29 September 2017 by Paul Harris
A Supreme Court decision flags ambiguities on the law around the ‘grey’ goods market, says Paul Harris.
A recent ruling of the UK Supreme Court in R v C and ors  UKSC 58 has expanded criminal liability for trademark infringement beyond the traditional scope of counterfeiting, by confirming the applicability of section 92(1) of the Trade Marks Act 1994 to so-called ‘grey’ market goods.
The decision, which has attracted some criticism, adds another weapon to the arsenal of brand owners looking to restrain unauthorised use of their trademarks.
The term ‘grey goods’ refers to genuine branded goods that are sold by or with the proprietor’s consent outside of the European Economic Area (EEA), but are then imported into the EEA.
In the present case, the Crown was attempting to prosecute defendants who were allegedly selling goods that infringed the marks of well-known brands, including Ralph Lauren, Adidas, Jack Wills and Fred Perry.
All of the goods were manufactured outside of the EU and then allegedly sold in the UK by the defendants.
“Grey goods are sold by or with the proprietor’s consent outside of the European Economic Area (EEA), but are then imported into the EEA”
As there has not yet been a trial, the facts have not fully been established. What emerged from the prosecution’s case is there were several different types of goods, some of them fake and counterfeit in the ‘true’ sense, meaning that the brand trademarks had been applied without any authorisation.
However, a substantial amount of the goods comprised items manufactured by factories that had been authorised by the trademark proprietor. In a number of these cases, the goods were from a batch that had been rejected for quality reasons, or exceeded the production quota allowed.
Accordingly, although the trademarks had been applied with the consent of the proprietor, what they had not consented to was the subsequent sale and importation of these specific goods.
The Trade Marks Act s92(1) reads:
‘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 – applies to goods or their packaging a sign identical to, or likely to be mistaken for, a registered trademark, or 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 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 Crown did not make any distinction between the counterfeit goods and the grey goods. The defendants argued that s92(1), and specifically s92(1)(b) under which they were charged, should only apply in cases of ‘true’ counterfeits, and so the indictment was defective and should be dismissed.
The argument was that the words ‘such a sign’ in paragraph (b) referred back to the ‘sign’ in paragraph (a), and that the ‘sign’ in paragraph (a) was one that had been applied to the goods or packaging without the consent of the proprietor.
Accordingly, if no offence had been committed under paragraph (a) there could be no offence under paragraph (b). Both the Crown Court and the Court of Appeal disagreed with the defendants, who appealed to the Supreme Court.
In a unanimous judgment, the Supreme Court sided with the prosecution.
Lord Hughes’ relatively short speech set out the interpretation of the court. He agreed with the defendants that the words ‘such a sign’ in paragraph (b) referred back to paragraph (a).
However, there was a difficulty in reading the words ‘without the consent of the proprietor’ into the definition of ‘sign’ in paragraph (a), as those words appear in the first few lines of the section and not in paragraph (a).
The ‘sign’ that is referred to in (b) is one which, as per (a), is ‘identical to, or likely to be mistaken for, a registered trademark’. The words ‘without the consent of the proprietor’ are to be read as applying to each of the paragraphs that follow.
The result of this reasoning is that s92(1)(a) creates an offence of the making of counterfeit goods, and that s92(1)(b) creates one of the selling of both counterfeit and ‘genuine’ branded goods where there has been no proprietor’s consent to the sale.
The Supreme Court considered whether Parliament may have intended, when enacting s92(1), that it should apply to the counterfeiting of goods only. They considered ‘the appellants realistically did not contend that there had been the kind of clear ministerial statement which amounted to a definitive identification of what the [Trade Marks] Bill was intended to achieve’.
Furthermore, ‘there is no ambiguity or obscurity in the language such as would justify the court … in investigating the contents of Parliamentary debate’. However, the language in s92(1) is clearly ambiguous.
Although for trademark proprietors this judgment is undoubtedly good news, for those traders who have purchased genuine goods from outside the EEA and sought to bring them in, they are now considered in the same category as a thief.
It is accepted that since the 1999 ruling of the European Court of Justice in Silhouette v Hartlauer that the principle of exhaustion of trademark rights applies only within the boundaries of the EEA. However, those imports amounted to a trademark infringement: a civil wrong, not a criminal one.
Given that the ruling on s92(1)(b) apparently does not care if the mark was applied to the goods with consent or not, it is now, in the UK at least, also a criminal offence to infringe on trademarks in this manner – with a maximum penalty of ten years’ imprisonment.
“For those traders who have purchased genuine goods from outside the EEA and sought to bring them in, they are now considered in the same category as a thief”
Many consider the decision unduly harsh, with serious consequences for individuals, since the offence in paragraph (b) is not conditional on the acts being done in the course of a business in the way that paragraph (c) is.
This is highlighted by the example argued before the Court of Appeal that ‘a young student who purchases from an authorised outlet a pair of legitimately branded jeans in … New York at a favourable price [who] then returns to the UK and advertises those jeans for sale on eBay … [is] vulnerable to criminal prosecution and conviction’.
The Court of Appeal accepted this would be the case, saying the ‘outcome is capable of being tough in certain cases’ but ‘Parliament has weighed the balance and decided as it has’. The Court of Appeal considered it best left to the ‘good sense of the trading standards officer’ whether in such cases a prosecution was merited.
What the Supreme Court did not touch on was the issue of parallel importation.
This is where goods have been put on the market with the proprietor’s consent, and then brought into a different EU member state – often repackaged and with the trademark applicable in the importing member state, but applied to that packaging by the importer, not the proprietor.
This has been the subject of many cases, most notably those involving pharmaceuticals. It remains to be seen whether, if a true parallel importation case came up, it would accept the broadening of s92(1) to the extent suggested by the Court of Appeal. It is difficult to see how the logic would not also apply in these cases.
Notwithstanding the potential impact of the R v C decision, trademark proprietors will no doubt be wary before seeking Trading Standards’ help in such cases.