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.

[Originally published on The IPKat on 5 August 2017]