Retailers now criminally liable for grey stock

A change in law means retailers found with ‘back door’ grey stock can be charged with criminal offences previously reserved for those selling counterfeit products.

While the Supreme Court case that set the precedent relates to clothing manufacturers, according to intellectual property expert Andrew Stone, senior associate at Clarke Willmott LLP, the case could impact other industries including convenience where grey stock is found.

Back door counterfeiting is where factories paid by a supplier to produce their goods have sold off unapproved surplus or faulty stock to third parties. As the factory was an approved manufacturer, retailers caught selling this stock have been hard to prosecute. However, this case makes it much easier by removing the court’s distinction between grey stock and counterfeit stock.

Within the food and drink market, Stone gives the example of whiskey, where he says there have been cases of contracted distilleries selling back door counterfeits. According to anti-counterfeiting firm Ultramatis, trading standards believe one in five off licenses stock counterfeit whiskey.

Andrew Stone also suggests that buying from an AWRS approved wholesaler may not be enough to ensure that stock is legitimate, noting cases where even high street retailers have been caught unknowingly selling grey stock. He explains: “It is very easy for grey stock to get mixed in higher up the chain because the counterfeiters sometimes purchase legitimate stock so that they can provide a trail of invoices with which to swap out the illicit stock.”

Unlike traditional counterfeit products, back door goods are often passed off as legitimate stock, and will have similar prices, making it hard for retailers to spot and very profitable for the suppliers.

Asked what retailers can do to avoid purchasing backdoor stock of any product, the senior associate advises: “If you are suspicious of a product, ask your supplier to provide a full invoice trail all the way back to the manufacturer. If they are reluctant to do this you have to ask questions.”

He adds: “Look at invoices with a critcal eye, spelling errors, odd dates and numbers that don’t match are giveaways. You can also verify the stock by asking the manufacturer themselves.”