On 1 November 2016, the Court of Appeal Criminal Division handed down its judgement on s.92 of the Trade Marks Act 1994 ("TMA") in R v C and others.
The defendant sold various types of branded shoes and clothing. Some of their goods were counterfeit, imported into the UK from outside the EU. However, some of the defendant's goods were manufactured by factories authorised to do so by the trade mark proprietors, but disposed of without authority. Such goods are colloquially termed 'grey market goods'. Grey market goods may come to subsist in a number of ways: they may form part of a cancelled order, the goods may be rejected or the goods may be manufactured surplus to requirement (similar to a baker’s dozen).
Trading Standards brought a prosecution against the defendant following complaints lodged by the proprietors of the reputable trade marks affixed to the defendant's goods: Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry. The prosecution was prefaced on s.92 of the TMA. Section 92 makes it a criminal offence where a person, with a view to making a gain or with the intent of causing another loss, and without the consent of the trade mark proprietor, carries out various acts in relation to a sign identical to or likely to be mistaken for the registered mark. Section 92(5) provides a defence where the party can show that they believed, on reasonable grounds, that they were not infringing the trade mark. The defence was based on a construction of the TMA which failed to capture grey market goods.
The initial judgement of HHJ Plumstead was appealed to the Court of Appeal Criminal Division.
The Issue Before the Court of Appeal
The central issue for the Court of Appeal was whether someone can be liable for criminal prosecution where they sell or possess grey market goods, as opposed to counterfeit goods, with a view to making a gain or causing the trade mark proprietor to suffer loss.
Findings of the Court
From the outset, the Court of Appeal stressed that civil liability for trade mark infringement was necessary to a finding of criminal liability. The Court of Appeal observed there are two essential differences between section 92 and the infringement under section 10. Firstly, the mental element, as a component of the offence, denotes blameworthiness based on the defendant’s state of mind. Secondly, the wording 'mistaken for', as opposed to 'likelihood of confusion' under the infringement provisions, denotes a higher level of deception.
The defendant argued that the application of a sign to grey market goods involved the consent of the trade mark proprietor, therefore no criminal offence was committed. The court rejected this, stating that section 92 covered the sale of goods bearing the sign or possession of such goods with a view to selling. Essentially, each of the heads under section 92(1) constitute separate offending acts. The provision had a broad application and extended beyond mere counterfeit goods, as supported by the leading practitioner text on Trade Marks.
In addition, the court referred to the findings in Genis  EWCA Crim 2043, where it was held that disposal of goods bearing the proprietor’s trade mark without their authorisation fell within section 92. This was the case even where the mark was initially applied to the goods with the proprietor’s consent.
The Court of Appeal went on to consider general public policy, stating that it was clear that exposure to criminal liability should be more restricted than civil liability. However, grey market goods undermine the value of reputable trade marks and the investment made by the trade mark proprietor. Where the goods were initially rejected for being sub-standard, the sale of grey market goods may well threaten consumer safety, requiring a restriction on sale to the public. Therefore, although imposing criminal liability may produce harsh results, there is a public benefit in prosecuting unscrupulous traders so as to dis-incentivise other grey market traders. The wording of section 92 is sufficiently clear so as to protect honest traders who act innocently and the discretion of Trading Standards in whether to prosecute should provide reassurance to honest businesses who may be caught by the provisions.
The Court of Appeal set out a clear distinction between criminal and civil liability.
The Mens Rea of the criminal offence exists in two circumstances. The first is carrying out an act 'with a view to gain', which may not sufficiently distinguish honest bona fide traders from unscrupulous parties. Indeed, it is difficult to envisage a commercial trader who does not act with a view to making a gain. However, the second concerns the intention to cause loss, which clearly distinguishes a malicious or cynical offender from an innocent trader who is indifferent to the effect his business has on others.
The defence, which exists where there is an honest belief in the legitimacy of the defendant's conduct, does assist is separating criminal acts from tortious acts. Similarly, the higher standard of deception envisaged by the word 'mistaken' in section 92 as opposed to 'confusion' in section 10 serves as a strong justification to impose more draconian sanctions.
In terms of policy, the Court of Appeal recognised that their judgment may produce harsh results. However, in most instances it will be clear whether the defendant's acts caught by section 92 are legitimate or dishonest. The role of Trading Standards in exercising their prosecutorial discretion is not to be underestimated. In practical terms, it is unlikely that the case will result in an increase in criminal liability. However, it provides clarity around the status of grey market goods.