Fifty shades darker for grey goods
24 June 2022
In June 2022, the Malaysian Federal Court in Guangzhou Light Industry & Trade Group Ltd & 2 Ors v Lintas Superstore Sdn Bhd (Civil Appeal No: S-02(NCVC)(W)-543-03/2018) placed clear limits to the defence of parallel importation in a claim for trademark infringement and passing off.
Among others, the Court held that the defence cannot be relied on (i) where there are territorial restrictions over the goods (in this case the products were labelled “to be sold in China only”); and (ii) when the parallel imports are materially different in content, quality and packaging than those authorised by the trademark owner for the local market. It was also held on the facts of the case that the ability to purchase in bulk quantities in the foreign country cannot imply consent for parallel importation into Malaysia.
This decision is significant and marks a restrictive shift on the issue of parallel importation, previously regarded as widely permissible in Malaysia.
The 1st plaintiff (“P1”) is a leading China-based canned food manufacturing company and the owner of the “Eagle Coin” trademark (“the Mark”). The 2nd plaintiff (“P2”), a subsidiary of P1, is involved in the manufacturing, importation and exportation of food products including canned food and was assigned to use the Mark and sell products bearing the Mark outside of China. The 3rd plaintiff (“P3”), a Malaysian company based in Sabah, is the sole authorised distributor of canned food bearing the Mark in Malaysia and the registered trademark user of the Mark in Malaysia.
The defendant operates a supermarket business in Kota Kinabalu, Sabah and sells sundry goods including food products. The defendant used the Mark on their canned fried dace products (“infringing products”) in the course of trade in their Kota Kinabalu supermarket.
The High Court
The plaintiffs filed a suit in the High Court for trademark infringement and passing off against the defendant for using the Mark on the infringing products. The infringing products sold by the defendant were produced in China by P1 and P2, but were not meant for distribution in Malaysia as they were only restricted for sale in China. The plaintiffs alleged that the defendant imported the infringing products directly from China and offered them for sale in Malaysia without obtaining authorisation from the plaintiffs.
In determining infringement, the High Court considered the evidence that P1, as the registered user of the Mark, had assigned the sole right to use the Mark in Malaysia to P3. As a registered user pursuant to sections 48(5) and 35(1) of the Trade Marks Act 1976 (“TMA 1976”), P3 was entitled to the exclusive right to use the Mark in Malaysia. The High Court Judge found that the defendant had knowledge that the Mark belonged to P1 based on, among others, the printing of the packaging distributed by P3, that P3 is the sole authorised distributor of P1’s product. The High Court held that the defendant had infringed the exclusive rights of the plaintiffs to use the Mark.
The defendant raised the defence of parallel importation under section 40(1)(dd) of the TMA 1976 and claimed that it had purchased the infringing products directly from P2’s retail outlet in China and shipped the same to be sold in Malaysia. The defendant contended that parallel importation of goods is not illegal in Malaysia and placed reliance on the case of Winthrop Products Inc & Anor v Sun Ocean (M) Sdn Bhd  2 MLJ 317 (“Winthrop”). In Winthrop, the Panadol products that were manufactured in the United Kingdom were imported into Malaysia by the second defendant who had obtained the products from an entity within the same corporate group as the plaintiffs; hence, consent was deemed implied. There was also no territorial restriction on the packaging of the Panadol bought in the United Kingdom.
The learned High Court Judge considered that in raising the defence of parallel importation, it is incumbent on the defendant to prove the critical element of expressed or implied consent from the trademark owner. Absence of consent, the defence of parallel importation would not succeed. In this case, unlike the products in Winthrop, the infringing products were labelled to be restricted for sale in China only. On the facts of the instant case, the High Court held that defence of parallel importation failed.
The learned High Court Judge further found that the essential elements as propounded in Reckitt & Colman Products Ltd v Borden Inc & Ors  1 All ER 863 and followed by the Malaysian Court of Appeal in Sinma Medical Products (M) Sdn Bhd v Yomeishu Seizo Co Ltd & Ors  3 CLJ 815 had been proved by the plaintiffs, in that (i) the plaintiffs have goodwill attached to the business regarding the mark used by the plaintiffs in respect of the goods; (ii) the defendant had misrepresented to the public by using a mark which is likely to confuse or deceive the public to believe that the defendant’s goods are that of the plaintiffs; and (iii) there is likelihood of damage to the plaintiffs due to the misrepresentation by the defendant. Thus, the plaintiffs also succeeded in establishing the claim under the tort of passing off.
The Court of Appeal
Upon appeal, the Court of Appeal reversed the findings of the High Court and found that implied consent was given by the plaintiffs to the defendant based on the quantity of the infringing goods purchased. The defendant had purchased 720 cans of fried dace without salted bean and 1200 cans of fried dace with salted bean.
The Federal Court
The plaintiffs obtained leave to appeal on seven questions of law.
In reinstating the findings of the High Court, the Federal Court held a parallel importer could be restrained and answered the first three questions as follows:
- Will a brand proprietor/owner’s trademark rights be exhausted worldwide even though the goods/merchandise in relation to which the trademark is used have been put on market by the brand proprietor/owner to be sold in a specific country/region/geographical area only for e.g. when it is clearly stated the goods/merchandise are “to be sold in China only”?
With the existence of expressed restrictions on packaging of the infringing products bearing the Mark that restrict sale outside China, there cannot be worldwide exhaustion of the plaintiffs’ trademark rights. Although the infringing products were purchased in bulk by the defendant’s agent in China, it cannot be inferred that the plaintiffs knew the infringing goods were purchased for purposes of re-selling, marketing and distribution in Malaysia. The infringing products were also not shipped by P1 and P2 to the defendant, hence, there cannot be implied consent in this instance. This question was answered in the negative.
- Whether the sale of parallel imports in Malaysia can be prohibited if the goods/merchandise purchased and intended to be re-sold are materially different from the goods/merchandise that the trademark proprietor/owner has authorised to be put on market in Malaysia?
The sale of parallel imports in Malaysia can be prohibited if the goods purchased and intended to be resold are materially different from those that the proprietor has authorised to be sold in Malaysia. The infringing goods offered for sale by the defendant were materially different in terms of content, quality and packaging from the goods offered for sale by P3 in Malaysia. Further, the infringing products are not the same as the products sold by the plaintiffs in Malaysia in terms of quality and packaging and did not comply with labelling laws under the Food Act 1983. This question was answered in the affirmative.
- Can the quantity of goods/merchandise purchased be used to determine if there is implied consent given by the manufacturer/brand proprietor/owner to sell the goods/merchandise purchased outside Malaysia to be resold in Malaysia?
The quantity of goods purchased cannot be used to determine implied consent by the manufacturer/brand proprietor. Implying consent from brand/trademark owner through bulk purchase is a false premise because consent does not extend to just the act of reselling but also to where the products can be resold. This question was answered in the negative.
The Federal Court declined to answer the remaining four questions.
The Federal Court has restricted the application of worldwide exhaustion of rights by holding that such exhaustion is not applicable if there is express or contractual restriction on the products. In doing so, the Federal Court has taken a position similar to the European Court of Justice (“ECJ
”) in dealing with exhaustion of rights within member states. The ECJ cases have shown that trademark rights cannot be exhausted worldwide and would only be exhausted nationally if the imported goods were also placed on the national market by the registered proprietor or with their consent. Further, implied consent can only be inferred when the facts and the circumstances unequivocally show that the proprietor has renounced his right to oppose placing of the goods on the market in the jurisdiction to which the goods were imported.
Similarly, in holding that there is infringement in imported products which are materially different from the products authorised for sale within a jurisdiction, the Federal Court has adopted the approach in the United States on materially different imported products. In this regard, there would be trademark infringement in the materially different imported products. The fact that the imported products come from the same manufacturer of the authorised products is irrelevant, as the probability and presumption of confusion exist even in a single material difference.
In light of this decision, traders should be aware when dealing with imported products, particularly where these products have not been procured from the registered trademark proprietor, authorised importer or distributor in Malaysia. With the restriction on the application of worldwide exhaustion of rights, it would also be interesting to see how such approach would pan out for imported products which are materially different from the products authorised for sale in Malaysia. A classic example would be imported reconditioned second-hand cars which have specifications and features that differ from the same model offered for sale in Malaysia, albeit from the same manufacturer. Another would be the importation of electronic products that may differ in terms of voltage requirement and safety specifications.
Case commentary by Joshua Beni Chris Teoh (Partner) and Alyshea Low Khye Lyn (Senior Associate) of the Intellectual Property Practice of Skrine.
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