Retail Law Update - Summer 2023

In The Style: founder defends rival’s claim he stole his idea

“There’s no such thing as a new idea”, or is there? Earlier this year, the High Court found in favour of Adam Frisby, the millionaire founder of In the Style, having dismissed claims raised by Paul Clements that Mr Frisby had stolen his idea for the retail business. This case provides a cautionary tale on how to protect confidential information, including business plans and strategies.

In The Style was at its height a successful online fashion brand. The business was formed in 2013 and achieved exponential growth, being valued at ￡105m on its AIM listing in 2021. However, a few weeks after the judgment, the business was sold for just ￡1.2m and rescued from the brink of insolvency by a private equity firm.

Mr Clements claimed that he had met with Mr Frisby at a Manchester pub in 2013, where confidentially he set out a fully formed business model ready for market, along with the names of multiple potential suppliers and the business’ name “In The Style”. He then instructed Mr Frisby to test the business plan and claims he invested ￡10,000 into the business, from which Mr Frisby would be paid ￡200 per week. Mr Clements alleged that there had been further meetings, until Mr Frisby falsely claimed the business plan had no future. Mr Clements alleged Mr Frisby then stole the idea behind the business plan and developed it himself.

Mr Frisby’s defence was that he and his associate created and developed the business of In The Style independently, without any involvement from Mr Clements. Mr Frisby acknowledged he had met with Mr Clements on one occasion regarding potential investment, but that Mr Clements was not interested. Mr Frisby claimed Mr Clements did not invest in the business and the two had no further contact until the claim was issued in December 2020.

The High Court ultimately found in favour of Mr Frisby, concluding that Mr Clements’ version of events was “false”.

The confidentiality claim

Mr Clements alleged that during the 2013 meeting with Mr Frisby, he disclosed confidential information and Mr Frisby subsequently used that in breach of confidence. While Mr Clements’ version of events was ultimately rejected, the case does act as a warning for businesses and how they can conduct themselves to best protect the confidential information they share with third parties.

The judge noted that, in order for there to be a misuse of confidential information, the recipient must have understood that the information was confidential. Those who disclose or threaten to disclose confidential information can be restrained - however, once confidential information becomes public, confidentiality can be destroyed.

With this in mind, in order to ensure that any information a business shares with a third party stays confidential, the following steps should ideally be adopted.

• Ask recipients (including personnel) to enter into non-disclosure agreements (NDAs) before disclosing any confidential information.
• Confirm with the recipient that you intend to share confidential information before doing so, either in writing or verbally when meeting in person.
• Inform any recipients that they are not authorised to use this information otherwise than in accordance with your instructions or for a specified purpose.
• Keep written records of the information disclosed, to whom and when and the circumstances in which it was disclosed.
• Ensure emails and electronic documents are secure and encrypted and that only authorised personnel have access.
• Train personnel to keep information confidential and ensure documents are not routinely removed from the office or read in a public place (such as on public transport).
• Mark written documents as “private and confidential”.

Lessons from the case

Mr Frisby and Mr Clements had very differing accounts regarding their encounters, including how many times they met, what was discussed and what the outcomes were. Given that this claim was heard almost a decade after the formation of In The Style, and the accounts of events were so different, contemporaneous records formed a key part of the evidence. As the case developed, it became clear that the court’s findings would rely heavily on these records, both as evidence and as a way to determine the witnesses’ credibility.

Unfortunately, there were very few formal written records from 2013 and the records which did exist were often ambiguous. Mr Frisby and Mr Clements offered different interpretations for much of the written evidence, particularly WhatsApp messages, each posing different explanations for what they meant and why they were written. A large majority of the written evidence was taken from WhatsApp exchanges, often between friends.

There are several key lessons to learn from the case:

• Rigorous note taking often does not take place in business, and in practice it is unreasonable to expect business owners to take notes for every meeting they attend. However they can be a helpful record.
• It would be a useful protective measure to send an internal email confirming the outcome of a meeting and what was discussed. Should litigation be commenced in the future, a written record like this, created before any litigation is contemplated, could be compelling evidence that one party’s version of events is the correct one.
• Be wary of WhatsApp:

1. While it may be an easy way to communicate, the brief and often fast-paced nature of WhatsApp messaging may give rise to ambiguity, especially when reviewed by unfamiliar eyes years later;
2. It is an inherently more relaxed form of communication, in which contributors are more likely to write in incomplete sentences, use slang, or slip into social conversations, which may cause problems in the case of a future dispute;
3. WhatsApp also feels more private and personal, which changes the way people express themselves. As can be seen in this case, WhatsApp messages are just as likely to be made public as any email.

• If the use of WhatsApp is unavoidable, be mindful that, should a dispute ever arise, messages may become evidence and made public. Before sending business related messages, consider whether sharing that message in public could be problematic. Such messages could also become public if they discuss a colleague or employee who subsequently makes a subject access request for information relating to them held by the business.

Following the claim

Weeks after the judgment was handed down, In The Style was sold, with much debate still to be had about its future. The timings are nothing more than coincidental, it would seem. The landscape has changed exponentially since the online retailer was launched 10 years ago, with added challenges such as rising inflation, increased operating costs, as well as the shift in focus away from fast fashion.

The market has become increasingly more competitive, making the task of standing out from the crowd and maintaining success even harder. As such, protecting business ideas that help you gain that advantage is important.

Battle of the supermarket giants

The ongoing debate about where the line is drawn between misrepresentation and inspiration continues, following a high-profile judgment in a dispute between two supermarket giants.

Lidl-v-Tesco

In 2020, Lidl launched a claim against Tesco alleging infringement of registered trade marks and copyright and for passing off. In bringing action against the UK’s largest supermarket, Lidl relied upon its own trade mark rights in relation to two version of the Lidl logo – the logo which includes the word LIDL (as shown below), and a logo without the word. It also stated that its reputation and the goodwill generated amongst consumers comes from being known as a ‘discounted’ supermarket that offers value and quality goods at low prices.

In response, Tesco alleged that the Lidl Wordless Mark should be cancelled for non-use (because it was only ever used with the word LIDL) or because it was applied for in bad faith.

Central to Lidl’s case was Tesco’s use of an ‘identifier’ (as below), as part of its Clubcard prices promotion and advertising strategy to promote the Tesco Clubcard, which offers discounts to Clubcard holders at the point of sale on selected goods.

Sometimes the logo in question would appear with a price figure as shown below.

Lidl argued that consumers would link the Tesco logos to Lidl’s brand and, as a result, believe the Tesco prices were being compared to Lidl’s low prices or that they were being price matched to Lidl. As such, Tesco was deliberately seeking to ride on the coattails of Lidl’s reputation as a discounted supermarket.

Similarity of Tesco’s logos to Lidl’s registered trade marks

The first step for the court was to undertake a comparison between the Lidl marks and the Tesco logos. The court held that in terms of a visual comparison, both involve background components made up of a yellow circle set within a blue square. Both have writing in the centre of the blue circle. However, the Tesco logos do not have the thin red rim around the edge of the yellow circle. Also the words used in the Tesco logos, such as the Clubcard price, are different from the graphically stylised word LIDL, which always appears in the Lidl logos. As for the conceptual comparison, neither party suggested that there is a conceptual comparison with real significance one way or the other.

Tesco argued that the word “Clubcard” dominates the Tesco logos and this has its own brand recognition. Similarly, the made-up word LIDL enjoys a substantial reputation and is clearly the most dominant and distinctive element of the Lidl marks. In addition, it argued that elements, such as the colour yellow, is conceptually commonplace and is “drowned out“ by the text.

The court was nonetheless satisfied that the average consumer would consider the marks and the logos as being similar, their visual similarity being the significant feature. The court was fortified in this view by the evidence from members of Tesco's internal team during the development phase of the Tesco logos, who recognised that the logos were similar to Lidl's marks.

The judge also observed that the goods and services for which Lidl's marks were registered and the use of the Tesco signs were identical. The judge stated that the Lidl marks have a strong reputation and enhanced distinctiveness, which in itself provides scope for a greater likelihood of confusion or a connection being made between the two brands.

The likelihood of confusion or of a link being made

Importantly, there was evidence of actual confusion on the part of the public, together with internal recognition by Tesco of the potential for confusion. An external research agency commissioned by Tesco to evaluate the Clubcard prices promotions in November 2020 reported that 276 consumers who saw the Tesco advert thought it was for Lidl. Evidence in the form of social media posts found on Twitter, customer contact records extracted from Lidl’s database of consumer feedback, as well as Tesco's customer communications database included evidence of members of the public sending unprompted messages to Tesco or Lidl following the launch of Tesco's campaign identifying a perceived link between the two brands. This weighed strongly in Lidl's favour.

Lidl also relied upon various internal warnings within the Tesco team by individuals concerned at the decision to use the Tesco logos and that the potential for misattribution. The court held that at the very least there was clear evidence that the average reasonable observing consumer who encountered the Tesco logos in the real world at the date of the launch of the Clubcard price campaign would draw a link with the Lidl logos.

The judge concluded that there was not a deliberate subjective intention on the part of Tesco to ride on Lidl's coattails. However, one of the main objectives of Tesco's campaign was to improve its value perception and therefore to influence the economic behaviour of supermarket shoppers.? It aimed to cause a subtle but insidious transfer of image from Lidl's trade marks to its logos in the minds of some consumers, thereby increasing the attraction of its prices.

Tesco argued that all supermarkets use yellow and basic geometric shapes and that the colour blue is its own livery colour. Therefore it had proper commercial reasons for using yellow in its logos. The judge held that the issue was not whether there was due cause for use of the elements of Tesco's logos, but whether there was cause to use this particular combination of elements used in the logo as a whole. The judge accepted that the colour blue has long been associated with Tesco and that yellow has been recognised as having the best impact in point of sale material. He also accepted that other supermarkets use yellow, including yellow circles, to indicate value propositions to customers and that the yellow value roundel was already a part of Tesco's messaging arsenal. However, none of this evidence explained why there was purportedly cause for Tesco to extend the use of the yellow value roundel by superimposing it on a blue background.

Accordingly, the court held that there was infringement of Lidl's trade mark with text by Tesco. ?

Invalid Lidl marks – registered in bad faith

Although somewhat a pyrrhic victory, Tesco did succeed in securing an order from the court that Lidl’s wordless trade mark should be cancelled because it was applied for in bad faith. It argued that the wordless mark was designed as a legal weapon when Lidl already had a registered mark with text, given that it was not intending to use the wordless mark independent of any text. The court agreed that this amounted to bad faith.

The court also held that a number of Lidl’s wordless trade marks were designed in part to ‘evergreen’ (i.e. be periodically re-registered for goods and services in respect of which they were already registered) so as to avoid sanctions for non-use (an abuse of the trade mark system) and so that the marks could be used as a legal weapon. This was also held by the court to be bad faith and so these marks were declared invalid.

Passing off

In terms of the other claims brought by Lidl, the court held that the passing off claim had succeeded, as a substantial proportion of people were confused as to the origin of Tesco’s logos.

Copyright infringement

Tesco argued that the simplicity of Lidl’s “kindergarten” design and low level of artistic quality meant its word logo was not original and did not attract copyright protection. The court held that even the act of combining the yellow circle and blue background involved skill and labour and so was protectable.

Given the similarities between the Lidl marks and the Tesco logos, and given that Tesco had access to Lidl’s marks, the judge held that the burden was on Tesco’s design team to provide an explanation for the similarities. Tesco maintained that the similarities were purely coincidental. Tesco did not satisfy the court that the design of its logo was an independent creation. It failed to produce evidence from the external design agency with whom the logos were created, the court concluded deliberately.

The judge held that the evidence showed that the third-party design agency appeared to have been exploring how Tesco could be emotive about price by reformulating the Lidl slogan onto a similar colour scheme used by Lidl, and that the agency and Tesco were looking at what competitors were doing. The court accordingly held that the agency copied the background to the Lidl logo and that Tesco adopted that for its logos. Tesco was therefore held liable also for copyright infringement, even though there was no evidence of direct copying.

Has Lidl won the battle but not the war?

Tesco has indicated that it will appeal this decision. The findings of the judge, as regards basic combinations of colour, shape and words that potentially give brand owners a wide range of protection, may be one that the Court of Appeal believes should be examined further. The wind nonetheless certainly appears to be blowing in favour of brand and rights owners at the moment, with recent court decisions going in favour of the claimants. This means businesses may need to be more cautious about taking risks in terms of product, packaging or brand designs which may arguably come too close to that of a competitor.

Transforming retail spaces: when one door closes, another opens

Every day last year, 47 retail sector businesses shut up shop for the final time, resulting in 17,145 high street shops closing for good, according to the latest 2022 figures. Yet, with a little creativity and vision, there are many ways to repurpose empty retail spaces to meet the needs of the local community and revitalise the local economy.

A change in culture

The disruption and uncertainty caused by the arrival of department stores in city centres is now mirrored by their departure. Out of town shopping and the growth of e-commerce consumerism have resulted in substantial changes in the retail landscape. Online retail sales averaged at 19.2% in 2019; they now sit at 25.2% as of the end of April 2023 (ONS).

A shift in working habits post-pandemic has also undoubtedly had a permanent impact on town and city centres alike, with hybrid-working dynamics becoming increasingly normal. Whilst this might paint an uninspiring picture, the high street remains an optimistic breeding ground for growth and development, with the overall footfall in the week to 19 March 2023 at 104% of the level in the equivalent week last year (ONS).

The drop off in retail sector engagement is not due to the lack of customer availability, as once thought; instead, it reflects the growing change in consumer trends as we look to e-commerce instead of traditional retail consumption. The effect is that the high street is now booming with individuals seeking an alternative high street experience, as they begin to stray away from the ageing clearance sales in department stores, leaving behind a wealth of opportunities in the form of empty retail spaces.

Businesses and developers alike are now challenged with adapting their thinking to suit the needs of the ever-changing consumer and capitalise on the evolving UK high street.

Bucking the trend, and transforming retail spaces into dynamic leisure-led hospitality experiences, is Gravity Active Entertainment. It sought to repurpose an old Debenhams department store located within Liverpool One. With ￡10 million investment, a 10,000 square ft go-karting venue replaced the department store, which was once the joint flagship tenant along with John Lewis.

A change in use class

On 21 of July 2020, the government published The Town and Country Planning (Use Classes) Regulations 2020 which came into force on the 1st September 2020. The use classes essentially determine how a property can be used and developed.

The revised 2020 regulations sought to bring together existing classes of shops, financial and professional services, restaurants and cafes, as well as parts of classes relating to non-residential institutions and assembly and leisure (such as indoor sporting activities) into one single use class.

The effect is that this change allows for alterations of use without the need for planning permission, meaning that the Woolworths on your high street which has been empty since 2008 can now become the latest and greatest fitness facility, or even the next best pizza restaurant in town.

Lease restrictions

Where a property is leased, there may be restrictions on what the property can be used for, irrespective of the position with The Town and Country Planning (Use Classes) Regulations 2020. On that basis, if any such change of use could be a viable option, it is important that the provisions of the lease are considered, and that the landlord is approached in the first instance regarding any possible change of use that may be required.

Transformation options

There are many ways to repurpose empty retail spaces to meet the needs of the local community and revitalise the local economy.

• Fitness or wellness studios: repurposing to fitness or wellness studios can be an extremely cost-effective way of dealing with empty retail spaces. Providing space for yoga, Pilates, or other exercise classes capitalises on low fit-out costs, but also helps to promote healthy living amongst the local community.
• Food and beverage outlets: perhaps the most popular change of use in retail properties over the past decade has been the boom in food and beverage outlets. Previously industrialised spaces can be easily converted into restaurants, cafes, or bars, providing new dining options to stimulate the local economy.
• Residential properties: in some cases, empty retail properties can be converted into residential properties, providing much-needed housing in urban areas. This could be especially useful in areas where housing is in short supply or where there is a high demand for affordable housing.
• Co-working spaces: whilst hybrid-working could substantially reduce the turnover and profitability for traditional city centre retail and leisure businesses, it could also generate opportunities for co-working office spaces. Empty retail properties can be repurposed as co-working spaces where people can rent desks and office space to work. This could be particularly useful for small businesses or freelancers who need a professional workspace without the high costs associated with traditional office rentals.
• Dynamic leisure facility: an increasingly attractive option for rejuvenating retail spaces is the ability to create multi-faceted leisure facilities. Transformations of ageing retail stores into bowling, indoor karting, and mini golf have been a particular focus in the current market and offer a range of opportunities for the consumer.

All is not over for the UK high street; with the growth of e-commerce and hybrid-working dynamics it would be too easy to view retail spaces on UK high streets as dilapidated shops with little to no customer engagement. Instead, this change in consumer lifestyle offers opportunities for businesses and developers alike to engage with new trends and mirror their development strategies to fit the demands of the consumer.

Key takeaways

• Be creative in site development
• Take advantage of the changes in regulation - do not be limited to the current market which the empty retail shop operates in; explore new realms to attract more consumers
• Approach your landlord in the first instance in relation to any proposed change of use.

Guest article: Technology and retail – bringing two worlds together

Technology in the retail sector can have a transformative quality that changes the way that brands interact with consumers. Last year, 100% Group carried out market research to find out what both brands and marketing agencies were planning for the year ahead. This research included a significant focus on technology – the way it supports the customer experience and how it transforms the buying transaction, through to how the customer interacts with the brand both pre and post purchase.

Once a threat, technology has become a great ally to the retail sector. But, how much of the innovation that we saw during Covid will remain? Or will the technological advances that were made during this time slowly fade back into the background?

Since the pandemic, consumers have not only been seeking different ways to engage with brands, but also different ways to shop. As the high street has now largely returned to its pre-Covid state, the technologies that were once employed simply to make retail possible are being used to offer consumers a more complete picture of the brands they are buying from, and to make point of purchase a faster and more seamless process.

We are increasingly seeing brands thinking outside of the box with technology and the experiences that they can offer to consumers. Both fashion and luxury brands have been experimenting with ‘gamification’ to appeal to a younger generation of shoppers who are happier to have a purely online relationship with retail.

Nike has also experimented with virtual environments with the creation of ‘Reactland’ to celebrate the launch of its new ‘React’ shoe. In-store, players can try on the shoe and have their picture taken and create their own digital avatar, which they guide through different simulated environments, running along roads and jumping off buildings to trial the light, bouncy shoe. The ‘in-store trial’ experience was incredibly effective, with 48% of players going on to purchase the product.

Whilst these bold technological statements have paid off for some brands, for many it is about focusing on customer-centric marketing that makes the whole process of purchase much smoother and more informed. QR codes enjoyed a real renaissance at the start of Covid. These quick response codes were easily identified by smart phones and led consumers straight through to a specific page, whether that was a point of purchase or more information on a particular product. It appears that the humble QR code is around to stay; it can be found in so many different environments and it’s almost become second nature for consumers to look for one.

What is surprising is the number of consumer goods brands investing in augmented reality or virtual reality - that is, how few are investing in this technology. With only 16% of the survey respondents saying this would be a priority for them in the coming year, it would appear that this once burgeoning market is already stalling as part of brand interactions. One reason for this could be that after a prolonged break from the physical side of retail, consumers are yearning for the ability to actually interact with the products in person rather than virtually through a screen.

What is clear is that the industry is embracing technology and making the purchasing decision and process simpler for the shopper. The collision of both physical and digital worlds has been coined as ‘phygital reality’ – a place where consumers can seamlessly live, work, shop and play both in person and online. Brands that capitalise on this can have the best of both worlds – one where consumers get a technology enabled at-home experience or can see and use the same technology in-store to create familiarity. Whatever the solution brands are choosing, technology is now almost inextricably linked to retail and will continue to push the envelope of what is possible for both brands and consumers.

Conclusion

If you would like find out more about the areas that were covered in our market research, you can download the second edition of the 100% Group’s Global Retails Futures Journal here.

Author: Dan Williams, 100% Group

Founder and Managing Director

Dan Williams is founder and managing director at 100% Group, a global marketing agency which loves the challenge of connecting brands with shoppers through retail experiences.

100% Group provides connected solutions to activate marketing campaigns in stores in over 65 countries across Europe, Middle East, India, Africa, USA, Canada and beyond. The global team work on high-profile product launches and ground breaking in-store experiences for some of the world’s biggest retail brands like Adidas, Beats by Dre, North Face, and Sonos.

100% Group is also committed to reducing the impact retail marketing has on the environment and on the planet as a whole. The vision of the company is to become the most sustainable retail installations expert and promote change across the industry through collaborations and partnerships.