The Court of Appeal has confirmed that criminal trade mark offences can apply not only to the distribution and sale of counterfeit goods (fakes), but also to 'grey' goods, i.e. those bearing an owner's registered trade mark(s). Cheap sales of unauthorised branded items or goods can have a damaging effect on the value of a brand and legitimate trade. The Court's confirmation that they can amount to criminal offences, as well as civil infringement, is welcome as it gives brand owners another string to their bow in the ongoing battle to combat unauthorised use of their marks. This is particularly significant given that a criminal conviction carries a sentence of up to 10 years' imprisonment and can involve recovering the proceeds of crime. However, brand owners still need to overcome a relatively high hurdle in order to prove that a defendant has committed a criminal offence in selling grey goods.
Whilst it is usually Trading Standards who initiate actions for IP criminal offences, they are often very pressed for resources. Rights owners can also bring a private criminal prosecution and there are distinct advantages in them doing so. If you would like more information on private criminal prosecutions, please get in touch.
What are 'grey' goods?
Grey goods are those which bear a registered trade mark and were produced with the registered trade mark owner's consent, but which are then disposed of/put on the market without the registered trade mark owner's consent. This may be because, for example, they were part of an order which had been placed but was then cancelled, or they were rejected as not being manufactured to a sufficient standard. Grey goods can also include parallel imports, which are registered trade-marked goods, manufactured and sold with the authorisation of the registered trade mark owner in a country outside the European Union, but which have subsequently been imported and sold in the EU without the registered trade mark owner's consent. However, parallel imports were not in issue in this case and so the Court was not required to express a concluded view on whether such goods could also be potentially caught by a criminal conviction - which would, in any event, be subject to the necessary criteria of the offence being made out.
Under section 92(1) of the Trade Marks Act 1994 ("TMA"), a person commits a criminal offence if, with a view to gain for themselves or another, or with intent to cause loss to another, and without the consent of the trade mark owner, they:
(a) apply a sign which is identical to, or likely to be mistaken for, a registered trade mark to goods or their packaging; or
(b) sell or let for hire, offer or expose for sale or hire or distribute goods (or their packaging) which bear such a sign; or
(c) have in their possession, custody or control in the course of a business any such goods with a view to the doing of anything, by themselves or another, which would be an offence under (b) above.
There is a defence in the TMA if a defendant can show that they believed on reasonable grounds that using the sign in the manner used was not an infringement of the registered trade mark.
In this case, the defendants were accused under section 92(1)(b) TMA of unlawfully selling various branded goods, some of which were counterfeit. However, some of the goods sold were grey goods i.e. they had been manufactured with the trade mark owner's consent but had subsequently been sold without consent (in this case where an order had been placed by the trade mark owner but then cancelled, and where the goods were rejected as not being manufactured to a sufficient standard).
Court of Appeal decision
The Court of Appeal was asked to consider the point of law of whether a criminal offence can only be committed if the relevant goods are counterfeits, i.e., whether it does or does not extend to grey goods (because the trade mark owner has given their consent to those goods bearing their mark). The Court, which included a specialist IP judge, Mr Justice Birss, upheld the lower court's decision that the criminal offence can apply to both counterfeit and grey goods, rejecting the defendants' construction of the TMA as not being "tenable", for the following reasons:
- The actual wording of section 92(1)(b) TMA: the defendants argued that the section, when properly interpreted, only applies to goods bearing a sign applied without the trade mark owner's consent. The Court of Appeal said this was contrary to the heading and full wording of s92 TMA and the clear language in the section;
- Existing authority including case law and the leading trade mark textbook (Kerly): in particular, the Court of Appeal's decision in Genis was binding authority that the sale of grey goods could occur without the trade mark owner's consent; and
Public policy: the Court of Appeal stressed that trade mark violation "gravely undermines the value of a brand and affects legitimate trade. The very fact of a cheap sale of a an unauthorised branded item can both dupe a customer and diminish the market and overall value of the trade mark, in terms of perception of quality and exclusivity." It gave the particular example of electrical goods or toys where issues of public health and safety can arise even where the goods are originally manufactured with the trade mark owner's consent, for example, if they are then rejected for being sub-standard but are still sold on. However, the Court also stressed that this is balanced on the other hand by the fact that: (a) there is a high hurdle of proof to establish a criminal offence (beyond reasonable doubt); (b) a claimant must show that all the ingredients of the offence (as set out in s92(1)(b) above) are made out, including that the defendant committed the offence with a view to gain for himself or with intent to cause loss to the trade mark owner; and (c) criminal sanctions are not applied to those who acted honestly and reasonably, given the defence where the defendant can show they believed on reasonable grounds that the sale of such goods was not an infringement of the owner's trade mark e.g. if they did not receive the cancellation notice of the order and proceeded to manufacture and sell that order.