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The sale of 'grey goods' can attract criminal penalties under trade mark law, rules UK Supreme Court

Out-Law News | 03 Aug 2017 | 2:36 pm | 3 min. read

Criminal penalties can be imposed on businesses that engage in the sale of so-called 'grey goods', the UK Supreme Court has ruled.

Five judges of the court unanimously dismissed (10-page / 144KB PDF) claims that trade mark law only provides for civil liability where the sale of grey goods is concerned.

Grey goods are products that trade mark holders authorise third parties to manufacture but do not permit those businesses to sell those goods. They are considered to be different from fake, or counterfeit, goods.

Trade mark law specialist Emily Swithenbank of Pinsent Masons, the law firm behind Out-Law.com, said the ruling was positive for brand owners, particularly those "facing the challenges of unlawful parallel imports flooding the market from mainland Europe".

Swithenbank said: "Trade mark infringement is typically seen as a matter for recourse through the civil courts unless the acts complained of fall squarely within the remit of counterfeit goods. In consequence, parallel importers who deal with goods that have not been authorised for sale or do not comply with the rules on repackaging believe they risk only a financial claim and an injunction if their actions are deemed unlawful. However, this decision of the Supreme Court confirms and highlights to brand owners that the criminal offence extends to so-called ‘grey goods’. This gives brand owners another weapon in their arsenal and the fear of loss of liberty may make those dealing in grey goods at the darker end of the scale think twice."

The case before the Supreme Court concerns unnamed businesses involved in a dispute over the alleged bulk importation and subsequent sale of clothes, shoes and other goods affixed with marks that "appear to be" trade marks belonging to Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry, among other brands. The case has yet to go to trial.

In this aspect of the dispute, the Supreme Court considered how section 92(1) of the UK's Trade Marks Act should be interpreted. That section sets out a range of offences relating to the unauthorised use of trade marks.

It is an offence for a person to fix a sign identical to, or likely to be mistaken for, a registered trade mark to goods or their packaging without the consent of the trade mark owner where they do so "with a view to gain for himself or another, or with intent to cause loss to another".

It is also an offence for a person, without the consent of the trade mark owner, to sell, offer for sale or distribute goods bearing "such a sign" for gain or to try to cause loss to others. Similarly, it is an offence for a person, "in the course of a business", to keep goods in their possession or control where they intend to sell or distribute those goods for such purposes where they are not authorised to do so by the rights holder.

The Supreme Court considered arguments on appeal which claimed that the offences contained under section 92(1) could only be applied to "true counterfeits" and not grey goods.

At the centre of the argument was the claim that the offence of selling or distributing goods was linked to the first offence concerning the fixing of the signs to goods. If businesses were authorised to fix a trade mark to goods under a manufacturing agreement, for example, they could not then be held liable for the sale of those goods, they claimed.

However, the Supreme Court said that that was not the correct interpretation of the law. It said each offence listed under section 92(1) of the Trade Marks Act is "separate" and "not cumulative".

"It is not necessary that one [offence] has been committed (by someone) before one can say that the next in line has been," Lord Hughes said in his leading judgment. "The mental element of a view to gain or the intent to cause loss is applicable to all three. So is the element that the use made of the sign 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. Each stands alone," the judge said.

Lord Hughes said it is "unlawful" to put grey goods on the market, as well as it is when putting fake goods on the market for sale.

The judge said: "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. Defendants who set out to buy up grey market goods to make a profit on re-sale do so because the object is to cash in on someone else’s trade mark. If such be proved, they have scant claim to a beneficent construction of the Act. As it is, its ordinary reading plainly means that, unless they have the statutory defence, they have committed an offence."

Businesses have a defence to charges raised under section 92(1) of the Act if they can show that they "believed on reasonable grounds that the use of the sign in the manner in which it was used, or was to be used, was not an infringement of the registered trade mark".

Penalties for those convicted can include a fine or imprisonment for up to 10 years.