Malaysia Malaisie Malaysia. Report Q192. in the name of the Malaysian Group. Acquiescence (tolerance) to infringement of Intellectual Property Rights

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1 Malaysia Malaisie Malaysia Report Q192 in the name of the Malaysian Group Acquiescence (tolerance) to infringement of Intellectual Property Rights Questions 1) The Groups are invited to indicate if their system of national law provides rules conferring an effect of the tolerance shown by the holder of an intellectual property right with regard to a third party who infringes his/her right. There is no legislation specifically on the subject matter but pursuant to s 3 of the Malaysia Civil Law Act 1956, the common law of England and the rules of equity are applicable (Yomeishu Seizo Co Ltd v Sinma Medical Products (M) Sdn Bhd [1996] 2 MLJ 334; Industria De Diseno Textil, SA v Edition Concept Sdn Bhd [2005] 3 MLJ 347) In common law, acquiescence will be a defence to any claim of infringement of IP rights. Does this effect of tolerance apply to all intellectual property rights (patents, designs, trade marks and other distinctive signs) or only to some? The equitable principle is applicable to all civil proceedings. And therefore applicable to all intellectual property rights. The Groups are also invited to provide the justifications put forward in their country for the introduction of this rule on the acquisition of rights as an effect of tolerance and to define its scope. Finally, the last question is to identify if the rules relating to the acquisition of rights through the effect of tolerance should be the same for different kinds of intellectual property rights. There is no acquisition of rights against the IP owners due to acquiescence. Acquiescence is an equitable principle where the Plaintiff is barred from enforcing his strict rights. Do national laws make a distinction between intellectual property rights that have been registered and intellectual property rights which are simply conferred by use and not by registration? In respect of the defence of acquiescence there is no distinction between registered IP rights or IP rights arising out of use such as an action for passing off. 2) The acquisition of rights by tolerance remains subject to conditions, in particular, in relation to the duration of this tolerance and the attitude expressed by the third party that is exploiting the prior intellectual property right without authorization. The Groups are thus invited to indicate the duration necessary for tolerance to confer a right to a third party and deprive the holder of that intellectual property right of the possibility of acting against this third party. 1

2 Depends on the circumstances of the case (Yong Ngee Fan & Sons Sdn Bhd v Kim Guan & Co Sdn Bhd [1979] 1 MLJ 182) Cluett Peabody & Coy. Inc. v McIntyre Hogg Marsh & Coy. Ld. [1958] RPC 335: delay of 42 years barred the Plaintiff s claim; Fullwood v Fullwood (1878) 9 CH D 176: delay of 10 years; Habib Bank Ltd v Habib Bank AG Zurich [1981] 2 AER 650: plaintiff s delay of 4 years was barred by acquiescence; Leo Pharmaceutical Product Ltd A/S (Lovens Kemiske Fabrik Production Saktieselskab) v Kotra Pharma (M) Sdn Bhd [2002] MLJ 154; [2002] 6 CLJ 465: a delay of 25 months reflected the plaintiff s uncertainty of the defendant s alleged infringement. Thus, their application for interlocutory injunction was dismissed as the relief sought is equitable in nature; Intel Corp v Intelcard Systems Sdn Bhd [2004] 1 MLJ 595: 5 years delay in instituting a claim does not bar the plaintiff s claim because it was trying to reach an amicable settlement with the defendant, but was not met with a favourable response. The question raised also involves discerning what the starting point of this duration is and the act that the holder of the right must carry out in order to interrupt this period. Is positive action by the owner of the prior right necessary in order to start calculating the tolerance period, or can this date also be assumed? Yes, acquiesecence require an act on the part of the IP owner the infringer acted upon to his detriment therefore the date of knowledge when the owner of the prior right first comes to know of the third party alleged wrongdoing (Oh Phaik Lin & Ors v Choong Lye Hock Estate Sdn Bhd & Ors ([1986] 1 MLJ 317) Thus, the Groups are invited to answer the question of what the requirements are in order for tolerance to be considered to have been interrupted: is it necessary to initiate legal proceedings or is it sufficient to protest against the alleged infringement, for example, by means of a letter? Not Applicable. 3) The tolerance supposes that the holder of the prior right is aware of the existence of the infringement to his right and accepts it in an intentional way. The question arises then of recognizing the degree of knowledge of the acts of infringement the holder of the former right must show in order for him to be considered to have accepted the conflictive exploitation. Can this knowledge be supposed or must it be proven in a positive way? Knowledge of facts plays a dominant role (Ho Yoke Kwei & Anor v Ong Eng Hin [1997] 4 MLJ 292). There must be knowledge of what was acquiesced in (Kwong Hing Realty Sdn Bhd v Malaysia Building Society Bhd (American International Assurance Co Ltd, Third Party [1997] 5 MLJ 670) Specific knowledge of material facts (Oh Phaik Lin & Ors v Choong Lye Hock Estate Sdn Bhd & Ors ([1986] 1 MLJ 317) 4) In the same way, the Groups are invited to indicate the requirements which the third party exploiting the prior intellectual property right without the authorization of its holder must meet. 2

3 Where a person having a right, and seeing another person about to commit or in the course of committing an act infringing upon that right, stands by in such a manner as really to induce the person committing the at, and who might otherwise have abstained from it, to believe that he assents to its bring committed (Ng Yee Fong & Anor v Ew Talalla [1986] 1 MLJ 25). The third party mistaken as to his own legal rights and the holder of the right knows of the mistaken belief (Electrolux LD. V Electrix LD. & Anor 71 RPC 23). The conduct of the holder of the right would be dishonest and unconscionable to him/her to seek to enforce her legal or equitable right (Png Siaw Luan v Wong Tui San & Ors [1990] 3 MLJ 340; Shaw & Anor v Applegate [1978] 1 AER 123). The holder of the right acts in a manner as really to induce a man who otherwise might have abstained to believe that there is consent (Jones Bros. (Holloway) Ld. v Woodhouse [1923] 2 KB 117). Encouragement active or passive (Holee Holdings (M) Sdn Bhd v Chai Him & Ors [1997] 4 MLJ 601). Does this exploitation have to be carried out in good faith? Yes. M Concept Sdn Bhd v Berjaya Times Square Sdn Bhd [2004] 4 MLJ 556: a party who has not come to Court with clean hands cannot pray in aid principles of equity such as the doctrine of estoppel. And according to what criteria do the jurisprudence and the national law define this good faith? In this context, the Law of Intellectual Property by Staniforth Ricketson, at para at p 727 states as follows: In this context, good faith means genuine, rather than honest or without deceit or intention to defraud. Yomeishu Seizo Co Ltd v Sinma Medical Products (M) Sdn Bhd [1996] 2 MLJ 334: the honest use by a person The Groups are also invited to indicate if the third party that exploits a prior intellectual property right without authorization must be unaware of the existence of this right in order to be considered to have acted in good faith or if knowledge of the prior right does not exclude good faith? The third party must be unaware that what they were doing constituted any invasion of the owner s rights (Habib Bank Ltd v Habib Bank AG Zurich [1981] 2 AER 650). 5) The Groups should also indicate if their legal system provides other conditions (such as for example, the value or the geographical extent of the infringing activity) which the exploitation of the second right by the third party must meet in order to be able to call upon the benefit of the tolerance of this right by the holder of the prior right. Another question relates to the conditions that have to be fulfilled by the use of intellectual property rights which are subject to tolerance. Do national laws impose conditions on this use relating to its importance, duration or continuous nature? No. 3

4 6) If the system of national law provides for the acquisitive effect of tolerance, the question arises of identifying the consequences from the point of view of the rights of the third party who is benefiting from this tolerance. First of all, the question arises of discerning whether this third party may only continue the same exploitation as that which benefited from the tolerance of the holder of the prior right or if, on the contrary, he may modify the nature as well as the extent of the exploitation which he has undertaken. Acquisecense operates as a defence to the third party who infringes the right of the owner and does not give any rights to that third party. It merely bars the owner from enforcing his/her legal or equitable right (accounts of profits, damages, injunctions, etc). The Groups are thus invited to indicate if the jurisprudence and the legal provisions in their country limit the exploitation of the prior right by the third party to the possibility of continuing that exploitation under precisely the same conditions as the exploitation that benefits from tolerance (both from the point of view of the form, the sign, the model or the product that is the subject matter of a patent and from the territorial and economic extent of this exploitation). In addition, the question arises of identifying if the intellectual property right benefiting from tolerance (trade mark or another distinctive sign, design or invention) can be transferred to another third party and if this other third party may also profit from the tolerance from which its predecessor took advantage. As the effect of tolerance merely bars the holder of the right from instituting a claim against the third party, it does not confer a right to the third party to use the right as an owner or a licensee. Without any transfer/assignment of right from the holder of the right to the third party, the third party cannot transfer any right to another third party or its predecessor. (H & R Johnson Tiles Ltd & Anor v H & R Johnson (M) Bhd [1998] 4 MLJ 13). However in cases of use of a trade mark, the third party may acquire independent goodwill which is enforceable against others. Thus, the question is to recognize if tolerance has an effect that is limited to the person who has benefited from it through the holder of the prior right or if the tolerance is attached to the sign, design or invention which has been used, independently of the person who has carried out this exploitation. The Groups should explain the solutions adopted on this subject by their national laws. The Malaysian law does not provide any solutions. 7) In the same context, the question of the exhaustion of the right also intervenes. Indeed, if the products or the signs benefiting from the tolerance are put on the market, the question of the freedom of circulation of these goods arises, since they can hardly be regarded a priori as commercialised with the authorization of the holder of the prior right. It should thus be discerned if the tolerance is limited to the acts of the exploitation carried out by the person who benefits from it initially or if the tolerance also extends its effects to the third parties that bought products, in particular, for their export abroad. Acquisecence is limited to the person who had been allowed to exploit the IP rights b the owner. 4

5 8) The acquisition of rights through the effect of tolerance also raises the question of the definitive and irrevocable character of the acquired right. One can indeed ask the question of whether it is not possible to call into question the effects of tolerance, for example, by means of a regulation that organizes the coexistence of the two rights. Yes. When a claim is being instituted for infringement, the doctrine of acquiescence provide only a defense to the third party. It does not conclude the rights of the third party in relation to the use of the intellectual property right. It merely bars the holder of the right from claiming remedies. The Groups are thus invited to indicate if such a regulation is possible in their national systems and how it might be organized. Regulations should be formulated to provide for: i) a limitation period where the holder can be said to have waived his right to any remedy available for infringement; ii) a starting point of the said period; iii) the options available to the holder of the right should the limitation period expires; iv) the rights in which the third party will acquire should the limitation period expires. 9) Lastly, the Groups are invited to give their appreciation on the operation of the mechanism of the acquisition of rights by means of the effect of tolerance in their country. As mentioned in para 1) above, the Malaysian courts have applied the common law and the rules of equity on the acquisition of rights by means of tolerance. And the Groups are also invited to indicate if the rules in their country, as they exist, could be used as a basis for possible international harmonization. The Malaysian law does not provide for acquisition of rights by means of acquisecence. II) Proposals for harmonization The Groups are invited to formulate suggestions on the possible international harmonization of laws of intellectual property in the field of the effect of the tolerance of acts of infringement. These suggestions should be founded on the evaluation that the Groups make of the legal system of their country, so as to base future harmonization on the legal solutions which appear to be the most effective and easiest to implement. 10) First of all, the Groups should formulate an opinion as to the intellectual property rights which could be damaged by the effect of tolerance of an infringement. Does this tolerance have to take effect with regard to all intellectual property rights or only for some (for example, for distinctive signs)? In my opinion, an intellectual property right cannot be damaged by the effect of tolerance. It merely bars the owner of the right from instituting a claim against the third party user. Whether the right is in relation to a trade mark, patent, industrial design or copyright, a registered proprietor or registered user always have the prior right to the third party user. Even if there is acquisecence and that the owner may not prevent the third party user from further using the right, the third party has not legal right to it unless independent rights such as foodwill has been created by the said third party. 5

6 11) The Groups are also invited to give their opinion as to the nature of the tolerance, if it were to be the subject of international harmonization: is it to be limited to being a means of defence in the event of infringement proceedings or should it confer a right pertaining to the second user by date? It is our view that it should not confer any rights. There should be no change to the current common law position. 12) The Groups are also invited to formulate suggestions as to the conditions (such as: duration, extent and value of the second exploitation by date, the knowledge of the infringement by the holder of the prior right etc.) which the tolerance should fulfil in order to produce legal effects in the event of possible international harmonization of intellectual property rights. A long delay by the owner of the right (pursuant to the limitation period); The usage of the right in similar trade as the owner of the right; The third party should use the right in good faith / bona fide 13) Finally the Groups can formulate any additional opinions as to the possible international harmonization of the rules of intellectual property rights on the conditions and effects of the acquisition of rights by means of the effect of tolerance. As mentioned in para 11) and 12). 6