A recent decision of the Supreme Court has confirmed that selling so called ‘grey market’ goods can result in criminal as well as civil liability and in doing so has confirmed the existence of an important weapon in a brand owner's armoury.
The defendants (a limited company and two individuals who managed it) were charged with the unauthorised use of trade marks under the Trade marks Act 1994 (the Act). Before trial, the court was asked to determine whether the facts alleged were, if proved, capable of constituting an offence under the Act. The Judge at first instance and the Court of Appeal both rejected the defendants' submission in this respect and the defendants appealed to the Supreme Court.
The facts were straightforward. The defendants imported and sold goods (including branded products) in bulk. Many of the branded goods bore well-known trade marks such as Ralph Lauren and Adidas. Some of the goods were counterfeit, that is to say they were not made with the consent of the trade mark proprietor, whilst some were genuine goods in the sense that they had been manufactured with the consent of the trade mark proprietor. The sale of the latter category of goods had not been authorised by the trade mark proprietor because, for example, the goods had been manufactured in excess of the quantities originally ordered or they had been rejected because of quality issues. These goods were now being sold on the so called grey market.
The defendants argued that it was only in the case of true counterfeits that a criminal offence can be committed. In the case of genuine goods, where the only issue relates to the permission to sell the goods, there can be no criminal liability. In short, a criminal offence can only be committed where the trade mark is applied to the goods without the consent of the trade mark proprietor. Where genuine goods are sold on the grey market it is only the sale that has not been authorised; the relevant section of the Act is not engaged and no criminal offence has been committed.
In a concise judgement the Supreme Court concluded that “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". In the circumstances, unless the defendants have a statutory defence (where, for example, the defendants can demonstrate that they had reasonable grounds for believing that they were entitled to use the trade mark), a criminal offence will be committed.
This decision confirms that brand owners have an important additional weapon in their armoury when confronted with unauthorised sales of their products. The importers, wholesalers and retailers of such products may, in addition to facing civil claims, face criminal prosecution. For retailers, the decision reinforces the need to ensure that wholesalers and the goods that they supply are thoroughly audited. The purchase of such goods should be the subject of properly drafted terms and conditions which contain warranties as to the origin of the goods and indemnities in the event that something does go wrong.