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What are Parallel Imports?
Parallel imports (known as grey market goods) refer to goods which are lawfully manufactured oversea but bypass the official franchise holders or distributors import into and sell in the country without the authorisation of the registered proprietor of the trademark in that particular country.
Legality of Parallel Imports in light of Trademark Law in Malaysia
Malaysian Trademark Law generally does not prohibit parallel importation. In particular, Section 40 (1)(d) and (dd) of the TMA 1976 “legalise” parallel importation by providing that parallel imports are permitted if the registered proprietor has:
- Legitimately applied the registered mark on the goods and such mark has not been subsequently removed (Section 40(1)(d)); or
- Expressly or impliedly consented to the use of the mark (Section 40(1)(dd)).
Section 40(1) is closely related to the principle of “trademark exhaustion”. This means that when the brand owner sells a product through its subsidiary companies (ie. with the consent of the owner) in any territories which bear the same trademark, his trademark rights are said to have exhausted, and he has no right to ban others from reselling or using the product.
In the case of Winthrop Products Inc & Anor (“Panadol case”), the plaintiff and the defendant were subsidiaries of the same Sterling group of companies and when the defendant bought the pills in United Kingdom, the plaintiff was deemed to have impliedly consented to the importation of the products. The court held that there is no prohibition against the defendants importing the painkiller into Malaysia unless there is a contractual restriction.
Conversely, in the High Court case of Re PT Garudafood Putra Puri Jaya TBK [2019], the Court relied on Section 35 of the TMA 1976 which stated that only the registered proprietor has the exclusive right to use the trademark in Malaysia to the exclusion of all others. As a result, the Court held that the products which were sold in Malaysia contained false trade descriptions and that such products were brought into Malaysia through unauthorized parallel importation and would constitute unfair business competition.
Despite the opposing perspectives in these precedent cases, the defence of parallel importation in Section 40(1) will take precedence over the general exclusive right granted to a registered proprietor under section 35(1) of the TMA 1976 if they fit within either the exception in Section 40 (1)(d) or (dd) TMA 1976.
Position of parallel importation under the new TMA 2019
Under the new TMA 2019, the corresponding provision to Section 40(1)(dd) of the TMA 1976 is stated in Section 55(3)(c) of the TMA 2019. However, the Section 40(1)(d) of the TMA 1976 is not incorporated under the new TMA 2019. This raises the concern of whether the legal position of parallel importation in Malaysia will change.
The recent Malaysia Federal Court decision dated 3 June 2022 in Guangzhou Light Industry & Trade Ltd & 2 Ors vs Lintas Superstore Sdn Bhd is helpful in shedding some light on this issue. In this case, the products were labelled “to be sold in China only” which has imposed territorial restrictions on the products and also the defendant was neither an existing customer of the plaintiff nor a known exporter/distributor of the products for the consent to be implied or deemed.
The facts of this case are different from the Winthrop case where there were no territorial restriction on the exportation of the product and neither were there evidence of any conditional sale of the product and (2) knowledge on the part of the plaintiffs that defendant is an existing customer of theirs and an exporter of the goods so the court can infer there were implied consent to reselling.
On top of that, the court in this case also take into consideration the “material differences standard” approach adopted in Re PT Garudafood Putra Putri Jaya TBK and ruled that the defence of parallel importation cannot be invoked when the infringing products in the export market are materially different in content, quality and packaging from the goods authorized for sale within domestic market as that would create confusion amongst the consumers and would constitute trademark infringement.
The Court found that trademark infringement and passing off had occurred in this case.
Conclusion
The latest ruling in the case of Guangzhou Light Industry & Trade Ltd & 2 Ors vs Lintas Superstore Sdn Bhd appears that Court has taken a relatively cautious and restrictive approach in accessing the applicability of the defence of parallel importation in the event of dispute compared to previously regarded as widely permissible in Malaysia. The deciding factors on the legality of the parallel importation would largely depend on the facts and circumstances of every case.
Business owners are advised to evaluate each dealing carefully to avoid falling into illegal activities which would result in huge losses to the company. Should you need any professional advice on the above issues or other Trademark related matters, please contact Pintas IP today.