The government of Iceland said that it was pursuing the case due to the supermarket’s "aggressive" use of its trademark.
The government said the retailer had prevented Icelandic companies from using the name of the country to describe themselves, and had "aggressively pursued and won multiple cases" against companies using the word, The Telegraph reports.
The possibility of a lawsuit first emerged in September, when the government of Iceland confirmed it was considering action.
The retailer holds the European trademark for the use of the name Iceland, and said it had not been aware of any confusion caused by its name in its 46-year history.
The government, though, said this was "exceptionally broad and ambiguous in definition, often rendering the country’s firms unable to describe their products as Icelandic".
It added that the decision had come after multiple attempts to negotiate with the business, founded in Shropshire in 1970 by Malcolm Walker. It now wants to strip the company of its trademark. The challenge has been launched at the European Union Intellectual Property Office.
However, the retailer denied that the Icelandic government had approached it. A spokesman said: "We very much regret that the Government of Iceland has apparently decided to take legal action over the use of the name Iceland. Contrary to their assertion we have received no recent approaches to achieve an amicable resolution of this issue."
Sharon Daboul, trademark attorney at IP law firm, EIP, said it was a battle that "could last years". She added: "The food company is unlikely to want to share the exclusivity they have enjoyed in the term, by virtue of this European trade mark registration and decades of use, and they would certainly not want to open the door to non-Icelandic opportunists who might try to ride upon the success of their British brand in the EU."
Iceland’s PR representative, meanwhile, took to Twitter with a series of comments suggesting he was not taking the legal action entirely seriously.
Could any more countries with issues please contact the @IcelandFoods Complaints Department? Or, as they call it, Ireland.— Keith Hann (@keithhann) November 25, 2016
Just had an email from the Government of Turkey. Looks like being a very busy day putting up new signage for the Really Big Festive Poultry.— Keith Hann (@keithhann) November 25, 2016
Hann contacted Campaign to clarify that he was not tweeting on behalf of Iceland, however.