Discretion in Awarding Final Injunctions- Lidl v Tesco

 

Jane Lambert

Business and Property Courts of England and Wales, Intellectual Property List (Mrs Justice Joanna Smith) Lidl Great Britain Limited and another v Tesco Stores Ltd and another [2023] EWHC 1517 (Ch) (21 June 2023)

In Trade Marks - Lidl v Tesco which I posted to this blog on 1 May 2023 I discussed Mrs Justice Joanna Smith's judgment in ) Lidl Great Britain Limited and another v Tesco Stores Ltd and another [2023] EWHC 873 (Ch) (19 April 2023),  In that case Lidl Great Britain Ltd and Lidl Stiftung & Co KG ("Lidl") sued Tesco Stores Ltd and Tesco Plc ("Tesco") for copyright \and trade mark infringement and passing off. Tesco counterclaimed for cancellation of some of Lidl's marks,  By her judgment of 19 April 2023 the judge found for Lidl on its claim and Tesco on part of its counterclaim.

Outstanding Issues
The parties agreed that Tesco was entitled to an injunction to restrain trade mark infringement and passing off but Tesco objected to an injunction against copyright infringement on the facts of the case.  The parties also disagreed on the time for compliance with the injunction having regard to applications for permission to appeal and any possible appeals.   

The Hearing
Mrs Justice Joanna Smith heard those matters on 22 May 2023 and delivered her judgment on 21 June 2023 (Lidl Great Britain Ltd and another v Tesco Stores Ltd and another [2023] EWHC 1517 (Ch) (21 June 2023)).

Tesco's Arguments

Tesco resisted Lidl's claim for an injunction in respect of copyright infringement on the grounds that 

1. The injury to Lidl's rights of ongoing infringement was very small; 
2. Such injury was readily capable of being assessed in monetary terms;
3. It was readily capable of being compensated by a small payment, and
4. The cost to Tesco of eradicating its CCP Signs from its stores, signs and products would exceed £7 million.

Lidle's Response
Lidl replied that:

1. The injury to its rights of ongoing infringement was substantial;
2. Such injury was not easy to estimate in monetary terms owing to the inherent difficulty involved in assessing the full extent of the unfair advantage that would be achieved by Tesco;
3. Lidl could not be adequately compensated by a small monetary payment; and
4. An injunction would not be oppressive.

Applicable Law
The learned judge summarized the applicable law as follows in para [4] of her judgment:

"i) Section 37 (1) of the Senior Courts Act 1981 provides the power to grant a final injunction. Since Lord Cairns' Act (the Chancery Amendment Act 1858 (21 & 22 Vict c 27)), the court has had power to award damages instead of an injunction. That power is now set out in section 50 of the Senior Courts Act 1981.
ii) The discretion to award damages in lieu of an injunction is a wide one to be exercised having regard to the particular facts of any individual case (see Coventry v Lawrence [2014] UKSC 13, per Lord Neuberger at [120]).
iii) Although the discretion is not fettered, the prima facie position is that an injunction should be granted. The legal burden is on the defendant to show why it should not (Coventry at [121]).
iv) In Shelfer v City of London Electric Lighting Company [1895] 1 Ch 287 at 322-323, A.L. Smith LJ identified four factors as tending to indicate by way of a "good working rule" (when taken together) that damages in substitution for an injunction may be appropriate. These were:
'(1) If the injury to the plaintiff's legal rights is small,
(2) And is one which is capable of being estimated in money,
(3) And is one which can be adequately compensated by a
small money payment,
(4) And the case is one in which it would be oppressive to the defendant to grant an injunction…'.
A.L. Smith LJ went on to make it clear that what constituted a 'small money payment' was a relative matter.
v) The four factors identified in Shelfer ought not to be mechanistically applied and must not fetter the exercise of the court's discretion – they do not operate as a statute or a straightjacket (see HTC Corporation v Nokia Corporation [2013] EWHC 3778 (Pat) at [8]). In Coventry, Lord Sumption and Lord Clarke regarded the decision in Shelfer as out of date (albeit that they were not prepared to lay down principles to be followed in the future) and Lord Carnwath (at [239]) described the decision in Coventry as an opportunity to move away from the strict criteria derived from Shelfer, particularly in cases where an injunction would have serious consequences for third parties. Lord Neuberger (who gave the leading judgment) observed that 'in the absence of additional relevant circumstances pointing the other way, [it would] normally be right to refuse an injunction if those four tests were satisfied' but 'the fact that those tests are not all satisfied does not mean that an injunction should be granted' (see Coventry at [123]).
vi) It is clear from Shelfer at page 323, that A.L. Smith LJ was of the view that even if his four tests were satisfied, '[a]dditional relevant circumstances pointing the other way' (to use Lord Neuberger's language) might include the conduct of a defendant, including actions in reckless disregard of a claimant's rights:

'[t]here may be cases in which, though the four above-mentioned requirements exist, the defendant by his conduct, as for instance, hurrying up his buildings so as if possible to avoid an injunction, or otherwise acting with reckless disregard to the plaintiff's rights, has disentitled himself from asking that damages may be assessed in substitution for an injunction.'

At [121] in Coventry, Lord Neuberger cautiously approved the observations of Lord Macnaghten in Colls [1904] AC 179 at 193 to the effect that in cases where 'a defendant has acted in a high handed manner' or where 'he has endeavoured to steal a march upon the plaintiff or to evade the jurisdiction of the court, then an injunction may be necessary in order to do justice to the claimant and as a warning to others.
vii) In cases concerning infringements of intellectual property rights, Article 3 (2) of the Enforcement Directive (Directive 2004/48/EC) focuses on similar considerations to those raised by the Shelfer tests, but uses different language. In Nokia, Arnold J (as he then was) observed at [26] that

'in cases concerning infringements of intellectual property rights, the criteria to be applied when deciding whether or not to grant an injunction are those laid down by Article 3 (2): efficacy, proportionality, dissuasiveness, the avoidance of creating barriers to legitimate trade and the provision of safeguards against abuse'

(see also the discussion of CJEU case law at [22] in Nokia and in Sky v Skykick [2020] EWHC 1735 (Ch) at [27]-[32] per Arnold LJ).
viii) Article 3 (2) of the Enforcement Directive permits and requires the court to refuse to grant an injunction 'where it would be disproportionate to grant one even having regard to the requirements of efficacy and dissuasiveness' (see Nokia at [32] and Evalve Inc v Edwards Lifesciences Ltd (No.2) [2020] RPC 13 per Birss J (as he then was) at [56]-[57])."

The Starting Point
Relying on para [121] of Coventry, the judge's starting point was that an injunction to restrain copyright infringement should be granted unless Tesco could persuade otherwise.

Whether the Injury to Lidl's Ongoing Rights would be small
Starting with Lord Justice A L Smith's first guideline in Shelfer. Mrs Justice Joanna Smith considered first whether the injury to Lidl's rights of ongoing infringement would be very small. Tesco had argued that the court must strip out any notion of reputation attaching to the sign and treat the work as one of little or no intrinsic value. 

Her ladyship rejected that contention.  In her view that would require the court to ignore the commercial realities. In particular, it would require the court to ignore the value of the infringement to Tesco. Had Tesco sought a licence to use the copyright work, the parties would have taken account of the messaging it converted to consumers.   As she said in para [24]:

"The only conceivable purpose for seeking such a licence would have been, as[she] found at [313] of the Main Judgment 'the strong desire on the part of Tesco…to stop the switching away of financially squeezed customers looking for EDLPs and to convey the message of 'value', a message which Lidl's Logo already conveyed so effectively'".

The consideration for such a licence would have reflected that reality.  it seemed to the learned judge that the injury caused to Lidl by continuing infringement was very likely to be substantial.

Whether the Injury is capable of being represented in Money

Her ladyship dealt with Lord Justice A L Smith's second guideline shortly at para [34] of her judgment:

"In circumstances where I have rejected Tesco's case that (i) negotiating damages would likely be assessed on the assumption that Lidl and Tesco were competitors in a market of strikingly low value; and (ii) the value of Lidl's claim may be assessed having regard to "comparable" images and/or the figure of £25,000, it must follow that there is no obvious or easy means of assessing the monetary value of Lidl's claim to future loss in the event of the court refusing to grant injunctive relief."

In the judge's view, it would be hard enough to assess damages for Tesco's past infringement.   It would be even more difficult to compute damages for ongoing infringements in the future.

Whether the injury to Lidl's Rights be adequately compensated by a Small Money Payments

In view of her ladyship's findings on the first and second guidelines. the judge found it impossible to answer that question in the affirmative.   Tesco's evidence on the cost of complying with the injunction had illustrated the scale of the infringement.   It was impossible to think that Tesco's wrongdoing could be compensated by a small payment.

Whether an Injunction would be oppressive

Although the court is not bound to grant an injunction even where the first three of Lord Justice A L Smith's tests are answered in the negative, it would in the judge's view be a very unusual case where the court refuses an injunction on grounds of oppression.  In this case, the cost and inconvenience of complying with a final injunction did not outweigh the factors for granting one.  Tesco had argued that art 3 (2) of the Enforcement Directive requires remedies to be proprtionate. While accepting the premise the judge reminded herself of Mr Justice Arnold's observation in Nokia that that srticle  "does not merely require that remedies for infringement should be proportionate and avoid creating barriers to legitimate trade, it also requires that they should be effective and dissuasive". She added that where the court is concerned with a monopoly right, the grant of damages in lieu of an injunction is "inevitably less effective and dissuasive than the grant of an injunction".  She concluded at [42]: 

"While the court may refuse to grant an injunction where it would be disproportionate to do so even having regard to the requirements of efficacy and dissuasiveness (see Nokia at [32]) that is not the position here. I am simply not in a position to determine that costs to Tesco of circa £7 million would be disproportionate to the level of Lidl's likely loss in the event of the infringing acts continuing indefinitely, or indeed that the need to engage in expenditure of circa £7 million would be oppressive."

The learned judge also noted that Lidl had first asked Tesco to remove its CCP signs in September 2020 and had made several Part 36 offers.  Had the first offer been accepted Tesco would haver paid no damages at all.  Later offers provided grace periods for the removal of the signs,  Her ladyship agree with Lidl that it was difficult to see that it would now be oppressive to grant injunctive relief in circumstances where Tesco had refused to cease using the infirnging signs, ignored reasonable offers from Lidl and continued to roll out its CCP promotion. Tesco was aware of the risks and yet it chose to persist.

Decision
Taking all the factors relied upon by the parties into account, Mrs Justice Joanna Smith was not persuaded to exercise her discretion in this case to award damages in lieu of an injunction. Lidl hasda legitimate interest in seeking to protect its logo and the only certain way to put an end to the loss that Lidl was incurring by reason of the continuing use of the CCP Signs was to grant a final injunction.

Time for Compliance

The parties had agreed that the injunctions in respect of passing off and trade mark and copyright infringement should be stayed until after the Court of Appesl had considered Tesco's application for permission to appeal but not on the time for compliance with those injunctions.  Lidl suggested 14 days while Tesco requested 20 weeks.  On this issue, the judge agreed with Tesco.  Tesco had made extensive use of the CCP signs in all its branches and it would be difficult to remove the signs in a short period of time,  It was not in the interests of the overriding objective to make an order imposing a deadline where, at the very least, there was doubt around Tesco's ability to comply. Any order of the court must be one with which a defendant "can and reasonably ought to comply" as Lord Bingham had observed at para [32] of his speech in in Wrexham County Borough Council and others v Berry and others [2003] BLGR 449, [2003] 23 EGCS 135, [2003] 2 AC 558, [2003] HRLR 27, [2003] UKHRR 1344, [2003] NPC 70, [2003] 2 WLR 1547, [2003] 3 All ER 1, [2003] UKHL 26, [2003] JPL 1412.

Comment

Her ladyship's case is a reminder that final injunctions as well as interim ones are discretionary although the principles on which they are granted or withheld are very different.  Even though Shelfer was not binding on the judge she appears to have followed Lord Justice AL Smith's guidelines.  Anyone wishing to discuss this judgment may call me on 020 7404 5252 during office hours or send me a message on my contact form.