Adidas, Jack Wills and Fred Perry are but few of the many brands and trademark proprietors that contract with factories across the world every day to produce their goods to be sold in the market place.
The trademark proprietor will, of course, give its consent for the factory owner/manufacturer to apply its trademark to the goods that are made. As one might expect, some of the goods produced in the factory will either i) be rejected for being of sub-standard quality, ii) be excess to requirements, or iii) the order may be cancelled in part or in full. The factory owner/manufacturer then finds himself in position of holding a potentially large quantity of stock, but with little to no use for it. Where does that stock go? Very often, it finds its way out of the factory through “side door” sales or other methods and is sold, without the trademark proprietor’s consent, to traders or to the public. These goods are known as ‘grey goods’.
Grey Goods – A 10 year Sentence?
The Court of Appeal, in R v C & Others [2016] EWCA Crim 1617, has recently ruled that the sale of grey goods is a criminal offence, contrary to s.92 Trade Marks Act (“TMA”)1994, for which a maximum sentence of 10 years imprisonment can be imposed by the court.
It was alleged by the Crown that the defendants in this case were selling fake and counterfeit Ralph Lauren, Adidas and other branded goods, which is very clearly a criminal offence under the legislation. However, the Crown also alleged, and the judge agreed, that the defendants were selling a large amount of grey-goods, and this was also a criminal offence.
Section 92(1) provides that it is an offence, without the consent of the proprietor to:
- apply to goods or their packaging a sign identical to, or likely to be mistaken for a registered trademark; or
- sell or distribute goods which bear, or the packaging bears, such a sign; or
- to possess or have in your control or custody, in the course of a business, any such goods, with a view to doing anything that would be an offence under ‘a’ or ‘b’.
When the matter came to the Court of Appeal, the defendant Appellants argued that it was only a criminal offence to sell goods where the trademark has been applied without the consent of the proprietor. The Appellants claimed that, in this case, the trademark proprietor had given its consent. The Court found that that was not a tenable proposition: it was irrelevant that the trade mark proprietor gave consent to apply the trademarked sign to the goods, the fact remains they did not give consent to sell the goods, and thus it is an offence under section 92(1)(b).
In coming to their decision, the Court of Appeal relied on the doctrine of precedent coming from previous case law in higher courts, by which they were bound, but they were also clearly motivated by public policy considerations. The Court held that trademark violations gravely undermine the value of a brand and affect legitimate trade. They held that the cheap, unauthorised sale of a branded item can dupe a customer and diminish the market value of the trademark, in terms of perception and quality. A further consideration was that in some cases (for example electrical goods or toys) very real issues of public health and safety can arise. We have seen this recently with genuine products, such as Samsung batteries, so it is easy to imagine how fake electronics, batteries or other products that may be on the market can be equally dangerous and can cause serious health problems.
Trading Standards or Private Prosecution
The Appellants also relied on the fact that Trading Standards authorities do not generally seek to prosecute “grey-goods” cases. The Court found that this was not a relevant consideration. The Court stated that the reason why Trading Standards did not prosecute these cases was because it was very difficult to obtain the proof required to establish the offence to the criminal standard. In our experience, Trading Standards face real and significant reductions to their resources and finances and this is a primary reason why they are not able to prosecute. While, ideally, Trading Standards officers would prosecute every offender that is sent their way, the reality is that they do not have the budget or resources to do so.
As a private prosecution firm, Edmonds Marshall McMahon do not come under these same resource pressures and have prosecuted hundreds of offenders on behalf of trademark proprietors for selling ‘grey-goods’ as well as counterfeit sales. Whilst the Court of Appeal is right to point out that it may be difficult to obtain the proof required to meet the criminal standard in these kinds of cases, Edmonds Marshall McMahon work with expert private investigators who have a wealth of experience and know-how in investigating instances of intellectual property and trademark infringement.
Parallel Imports
“What about the poor chap that buys a pair of jeans in the US, returns to the UK, and sells them on Ebay?” asked the Appellants. They argued that the Court’s wide interpretation of the law would mean he may be vulnerable to prosecution because, while the trademark owner gave its consent to apply the trademarked sign to the jeans, they did not give him the authority to sell the goods in the UK. The Court held that the Appellants’ contention may well be correct, however, they decided that it is not necessary to resolve that question in the instant case.
The Court recognised that the law may be tough for certain users, but this should be balanced against the “often unscrupulous conduct of some of those determined to exploit to their own advantage, and to the detriment of proprietors and consumers, the proprietary rights in trade-marks belonging to, and established at great expense by, others”.
Ashley Fairbrother
Solicitor
