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Saturday, 5 August 2017

UK Supreme Court holds that grey market sales can be criminal offence

A grey market
Can grey markets be considered akin to trade in counterfeit goods, at least when it comes to the application of criminal provisions in trade mark law?

The UK Supreme Court answered this question in the affirmative earlier this week in its judgment in R v M & Ors [2017] UKSC 58.

Issued in the context of an interlocutory appeal in criminal proceedings, this ruling concerned the proper construction of section 92(1) of the UK Trade Marks Act 1994. This provision states that:

"(1) 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 bears, 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).”

As explained by Lord Hughes, the defendants in this case are said to be involved in the bulk importation and subsequent sale of goods such as clothes and shoes, bearing the trade marks of well-known brands (Ralph Lauren, Adidas, Under Armour, Jack Wills, Fred Perry or similar).

Manufactured outside the EU, the products imported by the defendants are in part counterfeit goods. However, a “significant portion of the remainder of the goods” are legitimate products whose sale, nonetheless, for various reasons had not been authorized by the relevant trade mark owners. Such goods are those appearing on the grey market.

The point for the UK Supreme Court to address was whether, while civil liability would arise in any case of unauthorized use of a third-party trade mark, a criminal offence could only subsist in the case of “true counterfeits”, not also legitimate goods sold on the grey market.

This would be because the expression “such a sign” in subsection (1)(b) refers back to subsection (1)(a). And by referring back to (1)(a), subsection (1)(b) would only apply to goods where the relevant sign (ie trade mark) has been applied without the consent of the proprietor.

At the end of a
successful (and legitimate)
shopping expedition
The UK Supreme Court decision

The Supreme Court did not agree with this reading of the provision. According to Lord Hughes (with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Hodge agree) [para 10],

“It may readily be agreed that the expression “such a sign” in section 92(1)(b) refers back to the sign described in the immediately preceding paragraph (a). The difficulty comes when one is asked to read “such a sign” as incorporating the words “without the consent of the proprietor” which appear in the first few lines of the section before (a), and also the requirement that the sign has been applied to the goods (without such consent), which is the central component of the offence under (a). This is simply not a possible construction of section 92(1). There is no difficulty, on the ordinary reading of paragraphs (a) and (b), in seeing what the reference back to “such a sign” in (b) imports from (a). “Such a sign” in (b) plainly means a sign such as is described in (a). The sign described in (a) is a sign which is “identical to, or likely to be mistaken for, a registered trade mark”. Signs (or trade marks) having any of the provenances described in para 5 above are squarely within this description. So-called grey market goods are caught by the expression.”

It follows, [para 11] that “[t]he offences set out in paragraphs (a), (b) and (c) of section 92 are, as a matter of plain reading, not cumulative, but separate. It is not necessary that one has been committed (by someone) before one can say that the next in line has been.”

For this and other reasons, the court dismissed the appeals and ordered that criminal trial to proceed accordingly.


Howard Knopf said...

I think that the late great Sir Hugh Laddie (may his memory be a blessing) must be turning over in his grave at the thought of criminal liability for dealing in grey market goods, which are "legitimate" in contrast with counterfeit goods, which are "fake". In many, if not most, instances, distributors and retailers of grey market goods will be bona fide purchasers for value without notice of any problem in the supply chain.

Anonymous said...

I have to wonder about exhaustion in relation to:

"Manufactured outside the EU, the products imported by the defendants are in part counterfeit goods. However, a “significant portion of the remainder of the goods” are legitimate products whose sale, nonetheless, for various reasons had not been authorized by the relevant trade mark owners. Such goods are those appearing on the grey market."

Mere "authorization" (or lack thereof) does not (should not) overcome legal principles of exhaustion.

Andy said...

I think the UKSC's decision is more understandable when one considers the definition of grey goods teh court were considering, as found in para 5 of their judgement: "5. A significant portion of the remainder of the goods are, however, ones where there had originally been an authorisation of manufacture by the registered trade mark holder, whether by subcontract, licence or otherwise, but whose sale had not been authorised by him. They were thus sold, bearing the trade mark, without the consent of the owner of the mark. The causes of the non-authorisation of sale might be, it is said, various. Some garments might deliberately have been made by the factories in excess of the numbers permitted by the trade mark owner, so that the balance could be sold for their own benefit. Some might have been made in excess of the order without that original ulterior intention (indeed perhaps as precautionary spare capacity planned and approved by the trade mark owner), but then have been put on the market without his consent. Some might have been made under a permission which was cancelled by the trade mark owner; that in turn might include cases where the trade mark owner was dissatisfied with the quality and not prepared to have the goods put on the market as if their own, but cancellation might not be limited to that cause. Those are not exhaustive of the possibilities. These latter various types of goods are described by the appellants as goods appearing on the “grey market”." From this it seems these non-counterfeit goods were not legitimately on sale elsewhere, in contast to the more usual meaning of grey goods which have simply been purchased on the open market in another jurisdiction (usually at a lower price) and then re-sold elsewhere at a price which undercuts the 'authorised' price in that second market place. Something which is referred to in more prestigeous circles as arbitrage.

Anonymous said...

Is it not so that typical actions against your own agent (the "extra" creation of non-counterfeit goods) is against that agent - NOT the general public?

Is it not so that once the goods pass into the public stream of commerce (grey or otherwise), those goods are beyond the court's power, as actions to affect them touch upon non-parties to the original conflict?

Anonymous said...

Bona fide purchasers should fall within the Defence available under 92(5)

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