Federal Court Clarifies The Parallel Import Defence
Parallel imports are known as “gray products” that are protected from trademark infringement, as provided under Section 40(1)(dd) of the Trade Marks Act 1976 (TMA 1976), which is now repealed and Section 55 of the Trademarks Act 2019.
In this alert, our associate, Ng Lih Jiun from the firm’s Intellectual Property practice, discusses the recent case of Guangzhou Light Industry & Trade Group Ltd & Ors v Lintas Superstore Sdn Bhd  6 CLJ 653 where the Federal Court clarified on the application of the parallel imports defence.
Parallel imports, often referred to as “gray products” are authentic goods imported into and sold in a particular country, territory or market without the express permission of the brand owner in that country. This defence to trademark infringement is provided under Section 40(1)(dd) of the Trade Marks Act 1976 (TMA 1976), which is now repealed and Section 55 of the Trademarks Act 2019.
Recently, the Federal Court in Guangzhou Light Industry & Trade Group Ltd & Ors v Lintas Superstore Sdn Bhd  6 CLJ 653 clarified on the application of this defence.
The 1st Plaintiff (P1) was a China-based canned food manufacturing company. It owned the “Eagle Coin” trademark which is registered in China and Malaysia. The 2nd Plaintiff (P2) was a subsidiary of P1 and was involved in the manufacturing, importation and exportation of food products including canned food. P2 was assigned to use the “Eagle Coin” trademark to sell products outside China. The 3rd Plaintiff (P3) was a Malaysian based company and the sole authorised distributor of canned food products bearing the “Eagle Coin” trademark in Malaysia. P3 is also the registered trademark user of the ‘Eagle Coin’ mark in Malaysia. The Plaintiffs claim against the Defendant for trademark infringement and passing-off.
The products with the “Eagle Coin” trademark sold by the Defendant were produced in China by P1 and P2 but intended for sale in China only, not for distribution in Malaysia. The Defendant imported the products from China and offered them for sale in Malaysia without authorisation from P1 or P2 and bypassing P3, which was the sole authorised distributor in Malaysia.
The Defendant relied on the defence of parallel importation pursuant to Section 40(1)(dd) of the TMA 1976, contending that the products were purchased directly from the retail outlet of P2 in China and shipped to its supermarket in Kota Kinabalu.
The High Court Decision
The High Court held that:
(a) The Defendant had infringed the “Eagle Coin” Trade Mark.
The Defendant admitted the selling of the gray goods bearing the “Eagle Coin” mark in Malaysia was not sourced from P3, who was the exclusive distributor and the sole registered user of the said mark in Malaysia. Further, it is impossible that the Defendant has no knowledge that P3 was the exclusive distributor as the Defendant had previously ordered this product from P3 but ceased doing so because of the high price. It is also clearly printed on the packaging that P3 was the sole authorised distributor of the product of P1.
(b) The defence of parallel importation fails.
It was incumbent on the Defendant to prove the critical element of an express/implied consent from the owner of the trademark in order to rely on the defence of parallel importation pursuant to Section 40(1)(dd) of the TMA 1976. The court held that there was no evidence (be it direct or circumstantial) of the presence of the element of consent which was essential to sustain the defence. Further, the infringing products were restricted to the China market only.
(c) The Defendant had passed-off the “Eagle Coin” Trademark.
As both products bore the same “Eagle Coin” trademark on the packaging, the public had been misled into assuming that the infringing products were the same product marketed by P3 as the sole authorised distributor in Malaysia. The gray goods do not comply with the requirements of Malaysian law including the “halal” requirement and therefore, were not the same as P3’s product. In the premises, the reputation of P3 would be damaged if Malaysian customers confused the source of the gray goods because of the common identical “Eagle Coin” trade mark.
The Court Of Appeal Decision
Dissatisfied with the findings of the High Court, the Defendant appealed based on the following grounds:
(a) That when the defendant through their agent went to the retail store in China to purchase the infringed products, there was implied consent given by P2 through the retail stores that they can re-sell the infringed products purchased in Malaysia; and
(b) With the existence of implied consent given by the P2, it falls under the meaning and principles of the law on parallel importation as stated in the case of Winthrop.
The Court of Appeal allowed the Defendant’s appeal and in its brief oral grounds, the panel stated that they had considered the quantity of the infringing products purchased by the Defendant and were satisfied that there was implied consent given by the Plaintiffs to the Defendant for reselling purposes.
The Plaintiffs then obtained leave to appeal to the Federal Court on the following questions of law:
1. Will a brand proprietor/owner’s trade mark rights be exhausted worldwide even though the goods/merchandise in relation to which the trade mark 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”?
2. Whether the sale of parallel imports in Malaysia can be prohibited if the goods/merchandise purchased and intended to be resold are materially different from the goods/merchandise that the trade mark proprietor/ owner has authorised to be put on market in Malaysia?
3. Can the quantity of goods/merchandise purchased be used to determine if there’s implied consent given by the manufacturer/brand proprietor/ owner to sell the goods/merchandise purchased outside Malaysia to be resold in Malaysia?
4. In the event the answer to question 3 above is “yes”, then can the consent be valid if the goods/merchandise purchased were put in market by the manufacturer/trade mark proprietor/owner to be sold only in that specific country from which the goods/merchandise were purchased from?
5. Whether goods/merchandise when purchased but not imported and/or does not comply with laws concerning importation amount to parallel importation?
6. Whether the law in Malaysia allows for food products to be sold even though it is not packaged according to the Food Regulations 1985 and/ or Food Act 1983? Whether the implied consent and/or express consent given by the trade mark proprietor/owner supersede the laws of Malaysia?
The panel answered in the negative to Question 1 and 3, in the affirmative to Question 2 and declined to answer the other questions as they were not raised in the High Court.
Question 1 was summarised by the Federal Court to “would the proprietor’s rights be exhausted worldwide even if the sale is restricted only to a specific territory.” The Defendant argued the interpretation of Section 40(1)(dd) of the TMA 1976 to be that the registered proprietor’s rights in the goods were exhausted once the goods were sold by him or his authorised distributor with his consent anywhere in the world.
The Defendant relied on Winthrop Products Inc & Anor v. Sun Ocean (M) Sdn Bhd & Anor  1 LNS 21, where it was held that if the mark has been applied overseas by a company which was part of the same corporate group as the local trade mark owner, it was not infringement of the local trade mark for a third party to import goods bearing the mark.
In Winthrop, the blue pack Panadol products that were manufactured in the United Kingdom were imported into Malaysia by the 2nd defendant who had obtained the products from an entity within the same corporate group as the plaintiffs. It was held that the exhaustion defence applied when the goods parallelly imported by an independent third party were manufactured and put on the market in a foreign country by an associated or related company of the plaintiff trade mark owner. Consent of the registered trade mark owner was implied.
The Federal Court held that the facts are distinguished from the present case.
(a) In Winthrop, the plaintiffs knew that the defendant is an existing customer of theirs (of an entity within the same corporate group as the plaintiffs) and an exporter of the goods so the court could infer there was implied consent to reselling. The Defendant herein was not related to the Plaintiffs nor a known exporter/distributor of "Eagle Coin" products. There could be no consent implied or deemed.
(b) In Winthrop, there was no territorial restriction on the sale of the goods and the goods were the same for both domestic and export market. However, in the present case, there was restriction for the goods to be sold outside China.
Question 1 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 Trade Mark Proprietor/Owner Has Authorised To Be Put On Market In Malaysia?”
In Re PT Garudafood Putra Putri Jaya TBK  6 CLJ 217 (which was argued by our Head of Intellectual Property practice, Bahari Yeow), the High Court appeared to adopt the approach to exclude parallel imports that were materially different from those products authorised for sale by the trademark proprietor/user in the domestic market.
The Federal Court was further persuaded by the Plaintiffs submission that Malaysia should adopt an approach like the United States were the sale and distribution of parallel imports that are "materially different" from goods authorised for sale within the country constitutes trademark infringement as the probability of confusion still exist despite the goods originates from the same manufacturer.
The gray products bearing the trademark "Eagle Coin" were materially different in terms of contents, quality and packaging. Not only it did not comply with the labelling requirements under the Food Regulations 1985 and halal requirement, the ratio of fish content was also different compared to the "Eagle Coin" products sold by P3.
Question 2 was answered in the affirmative.
“Can The Quantity Of Goods/Merchandise Purchased Be Used To Determine If There's Implied Consent Given By The Manufacturer/Brand Proprietor/Owner To Sell The Goods/Merchandise Purchased Outside Malaysia To Be Resold In Malaysia?”
The Federal Court held that it would be absurd to rely on the sheer quantity of the purchase to imply consent to importing the goods into Malaysia for reselling. Consent should not just extend to the act of reselling but also the where the products could be resold. There was clear "territorial restriction" on the packaging of the goods from China.
Question 3 was answered in the negative.
This Federal Court decision suggests that it has shifted to a narrower approach towards parallel importations. Arguably one segment that may be heavily impacted by this decision is the flourishing e-commerce industry where goods move at accelerated paces across borders.
Being a gray area not often canvassed in court, this decision by the Federal Court would serve as one of the few authorities on parallel imports for years to come.
Authored by Ng Lih Jiun, an Associate with the firm’s Intellectual Property practice.
19 November 2022