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Dealing in "grey" goods: now black & white that it's a civil offence and criminal offence

Date: 21 May 2018

The UK Supreme Court has upheld a Court of Appeal decision that persons dealing in "grey" goods – goods branded with a trade mark proprietor's consent but sold without his consent – may be liable to criminal prosecution under s 92(1) of the Trade Marks Act 1994. The court held that s 92(1) was not limited to counterfeit goods (in the sense of the manufacture of the goods and application of the relevant mark to the goods being unauthorised by the trade mark proprietor) and, contrary to the defendant's argument, each offence listed under the 1994 Act was "separate" and "not cumulative" and there was no reason to "strain the language of section92(1)(b) so as to exclude the sale of grey market goods" (R v M & Ors (2017 UKSC 58)).

 

The defendants (a company and various individuals) were indicted for unlawfully selling in the UK branded goods (including Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry), all of which had been manufactured outside the EU. These included, or may have included, goods that had been manufactured by factories which had been authorised by the trade mark proprietor but which were then disposed of without the proprietor's authority (grey goods), such as garments:

 

  • deliberately made by the factories in excess of the numbers permitted by the trade mark owner, so that the balance could be sold for their own benefit.
  • manufactured, pursuant to an order, with authority but in excess of the required amount (perhaps as precautionary spare capacity planned and approved by the trade mark owner) and subsequently been put on the market without consent
  • rejected as not being of sufficient standard (e.g. "seconds").

 

THE ARGUMENTS

 

Section 92 is headed "Unauthorised use of trade mark, &c. in relation to goods". Subsection (1), in full, provides as follows:

 

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 defendants argued that "such a sign" in s 92(1)(b) referred back to s 92(1)(a) and, therefore, s 92(1)(b) applied only to goods where the relevant sign (i.e. trade mark) had been applied without the consent of the proprietor.  According to the defendants, as the proprietor had consented to the original application of the trade mark to the goods, it followed that such goods were not goods which bore "such a sign". Both the trial judge and the Court of Appeal rejected that submission. The defendants appealed.

 

DECISION

 

The Supreme Court unanimously dismissed the appeals.  

 

The language of the section was, in the court's view, plain. "Such a sign" in subsection (b) was a sign as described in subsection (a), namely one "identical to, or likely to be mistaken for, a registered trade mark". So-called grey market goods were caught by the expression. The offences set out in paragraphs (a), (b) and (c) of s 92(1) were not cumulative, but separate. It was not necessary that one had been committed (by someone) before the next in line had been committed. Each stood alone. The mental element of a person acting with a view to gain for himself or another, or with intent to cause loss to another, was applicable to all three. Equally applicable was the element that the use made of the sign was without the proprietor's consent. In contrast, the defendants' reading of paragraph (b) was "strained and unnatural".

 

Accordingly, the court found there was no ambiguity or obscurity in the language to justify (pursuant to Pepper v Hart [1993] AC 593) an investigation into the contents of Parliamentary debate at the time of the passage of the Bill which became the 1994 Act. In addition, it could not be suggested that the ordinary (or literal) reading of the Act gave rise to absurdity. Moreover, the defendants did not realistically contend that there had been the kind of clear ministerial statement which amounted to a definitive identification of what the Bill was intended to achieve. The most that was contended was that the passage of the Bill was marked by several references to the desirability of punishing counterfeiting.

 

However, it was not suggested that Parliament, or any individual speaker, had at any point confronted the suggested difference between fake goods (which the defendants had described as "true counterfeits") and grey market goods. Still less could it be suggested that Parliament had plainly confined itself at any point to criminalising fake goods and abjured the criminalising of grey market goods.

 

The court found no reason to strain the construction of s 92(1)(b) so as to exclude the sale of grey market goods. Lord Hughes said that "it is, on any view, unlawful for a person in the position of the defendants to put grey goods on the market just as it is to put fake ones there. Both may involve deception of the buying public; the grey market goods may be such because they are defective. The distinction between the two categories is by no means cut and dried. But both are, in any event, clear infringements of the rights of the trade mark proprietor." In both cases, the seller's intention is to profit from someone else's trade mark without permission.

 

The 1994 Act did not deprive the defendants of their property; the most it did was to regulate the use or disposal of the goods. In any event, there was nothing disproportionate in the 1994 Act penalising sales when the infringing trade mark was still attached, nor in imposing a criminal sanction on those who might otherwise calculate that the risk of liability in damages was worth taking. That was a perfectly legitimate balance to strike between the rights of the proprietor to protect his valuable trade mark and goodwill, and those of the person who wished to sell

goods they had bought.

 

Accordingly, the defendants' appeals were dismissed.

 

Comment

 

The Supreme Court's decision will be welcomed by brand owners who will now be able to consider private prosecution under s 92 of the Trade Marks Act against unauthorised dealers in grey goods, in addition to any trade mark infringement claims. This could prove particularly useful in situations where the police or trading standards are unwilling to take action against an infringer, as previously criminal provisions were thought only to apply to counterfeits and so were previously not generally considered when dealing with matters relating to grey goods. The decision also clarifies that counterfeiters also dealing in grey goods that contest claims of infringement by claiming that the goods were in fact overruns, seconds or cancelled orders can still be caught by the scope of s 92.

 

In contrast, the decision will undoubtedly cause concern to certain distributors of branded goods who may struggle, in some instances, to know whether the distribution of such goods has been authorised by the trade mark owner. The earlier Court of Appeal decision recognised that this approach could potentially result in harsh consequences for some, such as tourists buying jeans in New York and later selling them on eBay. However, the Supreme Court clearly agreed that such measures were necessary in order to address the "unscrupulous conduct" of those attempting to undermine and profit from the registered trade marks of others. The court also relied on the "good sense" of Trading Standards officers not to pursue prosecutions in inappropriate cases.

 

Despite the positive aspects of this decision for brand owners, advisors should ensure that clients considering s 92 are aware of the difficulties of establishing criminal liability in comparison with civil actions. For example, in a criminal action relating to grey or parallel goods, the burden would be on the prosecuting side to prove that the brand owner did not consent to the importation and/or resale within the European Union of the goods "beyond reasonable doubt". In comparison, in a civil action, the burden would fall upon the importer/reseller to prove that it is more probable than not

that the brand owner did consent to such sales.

 

It remains to be seen whether the mere risk of criminal sanctions will act as a deterrent to many businesses that trade in grey or parallel imported goods, whether knowingly or not. However, it is likely that this decision will lead to an increase in brand owners including threats of criminal sanctions in initial communications with potential infringers, filing complaints with Trading Standards and contemplating private prosecutions.

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