UK Court of Appeal confirms that sale of grey goods may amount to a criminal offense By Rachel Wilkinson-Duffy and Dr Birgit Clark, Baker & McKenzie, London In a recent decision (The Court R v C and others [2016], 1 November 2016) the Court of Appeal of England and Wales held that a criminal offence under section 92(1)(b) or (c) UK Trade Marks Act 1994 is not limited to counterfeit goods, but can also be committed through the sale, distribution or possession with a view to sale, or distribution of grey goods in the UK., i.e. in cases where the trade mark was applied to the goods with the trade mark owner's consent as opposed to where the goods were counterfeit or fake goods. This decision will be of interest to owners of pharmaceutical trade marks that often encounter grey goods, since it provides both the stronger deterrent of liability to imprisonment and a fine for those guilty of the offence of trading in such goods and the greater speed of criminal proceedings. The case The defendants were accused of unlawfully selling various trade marked products in the UK, whereby some of the goods were counterfeit and others were grey goods, i.e. the goods concerned had been manufactured in factories authorised by the trade mark owner but had then been put onto the market for the first time without the owner's consent. It is important to note that while all goods concerned had been imported into the UK from outside the European Economic Area (EEA), it was not the allegation of the prosecution that these goods were parallel imports. The prosecution in the case maintained that the goods had not been put into circulation with the consent of the proprietor anywhere in the world. In its decision of 1 November 2016, the Court of Appeal confirmed that all aforementioned types of goods fall under the ambit of the criminal provision in section 92 UK Trade Marks Act 1994 Act (section 92). The court based this on the following considerations: the wording of section 92 UK Trade Marks Act 1994 (a sign identical to, or likely to be mistaken 8 for a registered trade mark) is clearly meant to comprise circumstances where a sign identical to the registered mark had been applied, regardless of the proprietor’s consent. The judges rejected the defendant's rather creative argument that there is a distinction between an identical sign - which it was argued could only be applied by someone other than the proprietor, as otherwise it would be the application of the registered mark, not a sign identical to the registered mark - and the registered mark itself; thus the scope of section 92 UK Trade Marks Act 1994 should be treated as restricted to goods for which the proprietor did not authorise the application of the registered mark. The Court of Appeal also referred to the leading textbook in the field, Kerly's, parliamentary debate and a recent precedent in Genis [2015] EWCA Crim 2043 where a criminal conviction was upheld even where a trade mark had originally been applied with the owner’s consent. Finally, the judges stressed the importance of public policy considerations, the potential negative effect on brand value and the “very real issue of public health and safety [that may] arise where the goods are rejected as substandard but nevertheless sold without authorisation”. The court also took the opportunity to clarify the concept of grey goods: these could include, inter alia, goods made as part of an order placed by the trade mark owner with an authorised manufacturer but which had then been cancelled, subsequently rejected due to not being of sufficient standard or in excess of the ordered amount. In this context, it is important to note that in cases of a criminal offence and that anyone able to show a belief on reasonable grounds that the use was not an infringement, will not be caught by section 92 UK Trade Marks Act 1994. The judges also stressed that the facts of the case did not require a determination of whether parallel imports of genuine goods from outside the EEA region put on the market by and/or with the consent of the trade mark owner fall within the scope of section 92 UK Trade Marks Act 1994. However, the implication from reference in the decision to Kerly's definition of grey goods to include parallel imports does suggest a leaning in favour of this. Practical significance This decision will be of specific interest to owners of pharmaceutical trade marks since it provides helpful confirmation that the trade mark offences under section 92 UK Trade Marks Act 1994 not only apply to counterfeit goods but also to the distribution and sale of grey goods bearing the trade mark. This will allow trade mark owners to pursue private criminal prosecution in addition or as an alternative to involving Trading Standards. While parallel trading can be inter-linked with criminal activity, including counterfeiting but also serious organised crime, the limited resources available to Trading Standards in the UK require a focus on criminal prosecution where there is a clear concern for consumer safety and/or suspected organised crime. It is therefore unlikely that Trading Standards would be able to justify devoting resources to pursuing criminal sanctions for "genuine" pharmaceutical products (which have been manufactured with consent, comply with regulatory requirements and are otherwise fit for purpose), on the sole basis that the trade mark owner's rights have not been exhausted. Having said that, judicial confirmation that private criminal prosecution is available in such cases provides an additional weapon in the arsenal of pharmaceutical trade mark owners for whom civil liability may not always be a sufficiently adequate deterrent. This decision could also potentially lead the way to establishing that parallel imports may amount to a criminal act where the goods have been put on the market outside the EEA with the proprietor's consent and could have even more far-reaching implications should UK exhaustion be adopted post Brexit.