R v M & Ors [2017] UKSC 58

The Supreme Court held that section 92(1)(b) of the Trade Marks Act 1994 criminalises the unauthorised sale of 'grey market' goods, not merely 'true counterfeits'. Goods originally manufactured with the trade mark proprietor's consent but sold without authorisation fall within the criminal offence.

Facts

The appellants, a limited company and two individuals connected with its management, were indicted for offences of unauthorised use of trade marks contrary to section 92(1)(b) and (c) of the Trade Marks Act 1994. They were alleged to be engaged in the bulk importation and sale of clothing and footwear bearing trade marks of well-known brands such as Ralph Lauren, Adidas, Under Armour, Jack Wills and Fred Perry, manufactured outside the EU.

The goods fell into two broad categories. The first category were ‘true counterfeits’ — goods manufactured by persons who were neither the trade mark proprietor nor authorised by the proprietor. The second category consisted of ‘grey market’ goods — goods whose manufacture had originally been authorised by the trade mark proprietor (whether by subcontract, licence or otherwise), but whose sale had not been authorised. These included factory over-runs sold deliberately or otherwise without consent, goods made under a cancelled permission, and goods rejected by the proprietor on quality grounds.

The indictment did not distinguish between these provenances. At a preparatory hearing, the appellants submitted that grey market goods fell outside section 92. Both the Crown Court judge and the Court of Appeal (Criminal Division) rejected the submission, which was renewed before the Supreme Court on interlocutory appeal.

Issues

The principal issue was the correct construction of section 92(1) of the Trade Marks Act 1994, and specifically whether the criminal offence under section 92(1)(b) (and the related preparatory offence under section 92(1)(c)) extends to the sale (or possession in the course of trade) of ‘grey market’ goods, or whether it is confined to ‘true counterfeits’.

A subsidiary issue was whether, on the Crown’s construction, section 92(1) involves a disproportionate breach of the appellants’ rights under article 1 of Protocol 1 to the European Convention on Human Rights.

Arguments

Appellants

The appellants focused on the phrase ‘such a sign’ in section 92(1)(b). They argued this refers back to paragraph (a), and so imports into (b) the requirement that the sign has been applied to goods without the consent of the proprietor. Since grey market goods had the mark originally applied with the proprietor’s consent (only sale being unauthorised), paragraph (a) could not apply, and therefore paragraph (b) could not either.

They relied on observations of Lord Nicholls and Lord Walker in R v Johnstone [2003] UKHL 28 distinguishing counterfeit, pirated and bootlegged goods, and on the predecessor section 58A of the Trade Marks Act 1938, suggesting that its more stringent mental element had practically confined criminal liability to true counterfeits and that no change had been demonstrated to have been intended by the 1994 Act. They also invited the court to have regard to Parliamentary debate under Pepper v Hart [1993] AC 593, and alternatively contended that the Crown’s construction was a disproportionate interference with their A1P1 rights.

Respondent

The Crown contended that the ordinary reading of section 92(1) creates three separate, non-cumulative offences, each subject to the requirement of absence of consent. ‘Such a sign’ in (b) simply means a sign of the kind described in (a) — a sign identical to or likely to be mistaken for a registered trade mark — and that grey market goods squarely fall within that description.

Judgment

The Supreme Court (Lord Hughes giving the sole judgment, with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Hodge agreed) unanimously dismissed the appeals.

Construction of section 92(1)

Lord Hughes accepted that ‘such a sign’ in (b) refers back to (a), but rejected the proposition that this incorporated either the chapeau words ‘without the consent of the proprietor’ or the requirement under (a) that the sign had been applied to the goods. ‘Such a sign’ in (b) plainly means a sign such as is described in (a) — namely ‘identical to, or likely to be mistaken for, a registered trade mark’. Signs on grey market goods are squarely within that description.

The three offences in paragraphs (a), (b) and (c) are separate and not cumulative. Each requires the mental element of a view to gain or intent to cause loss, and each requires absence of consent. It is not necessary that an offence under (a) be committed before one under (b) can arise. The appellants’ reading was ‘strained and unnatural’, requiring ‘sign’ in (a) to be read as ‘such a sign, so applied’ when incorporated into (b).

Pepper v Hart and legislative history

Because there was no ambiguity or absurdity, recourse to Parliamentary material under Pepper v Hart was not justified. The appellants did not point to any clear ministerial statement confronting the distinction between fake and grey market goods, still less one confining criminalisation to fakes.

R v Johnstone

The observations of Lord Nicholls and Lord Walker in R v Johnstone about counterfeit, pirated and bootlegged goods were made in a different context (concerning whether use of an artiste’s name on bootleg CDs would be taken as an indication of origin) and post-dated the 1994 Act. They did not address the distinction now urged and could not have been in Parliament’s mind when the Act was passed.

Section 58A of the 1938 Act

Although the predecessor provision had a more stringent mental element, section 58A(1)(b) of the 1938 Act would still have caught grey market goods. The relocation of the consent wording from the end of the section to the beginning was a grammatical rather than substantive variation.

Exhaustion of rights

Section 12 of the 1994 Act (transposing article 7 of Directive 89/104/EEC), concerning exhaustion within the European single market, applies equally on either construction; where exhaustion applies there is no civil infringement and therefore no criminal offence, but the exhaustion provisions shed no light on section 92.

Policy and consequentialist arguments

Lord Hughes was sceptical that consequentialist arguments could ordinarily affect the construction of a criminal statute, but observed that putting grey market goods on the market is itself unlawful and may involve deception of the public (including because such goods may be defective). The distinction between fakes and grey market goods is ‘by no means cut and dried’, and defendants who buy up grey market goods to profit from another’s trade mark ‘have scant claim to a beneficent construction of the Act’.

Article 1, Protocol 1

The appellants have no proprietary right in the trade marks. They have a right in the goods purchased, but the 1994 Act does not stop them selling those goods, only selling them whilst the infringing trade mark remains attached. The Act regulates the use or disposal of goods in the general interest, which includes the protection of trade marks. There was nothing disproportionate in imposing a criminal sanction on those who might otherwise calculate that liability in damages was a worthwhile risk.

Implications

The decision authoritatively confirms that section 92(1)(b) and (c) of the Trade Marks Act 1994 extend beyond ‘true counterfeits’ and capture the sale, offering for sale, distribution and related possession in the course of trade of ‘grey market’ goods — that is, goods originally manufactured with the trade mark proprietor’s consent but sold without authorisation. Provided the mental element (view to gain or intent to cause loss) and absence of the proprietor’s consent are proved, and subject to the statutory defence in section 92(5) (reasonable belief of non-infringement), criminal liability attaches.

The decision is significant for trade mark proprietors, importers, wholesalers and retailers dealing in branded goods sourced outside authorised supply chains. It clarifies that there is no separate, narrower category of criminally actionable infringement confined to fakes; the criminal and civil scope substantially align (subject to the mental element and statutory defence), as had already been established in R v Johnstone, which requires civil infringement as a precondition to criminal liability.

The court declined to read down the section to limit it to fakes on either ordinary construction principles or human rights grounds. The A1P1 analysis is confined to the point that the Act regulates rather than deprives traders of their property in the goods, and that the criminal sanction strikes a legitimate balance between proprietors’ rights and traders’ interests. The court did not address sentencing proportionality in any particular case, nor the operation of the section 92(5) defence on specific facts, both of which remain matters for trial. The decision leaves intact the exhaustion regime under section 12 / article 7, which continues to govern goods voluntarily placed on the EU market by the proprietor.

Verdict: Appeals dismissed. The Supreme Court unanimously held that section 92(1)(b) and (c) of the Trade Marks Act 1994 applies to ‘grey market’ goods as well as to ‘true counterfeits’, and the trial may proceed accordingly.

Source: R v M & Ors [2017] UKSC 58