Parallel Imports In Malaysia – Permissible Or Not?

September 3, 2020

Parallel import is defined as strictly importation and sale of 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. In general, parallel import also meant the importation and sale by third persons of goods obtained in another country which originates from an internationally known group or company.

Thus, the simplified view of parallel importation is importation of goods into a territorial market in competition with the existing distributor of the goods in that market. In most jurisdictions, the practice of parallel import is allowed following the principle of exhaustion of intellectual property rights following the sale of the goods bearing the said trade mark. In other words, once the goods are sold, the IP owner subsisting the goods must allow the resale of the goods.

However, there is a distinction between a national exhaustion of the IP rights and an international exhaustion of the IP rights. National exhaustion only allows national resale of the goods, while international exhaustion allows resale of goods in any other country other than the country of origin.

This alert discusses Malaysia’s position in the practice of parallel import.

Malaysia’s Position

Malaysian laws do not expressly prohibit the practice of parallel import. Nevertheless, the practice of parallel import had been subjected to disputes in Malaysian Courts and the position is far from settled.

Allowed

Disputes on the practice of parallel import was first reported in the High Court case of Winthrop Products concerning the import of Panadol pills from the Sterling group of companies in the British domestic market into the Malaysian market. The 1st plaintiff owned the Panadol trade mark in Malaysia who also had registered user-rights of the mark in the UK. The 2nd Plaintiff is the sole registered user of the trade mark in Malaysia. The High Court dismissed the plaintiffs’ claim of infringement of trade mark proprietorship and passing off against the local parallel importer and held as follows:

“the proprietorship and/or registered user of a trade mark has the right to prevent deception as to the origin of the goods but such proprietorship or user right per se does not give a right to control dealings with the goods. Some measure of contractual control may be provided for but trade mark laws certainly do not give rights of control.”

Principles in the Winthrop Products case appeared to have set the tone for Malaysia in allowing the practice of parallel imports which was followed and/or consistently applied in subsequent High Court cases such as Hai-O Enterprise, Kenwood Electronics and Planete Enfants.

Not Allowed?

21 years after the Winthrop Products case was decided, the High Court in the Tien Ying Hong Enterprise case, distinguished Winthrop Products case as follows. In the Winthrop case, the plaintiff is part of the Sterling group of companies and when the defendant bought the pills in UK, it was effectively buying from the plaintiff and consent to import could be implied in that manner. In the Tien Ying Hong Enterprise, there is no such relationship between the plaintiff, i.e. the trade mark proprietor in Malaysia, and the defendant who imported batteries bearing the plaintiff’s mark from Hong Kong, who in turn obtained the said batteries from a battery manufacturer in Japan.

Further, the High Court added that Sections 35 and 38 of the Trade Marks Act 1976 gave exclusive rights to the plaintiff as the registered proprietor of its trade mark to use its trade mark in Malaysia, including the right to import goods bearing the trade mark. Therefore, the plaintiff’s case of trade mark infringement was successful.

In the more recent case of Re PT Garudafood Putra Putri Jaya TBK, the High Court held that goods meant for sale in the Indonesian market could not be sold in the Malaysian market without the trade mark owner’s consent. As a result, the Court held that the parallel importation in that case constituted unfair business competition and the applicant was successful in obtaining a false trade description order as follows:

“It is particularly pertinent here because the products involved are confectionery foodstuff. There is hence the need to ensure that these products meet the necessary Malaysian quality standard and Ministry of Health requirements to protect consumers. These standards and requirements may not be the same both in Malaysia and Indonesia. As the result, these infringing products may pose a health and safety risk to the Malaysian consumers. Moreover the freshness of these imported infringing products is also of concern by reason that these products may be expired products in the Indonesian market. Public interest as well as the reputation and goodwill of the applicant are at stake here. That aside, the parallel importation of these products is also an unfair business competition to the applicant and its authorised exclusive Malaysian distributor.”

Conclusion

It is prudent for trade mark owners to note that the application of laws in respect of disputes involving parallel imports are not consistent. It appears that the Malaysian courts had adopted a very cautious approach in adjudicating parallel import disputes, and it is safe the say that the permissibility of parallel import would largely depend on the facts and circumstances of each case.

Trade mark owners must assess the market and its parallel importing competitors carefully and thoroughly before embarking on a legal challenge to protect its brand in Malaysian markets. Particular care must be given to the source of import for the importers to assess whether the trade mark owners’ consent could be implied for goods to be imported in parallel into Malaysia.