The Fate Of Parallel Importation Defence Sealed: An Examination Of The Recent Federal Court Case Of Guangzhou Light Industry & Trade Group Ltd & Ors V Lintas Superstore Sdn Bhd¹

The recent FC case effectively addressed the concerns of brand owners and their authorized distributors by offering several measures in which parallel importation could be curtailed

The notion of parallel importation is not unfamiliar to brand owners and their authorized distributors. It involves the importation and sale of non-counterfeit goods by third parties in a particular market without the express permission of the trademark owner. Parallel importation is commonly raised as a defence to an action for trademark infringement or passing-off as it is intertwined with the doctrine of exhaustion of rights where a trademark owner loses the right to control the resale of its goods bearing its trademark. Put another way, trademark infringement or passing-off would not generally arise in the case of parallel importation.

In the Malaysian context,while the parallel importation defence was discussed in line with the issue of whether implied consent was granted by trademark owners in several High Court cases, the measures which a brand owner or authorized distributor could adopt in minimizing the impact of such a defence were not extensively discussed. On 3 June 2022, these measures were clearly set out by the Federal Court (“FC”) in the case of Guangzhou Light Industry & Trade Group Ltd & Ors v Lintas Superstore Sdn Bhd.

BRIEF FACTS

The 1st Appellant was a China-based canned food manufacturing company and the registered proprietor of the “Eagle Coin” trademark (“the said trademark”) in China and Malaysia. The 2nd Appellant was the 1st Appellant’s subsidiary and was authorised to use the said trademark and to sell the goods bearing the said trademark. The 3rd Appellant was the sole authorised distributor of the goods bearing the said trademark in Malaysia. The Appellants sued the Respondent for trademark infringement and passing-off premised on its use of a trademark similar to the said trademark in relation to the Respondent’s canned fried dace products (“the infringing products”). The Respondent argued that the infringing products were not counterfeit goods as they originated from the 2nd Appellant’s retail outlet in China. They were purchased by the Respondent’s agents and shipped to the Respondent’s supermarket for resale in Malaysia. The Respondent invoked the parallel importation defence. While the High Court decided in favour of the Appellants, the Court of Appeal reversed the High Court’s decision.

The Appellants obtained leave from the FC to appeal against the Court of Appeal’s decision based on, among others, the following questions of law: -

A) Will a brand proprietor/owner’s trademark rights be exhausted worldwide even though the goods/merchandise in relation to which the trademark is used have been put on the 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”?

B) 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 trademark proprietor/owner has authorised to be put on the market in Malaysia?

C) Can the quantity of goods/merchandise purchased be used to determine if there is implied consent given by the manufacturer/brand proprietor/owner to sell the goods/merchandise purchased outside Malaysia to be resold in Malaysia?

THE FC’S DECISION

The FC held that the Respondent failed to invoke the parallel importation defence owing to the following reasons: -

a) The existence of express restrictions on the packaging of the infringing products that restrict the sale of the same outside China would mean that there was no exhaustion of the Appellants’ trademark rights [leave question (A) answered in the negative].

b) The sale of the infringing products in Malaysia was prohibited as they were materially different in terms of content, quality and packaging from the goods marketed by the 3rd Appellant in Malaysia. In particular, the infringing products did not comply with certain labelling requirements and the ratio of the fish content in the infringing products was different from the products authorised to be sold in the Malaysian market [leave question (B) answered in the positive].

c) While the infringing products were purchased in bulk by the Respondent, this fact itself cannot amount to implied consent being granted by the Appellants to resell the same in Malaysia, especially when the packaging of the infringing products bear express territorial restrictions vis-à-vis the resale of the same outside China [leave question (C) answered in the negative].

The failure to invoke the parallel importation defence rendered the Respondent liable for trademark infringement and passing-off.

LIMITATIONS TO THE PARALLEL IMPORTATION DEFENCE

Flowing from the FC’s decision, brand owners and their authorised distributors can now prohibit the sale of parallel imports in a particular jurisdiction by adopting, among others, the following measures: -

i. Include contractual restrictions on sale of the products in a particular geographical area. Alternatively, a notification regarding such restriction of sale may be incorporated on the packaging of the products.

ii. Produce different goods (with different qualities, standards, contents, or labelling requirements) for different markets under the same trademark.

iii. Re-evaluate its pricing strategies in relation to the products sold i.e. by increasing the price of products from the lower price-level jurisdiction to discourage parallel importers from importing products from one jurisdiction into a higher price-level jurisdiction.

CELEBRATING THE RESTRICTION OF THE PARALLEL IMPORTATION DEFENCE

Parallel imports may be disadvantageous to authorized distributors as parallel importers may undercut these authorized distributors by selling the goods at a relatively lower price. This recent FC case effectively addressed the concerns of brand owners and their authorized distributors by offering several measures in which parallel importation could be curtailed. While this FC case discussed the parallel importation defence in the context of section 40(1)(dd) of the then Trademarks Act 1976 (repealed by the Trademarks Act 2019) , it could arguably still be applicable to the interpretation of section 55(3)(c) of the Trademarks Act 2019 which arguably provides for a similar defence.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.