26 Mar 2020

The Court of Appeal has upheld a sentence of two years' imprisonment suspended for two years and disqualification as a director in respect of an individual convicted of activities amounting to trade mark infringement. [1]

Circumstances of the conviction

The individual (the "Appellant") had been a shadow director for a company which supplied insulation products (the "Company") under a distribution agreement with an UK and EU trade mark owner (the "Respondent"). Following termination of the distribution agreement and the Respondent having secured default judgment against the Company requiring it to pay outstanding invoices to the Respondent, an application was made by the Company's board to wind up the Company.

Some time afterwards, the Respondent instigated a private prosecution alleging that the Appellant – initially through the Company and later as a sole trader – had without its authorisation applied the Respondent's mark to products sold and exposed for sale in England and Wales, thereby infringing its trade mark rights. The value of goods involved was alleged to have amounted to about £300,000 with the Appellant earning an income of around £27,000 from the sales of the infringing goods.

The Appellant had initially faced an eight-count indictment, including counts of conspiracy to commit fraud and relating to the unauthorised use of a trade mark, as well as making material omissions from a statement relating to the Company's affairs; however, most of these allegations were not pursued to trial.

The Appellant was convicted by a jury of an offence under section 92(1) of the Trade Marks Act 1994 (the "Act"), relating to one count of unauthorised use of a registered trade mark. The Crown Court at Southwark sentenced the Appellant to two years' imprisonment suspended for two years, and disqualification from being a director for a period of five years.

Grounds of appeal

The Appellant challenged the sentence on the basis that:

  • the offence did not pass the custody threshold and the sentence of suspended imprisonment should be quashed as being wrong in principle
  • the judge wrongly treated him as having acted dishonestly and had sentenced him accordingly when, in law, dishonesty was not part of the knowledge or intention requirement in the section 92 offence and the Appellant had been acquitted of any count requiring proof of dishonesty
  • there were no identifiable facts or matters arising which could warrant the Appellant being disqualified as a director having been acquitted of the principal allegation of fraud against him, therefore making such sentence wrong in principle

Judgment

It is worth noting that the maximum sentence for trade mark offences under the Act is 10 years' imprisonment, but there are currently no applicable Sentencing Council Guidelines for such offences. Absent any directly applicable authority or Sentencing Guideline to determine whether the custodial threshold had been passed, the Court of Appeal examined the existing case law and identified a non-exhaustive list of factors to consider, namely:

  1. the value and volume of the goods concerned
  2. whether the operation was sophisticated
  3. the duration and profitability of the offending activity and
  4. whether the business started out legitimately and moved to become unlawful over time.

Taking in account the Appellant's actions – including that the Appellant had acquired a substantial quantity of goods from the Respondent without paying for them; had placed the Company into liquidation to avoid the judgment debt; and had been involved in the procurement of third party products to which the Respondent's mark was then applied – the Court of Appeal found that the Crown Court had not erred in its finding that the custodial threshold had been passed.

The Court also found that the Crown Court had not confused the test of dishonesty with the elements of intent or knowledge required to be proved under the section 92 of the Act and that the Crown Court had correctly taken into account the relevant aggravating and mitigating factors of the case.

The Court of Appeal therefore held that the length and suspension of the custodial sentence was appropriate and in addition that there had been no error by the Crown Court in its adjunct decision to disqualify the Appellant from holding the position of director for a period of five years.

Comment

The case is a stark reminder of the consequences of committing a statutory offence under the Act by knowingly infringing a registered trade mark with a view to making a gain and/or causing a loss to another party.

Whilst section 92 of the Act sets out the custodial and fiscal penalties for these type of offences, the courts are not prevented from imposing additional penalties such as the making of director disqualification orders where the circumstances so justify.

Furthermore, there are instances in civil proceedings in the UK where the court has deemed it appropriate to "pierce the corporate veil" and hold directors jointly liable for acts of trade mark infringement involving a corporate entity where that director has sufficient control or influence over the operations of that company.

Directors should at all times ensure that due care and attention is paid to the activities of their companies especially when dealing in products bearing the trade marks of third parties.

Includes contribution from Robin Richardson, Trade Mark Executive

1 R v Clements [2019] EWCA Crim 2253