Counterfeit goods and the Trade Marks Act 1994 In this feature l trademark proprietor consent l civil and criminal wrongs l legal boundaries Grey area Lee Finch explains the legal differences between grey market goods and counterfeit goods T here are similarities between true counterfeit goods and grey market goods both bear a mark identical to, or likely to be mistaken for, a registered trademark and involve the infringement of the trademark proprietors rights. However, there is also one fundamental difference: counterfeit goods are unauthorised, fake items, while grey-market items are genuine goods produced with but sold without the trademark proprietors consent. Situations in which a trademark proprietor authorises the application of its mark, but does not consent to the sale of those items include but are not limited to overruns and goods rejected because of quality concerns. But is there a legal difference? It is obviously illegal to deal in counterfeits but is it illegal to deal in grey-market goods? After all, the name suggests such items are traded in a grey area, at the boundaries of the law, and that dealing in such goods is not definitively illegal. the legal position First, it is important to draw a distinction between civil and criminal wrongs. Civil wrongs give the trademark proprietor a right to pursue the infringing party in the civil courts for damages or injunctive relief; criminal wrongs can be enforced in the criminal courts by trading standards departments, among others. The sale or possession, in the course of trade, of grey-market goods is an infringement of the trademark proprietors rights, and is a civil wrong but what is the criminal position? The criminal offences involving unauthorised use of a trademark are set out in section 92 of the Trade Marks Act 1994, which states: It is obviously illegal to deal in counterfeits, but is it also illegal to deal in greymarket goods? (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 trademark, 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). (5) It is a defence for a person charged with an offence under this section to show that he believed on reasonable grounds that the use of the sign in the manner in which it was used, or was to be used, was not an infringement of the registered trade mark. Those dealing in grey-market goods will not be guilty of an offence under subsection 92(1)(a) because by the very nature of grey-market goods the trademark was applied with the proprietors consent. The key question is whether they can be guilty of offences under subsections (b) and (c)? The answer turns on the correct interpretation of section 92. R v C and others The Supreme Court recently addressed this question in the context of a preliminary issue in R v C and others [2017] UKSC 58. The defendants were charged with offences in relation to goods that bore the trademarks of Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry. Some of these items were true counterfeits, while others were grey-market goods that had been manufactured with the consent of the trademark proprietors, but subsequently sold or possessed with the intent to sell without the proprietors consent. The defence team argued that subsections 92(1)(b) and (c) did not extend to grey-market goods and, consequently, no offences had been committed. The defendants principal argument was that the reference to such a sign in paragraph (b) referred back to paragraph (a) and, consequently, only applied to a sign identical to or likely to be mistaken for a registered trademark applied without the consent of the trademark proprietor. The trial judge and the Court of Appeal rejected that argument and the Supreme Court did likewise. Lord Hughes with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Hodge all agreed held that the plain reading of such a sign in paragraph (b) was a reference back to the sign mentioned in paragraph (a) that is, a sign identical to, or likely to be mistaken for, a registered trade mark but did not include a requirement that the sign had been applied without the consent of the trademark proprietor. Lord Hughes explained that to interpret paragraph (b) in such a way was strained and unnatural; the absence of consent appears in the main part of subsection (1) rather than paragraph (a) and the defendants interpretation would require such a sign in paragraph (b) to be read as such a sign, so applied. There was no basis for reading these words into the unambiguous statutory provision. Lord Hughes confirmed that offences listed in paragraphs (a) to (c) are not cumulative, but separate, and the wording without the consent of the proprietor in the main part of section 92(1) applies to each of the types of offence. Consequently, an offence is committed: under paragraph (a) if a sign identical to, or likely to be mistaken for, a registered trademark, is applied without the consent of the trademark proprietor; under paragraph (b), if an article bearing a sign identical to, or likely to be mistaken for, a registered trademark is sold without the consent of the trademark proprietor; and, under paragraph (c), if an article bearing a sign identical to, or likely to be mistaken for, a registered trademark is possessed (with a view to selling the item) without the consent of the trademark proprietor. For the purposes of paragraphs (b) and (c), the offending articles could be true counterfeits or they could be genuine items such as overruns for which the trademark proprietor has not consented to the sale. So subsections 92(1)(b) and (c) do apply to grey-market goods. The defendants second argument was that to interpret subsections 92(1)(b) and 92(1)(c) as applying to grey-market goods involved a disproportionate infringement of their property rights under Article 1, Protocol 1 to the European Convention on Human Rights. This argument found no favour with the Supreme Court, which noted that the defendants did not have any proprietary rights in the trademarks their rights were limited to the goods to which the trademarks had been applied. Consequently, interpreting section 92 as applying to greymarket goods did not prevent the defendants from selling or otherwise dealing with their property they would just need to remove the registered trademarks first. In short, Lord Hughes held that section 92(1) properly interpreted asapplying to grey-market goods draws a perfectly legitimate balance between the rights of the proprietor to protect his valuable trademark, and the rights of the person who wishes to sell the genuinely trademarked goods in his possession. The decision from the Supreme Court will put an end to defendants attempted reliance on the argument that grey-market goods fall outside the scope of section 92 Conclusion In R v C and others, the Supreme Court has delivered a conclusive decision: it is a criminal offence to sell, or possess for sale, greymarket goods. This is not an entirely unexpected result; it turns on the ordinary rules of statutory interpretation and follows the similar decision of both the Court of Appeal and the trial judge. Further, there were many successful prosecutions in relation to grey-market goods long before the decision in R v C and others. Nevertheless, the decision from the Supreme Court while unsurprising will put an end to defendants attempted reliance on the argument that grey-market goods fall outside the scope of section 92. Italso prevents defendants from arguing that they are not guilty of anoffence in relation to a true counterfeit because they believed the article was genuine; to rely on the defence of reasonable belief in subsection (5), the defendant would have to show that he reasonably believed both the article was genuine and that he had the trademark proprietors consent to sell the article. Finally, it should be noted that the case before the Supreme Court did not involve parallel imports, and the decision does not affect parallel imports, whether from inside the European Economic Area (see section 12 of the Trade Marks Act 1994) or from elsewhere. Credits Lee Finch is a barrister at Gough Square Chambers. 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