Many UK companies operate in the so-called “grey market” for computer, camera and mobile phone accessories. They buy the accessories cheaply from overseas suppliers and sell them in bulk at competitive prices. The accessories are not counterfeit. They are entirely genuine, bearing a registered trademark, and manufactured by or with the consent of the trademark owner. But the accessories are marketed or sold without the trademark owner’s consent. This trading pattern is not new and is sometimes referred to as “parallel imports”. What is new is the increasing appetite of Trading Standards to subject such companies to criminal investigation.

Historically Trading Standards devoted its criminal investigation expertise to targeting traders in counterfeit goods. This was easy to understand. There was a clear public interest in punishing traders who took advantage of the reputation conferred by a trade mark so as to mislead consumers into believing they were buying genuine goods. In this firm’s experience, however, Trading Standards is increasingly using criminal investigations as a tool to clamp down on parallel imports in the grey market.

Perhaps appropriately for a grey market, the criminal law on trademark infringement was long regarded as a grey area. Last year, however, the Supreme Court clarified the circumstances in which a criminal offence under section 92 of the Trade Mark Act 1992 might be committed. The Supreme Court distinguished between two scenarios. The first scenario arises where the goods have not previously been marketed in the European Economic Area (EEA) by the trademark owner or with his consent. In these circumstances the Court held that the principle of free movement of goods did not restrict the right of the trade mark owner to prevent the first marketing of the goods within the EU. Put another way, if a UK company imports goods from outside the EU and markets them for the first time in the EU without the trademark owner’s consent, the company commits a criminal offence under section 92.

The second scenario arises where the goods are lawfully in circulation within the EEA but the trademark owner nonetheless has legitimate reasons to oppose their further commercialisation. In these circumstances the Court held that the principle of free movement of goods may be engaged, depending on the facts. Put another way, if a UK company imports goods from outside the EU which are already legitimately in circulation within the EU, the company may commit the criminal offence under section 92, but only if the trademark owner can demonstrate that his opposition to the trade is objectively justified by an adverse effect on the reputation of his trademark.

This clarification of the criminal law might appear to be of little practical value to trademark owners, who, faced with an infringement of their trade mark, will most likely wish to pursue civil proceedings in order to recoup the profits of the grey market trader, and thereby drive it out of business. Increasingly, however, trade mark owners are waking up to the potential benefits of criminal proceedings being run in parallel to civil proceedings. If they can persuade Trading Standards to take an interest in the trademark infringement, they can use a criminal investigation brought by Trading Standards as a lever through which to encourage an early settlement of the civil proceedings, or potentially deploy the product of coercive criminal searches as evidence in the civil case. And therein lies a danger.

In effect, Trading Standards could easily be seduced into using its criminal powers as a tool through which trademark owners seek to achieve their commercial objectives. If a well-resourced trademark owner has carried out its own comprehensive investigation into the infringement, Trading Standards, like many other Government departments struggling with budgetary cuts, may be tempted to use the product of that investigation as a basis for initiating a criminal case, without necessarily subjecting it to any independent scrutiny or properly assessing whether it constitutes reliable evidence for suspecting criminal (as opposed to civil) misconduct.

Most grey market traders are likely to feel aggrieved by the prospect of Trading Standards doing the bidding of powerful trademark owners. However, there are often ways for such traders to challenge the propriety of criminal proceedings and to argue that any trademark infringement should be treated as a purely civil matter. There is, after all, a defence to the criminal offence under section 92, which applies if a person can demonstrate that he “believed on reasonable grounds that the use of the sign of the manner in which it was used, was not an infringement of the trade mark”. Many grey market traders in electronic accessories believe they are acting entirely legitimately: they find themselves in a sprawling online marketplace, in which numerous other companies are trading in exactly the same goods. They conduct their business transparently because they are unaware that they are engaged in trademark infringement. Whilst these factors are unlikely to stop a civil case, they may be enough to derail a criminal investigation.

Moreover, if the goods in which the companies are trading are already in circulation in the EU, the trademark owner may often be hard-pressed to explain why the reputation of its trademark its suffering an adverse effect as a result of the trader facilitating further sales. Indeed, the trademark owner may sometimes conclude that, if some sales are made outside the channels of its licensed distributors, even at a discount, that is not necessarily a bad thing. These sales allow the brand to retain (or increase) its visibility in the marketplace, and deprive both criminal and civil proceedings of any commercial logic. Some traders in the grey market may therefore survive. Other traders should beware the increased risk of a criminal investigation.