New Sentencing Guidelines for unauthorised use of a trade mark by individuals and organisations
Introduction
The unauthorised use of a trade mark is an “unfamiliar offence“[1] which rarely comes before the courts. In 2019, around 370 adults and 40 organisations were sentenced. Until now, sentencers in the Magistrates’ Court had available to them a brief guideline for sentencing individuals.[2] However, there were no guidelines for sentencing organisations and none for use in the Crown Court.
The new guidelines are more developed and comprehensive. Perhaps the most significant change is the way in which harm is assessed. Instead of focusing on the number of counterfeit items as the previous guideline did, both new guidelines categorise harm based on the equivalent retail value of genuine goods. In addition, harm is also assessed by a consideration of whether the trademark owner or purchasers/end users of the counterfeit goods have suffered any significant additional harm. The Sentencing Council’s intention is that the guidelines appropriately reflect the potential very serious risk to safety. Therefore, the assessment of “any significant additional harm” suffered by the purchasers includes their being placed at risk of physical harm and is included as a factor to be considered in both guidelines.
The Guideline for Individuals[3]
Determining the Offence category (Step 1)
The first step in the new guideline for individuals is to determine the offence category by assessing culpability and harm. There are three levels of culpability: high (A), medium (B) and lesser (C). The level of culpability is determined by weighing up all the factors to determine the offender’s role, the extent to which the offending was planned and the sophistication with which it was carried out. The assessment is similar to that for fraud offences.
Cases where the offence was sophisticated or involved significant planning, would fall into high culpability. Examples include where multiple outlets or trading identities are used for the sale of counterfeit goods; where multiple accounts are used for receiving payment; where professional equipment is used to produce goods; where a website that mimics that of the trade mark owner or legitimate trader is used; or, where the offending takes place over a sustained period of time. Where offending is part of a group activity, those with a leading role would come within high culpability, as would those who involved others through coercion, intimidation or exploitation.
Individuals that would fall within medium culpability, include those with a significant role where the offending is part of a group activity, or where there is some degree of organisation and planning.
Cases of lesser culpability would be those where there was little or no organisation or planning; where an individual performed a limited function under direction; where an individual was involved through coercion, intimidation or exploitation; or, where the individual had a limited awareness or understanding of the offence.
In relation to harm, the new guidelines categorise harm based on the equivalent retail value of genuine goods. Where it would be impractical to assign an equivalent retail value of legitimate versions, an estimate should be used.
Where there is no evidence of the volume of counterfeit goods sold or possessed, in the case of labels or packaging, harm should be assessed by taking the equivalent retail value of legitimate goods to which the labels or packaging could reasonably be applied, and taking an average price of the relevant products. In the case of equipment or articles for the making of copies of trade marks, the court will have to make an assessment of the scale of the operation and assign an equivalent value.
Harm is also assessed by considering any significant additional harm suffered by the trademark owner or purchasers/end users of the counterfeit goods. The Sentencing Council’s intention is that the guidelines appropriately reflect the potential very serious risk to safety. Therefore, the assessment of “any significant additional harm” suffered by the purchasers or end users includes their being placed at “risk of physical harm“. Both guidelines specify that “where purchasers/end users are put at risk of death or serious physical harm from counterfeit goods, harm should be at least category 3 even if the equivalent retail value of the goods falls below £50,000.”
There are five monetary categories, each with the following starting points:
| Equivalent value of legitimate goods | Starting point based on | |
| Category 1 | £1 million or more
OR category 2 value with significant additional harm |
£2 million |
| Category 2 | £300,000 – £1 million
OR category 3 value with significant additional harm |
£600,000 |
| Category 3 | £50,000 – £300,000
OR category 4 value with significant additional harm |
£125,000 |
| Category 4 | £5,000 – £50,000
OR category 5 value with significant additional harm |
£30,000 |
| Category 5 | Less than £5,000
And little or no significant additional harm |
£2,500 |
Starting point and category range (Step 2)
Once harm and culpability have been assessed, the sentencer can proceed to the appropriate starting point and sentence within the applicable range. These are set out below:
Category 1 offences:
- In cases of high culpability, the starting point is 5 years’ custody, with a range of 3 to 7 years’ custody.
- In cases of medium culpability, the starting point is 3 years’ custody, with a range of 2 to 5 years’ custody.
- In cases of lesser culpability, the starting point is 2 years’ custody, with a range of 1 to 3 years’ custody.
Category 2 offences:
- In cases of high culpability, the starting point is 4 years’ custody, with a range of 2 to 5 years’ custody.
- In cases of medium culpability, the starting point is 2 years’ custody, with a range of 1 to 3 years’ custody.
- In cases of lesser culpability, the starting point is 1 year’s custody, with a range of 26 weeks to 2 years’ custody.
Category 3 offences:
- In cases of high culpability, the starting point is 2 years’ custody, with a range of 1 to 3 years’ custody.
- In cases of medium culpability, the starting point is 1 year’s custody, with a range of 26 weeks to 2 years’ custody.
- In cases of lesser culpability, the starting point is a high level community order, with a range of a low level community order to 26 weeks’ custody.
Category 4 offences:
- In cases of high culpability, the starting point is 1 year’s custody, with a range of 25 weeks’ to 2 years’ custody.
- In cases of medium culpability, the starting point is a high level community order, with a range of a low level community order to 26 weeks’ custody.
- In cases of lesser culpability, the starting point is a band C fine, with a range of a band B fine to a medium level community order.
Category 5 offences:
- In cases of high culpability, the starting point is a high level community order, with a range of a low level community order to 26 weeks’ custody.
- In cases of medium culpability, the starting point is a band C fine, with a range of a band B fine to a medium level community order.
- In cases of lesser culpability, the starting point is a band B fine, with a range of a discharge to a band C fine.
Appropriate upward or downward adjustment should be made within the category range to reflect where the value is larger or smaller than the amount on which the starting point is based. Further adjustment should be made in line with aggravating and mitigating factors.
Confiscation, compensation and ancillary orders (Step 6)
The valuation of counterfeit goods for the purposes of confiscation proceedings is not the same as the valuation used for the purposes of assessing harm in the sentencing guideline. The guidelines do not specify a valuation method to be used for confiscation.
Under section 97 of the Trade Marks Act 1994, the prosecution may apply for forfeiture of goods or materials bearing a sign likely to be mistaken for a registered trade mark or articles designed for making copies of such a sign.
The court may also consider whether to make any ancillary orders, including a deprivation order and disqualification as acting as a company director.
The Guideline for Organisations[4]
The starting point for sentencing organisations is different to that for sentencing individuals because penalties for organisations will always be financial, and the courts must consider financial orders in a particular sequence: compensation, confiscation and fine.
Compensation (Step 1)
The first consideration for the court when sentencing organisations is whether to make a compensation order requiring the offender to pay compensation for any personal injury, loss or damage resulting from the offence in such an amount as the court considers appropriate, having regard to the evidence and to offender’s means. Where these are limited, priority should be given to the payment of compensation over payment of any other financial penalty. If a compensation order is not made, reasons should be given.
Confiscation (Step 2)
The second step is to consider confiscation. As with the guideline for individuals, the valuation of counterfeit goods for the purposes of confiscation proceedings is not the same as the valuation used for the purposes of assessing harm in the sentencing guideline.
The guideline specifies that confiscation must be dealt with before, and taken into account when assessing any other fine or financial order (except compensation).
Determining the offence category (Step 3)
Like the guideline for individuals, the guideline for organisations denotes three levels of culpability: high, medium and low. Again, the level of culpability is determined by weighing up all the factors of the case to determine the offender’s role, the extent to which the offending was planned and the sophistication with which it was carried out.
Organisations which play a leading role in organised, planned unlawful activity, whether alone or with others, or organisations which involve others (such as employees or suppliers) through pressure or coercion will be found to have high culpability.
As with the guideline for individuals, organisations where there is some degree of organisation or planning involved will fall into medium culpability. An organisation which plays a significant role in unlawful activity organised by others will also have medium culpability.
The lesser culpability characteristics for organisations are the same as those for individuals, the only difference being the absence of the ‘performed limited function under direction’ characteristic (which could not apply to organisations) and the presence of where the organisation plays a minor, peripheral role in unlawful activity organised by others.
The assessment of harm is the same as that in the guidelines for individuals as set out in the table above.
Starting point and category range (Step 4)
Upon determining harm and culpability, the sentencer can proceed to the appropriate starting point and sentence within the applicable range. These are set out below:
For Category 1 offences, the following fines may be imposed on organisations:
- Where there is high culpability, the starting point is £250,000, with a range of £150,000 to £450,000.
- Where there is medium culpability, the starting point is £100,000, with a range of £50,000 to £200,000.
- Where there is lesser culpability, the starting point is £50,000, with a range of £25,000 to £100,000.
For Category 2 offences, the following fines may be imposed on organisations:
- Where there is high culpability, the starting point is £150,000, with a range of £75,000 to £250,000.
- Where there is medium culpability, the starting point is £50,000, with a range of £25,000 to £100,000.
- Where there is lesser culpability, the starting point is £25,000, with a range of £15,000 to £50,000.
For Category 3 offences, the following fines may be imposed on organisations:
- Where there is high culpability, the starting point is £50,000, with a range of £25,000 to £100,000.
- Where there is medium culpability, the starting point is £25,000, with a range of £15,000 to £50,000.
- Where there is lesser culpability, the starting point is £10,000, with a range of £5,000 to £25,000.
For category 4 offences, the following fines may be imposed on organisations:
- Where there is high culpability, the starting point is £25,000, with a range of £15,000 to £50,000.
- Where there is medium culpability, the starting point is £10,000, with a range of £5,000 to £25,000.
- Where there is lesser culpability, the starting point is £5,000, with a range of £2,000 to £10,000.
For category 5 offences, the following fines may be imposed on organisations:
- Where there is high culpability, the starting point is £10,000, with a range of £5,000 to £25,000.
- Where there is medium culpability, the starting point is £5,000 with a range of £2,000 to £10,000.
- Where there is lesser culpability, the starting point is £1,000, with a range of £250 to £5,000.
As with the guideline for individuals, the guideline for organisations specifies that appropriate upward or downward adjustment should be made within the category range to reflect where the value is larger or smaller than the amount on which the starting point is based.
Aggravating factors are drafted more widely than the corresponding aggravating factors for individuals. Specifically, where the organisation has previous relevant convictions or has been “subject to previous relevant civil or regulatory enforcement action“, the offending will be more serious.
Seriousness is also increased where the organisation or subsidiary has been set up to commit counterfeiting activity, or where the counterfeiting activity is endemic within the organisation.
As with the guideline for individuals, the expectation of substantial financial gain; purchasers being put a risk of harm from counterfeit items (where this has not been taken into account at Step 3); attempts to conceal or dispose of evidence or conceal identity; or, blame being wrongly placed on others, are all aggravating factors.
Seriousness will be reduced where the organisation has no previous convictions or previous relevant civil or regulatory enforcement action. As with the guideline for individuals, seriousness will also be reduced where the offender has co-operated with the investigation, made early admissions and/or voluntarily reported the offending and where there has been a lapse of time since the apprehension, which does not arise from the conduct of the offender.
Adjustment of fine (Step 5)
The guideline assumes that the offending organisation has an annual turnover of not more than £2million. Step 5 allows for adjustment, including outside of the offence range, to be made where turnover is higher.
Step 5 also directs the sentencer, having arrived at a fine level, to consider whether there are any factors which indicate an adjustment in the level of fine including outside the category range. The court should ‘step back’ and consider the overall effect of its orders. The guideline dictates that the combination of orders made ought to achieve the removal of all gain, appropriate additional punishment and deterrence. The fine must be proportionate in relation to the size and financial position of the organisation, and the seriousness of the offence and substantial enough to have a “real economic impact which will bring home to both management and shareholders the need to operate within the law“. In particularly egregious cases, it may be an acceptable consequence that the offender is put out of business.
In addition, Step 5 requires the court to consider whether the level of fine would otherwise cause unacceptable harm to third parties, and reiterates that the payment of compensation should take priority over the payment of any fine. The guideline includes a non-exhaustive list of additional factual elements for the court to consider in adjusting the level of the fine. These include whether the fine fulfils the objectives of punishment, deterrence and removal of gain; the value, worth or available means of the offender; whether the fine impairs the offender’s ability to make restitution to victim; the impact of the fine on the offender’s ability to implement effective compliance programmes; the impact of the fine on the employment of staff, service users, customers and the local economy (but not shareholders); and, the impact of the fine on the performance of the organisation’s public or charitable function.
Concluding remarks
These new Guidelines aim to encourage consistency of approach and are to be welcomed as such. One consequence may be that there is some increase in the length of custodial sentences for individuals in the most serious types of cases, and an increase in the use of custody in cases of low value but where there was a high risk of serious harm.
Brian O’Neill QC and Rosalia Myttas-Perris
[1] Chairman of the Sentencing Council, Lord Justice Holroyde in the Foreword of the Sentencing Council’s Response to consultation.
[3] https://www.sentencingcouncil.org.uk/offences/crown-court/item/individuals-trade-mark-unauthorised-use-of-etc/
[4] https://www.sentencingcouncil.org.uk/offences/crown-court/item/organisations-trade-mark-unauthorised-use-of-etc/
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