In a recent ruling, the UK Court of Appeal confirmed that anyone in possession of or selling ‘grey goods’ is liable to prosecution under the criminal provisions of the Trade Marks Act 1994 (“TMA”). The ruling is good news for brand owners, giving them another means of preventing the unauthorised sale of goods bearing their trade mark.

The Law

S92(1) TMA provides:

(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).

Counterfeit Goods and Grey Goods – The Difference

In this case, the defendants were alleged to be importing into the UK:

• counterfeit goods – that is, goods bearing a well-known trade mark/brand but which are fakes in the sense that they have not been manufactured by the trade mark owner itself or by factories authorised to do so by the trade mark owner; and

• ‘grey goods’ – these are goods bearing a well-known trade mark which have been manufactured by factories authorised by the brand owner to do so but which are subsequently sold without the brand owner’s consent. Typically, this could include:

  • goods manufactured for first sale outside the EU which find their way into the EU;

  • goods which have been part of an order placed with an authorised manufacturer by the trade mark owner but then cancelled;

  • goods part of a batch whose manufacture has been authorised by the trade mark owner but which, after manufacture, are rejected as not being of sufficient standard;

  • goods manufactured to the trade mark owner’s order but in excess of the required amount (‘overruns’);

  • goods made by an authorised manufacturer which goes into liquidation and are then dealt with by a liquidator; or

  • goods made by an authorised manufacturer, which the brand owner is then unwilling or unable to pay for.

It was alleged that the goods were being imported into the UK from outside the EU. At no time had the goods been put on the market in either an EU or non-EU country with the trade mark owner’s consent.

The Question Before the Court

The question before the Court was – is it a criminal offence under s92(1)(b) or (c) TMA if, with a view to gain or cause loss, a person sells or possesses grey goods? In other words, does s92 only apply to counterfeit goods or to grey goods too?

The Court of Appeal held that the criminal provisions in s92 covered both counterfeit and grey goods.  In other words, selling or possessing counterfeit goods or grey goods with a view to gain or cause loss could be a criminal offence under s92 TMA.

Importance for Brand Owners

This is an important decision for brand owners. Although they have always been able to bring civil trade mark infringement proceedings in relation to grey goods, this ruling gives them another weapon to prohibit the unauthorised sale of grey goods bearing their trade mark.  Anyone who imports counterfeit or grey goods with a view to selling them in the UK will be committing a criminal offence, provided that the defendant does not have a defence under s92(5) TMA  – in essence a reasonable belief that the goods were not infringing.  Further, no offence will be committed in relation to grey goods imported from another EU country, which were first put on the market in that EU country with the trade mark owner’s consent as such a first EU sale will ‘exhaust’ the trade mark owner’s rights – both civil and criminal.

Trading Standards initiate most criminal prosecutions under s92 TMA. It is however often rather difficult (and sometimes outright impossible) for brand owners, particularly those active outside the EU, to get Trading Standards interested in pursuing importers into the EU of grey goods (and traders in them) under the criminal trade mark provisions.  Grey goods are perceived as causing less damage to the consumer as there is no misrepresentation as to the ultimate manufacturing trade source and often there are complex contractual issues relating to sales contracts between non-EU based third parties, which Trading Standards are reluctant to investigate.  It has always been open to brand owners to pursue a private criminal prosecution under s92 of the TMA 1994. This decision clears the way for brand owners to use such private criminal prosecutions against those who unlawfully import grey goods into the UK.