SELLING GREY GOODS CAN BE A CRIMINAL OFFENCE

In its decision in R v C and Others [2016] EWCA Crim 1617, the Court of Appeal has ruled that it can be a criminal offence to sell “grey goods” without the consent of a trade mark proprietor. “Grey goods” can be defined as items to which the relevant trade mark proprietor has consented to the application of its trade mark, but not the subsequent sale or distribution of the goods. Quite often these goods leave authorised factories through a ‘side door’.

Background

The Defendants’ in this case were a company involved in the sale of clothing and shoes bearing registered trade marks belonging to well-known brands including Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry and various individuals concerned with the management and operation of the business. It was alleged that goods sold by the Defendants included both counterfeit and grey goods. In some instances, paperwork supplied with the goods was forged.

Whilst it was apparent that the sale of counterfeit goods would constitute a criminal offence, the Court of Appeal was asked to determine whether the criminal offences under section 92 of the Trade Marks Act 1994 (‘TMA 1994’) also applied to grey goods. At first instance, Judge Plumstead sitting in St Albans Crown Court held that grey goods were intended to be covered by the legislation.

Section 92 TMA 1994

Section 92 (1) of TMA 1994 provides that, without the consent of a trade mark proprietor, it is an offence to carry out the following acts with a view to gain for yourself or another:

(a) application of a sign identical or likely to be mistaken for a registered trade mark to goods or packaging;
(b) sale or distribution of goods or packaging which bear such a sign; or
(c) possession in the course of business any such goods with a view to doing (a) or (b) above.

The Defendants’ argued that a proper interpretation of s.92(1)(b) meant that this provision only applies to goods which bear a sign identical to or likely to be mistaken for a registered mark where the sign has been applied without the consent of the proprietor.

It was argued that, since the marks applied to the grey goods had been applied with the consent of the trade mark proprietors, the subsequent sale of these goods did not constitute a criminal offence. Interestingly, the Defendants also sought to rely on the fact that Trading Standards authorities do not generally seek to prosecute “grey goods” cases to support their case.

Criminal liability for grey goods

In deciding against the Defendants’, the Court of Appeal held that their position was not a tenable proposition because their arguments were “flatly contrary” to the wording of s.92.

The Court highlighted how s.92(1)(b) referred to goods or packaging which “bear such a sign” and this wording was clearly a reference back to the wording “a sign identical or likely to be mistaken for a registered trade mark” as contained in s.92(1)(a). It was held that there was no possible linguistic basis for reading the words “such a sign” as also linking back to the word “application”. Therefore, where a trade mark proprietor has consented to the application of its mark to goods, but not to the sale of these goods, an offence can still be committed under s.92(1)(b).

It was also determined that the Defendants’ submissions were contrary to previous authorities on this area, including the Court of Appeal’s decision in R v Gensis [2015] EWCA Crim 2043 where it was held that a criminal conviction was safe even where a mark had initially been applied with the proprietor’s consent.

Public policy considerations were also highlighted as important. The Court made reference to the fact that trade mark violation gravely undermines the value of a brand and affects legitimate trade. Further, it was stressed that very real issues of public health and safety can arise, not only where goods are fake, but also where goods are originally manufactured with the trade mark proprietor’s authorisation but are then rejected as sub-standard and nevertheless sold on without authorisation.

Finally, the fact that Trading Standards did not ordinarily pursue matters involving grey goods was deemed by the Court to be an irrelevant consideration. Indeed, in practice, the reason that Trading Standards are unable to pursue grey goods cases is often because of evidential difficulties and/or, more commonly, a lack of resources.

Comment

This decision will be welcomed by trade mark owners, who often face problems in preventing grey goods from leaving authorised factories through unauthorised distribution routes. If the Defendants’ position was accepted by the Court, then going forward the relevant remedy for sales of grey goods would be have been confined to civil infringement proceedings. However, as a result of this decision, those dealing in grey goods could end up facing criminal liability and a maximum prison sentence of 10 years, thus providing a strong deterrent.
On 12 April 2017 the Defendants’ were granted permission to appeal this decision to the Supreme Court. A date has not yet been set for trial; however, we will be watching carefully to see whether this decision will be upheld at the highest judicial level.

Judgment Date: 1 NOVEMBER 2016

SELLING GREY GOODS CAN BE A CRIMINAL OFFENCE

 

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