Big brands such as Fred Perry, Ralph Lauren, Adidas and others will be celebrating yesterday’s ruling by the Supreme Court that the distribution of so-called “grey market goods” without the consent of the brand owner is a criminal offence under the Trade Marks Act 1994 (TMA).
What are grey market goods?
Grey market goods are items originally authorised to be manufactured by the registered trade mark holder, but which have not been authorised for sale.
Grey market items include –
- Goods made in excess of the authorised numbers by the factories to be sold without permission to third parties (also known as “back-door production”);
- Goods made in excess of the brand owner’s order (e.g. spare capacity for errors or mistakes) but then placed on the market without the consent of the brand owner (also known as “overruns”); and
- Where the quality of the goods was not up to standard and the brand owner did not authorise those goods to be sold (sometimes called “factory seconds”).
What was the Supreme Court case about?
The case the Supreme Court has ruled on was a joint appeal from three criminal cases. The Appellants attempted to argue that “grey market” goods were not covered by s92 of the TMA because the items had originally been made with the authorisation of the trade mark owner. They argued only “true” counterfeit goods were covered by the criminal provisions of the Act.
Lord Hughes, who gave the Judgment upon which all of the Supreme Court Judges agreed, stated that there was nothing in section 92 of the TMA to exclude the sale of “grey market” goods. He stated that it was “unlawful for a person to put grey goods on the market just as it is to put fake ones there. Both involve deception of the buying public; the grey market goods may be such because they are defective.”
He went on to state that both such examples were “clear infringements of the rights of the trade mark proprietor. Defendants who set out to buy up grey market goods to make a profit on re-sale do so because the object is to cash in on someone else’s trade mark” and that “unless they have the statutory defence, they have committed an offence.”
This Judgment gives clear and unequivocal guidance to the criminal courts that “grey market” goods should be treated exactly the same as “pure” counterfeit goods when considering criminal offences under s92 of the TMA.
What is the impact of the ruling?
The Supreme Court judgment is a solid blow against the convoluted arguments which infringers regularly try to put forward, and a real boost to brand owners who can use this as another tool in their armoury to prevent counterfeiters.
We may also see an increase in seizures by Trading Standards and customs officers and subsequently more prosecutions of such offences in England and Wales.
In light of this judgment trade mark owners should review the agreements they have in place with their authorised manufacturers to ensure that they deal with the issue of “grey market” items by having strict controls over production and explicitly stating that such goods are not authorised, must not be sold by the factories and are to be returned to the brand owner or they should be de-branded and destroyed. The trade mark owners can then rely on such agreements at Court, should this be required, to support criminal cases against the sellers of “grey market” items.
Andrew Stone is a senior associate at Clarke Willmott