In the Latest Example of a Worrying Trend, UK SC Sanctions Criminal Prosecution for Trademark Infringement of Grey Market Products

In several jurisdictions across the globe, the increasing use of criminal law as a tool to deal with wrongful conduct which lacks the attributes traditionally associated with a crime has emerged as a key area in which comprehensive legal reform is needed. This trend, which jurists have described as the crisis of over-criminalization manifests itself in several ways – from the use of the criminal law as an instrument to punish consumption of harmless drugs to the penalization of same-sex relationships.

Intellectual property law has not remained immune to this worrying trend. On this blog, we have often taken issue with the use of criminal law to punish IP infringement – a practice with Prof. Basheer has rightly likened to killing an ant with an elephant gun.

Indeed, Spadika’s trenchant critique of the use of criminal law against Girish Karnad for allegedly engaging in copyright infringement and Balaji’s analysis of how the use of anti-goonda laws by several states to punish video piracy constitutes a disproportionate and unconstitutional punishment are two cases in point. More recently, Prof. Basheer has noted
how the new National IPR Policy is likely to further exacerbate this problem, by encouraging the criminal prosecution of those who engage in unauthorized reproduction of Bollywood movies in theatres.

Against this backdrop, a recent judgment
delivered by the UK Supreme Court [R v. M and Ors.] in which the court granted its imprimatur to the institution of criminal proceedings against those engaging in possession and sale of trademarked products bought from the grey market, throws into sharp focus the need to take prompt and decisive measures to reverse this trend.

Facts and holding

The defendants/appellants engaged in the bulk importation and sale of a large array of clothes and shoes bearing the trademarks of such well known brands as Ralph Lauren, Adidas and Fred Perry which were manufactured outside the EU.

The goods that the defendants imported and sold in the UK fell into 2 neat categories. The first category consists of counterfeits – goods which the defendants purchased from those who were neither empowered to manufacture nor to sell them. The second category, on the other hand, consists of grey market goods – goods which their sellers were empowered to manufacture but not to sell.

While there was no dispute about the proposition that the defendants could be criminally prosecuted for the unauthorized application of registered trademarks to counterfeit goods, the question which the UK Supreme Court was called upon to answer was if the same was permissible for the unauthorized application of registered trademarks to grey market goods.

The court answered this question in the affirmative, holding that the provision at issue in the UK Trademarks Act, 1994, covered within its four squares the application of unauthorized trademarks to grey market products.

The reasoning deployed by the court in arriving at this conclusion turned on the proper interpretation of the provision at issue and need not detain us for analysing the larger ramifications of the judgment. However, one argument that the Appellants advanced merits closer scrutiny.

Arguing that the criminalization of products bought from the grey market would constitute a disproportionate punishment, the Appellants urged the court to adopt an interpretation that would avert this consequence. Rejecting this argument, the court held as follows [para 19]:
“There is in any event nothing disproportionate in the 1994 Act penalising sales when the infringing trade mark is still attached, nor in imposing a criminal sanction on those who might otherwise calculate that the risk of liability in damages is worth taking. That is a perfectly legitimate balance to draw between the rights of the proprietor to protect his valuable trademark and goodwill, and those of the person who wishes to sell goods which he has bought.”

In other words, if a defendant voluntarily chooses to purchase goods from the grey market and import and sell them in the UK while keeping the infringing trademark intact, reasoned the court, he cannot be allowed to later turn back and say that it is unfair for the Crown to criminally prosecute him for this conduct. If such a defendant wishes to shield himself from criminal liability, then he must sell the goods purchased on the grey market without the infringing trademark.

Wider ramifications of judgment:

While it may appear at first blush that the Court’s conclusion in this case was entirely dictated by the text of the provision at issue, I would submit that this would be in inaccurate characterization of the judgment.

The inarticulate major premise undergirding the court’s conclusion appears to be its desire to ensure that defendants who display wanton disregard for the rights of IP owners are punished in the strongest possible terms. This is best evidenced by the following observation [para 18]:
“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. If such be proved, they have scant claim to a beneficent construction of the Act.”

Indeed, this case is but the most recent example of British courts displaying a pro-IP bias in arriving at their conclusion. In April this year, the UK High Court of Justice had issued a similar pro-IP ruling in the context of patent law in favour of Unwired Planet, holding that its conduct in licensing its standard essential patents to Huawei on FRAND terms was legally permissible and not hit by EU competition law. Rajiv’s analysis of the decision for SpicyIP readers can be found here.

More worryingly, however, the Court’s refusal to engage meaningfully with the consequences that are likely to flow from the capacious interpretation of a provision making trademark infringement a criminal offence is a serious cause of concern for advocates of minimalist IP protection.

Given that the court’s verdict has the effect of exposing those who sell counterfeit versions of trademarked products to the same penal consequences as those who sell products bought from those who are authorized by the trademark owner to manufacture them, the court’s assertion that its verdict strikes the right balance between the rights of trademark owners on the one hand and the rights of those who buy them on the other rings hollow.

In my respectful submission, such a balance can only be struck when courts and legislatures recognize the proposition that resort to the full force of criminal law must only be had when the concerned conduct entails some form of violence or has a deep and abiding impact on the public at large. Since reproducing Bollywood movies in theatres [National IPR Policy]; using a musical composition in a reprint without the composer’s permission [Girish Karnad] or selling products bought from the grey market [UKSC’s judgment] meet neither of these two tests, the use of criminal law in these cases ought to be strongly condemned.

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