UK Supreme Court confirms sale of grey market goods capable of criminal prosecution under s.92 TMA 1994

R v M and Others [2017] UKSC 58

UK Supreme Court confirms sale of grey market goods capable of criminal prosecution under s.92 TMA 1994

This decision was an interlocutory appeal in criminal proceedings which concerns the correct construction of section 92(1) of the Trade Marks Act 1994 (‘TMA’). The appellants are a limited company and two individuals connected with its management. They have been indicted for offences of unauthorised use of trade marks, contrary to section 92(1)(b) and (c) of the TMA.

It is worth noting that at present no trial has yet been held, and the Crown case remains a mere allegation, which may or may not be proved in due course. At a preparatory hearing in the Crown Court, the appellants advanced the argument that part of what was alleged was outside the terms of s.92 and not an offence. Both the trial judge and the Court of Appeal rejected that argument. The appellants then decided to bring that argument to the Supreme Court.

CGL

It is alleged that the appellants were unlawfully selling shoes and clothing bearing the trade marks of well-known brands, such as Ralph Lauren, Adidas, Under Armour, Jack Wills, Fred Perry, into the UK, which were manufactured in countries outside the EU. Some of these branded goods were goods which were not manufactured either by the trade mark proprietor itself or by factories authorised by them, so they were treated as traditional counterfeit goods. However, in addition, there was a significant quantity of goods which were manufactured by authorised factories but which thereafter were disposed of without the trade mark proprietors consent, meaning they are grey goods.

During the Crown Court hearing the prosecution’s case was that there is no difference between goods where the manufacture and application of the relevant logo was never authorised on the one hand (i.e. counterfeit goods); and goods where there was such authorisation but where subsequent sale by the factories was unauthorised on the other hand (i.e. grey goods). The Judge in the Crown Court held in the prosecutions favour holding that s.92 can apply to grey goods as well as counterfeit goods. However, the defendants appealed this decision at the Court of Appeal.

The appellants’ question during the Court of Appeal hearing was whether a person can be liable under s.92 if, with a view to gain or to causing loss, they sell or possess grey goods where trade marks are applied with consent, or whether they are only liable under s.92 if the goods are counterfeit goods, where trade marks are applied without consent.

The relevant text of s.92 of the TMA is as follows:

“s.92 Unauthorised use of trade mark, & in relation to goods.

(1)A person commits an offence who with a view to gain for himself or another, or with intent to cause loss to another, and without the consent of the proprietor—

(a)applies to goods or their packaging a sign identical to, or likely to be mistaken for, a registered trade mark, or

(b)sells or lets for hire, offers or exposes for sale or hire or distributes goods which bear, or the packaging of which bears, such a sign, or

(c)has in his possession, custody or control in the course of a business any such goods with a view to the doing of anything, by himself or another, which would be an offence under paragraph (b).”

The appellants argued that s.92(1)(b) applies only to goods which bear signs, identical to or likely to be mistaken for a registered trade mark, which have been applied without consent and therefore goods where the relevant sign was applied with consent (i.e. on grey goods) cannot constitute a criminal offence under this section and made arguments based on the wording of the statute to try to justify this.

The Court of Appeal did not accept these arguments. They held that that argument involved a wholesale and illegitimate rewriting of the section and a distortion of the actual meaning. Nowhere in s.92(1)(b) does it refer to ‘applies’ and nor is there any possible basis for linking “applies” back to the opening three lines of s.92(1). The Court of Appeal confirmed Crown Court’s decision that s.92 can apply to sale of grey goods.

In the Supreme Court, the appellants’ case was that whilst any of the alleged activities would involve civil liability, it is only in the case of what they describe as ‘true counterfeits’ that there is any criminal offence. As before, they argued that goods which were originally manufactured with the permission of the trade mark proprietor, but the sale of which is not authorised, are not true counterfeits and do not fall within the statute. Section 92(1) does not apply, they contended, to grey goods.

The appellants’ contention focused on the use of the expression “such a sign” in subsection (1)(b). They argued that this refers back to subsection (1)(a). And by referring back to (1)(a) that means that (b) applies only to goods where the relevant sign (i.e. the trade mark) has been applied without the consent of the proprietor. Any goods in the “grey market” category have had the trade mark originally applied with the consent of the proprietor. It is only the sale which the proprietor has not authorised. Therefore those goods are not ones to which paragraph (a) of the subsection could apply. It therefore follows that they are not, when it comes to paragraph (b), goods which bear “such a sign”.

Lord Hughes stated that the expression “such a sign” in section 92(1)(b) does refer back to the sign described in the immediately preceding paragraph (a). However, the difficulty comes when one is asked to read “such a sign” as incorporating the words “without the consent of the proprietor” which appear in the first few lines of the section before (a), and also the alleged requirement that the sign has been applied to the goods, without such consent. This is simply not a possible construction of section 92(1). “Such a sign” in (b) plainly means a sign such as is described in (a). The sign described in (a) is a sign which is “identical to, or likely to be mistaken for, a registered trade mark”. Signs used in respect of grey goods are squarely within this description.

Lord Hughes also stated that the offences set out in paragraphs (a), (b) and (c) of section 92 are not cumulative, but separate. It is not necessary that one of these has been committed before one can say that the next in line has been. The required mental element of a view to gain or the intent to cause loss is applicable to all three offences, as is the element that the use made of the sign (whether application of the mark to goods or relevant sale or possession in a business) is without the consent of its proprietor. A person may commit all three offences, or different people may commit all three between them, but that is not necessary and each stands alone.

In support of their contention that such a distinction was plainly intended, the appellants referred to observations made by Lord Nicholls and Lord Walker in R v Johnstone upon the differences between counterfeit goods, pirated goods, and bootlegged goods. However, Lord Hughes noted that on the facts of that case the Judges were not addressing the critical difference between fake goods and unauthorised goods on the grey market.

Lord Hughes said there is no reason to strain the language of section 92(1)(b) so as to exclude the sale of “grey market” goods. Lord Hughes concluded it is unlawful for a person in the position of the appellants to put grey goods on the market just as it is to put fake ones there. Both may involve deception of the buying public as the grey market goods may be such because they are defective. Both are clear infringements of the rights of the trade mark proprietor.

Finally and in the alternative, the appellants contended that the Crown’s construction of section 92(1) involves a disproportionate breach of their rights under Article 1, Protocol 1 to the European Convention on Human Rights. Lord Hughes said it is possible that the imposition of a criminal sanction might be disproportionate where a civil law sanction is not. However, people in the position of these appellants have no proprietary right in the trade marks. They do have a right in the goods which they have bought, but the TMA does not stop them selling them, except if they wish to do so whilst still with the misleading and infringing trade mark attached. Accordingly, the TMA does not deprive the appellants of any property; it merely regulates their use of it. As such, there is nothing disproportionate in s.92 TMA and this argument consequently failed.

This decision gives trade mark owners a further method by which to pursue infringers as it confirms at Supreme Court level that trade mark offences under s.92 of the TMA 1994 apply to the distribution and sale of grey goods as well as counterfeit goods

Judgment Date: 3 AUGUST 2017

Link to judgment

UK Supreme Court confirms sale of grey market goods capable of criminal prosecution under s.92 TMA 1994

 

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