No longer a grey area: parallel imports criminal as well as unlawful

18 Apr 2017

A Court of Appeal decision has confirmed that the sale of so-called ‘grey goods’ can constitute a criminal offence under section 92 of the Trade Marks Act 1994 (the Act).

Background

In R v C and others [2016] EWCA Crim 1617, the appellants’ business involved the sale of clothing and shoes bearing the registered trade marks of brands such as Ralph Lauren, Adidas, Fred Perry, Jack Wills and Under Armour. Some of the goods in question were genuine; at some time in their history, they had been manufactured by or with the authority of the trade mark owners. However, the brand owners had not authorised their importation and resale into European Union.

These grey market parallel imports were, as is often the case, mixed up with batches of pure counterfeits i.e. goods the manufacture of which had never been with the brand owners' consent.

In the case of the parallel imports, the Court had found that there were a number of ways by which the goods came to be authorised by the proprietor for manufacture, but not their resale and importation into the EU. Some of them had formed part of an order the proprietor made with an authorised manufacturer which was subsequently cancelled. Others had been manufactured under authority but subsequently rejected as they did not meet the proprietor’s quality standards. The rest of the goods were manufactured under authority but in an amount in excess of the requested quantity.

The question for the Court of Appeal was whether the criminal offences under s.92 of the Act applied only to counterfeit goods or whether they also extended to grey market goods. At first instance, the Court had held that s.92 did extend to parallel imports and it was from this decision that the defendants had appealed.

Criminal liability for unauthorised use of trade marks

Under s.92(1)(b) of the Act, it is a criminal offence for a person to sell, hire out or offer for sale or hire, goods bearing a registered trade mark without the consent of the proprietor. It is also an offence to possess such goods in the course of business with a view to selling or hiring them out.

In both instances the accused must be acting with a view to making a gain for himself or to causing a loss to another person. Under indictment, the maximum penalty for the offence is a ten year custodial sentence.

Section 92 of the Act provides a remedy separate from those available for infringement of the exclusive civil rights that the trade mark owners. However, in both instances it is necessary to for the courts to find that the acts complained of were done without the brand owners' consent.

The defendants, hereafter the appellants, argued that s.92 of the Act only applies in respect of counterfeit goods (i.e. where at no time had the owners given consent to use of their trade mark) and does not extend to grey goods, since in the latter case, the proprietor has consented to the manufacture of the goods and the application of its trade mark.

Whilst some of the appellants’ goods were counterfeits, and were therefore within the scope of s.92, they contended that, in respect of the grey goods they were selling, their liability was limited to civil claims for trade mark infringement.

The Court rejected this argument stating that s.92 applies to both counterfeit goods and grey goods. It was held that there is little ambiguity in the language of s.92 and it is clear that the appellants’ reading of the offence was neither the ordinary interpretation nor the intended meaning.

Section 92(1)(b) concerns situations where goods, bearing a registered trade mark, are sold without the proprietor’s consent, not just where a registered trade mark is applied without their permission. The decision affirmed the principle expounded in the recent Court of Appeal case of Genis [2015] EWCA Crim 2043.

Comment

The Court of Appeal’s judgment makes it clear that, in addition to civil liability for trade mark infringement, criminal sanctions may follow from dealing in both counterfeit or grey goods. This will come as good news to brand owners, who may be considering a private prosecutions under s.92 of the Act against unauthorised dealers in grey goods, in addition to any infringement claims, even if the police or trading standard officers are reluctant to take action.

Whilst the Court of Appeal recognised that its approach could potentially result in harsh consequences for some, such as tourists buying jeans in New York and later selling them on eBay, it was viewed as necessary in order to address the “….unscrupulous conduct…” of those attempting to undermine and profit from the registered trade marks of others. The Court also relied on the “…good sense…” of trading standards officers not to pursue prosecutions in inappropriate cases.

Although the case itself did not involve parallel imports (which involves goods being sold in one country with the proprietor’s consent and imported into another country for resale without the proprietor’s permission), the Court expressed the opinion that engaging in such parallel trade may also be caught by s.92.

In the UK, this is likely to be of practical relevance mainly in cases where the proprietor consents to the sale of the goods outside of the European Economic Area (EEA) and a trader subsequently imports them for re-sale within the EEA without the proprietor’s consent. This may amount to trade mark infringement and therefore may also constitute a criminal offence under s.92.

Conversely, re-selling within the EEA does not usually amount to trade mark infringement (except under certain circumstances), therefore criminal offences under s.92 would also not apply.

It is yet to be seen how this will be applied in practice and whether there will be an increase in private prosecutions under s.92 of the Act; however, it serves as a reminder that brand owners faced with such problems may consider such a course of action.

Finally, if brand owners are contemplating s.92 of the Act to be a weapon as part of their intellectual property enforcement strategy, when faced with grey goods or parallel imports, then it is important to consider:

  1. As this is a criminal offence, the onus is on the prosecuting side to prove to the high standard of "beyond reasonable doubt" the absence of the brand owner's consent to the importation and/or resale within the European Union of the goods. In civil actions, the onus would fall upon the importer/reseller to prove that it is more probable than not that the brand owner did consent to such sales.
  2. In civil actions, it is unnecessary to prove the motive or knowledge of the defendant whereas under s.92 of the Act the prosecutor would need to demonstrate that the importer/reseller acted with a view to making a gain for himself or to causing a loss to another person.