Criminal sanctions for grey goods, court rules

A UK Supreme Court ruling has handed a bonus to brand holders who will now be able to seek criminal sanctions under UK trademark law against people selling grey goods.

The penalties for the sale of grey goods would now include a fine or imprisonment of up to 10 years.

The judgement follows the case R v M & Ors, which involves an unnamed business that allegedly imported and sold clothes featuring the Ralph Lauren, Jack Wills and Adidas trademarks, some of which were counterfeits and some were grey market.

The production of the goods had been authorised by the brand holder but not their sale, which distinguishes the goods from counterfeits.

The interpretation of the law had to be considered before the case reached trial.

The appellants claimed criminal liability related to counterfeit goods only and not grey goods. According to the appellants, as reported in The Law Society Gazette, "a criminal offence could not be applied to grey goods because the manufacturer had given permission for their manufacture and so they [the appellants] should not be held liable for the sale of the goods".

The argument was rejected by the Crown Court and the Court of Appeal before reaching the Supreme Court, which also rejected the claim, saying it was an incorrect interpretation of the law.

In a blog, associates Andrew Linch and Clare Matheson from law firm Hogan Lovells wrote: The Supreme Court considered "in particular whether it was an offence to sell goods which bear a trademark owner's mark without its consent, even where the trademark owner had consented to the trademark being applied to the goods. This subtle distinction required the Supreme Court to consider whether the criminal provisions apply to 'grey market' goods as well as counterfeit or 'black market' goods."

The Supreme Court concluded that criminal provisions also applied to grey goods.

Lord Hughes, on giving the judgement, wrote that there was no reason to "strain the language [of the trade Marks Act] so as to exclude the sale of grey market goods… 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 trademark. If such be proved, they have scant claim to a beneficent construction of the act."

He said "the distinction between the two categories is not cut and dried", that whether the goods are grey or black "both are clear infringements of the rights of the trademark proprietor". In both cases it involves a deception of the buying public and the infringer sets out to profit from someone else's trademark without permission, he said.

Much commentary on the case and the ruling notes that the judgement is good news for brand holders who now have another weapon in their armoury to deter dodgy dealers and to crackdown on illicit behaviour.

Writing on Out-Law.com, Emily Swithenbank, trademark law specialist at law firm Pinsent Masons, said: "Trademark infringement is typically seen as a matter for recourse through the civil courts unless the acts complained of fall squarely within the remit of counterfeit goods. In consequence, parallel importers who deal with goods that have not been authorised for sale or do not comply with the rules on repackaging believe they risk only a financial claim and an injunction if their actions are deemed unlawful. However, this decision of the Supreme Court confirms and highlights to brand owners that the criminal offence extends to so-called 'grey goods'. This gives brand owners another weapon in their arsenal and the fear of loss of liberty may make those dealing in grey goods at the darker end of the scale think twice."

However, the new provisions do put the onus on the brand holders to prove their case "beyond reasonable doubt" and to prove the infringer is guilty of acting without the trademark owner's consent, Linch and Matheson said. The brand holder will also have to prove the motive of the behaviour was driven "with a view to making a gain for himself or causing a loss to another person", as well as ensure there is no grounds for the "innocent infringer" defence by including provisions in contracts, they said.