An analysis of judicial decisions rendered by the Malaysian courts suggest that parallel imports are lawful to some extent.
In simple terms, parallel imports are non-counterfeit goods which are authorised by the intellectual property owner to be sold in one country, i.e. country X but may not be intended to be sold in country Y. However, the goods are imported by the parallel importer to country Y for subsequent resale.
Parallel imports, commonly also referred to as grey market goods, are defined by Halsbury's Laws of Malaysia as "strictly the importation and sale by others of goods originating from the owner of industrial property rights in parallel with his own importation of such goods, whether carried out by himself or through authorised agents, but is used more generally to describe the importation and sale by third persons of goods obtained in another country which originate from an internationally known company or group."
There is no express prohibition against parallel imports under Malaysian law. Sections 40(1)(d) and 40(1)(dd) of the Trade Marks Act 1976 (TMA) seem to also support this position on parallel imports as follows:
"Notwithstanding anything contained in this Act, the following acts do not constitute an infringement of a trade mark
(d) in relation to goods connected in the course of trade with the registered proprietor or a registered user of the trademark if, as to those goods or a bulk of which they form part, the registered proprietor or the registered user in conforming to the permitted use has applied the trademark and has not subsequently removed or obliterated it or has at any time expressly or impliedly consented to the use of the trademark
(dd) the use by a person of a trademark in relation to goods or services to which the registered proprietor or registered user has at any time expressly or impliedly consented to;…"
The rationale behind the dismissal of a trademark infringement complaint against parallel imports lies essentially in the fact that there are no issues of confusion or deception to consumers as to the source of the goods since the goods originate from the same manufacturer or its group of companies and the parallel importer was in effect buying from the same manufacturer or group of companies where the trademark owner derived benefit, though indirectly.
In the absence of any contractual restriction, there are limited remedies available to the registered trademark owner to stop parallel imports. While consumers may be able to enjoy cheaper alternatives or variants of the same genuine product from parallel importers, these grey market goods may vary in their standard and quality and may also not comply with the requirements imposed by the relevant local authorities thus compromising the goodwill and reputation of the trademark owner. The sale of parallel imports is also seen as unfair business competition to both the IP owner and the local authorised distributor as they are bound by trading terms/local conditions and may not be able to compete with the parallel importer. IP owners often have to resort to other legislation, where relevant, to impede parallel imports, such as the Sales of Drugs Act 1952, Communications and Multimedia Act 1998 or secure a false trade description under the Trade Descriptions Act 2011 (TDA2011) to enforce their rights.
A recent decision in the Malaysian court in PT Garudafood Putra Putri Jaya TBK (Gery case) seems to provide better recourse for IP owners in their challenge against parallel imports. The High Court in this case after considering the various differences between the packaging of goods meant for the Indonesian market and the packaging of goods meant for the Malaysian market granted a Trade Description Order (TDO) to the registered trademark owner which essentially declared that goods meant for the Indonesian market from their packaging consisted of a false trade description upon the applicant's products that are produced in Malaysia which carry the registered mark. The High Court further held that:
"…there has been infringement of the registered mark by importers of the products that carry the "Gery" mark manufactured specially for the Indonesian market. These infringing products are hence as conceded by the applicant not counterfeit products but the products of the applicant brought into Malaysia through unauthorised parallel importation."
A TDO is a declaration by the High Court that a specified infringing trademark or get-up is a false trade description in its application to the goods specified. Such an order is a quasi-criminal type of relief available to registered trademark owners in order to seek relief from the court. The enforcement of this order is done by raids conducted by officers from the Enforcement Division of the Ministry of Domestic Trade and Consumers Affairs who seize such products bearing the false trade description.
The court in holding that the infringing products consist of a false trade description also considered other issues relating to parallel importation activities such as public interest where the products concerned, being confectionary foodstuff, should meet the necessary Malaysian quality standard and Ministry of Health requirements and at the same time preserving the reputation and goodwill of the applicant.
The new developments in the Gery case may be a positive step for IP owners towards enforcing their rights against the parallel importation of their goods. On the other side of the coin, prohibitions against parallel imports should also be balanced against the availability of cheaper alternatives to genuine products through parallel imports, ensuring that such prohibitions do not contravene the provisions of the Malaysian Competition Act 2010. The draft Guidelines on Intellectual Property Rights and Competition Law (IP guidelines) issued by the Malaysian Competition Commission differentiate parallel imports into active sales and passive sales:
"Active sales generally refer to the licensee in one territory actively seeking and approaching buyers or a specific group of buyers who are located in the exclusive territory of another licensed distributor. Passive sales include a licensed distributor's responses to the demands of individual buyers who are located in an area which the licensor has assigned to another distributor, including the delivery of products to such buyers. Such responses do not result from active sales."
The IP guidelines suggest that an IP owner, through exclusive licensing agreements can restrain its local distributors from engaging in active sales outside the allocated market but must not forbid them from carrying out passive sales. While the above developments present a positive outlook for IP owners seeking to prevent parallel imports, a balance will need to be struck when dealing with parallel imports.
Shearn Delamore & Co
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