[Guest post] Lidl on price, big on copyright

The IPKat is pleased to host the following guest post by Katfriend Alessandro Cerri (Warner Bros Discovery) regarding the most recent instalment in the Lidl v Tesco IP dispute. Here’s what Alessandro writes:

Lidl on price, big on copyright

by Alessandro Cerri

In a judgment issued a few days ago, the High Court of England and Wales (the Court) granted a final injunction in respect of Tesco’s infringement of Lidl’s copyright in its blue-and-yellow logo.

Background

The IPKat previously reported on the Court’s decision that Tesco had infringed Lidl’s copyright, trade mark, and rights in passing off vesting in Lidl’s blue-and-yellow logo.

Although the parties managed to agree some elements of the Court’s Order in advance of the consequentials hearing in May (including in respect of the trade mark infringement and passing off claims), they remained in dispute over: (a) whether a final injunction against copyright infringement was justified; and (b) what the time period for compliance with such an injunction should be.

The Court’s judgment

Injunction against copyright infringement

The parties’ arguments (and the Court’s reasoning) in respect of the injunction argument centred mainly around the four limbs set out in Shelfer v City of London Electric Lighting, which act as a “good working rule” for when damages may be appropriate instead of an injunction, namely:

1. If the injury to the claimant’s legal rights is small; and
2. Is one which is capable of being estimated in money; and
3. Is one which can be adequately compensated by a small money payment; and
4. The case is one in which it would be oppressive to the defendant to grant an injunction.

If all four factors are satisfied, this indicates that damages may be appropriate – though the Court still retains discretion to grant an injunction if additional relevant circumstances point the other way (including, for example, the conduct of a defendant who acted recklessly in relation to a claimant’s rights).

The Court began from the prima facie position that, where an infringement is found to have taken place, an injunction should be granted, and the burden is on the defendant to show why it should not.

The bulk of the Court’s judgment focused on the first limb of the Shelfer test, addressing Tesco’s argument that the main case was predominantly a trade mark dispute, and that the copyright claim therefore had very limited worth, given that an image artistically similar to Lidl’s logo was available to be licensed at a very low cost in the market (in the region of £25,000). Tesco alleged that, on the other hand, the cost to it of eradicating the infringing signs would exceed £7m, and therefore an injunction would be oppressive to it.

The Court disagreed with Tesco, rejecting the suggestion that it should strip out the notion of reputation attached to Lidl’s logo as if Tesco were seeking to purchase a licence to use an artistic work of little or no intrinsic value. The Court referred to the principles set out in General Tire v Firestone Tyre regarding the assessment of “negotiating damages”, namely damages reflecting the sum that would have been agreed between a willing licensor and a willing licensee.

In applying General Tire, the Court found that the hypothetical negotiations need to be set in the market as it exists, taking into account the commercial realities of the specific situation. To treat Lidl’s logo as a work of little artistic worth would ignore the commercial context and purpose for which it was sought by Tesco – namely, as the Court found in the main judgment, to seek to obtain an unfair advantage from the value messaging that the logo conveyed to consumers. Even though Lidl must be considered willing to grant a licence in this hypothetical scenario, the Court found it difficult to see that the price of such a licence – particularly to a competitor supermarket – would not take Tesco’s purpose into account.

The IPKat caught while having a rest
investigating in Tesco

Tesco’s purpose – i.e. to use the relevant signs throughout its stores and its marketing – was inextricably linked to the act of copying and, as a matter of causation, relevant in assessing the value of the copyright infringement. The injury to Lidl’s legal rights was not therefore small, its extent was extremely difficult to assess (as to permit the infringement to continue would perpetuate a situation in which consumers might continue to be misled), and could not be adequately compensated with a small money payment.

As for the question of oppression, the Court found that, where the first three Selfer questions are answered in the negative, it will be unusual for the Court to refuse to grant an injunction on the grounds of oppression. It also referred to Article 3(2) of the Enforcement Directive, which (as held in Nokia) requires that remedies for infringement be effective and dissuasive – and the grant of damages will inevitably be less effective and dissuasive than an injunction. The Court was not in a position to assess whether the cost of c. £7m would be disproportionate, and found it difficult to see that the injunction would be oppressive in circumstances where Tesco repeatedly refused to cease using the infringing signs.

The grant of a final injunction was therefore found to be appropriate.

Time period

Although the Court sided with Lidl on the question of whether an injunction was appropriate, it was prepared to take Tesco’s evidence at face value and allow the 9 weeks which Tesco had said it would need in order to rebrand its usages of the relevant signs, bearing in mind the principle that any order made by the Court must be one with which a defendant “can and reasonably ought to comply”.

Comment

This judgment is a useful reminder that, in assessing “negotiation damages” (also referred to as the “user principle”), the Court will have regard to the actual parties in the actual market context, rather than some objective figure to be agreed between hypothetical persons.

It follows that, where both copyright and trade mark / passing off rights are infringed in a logo, the damages for copyright infringement cannot be assessed in a vacuum based solely on the artistic value of the work, and a final injunction will prima facie be considered appropriate, unless the defendant can displace the heavy burden of proving otherwise.