Relief for overseas licensors in Malaysia

The Court of Appeal confirmed on November 14, 2012 that a trademark affixed on imported goods that are distributed by a local distributor who merely acted as conduit belongs to the foreign trader.

The appellant, a foreign company based in the US, started distributing and selling sports-related supports, protectors and braces with the trademark ‘LP’ in Malaysia in 1991 through its former local distributor, the respondent. All the appellant’s products with the ‘LP’ trademark are imported into Malaysia directly from its appointed manufacturer in Taiwan and were sold and distributed by the respondent without any alteration or improvement.

The respondent had in 1992 filed a trademark application for the ‘LP’ mark under Class 28 without the consent or authorisation of the appellant. When the trademark application was subsequently accepted and advertised in the Government Gazette, the appellant filed an opposition against the registration of the respondent’s application on the ground that, among others, the respondent is not the lawful proprietor of the ‘LP’ trademark.

While the trademark registrar agreed that the respondent is merely an importer and allowed the opposition filed by the appellant, the High Court held that the respondent, as the local distributor, is the first user of the ‘LP’ trademark in Malaysia and therefore the lawful proprietor of the trademark.

As trademark proprietorship in Malaysia is based on a first-use principle, the panel of three judges at the Court of Appeal was tasked to decide whether the appellant, the foreign trader, or the respondent, the local distributor, was the first user of the ‘LP’ trademark locally.

There were two prior decisions in Malaysia that revolve around the ownership of foreign trademarks. In Lim Yew Seng v Hummel International Sports & Leisure A/S [1996] 4 CLJ 784, the ‘Hummel’ mark which was in dispute was registered by the local company in 1981. When the foreign company which is based in Denmark intended to enter the Malaysian market in 1995, it filed an application to expunge the local company’s trademark registration.

"The local company does not acquire any proprietary rights over the trademark merely by being a conduit from the manufacturer to Malaysian consumers."

While the Court of Appeal in that case held that it is distasteful for a trader in one country to appropriate a mark of a foreign trader, the ownership of the ‘Hummel’ mark remains with the local company as there were no evidence that the foreign company had used or publicised the ‘Hummel’ mark in Malaysia before the local company registered its trademark.

On the contrary, in Hai-O Enterprise Bhd v Nguang Chan [1992] 2 CLJ (Rep) 436, the local company entered into a sole agency agreement with a foreign company in China to sell medicated wine bearing the foreign company’s trademark in Malaysia. When the foreign company applied to expunge the local company’s trademark, the court held that trademark should be expunged as the trademark belongs to the foreign company which places its trademark on products which were intended to be exported into Malaysia for sale. The local company does not acquire any proprietary rights over the trademark merely by being a conduit from the manufacturer to Malaysian consumers.

The Court of Appeal in the current case confirmed that as the respondent was merely distributing the products bearing the ‘LP’ trademark which originated from the appellant, the ‘LP’ trademark belongs to the appellant.

The Court of Appeal’s decision in reversing the High Court’s ruling has been well received by the market in Malaysia and is a relief to many foreign licensors whose products are sold through a licensee or distributor or a franchisee in Malaysia.

While foreign licensors and franchisors can take comfort in this decision, it appears that they should also consider taking more prudent steps moving forward, such as filing trademark registrations in local jurisdictions and ensuring that the trademarks that appear on their products would clearly identify them as the trademark owners.

Chew Kherk Ying is a partner at Wong & Partners. She can be contacted at: kherk.ying.chew@wongpartners.com.

Chai Pei Yee is an associate at Wong & Partners. She can be contacted at: peiyee.chai@wongpartners.com.