In an interesting recent decision (R v C & Others [2016] EWCA Crim 1617) the Court of Appeal has confirmed that criminal sanctions under s92 of the Trade Marks Act 1994 are not limited to cases involving counterfeit goods but also extend to cases involving "grey" goods.

The term "grey" goods for the purpose of this decision does not extend to parallel imports but is limited to goods whose manufacture was authorised by the trademark owner but which were subsequently disposed of without the trade mark owner's authority.

In this case it was alleged that the defendant had been unlawfully selling various branded goods in the UK. Those goods included grey goods which had been either (1) part of an order placed by the trademark owner but then cancelled or subsequently rejected for quality reasons; or (2) manufactured in excess of an order placed by the trade mark owner.

By way of reminder s 92(1) of the Act states that 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 trade mark owner's consent:

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

(b) sells, 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 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 decision at first instance held that there was no distinction between counterfeit and grey goods for the purposes of s 92. The Defendant appealed on the basis that s 92(1)(b) only applied to goods which bear a sign identical or likely to be mistaken for a registered trade mark which had been applied to it without the trade mark owner's consent (i.e. counterfeit goods) and not to goods which bear a sign that had been applied to it with the trade mark owner's consent (i.e. grey goods). The Court of Appeal disagreed and dismissed the appeal on the basis that s 92 should be interpreted broadly and that the defendant's arguments involved "a wholesale and illegitimate rewriting of the section" which did not "fit with the general scheme of the Act".

It concluded that the language of s 92 was clear in that selling or offering for sale goods or packaging which bear a sign identical to or likely to be mistaken for a registered trademark without the trade mark owner's consent and with a view to obtaining a gain or the intent of causing a loss amounted to a criminal offence. In interpreting s 92 the Court of Appeal was of the view that even if the trade mark owner had applied or authorised the application of the mark to the goods or packaging, consent to sell the goods was still required.

The Court of Appeal stated that there were strong policy reasons for applying criminal sanctions to cases involving grey goods, and that whilst it could lead to "tough" outcomes in certain cases it had to be set against the "often unscrupulous conduct" of parties looking to exploit weaknesses in supply chains.

Comment

The decision will be welcomed by trade mark owners, who often face difficulties in policing the unauthorised distribution of grey goods. The risk of prosecution resulting in up to ten years imprisonment and /or a fine may act as an important deterrent against dealing in grey goods. That said, it is unlikely that this decision will result in a large increase in successful prosecutions as it remains difficult to obtain the evidence necessary to bring a prosecution.

On the other hand, the decision may cause some concern to distributors who, in some circumstances, may face difficulty in ascertaining whether the distribution of certain goods has been authorised by the trade mark owner. Distributors must ensure that they take appropriate measures to verify that such consent has been given, and should also take note of the statutory defence available in s 92(5) which provides a defence if it can be shown that the defendant believed, on reasonable grounds, that the use of the sign in the manner it was used was not an infringement of the trade mark. Keeping a paper trail proving that consent for the sale of the goods has been provided by the trade mark owner is essential.

It should be noted that the Court of Appeal did not have to consider the position in relation to parallel imports from outside the European Union. It did state however that although it was unable to express a conclusive view, it was prepared to accept that persons engaging in the importation of parallel goods may be potentially vulnerable to criminal prosecution and sanctions under s 92.