Parallel imports, namely, branded goods which are imported and sold in a market without the consent of a trademark owner, have generally been considered to be legal in Malaysia. This is premised upon the concept of exhaustion of IP rights because, even though such goods are often referred to as “grey-market” goods, they are not counterfeits and are genuine goods. However, this legality is not without limits.

The Federal Court has now, in its decision in Guangzhou Light Industry & Trade Group Ltd & Ors v Lintas Superstore Sdn Bhd [2022] MLJU 1135 dated 3rd June 2022, taken a fairly restrictive approach in placing limits on the defence of parallel importation.

In this case, the 1st Appellant is the proprietor of the trademark (“Eagle Coin mark”). The 2nd and 3rd Appellants are the 1st Appellant’s subsidiary and sole authorised distributor of canned food bearing the Eagle Coin mark in Malaysia respectively.

The Respondent operates a supermarket business in Kota Kinabalu and distributed canned fried dace products bearing the Eagle Coin mark (“infringing products”). However, the infringing products were not counterfeits. They were genuine products which were purchased from a retail outlet of the 2nd Appellant in China and then shipped to the Respondent’s supermarket in Kota Kinabalu to be sold in Malaysia.

Therefore, when the Appellants commenced action for trademark infringement and passing off against the Defendant, the Defendant denied the Appellants’ claims on the basis that the infringing products were parallel imports and therefore legal. Judgment was entered in the Appellants’ favour before the High Court, but the Respondent’s appeal against the same was allowed by the Court of Appeal.

The Federal Court was therefore invited to answer, amongst others, the question of whether parallel importation is legal if the goods in question were meant for distribution within a specified locality only.

The Federal Court answered this question in the negative and found that the defence of parallel importation cannot be relied upon when there are territorial restrictions in place. Trademark rights cannot be exhausted worldwide and would only be exhausted nationally if the imported goods were also placed on the national market by the registered proprietor/owner thereof with their consent.

Further, implied consent can only be inferred when the facts and the circumstances unequivocally show that the proprietor has renounced his right to oppose the placement of such goods on the market in the jurisdiction the goods were imported to. The mere bulk purchase of products, like that in this case, cannot be a basis for consent to be inferred.

In this case, the infringing products were clearly labelled with the words “to be sold in China only” and there is no evidence that there had been consent, whether express or implied, of its sale outside of China. Hence, parallel importation cannot be a defence.

Another question which the Federal Court was invited to answer was whether parallel imports would be legal if the products in question are materially different from products which are authorised to be sold on the market.

Again, the Federal Court answered the question in the negative. Apart from the express territorial restriction of sale stated on the packaging, the infringing products were materially different from those authorised to be sold in Malaysia in terms of contents, quality and packaging.

The packaging of the infringing products does not comply with labelling requirements under the Malaysian Food Regulations 1985. Further, the ratio of fish content in the infringing products was different from those authorised to be sold in Malaysia; and the infringing products does not satisfy halal requirements like those authorised to be distributed in Malaysia, which takes into account the Muslim community.

Hence, it was found that the sale and distribution of the infringing products, which are materially different from the goods authorized for sale within Malaysia, would create confusion amongst the consumers and would constitute trademark infringement.

In other words, the sale of parallel imports in Malaysia can be prohibited if the goods intended to be resold are materially different from the goods that the trademark owner has authorized to be put in market in Malaysia.

Even though there have been decisions with similar findings in other countries, the Federal Court’s decision and clarification on the limits of the defence of parallel importation is welcomed. In addition to having specified clear limitation to the defence, it is also an indication as to the approach which might be taken should further disputes involving the defence of parallel importation arise.