiths

“Wolff Olins produced a design which Tesco’s employees immediately appreciated was likely to cause confusion with Lidl, but Tesco went ahead with the Clubcard Prices promotion in any event,” she added.

“You would’ve expected to see much more evidence to see the innocence of it, at least at the outset,” says Wood on how Tesco defended itself. “The question then goes: Once Tesco became aware of people being potentially confused, should they have dropped it at that point?”

He also thinks this is something that should have been picked up in the brand development process, “before it ever got launched”.

Not everyone agrees with the ruling, though, including Neil Saunders, managing director and retail analyst at GlobalData Retail. “I think it’s basically a yellow circle on a blue background, and I’m not quite sure that is a particularly well differentiated trademark – if Tesco had used the same shades as Lidl and put the red border around the circle then perhaps there could have been some issue there,” he tells Marketing Week.

He also doesn’t believe the logo is “confusing customers”: “I think the court has taken a very technical, legalistic position rather than a very practical position,” adds Saunders, who doubts customers are looking at the Tesco logo and relating it back to Lidl.

“However, the ruling is what it is and Tesco will have to deal with it,” he adds.

Fighting for market share

Supermarkets are facing an increasingly tough time as they battle for customers amid the cost of living crisis, with all looking to show how they are delivering value in order to keep hold of shoppers.

Last week, Tesco boss Ken Murphy said he believes the supermarket’s “relentless focus on providing value” is helping it stave off competition from the discounters.

And while Tesco’s focus on price helped drive sales up 7% to £66bn for its 2022/23 financial year, its pre-tax profit halved to £1bn, with the supermarket putting the drop down to price rises from suppliers.

‘Many moving parts’: As Aldi and Lidl continue to soar, what next for UK supermarkets?But what will that look like now the recognisable branding for the supermarket’s loyalty proposition will need to change?

“I think the ruling is somewhat ambiguous in terms of the remedies,” says Saunders. “It could end up back to the court to make an ultimate decision for what needs to be done. I think the judgement was quite clear in saying Tesco had breached the trademark, but wasn’t very clear on what the solution and next steps were.”

The judge on the case will now order an injunction against Tesco to stop using the logo.

“[Tesco] could just change the colour scheme or something like that, it’s not clear what actions both parties, especially Tesco, will take,” adds Saunders.

However, Tesco plans to appeal the ruling. “It really hurts them,” says Wood. “There’s definitely serious potential financial consequences to this one.”

It could end up back to the court to make an ultimate decision for what needs to be done. I think the judgement was quite clear in saying Tesco had breached the trademark, but wasn’t very clear on what the solution and next steps were.

Neil Saunders, GlobalData Retail

The supermarket has said it is “surprised and disappointed” by the result, but emphasised it has “no impact” on the Clubcard Prices scheme which it will “continue to run in exactly the same way”.

This is particularly important given the role Clubcard Prices has been playing for Tesco. “It’s such a huge part of their business,” adds Wood. In terms of pay back, Wood speculates it could be in the billions of pounds if Lidl is to sue for sales damages. “Arguably, they may also say that because people who go in to use the Clubcard programme go on to buy not just Clubcard things, that you’d also need to have a percentage of that as well.”

“Frankly, whatever they spend on lawyers to appeal it, it’s going to be absolute peanuts compared to the financial liability in the case – and we may never find out what that number is because it may just be dealt with behind closed doors in a settlement,” he adds.

Standing out

In the face of a difficult market, standing out from the crowd is high on supermarkets’ agendas. Retailers have been price matching against each other for years, but this signifies competition on a different level, according to Saunders, who says “it shows the intense degree of competition between the grocers” not only in terms of “price and market share”.

It’s a case of “protecting their territory” and “unique positions” he says, which is seeing companies “increasingly getting involved in skirmishes around what they see as their unique positions”.

“I think we’ll probably see more of these actions going forward,” Saunders adds.

In-house legal teams might now be “rubbing their hands together”, suggests Wood. “This is something where in the past, supermarkets have done lookalike products and just changed the name, the brand owner has complained and the supermarket has said the brand name is completely different.

“This decision completely goes against that,” says Wood, who notes that it used to be the brand name that was the defining factor, but this case shows the tide might be turning. In the past, rip-offs would’ve felt “a bit safer on the basis that it’s the words that are different”. “It’s always been ‘the words speak louder’ – this case says completely the opposite,” says Wood.

Unless Tesco is successful in its appeal, this ruling will “definitely” worry some people as to whether there will be more litigating in this space.

“Competition between supermarkets to attract and retain customers, particularly by way of price comparisons and price matching, is always intense and rightly so,” says Grist, who says he is “delighted” to have helped secure Lidl’s victory.

“However, in this case, the court found that Tesco had crossed a clear line by adopting a logo for its Clubcard scheme which was deceiving a substantial number of shoppers into thinking that Tesco was price matching against Lidl, when no such price matching was actually happening. The unfair advantage which Tesco derived from this will now be brought to an end,” he adds.