Clothes

The sale of “grey goods” can be a criminal offence

The Supreme Court rules that the sale of “grey goods” can be a criminal offence under s92 of the Trade Marks Act 1994

Brand-owners including Fred Perry, Ralph Lauren, Adidas and others will be celebrating the ruling on 3 August 2017 by the Supreme Court that the distribution of so-called “grey market goods” without the consent of the brand owner can be a criminal offence under s.92 of the Trade Marks Act 1994 (“TMA”).

The case of R v M, R v C and R v T [2017] UKSC 58 was a joint appeal from three criminal cases on the specific question of “whether a criminal offence [may] be committed under s.92(1)(b) or (c) of the Trade Marks Act 1994 (selling, offering for sale or distribution/possession with a view) where the proprietor of the registered trade mark has given its consent to the application of the sign which is its registered trade mark or has itself applied its own registered trade mark to the goods, but has not given its consent to the sale, distribution or possession of them?

The manufacture of the goods in question had originally been authorised by the registered trade mark holder, but their sale had not been authorised. The production of goods in this category could involve factories appointed by the trade mark owner engaging in the following scenarios:

  1. goods made in excess of the authorised numbers by the authorised factories without the authorisation of the trade mark owner being sold without the permission of the trade mark owner to third parties (also known as “back-door production”);
  2. goods made in excess of the trade mark owner’s order with the trade mark owner’s knowledge (e.g. spare capacity for errors or mistakes) then being placed on the market by the authorised factories without the consent of the trade mark owner (also known as “overruns”); and
  3. substandard goods being sold by the authorised factories where the trade mark owner did not authorise the sale (sometimes called “factory seconds”).

The Appellants attempted to argue that “grey market” goods were not covered by s.92 TMA because the items had originally been made with the authorisation of the trade mark owner. They argued only “pure” counterfeit goods were covered by the criminal provisions of the TMA.

Lord Hughes, who gave the Judgment upon which all of the Supreme Court Judges agreed, stated that there was nothing in s.92 TMA to exclude the sale of “grey market” goods. He stated that it is “unlawful for a person in the position of the defendants to put grey goods on the market just as it is to put fake ones there. Both involve deception of the buying public; the grey market goods may be such because they are defective”.

He went on to state that both such examples are “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”.

This Judgment gives clear and unequivocal guidance to the criminal courts that “grey market” goods should be treated exactly the same as “pure” counterfeit goods when considering criminal offences under s.92 of the TMA. This may also result in an increase in seizures by Trading Standards, customs officials and more prosecutions of such offences in England and Wales.

Andrew Stone, a Senior Associate in the Intellectual Property Team of Clarke Willmott LLP, said “This Judgment is a solid blow against the convoluted arguments which infringers regularly try to put forward, and a real boost to brand owners who can use this as another tool in their armoury to prevent counterfeiters. In light of this Judgment trade mark owners should review the agreements they have in place with their authorised manufacturers to ensure that they deal with the issue of “grey market” items by having strict controls over production and explicitly stating that such goods are not authorised, must not be sold by the factories and are to be returned to the brand owner or they should be de-branded and destroyed. The trade mark owners can then rely on such agreements at Court, should this be required, to support criminal cases against the sellers of “grey market” items. This Judgment may also be relied upon by trade mark owners in industries other than the fashion industry, for example those who manufacture electrical goods and those in the food and beverage industries where “grey market” goods are an on-going problem.

Clarke Willmott LLP has a dedicated anti-counterfeiting practice and we regularly assist clients in both civil and criminal matters. Clarke Willmott LLP regularly liaises with and provides support to Trading Standards Officers, the police and Border Force on behalf of brand owners to help stem the flow of counterfeit goods onto the market and protect the public from the sale of the same.

Clarke Wilmott LLP is a national firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.