Chew Kherk Ying and Sonia Ong, Wong & Partners
In the recent case of Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors, the Malaysian Federal Court addressed the question of whether the correct principle of law to be applied when assessing damages in a trade mark infringement and passing off case is to assess the loss of sales of the successful plaintiff rather than using the accounting formula of net profit after deducting tax and charging overheads, or the accounting concept of loss of net profits.
Taiping Poly brought an action against Wong Fook Toh and his partners for infringing its registered trade mark Haitop for luggage and bags. The appellant claimed that the respondent traded under a confusingly and deceptively similar mark Higertop, used in connection with bags. The High Court found the respondent liable for infringement and passing off.
The senior assistant registrar and the High Court took different approaches in assessing the damages. The registrar based its computation on Taiping Poly’s loss of sales, whereas the High Court deduced that the loss suffered should be the net loss of profits and, in addition, loss of goodwill. On appeal, the Court of Appeal agreed with the approach taken by the High Court. Taiping Poly, therefore, appealed to the Federal Court.
The Federal Court held that Taiping Poly should rightfully be compensated for its loss of business profits and not loss of sales or net profits, caused by the diversion of Taiping Poly’s customers to Wong Fook Toh due to its misrepresentation. The ultimate aim was to put Taiping Poly in the position that it would have been in had Wong Fook Toh not infringed its rights. The Federal Court held that the approach taken by both the registrar and the High Court was incorrect. By merely aggregating the Taiping Poly’s loss of sales, the registrar had overcompensated Taiping Poly, since items such as overheads and other contingencies would have been included. The High Court’s computation on the basis of net profits, premised on Taiping Poly’s audited accounts, was also erroneous as it took into consideration sales of other products in addition to the infringed bags. Eventually, the Federal Court assessed Taiping Poly’s loss of business profits based on its profit margin – profit before tax as a percentage of total turnover – multiplied by the loss of sales, which was based on figures submitted by Taiping Poly that were undisputed. The Federal Court confirmed the High Court’s award of damages for loss of goodwill.
This decision of the highest court in Malaysia has set a helpful precedent and provides clarity on the assessment of damages in infringement and passing off cases.