Grey goods are not so grey anymore: Court of Appeal confirms sale of ‘grey’ goods capable of being deemed a criminal offence
The recent Court of Appeal decision in R v C and Others  EWCA Crim 1617 [link to decision http://www.bailii.org/ew/cases/EWCA/Crim/2016/1617.html] has confirmed that sale of grey goods can be met by criminal sanctions under Section 92 of the Trade Marks Act 1994 (‘the Act’), which can amount to a maximum of 10 years imprisonment.
Grey goods are goods to which a trade mark proprietor has authorised the application of their trade mark, but has not authorised the subsequent disposition of those marked goods. Examples of how this may arise are provided in the judgment and include, where goods had been part of an order placed with an authorised manufacturer by the trade mark proprietor but then cancelled; part of a batch of goods whose manufacture had been authorised but were subsequently rejected as not being of sufficient standard; or goods manufactured, pursuant to order, with authority but in excess amount. The issue of grey goods and their interaction with their supply chains is often of particular concern to retailers.
The case centred on whether s. 92 of the Act, which concerns the criminal provisions of the Act, only applied only to goods which were marked with the trade mark, without the authorisation of the trade mark proprietor - that is, counterfeit goods - or whether the section also applied to instances where the proprietor had authorised such application of the trade mark, that is grey goods. Brand owners perspective will favour the latter extension, as dealings in grey goods can be almost as damaging as counterfeit goods. Further, it is not uncommon for grey goods, particularly from retail supply chains, to ‘leak onto the market’, to the detriment of the brand owner, via online and offline discounters and the like. The case was decided so as to balance ‘the often unscrupulous conduct of some of those determined to exploit their own advantage and the detriment of proprietors and consumers.’
In this case it appears that the offending goods consisted of a mixture of genuine grey goods and counterfeit products, all sourced from outside the European Economic Area (‘EEA’). This is a common scenario faced by many brand owners and the question was whether all these classes of goods could fall within the provisions of s. 92 of the Act. The decision was in favour of trade mark proprietors, based on three factors: (1) the wording of Section 92; (2) earlier legal authority; (3) public policy.
The wording ‘a sign identical to, or likely to be mistaken for a registered trade mark’ in Section 92 was considered to be clear and to include circumstances where the registered mark itself has been applied, whether with or without the proprietor’s consent. Indeed, the judgement found that references in the Parliamentary debate of the Section 92 provisions to ‘counterfeits’ did not preclude the section applying to grey goods or that there was uncertainty over the provisions. Considering previous authority, the court reviewed the leading textbook on trade marks, Kerly’s Law of Trade Marks, which outlined that s. 92 has a broad application and is capable of extending to grey goods. Furthermore, the recent decision of Genis  EWCA Crim 2043 was a binding authority, outlining that a conviction was safe even where a mark had initially been applied with the proprietor’s consent.
The final consideration of public policy crucially highlighted how a cheap sale of an unauthorised brand can serve both to dupe a customer, diminish the mark and overall value of the trade mark and explained that a “very real issue of public health and safety [which] can arise where the goods are rejected as substandard but nevertheless sold without authorisation.”
It was acknowledged that this decision may be considered capable of leading to tough outcomes in certain cases, but stressed the high burden of proof to establish a criminal offence and that criminal sanctions are not applied where persons have acted honestly and reasonably, and can demonstrate that they believed on reasonable grounds that they were not infringing the proprietor’s rights.
The court further acknowledged the argument of the Appellants that the logic of this decision might mean that parallel importers of genuine branded goods from outside the EEA, where the application of the brand had not only been authorised by the brand owner, but also put on the market by them, could also be construed as a criminal act. The court held that might be held to be the case in future, but emphasised that the case at hand explicitly did not deal with that situation, concerning itself solely with the question of grey goods.
The decision is of importance because it provides brand owners with an additional means whereby they can control their supply chain with respect to grey goods. Given that these acts can be deemed as falling under the criminal provisions of the Act, brand owners can now encourage Trading Standards to take enforcement action or launch private prosecutions under the Act. The decision also raises the issue that parallel importation from outside the EEA, and following BREXIT, outside the UK, might be deemed a criminal act - a prospect some retailers and brand owners might view with glee, but others with fear.