Trade marks: Supreme Court confirms that criminal sanctions apply to grey market sales

Trade marks: Supreme Court confirms that criminal sanctions apply to grey market sales

A person selling fake branded goods not only risks a civil action for trade mark infringement but may also commit a criminal offence punishable by up to ten years imprisonment or a substantial fine (S.92 Trade Marks Act 1994). In the case of companies, the directors can be personally liable.  These criminal sanctions are enforced by local weights and measures authorities or through private prosecutions and provide important additional deterrents to counterfeiting.

Grey market goods

But what if the goods themselves are genuine in the sense that they have been manufactured (and the trade mark has been applied) with the consent of the trade mark owner, but the seller is not authorised to sell them? This was the question addressed by a recent Supreme Court decision relating to the bulk importation and sale of goods such as clothes and shoes manufactured abroad in countries outside the EU.  The court explained that, in the case in question, there were a number of reasons why sale of such ‘genuine’ goods might be unauthorised.  These included that factories might have made more than the permitted number and be selling these off on their own account, spare capacity may have been authorised as a precaution but no consent to sale granted or they might be goods that do not comply with quality controls. In a decision which will be welcomed by brand owners, the Supreme Court held that such ‘grey market’ sales came squarely within the offence.

Implications of the decision

Sale of such grey market goods generally also constitutes civil law trade mark infringement – in fact the criminal offence is not committed unless there is an infringement that would be unlawful as a matter of civil law. The Supreme Court decision provides an additional tool for trade mark owners in controlling unauthorised sales and protecting distribution systems, particularly as the remedies and sanctions for criminal offences (e.g. confiscation orders) are wider and potentially more of a deterrent. For sellers, including online sellers, the decision reinforces the need to identify the origin of the goods they are selling. The court appears to acknowledge that in some cases this may be difficult, for example if authorised and unauthorised goods are mixed. In such a case, if the defendant reasonably believed that the goods were authorised he or she will have a defence. The court comments, however, that the merits of such a defence will no doubt involve investigation of, among other things, “the circumstances in which the defendant acquired the goods and the inquiries he did or did not make”. Sellers should, therefore, ensure that relevant enquiries are made.

The instances of grey market sales described in the judgment seem to involve situations where the goods were placed on the market for the first time, straight from the factory, without the consent of the brand owner. Grey market sales also arise where goods are put on the international markets outside the EU by brand owners or their authorised licensees and dealers but are then sold into the EU by third party sellers without authorisation. Although under the doctrine of European exhaustion of trade mark rights, the trade mark owner’s ability to object to the free flow of branded goods around the EU is very limited, the trade mark owner can object to such unauthorised imports from non-EU countries and unauthorised subsequent sales, which will generally constitute civil law trade mark infringement.  The ability to control such sales can sometimes be an important element in distribution systems. Although the court does not specifically discuss this situation its reasoning leaves little doubt that the decision applies equally to such sales also, indicating that criminal sanctions should also be available in this situation.

The case: R v C and others [2017] UKSC 58

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