In a unanimous decision, the Supreme Court has confirmed that grey market goods do fall under the protection of section 92 Trade Marks Act 1994 and infringers may now face criminal liability.
What are ‘grey goods’?
Grey goods are items that have been authorised by the rights holder prior to production, produced by the manufacturer and then passed on for sale without further authorisation. They are not 'black market' or counterfeit goods. However, businesses are not entitled to handle these goods for gain without further approval by the rights holder.
There may be legitimate reasons for producing extra goods in the manufacturing process. For example, in order to make up for any defective goods (known as overruns) or where items were initially produced as part of a test run. However, sometimes surplus products are produced in order to make a profit from illegal sales following production, or units are passed on prior to a product's release date.
‘Grey goods’ come into existence once they are passed on without the rights holder’s authority.
What does the law say?
Under section 92(1) of the Trade Marks Act 1994 (“the Act”), 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:
a) applies to goods or their packaging a sign identical to, or likely to be mistaken for, a registered trade mark, or
b) sells or lets for hire, offers or exposes for sale or hire or distributes goods which bear, or the packaging of which bear, such a sign, or
c) 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).
What happened in this case?
The Appellants in this interlocutory appeal imported goods into the UK. The goods were supposedly manufactured by leading fashion brands and contained their marks. Some of the goods were confirmed as ‘black market goods’ but the majority were classified as ‘grey goods’.
The Appellants argued that, as the fashion brands had authorised the use of the sign on these goods, they were not then liable for criminal proceedings, as it was only the sale that the rights holder had not authorised. They argued that the wording use of 'such a sign’ in section 92(1)(b) of the Act limited this offence to only black market goods and not grey goods because the sign had, in the first instance, been applied to the goods with the brand owners’ consent.
The Supreme Court disagreed and rejected the Appellants’ argument that this provision of the Act was ambiguous and obscure. Section 92(1) applied to both counterfeit and grey goods.
What does this mean for brand owners?
This is a positive outcome for brand owners. As well as civil proceedings, the Supreme Court has confirmed that criminal proceedings can now be brought for any breach of section 92(1) of Trade Marks Act 1994. This opens up the possibility of private prosecutions and will also act as a deterrent to manufacturers and third parties in handling grey goods. The infringement of section 92(1) can lead to a fine or a sentence of up to 10 years imprisonment.
Brand owners should:
- consider inserting express contractual provisions relating to grey goods in their contracts with manufacturers
- explore whether criminal proceedings should be brought in appropriate cases.