A Licence to Sell Counterfeit Goods.
A look at whether the application to counterfeit goods of a disclaimer such as "brand copies" can amount to a defence. First published in the Solicitors Journal (1993) 137 Sol Jo 822.
Even before the Divisional Court's judgment in R v Price, which was delivered on 6 May 1993, has found its way into the law reports it has had a dramatic effect on the trade in counterfeit goods. News that the High Court regards it to be lawful to sell unauthorised copies of e.g. T-shirts bearing the names of famous brands such as “Levi” and “Adidas” has spread swiftly around the country. Traders now claim to be immune from prosecution if they display the words “brand copy” with the goods and seek to fend off Trading Standards officers with rhetoric such as “Arvey Price says it’s alright”. If indeed R v Price is right then “come on down - get your genuine copies here!”
Trade Descriptions Act 1968
The legislation most often used by Trading Standards officers in their fight against counterfeiters is the Trade Descriptions Act 1968 (“The Act”). It is used both to protect the public from being ripped off by traders who sell shoddy, misdescribed goods and to promote fair trading by not allowing unscrupulous, fly by night dealers to cash in on the hard (and often expensively won) reputations of quality manufacturers.
Section l(l)(a) of the Act makes it an offence, in the course of a trade or business, to apply a false trade description to goods and, under s 1(1)(b), it is an offence to supply or offer to supply goods to which a false trade description is applied. There are therefore three offences created by s 1 namely, “applying”, “supplying” and “offering to supply”.
A “trade description” is “an indication, direct or indirect” as to a number of matters set out in s 2 which include, with respect to goods, “the approval by any person” and the “person by whom manufactured”. A “false” trade description is one which is “false to a material degree” (s 3(1)) or “though not false is misleading” in a way set out in s 3(2). The person who makes unauthorised copies of genuine goods such as T-shirts and causes the name e.g. “Levi” to appear on them “applies” a false trade description. The person who sells those T-shirts, prima facie, commits the offence of “supplying” and even if he does not actually sell them he may commit the offence of “offering to supply” them.
Offences under s 1 of the Act are of strict liability but the Act provides statutory defences in s 24(1) which, to succeed, require the defendant to prove, inter alia, “that he took all reasonable precautions and exercised all due diligence to avoid the commission of ... an offence.” There is a variation of this defence, in relation to s l(l)(b) offences only, in s 24(3).
Doctrine of disclaimer
Lord Chief Justice Widgery, giving judgment in Norman v Bennett [1974] 3 All ER 351, was the first High Court judge to set out “the extent to which a false trade description can be disclaimed”. He said:
“Where a false trade description is attached to goods, its effect can be neutralised by an express disclaimer or contradiction of the message contained in the trade description. To be effective any such disclaimer must be as bold, precise and compelling as the trade description itself and must be effectively brought to the notice of any person to whom goods may be supplied. In other words, the disclaimer must equal the trade description in the extent to which it is likely to get home to anyone interested in receiving the goods.”
Widgery LCJ also paved the way for “oral” disclaimers but he cautioned that: “When faced with evidence of an oral disclaimer [courts] will obviously be extremely careful to satisfy themselves that the disclaimer was in fact made.”
The Court of Appeal in R v Hammerton Cars Ltd [1976] 3 All ER 758, confirmed that to be effective a disclaimer had to be “bold precise and compelling”. Both Norman v Bennett and R v Hammerton Cars involved the sale of motor cars with false mileometer readings and, in the latter case, Lawton J said: “If dealers do not want prospective purchasers to take any notice of mileometer readings they must take positive and effective steps to ensure that the customer understands that the mileometer reading is meaningless.”
Lord Widgery CJ, sitting in the High Court, took another look at disclaimers in Waltham Forest Borough Council v TG Wheatley (Central Garage) Ltd [1978] RTR 157 where he said:
“The disclaimer notice is a creation of the courts. It is not dealt with in the Act at all, and it has been developed in order to recognise the obvious justice of enabling a person to explain the falsity of a speedometer reading by saying, ‘I am not suggesting that this is guaranteed. I disclaim any responsibility for it. You must not rely on it.’”
The Court of Appeal considered disclaimers again in R v Southwood [1987] 3 All ER 556. The defendant in that case had “clocked”, or turned back the mileage readings, on a number of cars and then sought to disclaim the mileages. The Court of Appeal held, in effect, that a person could not disclaim his own fraud and that the disclaimer doctrine “provides no defence to a person charged under s 1(1)(a)” (i.e. applying). The court did, however, feel bound by R v Hammerton Cars so far as s 1(1)(b) was concerned. Lane LCJ said: “It is not open to us, in the light of that decision, to hold that a disclaimer has no effect when the defendant is charged with supplying [goods] with a false trade description.”
Lewin v Fuell
Most of the reported cases involving “disclaimers” concern false mileage readings in relation to cars which have been supplied. In Lewin v Fuell (1991) 155 JP 206, the Divisional Court had to consider whether an oral disclaimer in relation to watches, which were offered for supply, bearing well known trade names such as “Cartier” and “Rolex” could be effective to nullify those false trade descriptions. Section 6 of the Act provides: “A person exposing goods for supply or having goods in his possession for supply shall be deemed to offer to supply them.”
It follows that, per Pill J, “the offence [of offering to supply] was committed when the goods were exposed for supply”. Any oral disclaimer in those circumstances will inevitably come after the offence has already been committed and therefore too late to be effective. For the same reason, an oral disclaimer could not be a defence under s 24. “Reasonable precautions would have at least included a written disclaimer alongside the false trade description”. Woolf LJ said:
“It would probably be against the whole intent and purpose of the section, against which it was alleged the offence had been committed, if it was open to a trader such as Mr Fuell to expose for sale ... goods ... to which a false trade description was applied and a disclaimer was only made when someone approached him to purchase those goods. In my view, the section has been designed in a way which creates the offence when the goods are exposed. If there is to be a disclaimer of any sort it must exist at that time.”
R v Price
Mr Price was alleged to have “offered to supply” goods to which a false trade description had been applied. The Crown Court accepted that Price (like Fuell) made oral disclaimers before completing a sale. In addition Price displayed written disclaimers bearing the words “brand copy” and the price. Price was acquitted and the prosecution’s appeal to the Divisional Court was dismissed. The ratio decidendi of the appeal appears in the judgment of Stuart-Smith LJ who said:
“It ... is a question of fact for the Crown Court to decide whether or not the cumulative effect of the description of goods themselves, the card displaying the fact that they were brand copies and the finding of the Court as to what was said before any sale took place, amounted to a false description in any material degree.”
Stuart-Smith LJ was right in saying that the evidence must be looked at as a whole but he was undoubtedly wrong in holding that what was said by Price to prospective purchasers was part of that evidence. As we have seen, any such oral comments come too late to prevent the commission of an offence of offering to supply. Unfortunately the judge appears to have read only the brief report of Lewin v Fuell which appears at [1990] Crim LR 658. He said:
“The facts of [Lewin v Fuell] are in my judgment not sufficiently fully set out, and I find it difficult to reconcile what is said in that brief report with the passages ... in Norman v Bennett and Hammerton Cars, which clearly envisaged oral disclaimers.”
It is quite apparent that Stuart-Smith LJ did not understand Lewin v Fuell and, in particular, he did not grasp that the court in that case was dealing with an allegation of “offering to supply” (where oral disclaimers come too late) whereas Norman v Bennett and R v Hammerton Cars were dealing with “supplying” offences where oral disclaimers can be effective because any such offence is not complete until the time the goods are delivered.
Perhaps, because it mistakenly thought that an oral disclaimer could suffice, the High Court in R v Price did not consider whether the written disclaimer “brand copy” was an effective one. The court did not appear to look, for example, at how large the lettering was compared to that of the trade descriptions on the T-shirts; neither did it look at the proximity of the disclaimers in relation to the T-shirts. The court did not carry out the required exercise of considering whether the disclaimer was as “bold, precise and compelling as the trade description itself.” Furthermore the court did not consider whether the words “brand copy”, however bold they might have been, were capable of disclaiming a description as to the person by whom the goods were manufactured or approved. Do the words “brand copy” really “neutralize” the description that e.g. the T-shirts were manufactured or approved by Levi? Arguably the words “brand copy”, far from disclaiming the description, adds to it. Certainly “brand copy” does nothing to indicate that the copies were unauthorised ones. It is submitted here that to be an effective disclaimer in these circumstances the statement must say that the copies are unauthorised or unapproved or counterfeit or otherwise make it clear that they do not have the approval of the legitimate manufacturers.
R v Price is not a case which should be or can properly be followed and Trading Standards authorities should not be deterred by it in prosecuting traders who think it gives them licence to evade the provisions of the Act.
Applying
As an alternative to the allegation of “offering to supply” the falsely described T-shirts, Price could have been charged with “applying” the false trade descriptions to them. This is so because although, one suspects, there was no evidence that he printed the shirts or was otherwise responsible for causing the trade names to appear on them, he nonetheless made use of them. Section 4(1)(c) of the Act includes within the definition of persons who “apply” a false trade description the person who “uses the trade description in any manner likely to be taken as referring to the goods”. Price was using the description e.g. “Levi” to sell the shirts bearing that name. Furthermore he was doing so dishonestly - the fact that he purported to disclaim the trade descriptions is evidence that he knew them to be false. Traders in the position of Price are not in the same class as the innocent purchaser of a clocked car who sells it on with a disclaimed mileage not knowing what the actual mileage is. Neither is he in the same class as the trader who does check the history of a motor car and passes on all that he knows to his prospective purchasers. Indeed, Price was rather in the same situation as the trader in R v Southwood who Lane LCJ considered was effectively saying: “‘This is a false trade description, and because I assert that it is a false trade description it ceases to be a false trade description applied to goods, and consequently I am not guilty of a contravention of s 1(1)(a).’ The assertion does not cause the description to be any less false than it was originally, nor does it cause the description to cease to be applied to the [goods]. It seems that on the strict wording of the Act, therefore, the so called ‘disclaimer’ provides no defence to a person charged under s 1(1)(a).”
Other offences
The seller of counterfeit goods will find that most brand names are registered trade marks. It is an offence under s 58A of the Trade Marks Act 1938 to “apply a mark identical to or nearly resembling a registered trade mark to goods”. It is also an offence to sell or offer or expose for sale goods bearing such a mark. These offences, however, are only committed if the defendant “intends that the goods in question should be accepted as connected in the course of trade with a person entitled to use the mark in question”. A carefully worded disclaimer might serve to show that there was no such intent, conversely a purported disclaimer might itself be evidence of intent. The disclaimer “brand copy” indicates that the trader is aware of the trade mark and only serves to draw attention to it without declaring that the copies are unauthorised.
It is an offence under s 107 of the Copyright, Designs and Patents Act 1988, without the licence of the copyright owner, to make for sale or, in the course of business, sell or offer or expose for sale or exhibit in public or distribute an article which such trader “knows or has reason to believe is, an infringing copy of a copyright work”. Any disclaimer is likely to show that the trader knew the article in question was an infringing copy. Even a disclaimer such as “I do not know whether this is a copyright work” is at best neutral and at worst tends to suggest that the trader does suspect that the article is an infringing copy. Not all manufactured goods, however, will be “copyright work”. Sound recordings and films are certainly copyright so the trader knowingly selling counterfeit audio or video tapes has no escape. Most T-shirts, if they are worth copying in the first place, are likely to be embellished with copyright work. Copyright subsists in “artistic works” which term includes a “graphic work ... irrespective of artistic quality”. A “graphic work” includes any painting, drawing, diagram, engraving, etching and lithograph (s 4). Levi, Adidas, Puma, Fila, Reebok and other famous brand names which are also distinctive logos will, therefore, be copyright works and protected by the 1988 Act.
VICTOR SMITH