MALAYSIA APAA ANTI-COUNTERFEITING COMMITTEE REPORT SPECIAL TOPIC. By Brian Law and Jyeshta Mahendran

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1 MALAYSIA APAA ANTI-COUNTERFEITING COMMITTEE REPORT SPECIAL TOPIC By Brian Law and Jyeshta Mahendran Border measures to prevent the importation of counterfeit products 1) Goods in transit. Counterfeits are usually spoken of in the context of trademark infringement and passing off. If goods are in transit, are they considered to be goods that have been put in the market and dealt with in a commercial way in the course of trade. Put another way, does transit (i.e. importing for the purpose of re-exporting) amount to selling the counterfeit goods in the market so as to tantamount to infringement and passing off. The competent authority for Intellectual Property Rights ( IPR ) enforcement in Malaysia is the enforcement division of the Ministry of Domestic Trade, Co-operatives and Consumerism ( MDTCC ). For border measure, the Royal Malaysian Customs may enforce criminal offences for infringement of IPR under the ex-officio capacity as provided for under the Trade Marks Act In brief, the Royal Malaysian Customs is authorised to detain counterfeit goods at a port of entry, provided that a complaint is lodged to the Registrar of Trade Marks by the brand owners. Goods in transit is defined by Section 70C of the Trade Marks Act 1976 as goods imported, whether or not landed or transshipped within Malaysia, which are to be carried to another country either by the same or another conveyance. There is a case on point reported recently which set out the law pertaining to enforcement of IPR in the free trade zone against counterfeit goods in transit. In the case of Philip Morris Products SA -vs- Ong Kien Hoe & Ors. [2010] 2 CLJ 106, the plaintiff is a manufacturer and distributor of cigarettes and tobacco products under the trade mark of MARLBORO throughout the world. The plaintiff registered that trade mark in Malaysia. On 10 September 2002, two containers containing 1350 unmarked bale boxes containing cigarettes bearing the trade mark of MARLBORO were detained in the free trade zone. These cigarettes were subsequently found to be counterfeit cigarettes manufactured without the plaintiff s authority. According to the declaration forms completed by the 2 nd defendant who were forwarding agents and filed with the 3 rd defendant, the consignors of the two containers were the first defendant. The 2 nd defendant argued that his is merely a forwarding agent and submitted that the free trade zone is deemed to be a place outside Malaysia. According to Section 1A of the Customs Act 1967 and Section 2 and 50 and item 5 in Schedule 10 of the Free Zones Act 1990, i.e. a free trade zone is a place outside Malaysia. That being so, not only is there no levy within this zone, the laws in Malaysia including the Trade Marks Act 1967 do not apply. Therefore, the 2 nd defendant argued that goods in transit are also exempted from seizure. The High Court held that the free trade zone is not a free for all area, free of all laws or, that there is lawlessness in the zone. The enforcement agencies continue to hold jurisdiction over and in these areas. Such power is evident from Section 18, 21, 23, 24 and 26 of the Free Zones Act 1990 and the provisions of Parts XI and XII of the Customs Act In any event the issue of the validity of the

2 seizure is immaterial and irrelevant to the success or otherwise of the plaintiff s claim. The plaintiff s rights in the registered trade mark are rights in rem. At the end, the 1 st and 2 nd defendants were held liable for trade mark infringement and/or passing off for their infringing acts of repacking the counterfeit MARLBORO cigarettes in the free trade zones. In conclusion, although goods in transit technically cannot be considered as goods being imported into Malaysia but nevertheless, the above case confirmed that the brand owners are entitled to act against the infringers for their infringing activities undertook in the free trade zone. Whether or not transit per say amounts to selling the counterfeit goods in the market so as to tantamount to trade mark infringement and passing off is still unclear for the Malaysian position as the facts in the Philip Morris case is slightly different, i.e. repacking the authorized products in the free trade zones as compared to strictly transit per say. However, the judgment of the Philip Morris case indicated that the act of trade mark infringement and/or passing-off can be committed for goods in transit as free trade zones are not lawless area but unfortunately, the reason for such finding was not discussed. 2) Adequacy or inadequacy of the identification procedures. The MDTCC has recently launched the Basket of Brands programme ( BOB ) to initiate proactive enforcement actions against counterfeiters. Under this scheme, the enforcement division of the MDTCC aims to implement a central database listing of the particulars of registered trade mark holders which would enable the enforcement division to take more proactive and effective measures against infringers of trade marks which are already on this list. Brand owners who register in this scheme would be given priority with regards to the following up and verification of seizures of counterfeit goods made. Under the BOB, for actions based on complaints made by the brand owners, the identification and/verification of the goods seized must be made within 7 days from the date of action taken and thereafter, to forward a report confirming the results of the identification/verification conducted within 14 days. However, it is unclear whether or not such identification/verification process can be conducted via electronic images in order to save time and costs. However, there are no identification procedures per say practiced by the Royal Malaysian Customs for boarder measures. It is common practice where upon suspicion of counterfeits products being imported into Malaysia, the Royal Malaysian Customs will either contact the MDTCC or the brand owners (if known) directly to attend to the relevant port of entry to conduct a preliminary visual examination on the goods stopped. The Royal Malaysian Customs will only hand over the goods stopped to the MDTCC for further actions upon the brand owners confirmation that the goods are counterfeit products, otherwise, such goods will be released to the importers. There are no timeframes, guidelines and procedures involved for the so called identification procedures at the Customs office and the manner of which it is conducted is solely based on the officers discretions. As such, the identification procedures for boarder measures are gravely inadequate because, among others,:- 1. lack of knowledge of the Customs officers to identify counterfeit or genuine products at the port of entry; 2. lack of knowledge on IP protections;

3 3. no all containers at the port of entry will be screened by the Customs officers; 4. the Customs officers will often face difficulties in contacting the brand owners (because there is no recordal system being established by the Royal Malaysian Customs) and the goods detained will eventually be released. 3) Are border measure intended to prevent the import whether for the domestic market or for re-export of counterfeit products only or is the intent of the laws of member jurisdictions on border measures to control and eradicate counterfeiting activities as well. The border measure provisions in Malaysia are made pursuant to the country s obligations under TRIPS, the spirit and intent of the TRIPS border measure provisions being to eliminate the international trade in goods which infringe IP rights. While the border measure provisions under the Trade Marks Act 1976 contained specific provisions governing the importation of counterfeit goods, the intent of these provisions in Malaysia is not only to prevent the import of counterfeit products but also to control and eradicate counterfeiting activities per se. The suspension and detention of counterfeit goods which are imported and/or re-exported as illustrated below are measures which help control the sale of counterfeit goods. Article 51 TRIPS provides that all member countries must adopt measures which allow owners of IPR s to obtain a suspension of release of imported counterfeit or pirated goods by the custom authorities. In Malaysia, this requirement is satisfied by the adoption of the rules in Part XIVA of the Trade Marks Act Section 70D of Trade Marks Act 1976 ( the Act ) impose a restriction on importation of counterfeit goods by the proprietor of a registered trade mark. In addition, section 70(O) of the Act provides Ex-Officio powers to the Royal Malaysian Customs (CUSTOMS) wherein any authorised officer may detain or suspend the release of goods which, based on prima facie evidence that he has acquired are counterfeit goods. However, there are no regulations on how CUSTOMS are to effect and action this provision. In fact, CUSTOMS are usually not fully equipped and trained on IPR issues and hesitate to detain goods without full cooperation and training from the brand owner. 4) If the intent of border control measures is to control and eradicate counterfeiting activities as well, are they efficient and user friendly enough to prevent activities related to (i) the manufacturing of counterfeit goods, (ii) counterfeiting of trade and service marks, (iii) freight and warehousing of counterfeit goods (iv) the way counterfeiting activities are organized and financed (v) seizure of machinery, equipment and packaging materials etc. The border measure provisions cater for the prohibition of importation of counterfeit products into Malaysia but the requirements and procedures are impractical and is places an onerous task

4 on the brand owners. Owners are to provide specific details of the shipment including details of the importer, the registration number of the vehicle/aircraft/ship and the place where the goods would be arriving which are most of the time not available and would involve the owner to incur huge resources to obtain such information. If civil action for infringement has commenced, IPR owner will have to move expeditiously to obtain the court order preventing the release of the goods to the importer within 30 days from the date the civil suit commenced. Such a short deadline may potentially cause practical problems to an IP owner unless the application to the court for direction is made on an ex-parte basis. There are no express provisions in the Customs Act 1967 that provides Customs officers to prohibit the importation and exportation of counterfeit goods and the existing provisions are not adequate for Customs to provide them with the authority to detain and seize suspected counterfeit goods at the border. The Customs play a limited role in enforcing intellectual property rights. Unfortunately, unlike many jurisdictions around the world, the Customs division does not maintain a formal recordation system. It is to be noted that whilst the Customs is empowered to seize infringing goods at port, the application must first go through the Registrar of Trade Marks. This is a time consuming and cumbersome task. Upon notification by the Registrar, Customs will take the necessary action to seize and detain the identified goods. If the IP owner does not commence an action for infringement within the time period specified in the notice given by the Customs, the seized goods will be released to the importer. The importer will then be given a right to apply to the court for an order of compensation against the applicant. S.31 of the Customs Act 1967 prohibits the import and export of prohibited goods. Yet, counterfeit goods are not specifically defined as prohibited goods within the definition of the Act. Likewise, the Customs (Prohibition of Imports) Order 1998 also does not define counterfeit goods as one of the specified goods. There is no provision placing an obligation upon Customs Officials to independently investigate, seize or detain consignment of suspected counterfeit goods. Nevertheless, there are residual powers granted to the Customs where the Customs may, on it own initiative take ex-officio action to detain or suspend the release of goods which, based on prima facie evidence, are counterfeit. If the Customs are to make seizures on an ad hoc basis based on their Ex Officio powers, the following information must be furnished to them beforehand:- a) consignment/parcel tracking codes b) copy of bill of lading carrying suspected counterfeits (if possible) c) normal/usual shipping patterns and docking ports d) average weight of the consignment based on containers. The problem often encountered by IP owners is that they may not have the necessary information to furnish to Customs. It is a challenge for IP owners to obtain the information above as counterfeiters are more often than not very careful and discreet with their counterfeiting activities.

5 The available border control measures are restricted and not as efficient and user friendly as one would expect it to be. 5) Why should border control measures always only complement the enforcement of IP rights under the various specific IP legislation? Could it not be of a sui generis character to give it broad application to deal with all kinds of counterfeiting activities including counterfeiting of the trademarks per se and all other counterfeiting related activities. Border control measures should not just be confined to complement the enforcement of IP rights under the various specific IP legislations. Section 31 of Customs Act 1967 confers power to the Minister to make order to:- (a) prohibit the importation into, or the exportation from, Malaysia or any part thereof, either absolutely or conditionally, or from or to any specified country, territory or place outside Malaysia, or the removal from one place to another place in Malaysia of any goods or class of goods; (b) prohibit the importation into, or exportation from, Malaysia or any part thereof, or removal from one place to another place in Malaysia of any goods or class of goods, except at specified ports or places. However, the existing provisions under the Customs Act does not make express reference to IP and the listing of prohibited goods do not specify these to be counterfeit goods. There is strong lobbying that the importation and exportation of counterfeit goods are also prohibited under the Customs Act. 6) Should there not be protection for those making available information about counterfeits and counterfeiting activities and if so what should be the type and nature of protection be? For instance, should a person who provides information on the hidden identities of the consignor or consignee be protected? The Trade Descriptions Act 2011 ( TDA ) contains provisions under Section 53 whereby no agent provocateur shall be presumed to be unworthy of credit by reason of having abetted the commission of an offence by any person if the attempt to abet was for the sole purpose of securing evidence against such person. Under Section 6(1) of the Whistleblower Protection Act 2010 (WPA), which came into effect on 15 December 2010, a person may make a disclosure of improper conduct to any enforcement agency based on his reasonable belief that any person has engaged, is engaging or is preparing to engage in improper conduct. Improper conduct is defined as any conduct which if proved, constitutes a disciplinary offence or a criminal offence. Section 3 of the TDA provides that any person who, in the course of trade or business- a) applies a false description to any goods; or

6 b) supplies or offers to supply any goods to which a false trade description is applied, shall be guilty of an offence. Since TDA governs the quasi-criminal nature of state prosecution that may be initiated by the IPR owner, the use of an infringing trade mark can constitute a criminal offence under TDA. As such, a person who provides information on the hidden identities of the consignor or consignee (falling under the definition of a whistleblower under the WPA) shall, upon receipt of the disclosure of improper conduct by any enforcement agency under section 6 of WPA, be conferred with whistleblower protection under WPA as follows: (a) protection of confidential information; (b) immunity from civil and criminal action; and (c) protection against detrimental action. For the purpose of paragraph (c) above, the protection shall be extended to any person related to or associated with the whistleblower. Hence, a person who provides information on the hidden identities of the consignor or consignee may be protected under WPA. 7) Statistics of the successful use of border measures to control and prevent the importation and re-export of counterfeit products and (ii) counterfeiting activities. Not available 8) Generally, legislative updates and reforms on border measures to tackle the twin problems of (i) counterfeit products and (ii) counterfeiting activities. In addition to the boarder measure provisions provided under the Trade Marks Act 1976, Section 26 of the TDD empowered the Minister for the MDTCC to make an order prohibiting the importation of goods into Malaysia where a false trade description is applied to any goods outside Malaysia. Improvements to the judicial system and a more focused platform to attack on organized crime are essential for improvements to take place. The Malaysian government has in the past taken, among others, the following steps for improvements:- 1. Amendment to the Copyright Act 1987 made in October 2003, where a minimum fine of RM for each infringing copy be imposed; amendments were also made to provide the enforcement officer with power to arrest without warrant. 2. Amendments to the Trade Marks Act 1976 made in line with TRIPS Agreement enhance effective border measures to keep counterfeit goods out of the country as outlined above. 3. Another important step taken by the government concerns the containment of the outflow of pirated optical disc, including surveillance and monitoring at the main exit points such as Kuala Lumpur International Airport, Kota Kinabalu International Airport, Bayan Lepas Airport and

7 Pasir Gudang Port. The government, with the collaboration of the industry, has set up scanner machines to carry out random checks on suspected packages. Currently, reforms will be favourable to the industry will be (i) reforms pertaining to the boarder measure provisions under the Trade Marks Act 1976 to lessen the burden on the part of the IPR owners for enforcement of their rights and (ii) a recordal system is needed for the Customs in order to enhance the effectiveness on checking goods on transit. Report prepared by : Brian Law Yew Foo Wong & Partners Level 21, Suite 21.01, The Garden South Tower, Mid Valley City, Linkaran Syed Putra, Kuala Lumpur. Tel : Tel : Jyeshta Mahendran Shearn Delamore & Co. 7th Floor, Wisma Hamzah Kwong-Hing, No. 1, Leboh Ampang, Kuala Lumpur. Fax : Fax : / Brian.Law@wongpartners.com jyeshta@shearndelamore.com

Title : INFRINGEMENT OF TRADEMARKS BY GOODS IN TRANSIT

1 Question Q230 National Group : INDIAN NATIONAL GROUP Title : INFRINGEMENT OF TRADEMARKS BY GOODS IN TRANSIT Contributor : MANOJ MENDA Reporter within Working Committee : Nil Date : 30 th September 2012