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InsiderTAPS (12 March 2018)

LOCAL DISTILLERY FACE OFF WITH MEXICAN TEQUILA REGULATOR

 

Our team at Tay & Partners led by Lee Lin Li, partner and Shawn Voon, associate successfully enforced the plaintiff’s rights to the geographical indication Tequila against local distillery.

  tequila
 

Protection of Geographical Indications in Malaysia

 

A geographical indication is a sign which identifies goods as originating in a country or territory or a region or locality in that country or territory where a given quality, reputation or other characteristic of the goods is essentially attributable to their geographical origin. Since the quality, reputation and characteristic of the goods depend on the geographical place of origin, there is a clear link between the product and its geographical place of origin. Products bearing a geographical indication benefit in terms of quality and authenticity in the marketplace.

 

In Malaysia, protection of geographical indications comes under the purview of the Geographical Indications Act, 2000. Recently, the Malaysian high court heard an application for the protection of the geographical indication Tequila in Consejo Regulador del Tequila AC v Pelican Winery (M) Sdn Bhd (Kuala Lumpur High Court Civil Suit No. WA-24IP-17-08/2017). A case was brought against a local manufacturer and distributor of alcoholic beverages, Pelican Winery, for use of the geographical indication “Tequila” upon alcoholic beverages alleged to be unlawful in Malaysia.

 

Facts of the Case

 

The United Mexican States acting through the Mexican Institute of Industrial Property (“IMPI”) is the owner of the geographical indication “Tequila”. IMPI appointed the plaintiff to register the geographical indication “Tequila” around the world. In Malaysia, the plaintiff is the registered proprietor of the geographical indication “Tequila” bearing Geographical Indication No. GI2015-00002 for alcoholic beverages in Class 1. Apart from obtaining protection of the geographical indication, the plaintiff is the only organisation accredited to certify the production and marketing of the alcoholic beverage, Tequila. The certification emphasises the mandatory compliance of the Mexican official standard.

 

On or around 2013, the plaintiff discovered that the defendant was distributing a product named “AGAWA Tequila Gold”. On 24 August 2017, a civil action was instituted against the defendant on the following grounds:

 

  1. the plaintiff is an “interested person” within the meaning of Section 5(1) of the Act as it is a competent authority, being a statutory body carrying out the functions on behalf of the United Mexican States;
  2. the plaintiff is entitled to the protection of its geographical indication “Tequila” under section 3 of the Act and the defendant has committed unlawful acts set out in section 5(1)(a) and (d) of the Act.  The Court is empowered to grant an injunction to prevent any unlawful use of the geographical indication and award any damages and any other legal remedy or relief as it deems fit; 
  3. Agawa Tequila Gold is distilled and bottled by the defendant at the defendant’s business address which is outside the municipality of the 5 Mexican states in which the manufacturing facilities of an authorised producer are located and the composition of the Agawa Tequila Gold and its label are not in accordance with the specification mandated by the Mexican official standard;
  4. the defendant’s use of the word “Tequila” on the Agawa Tequila Gold is unlawful as it is being used in a manner suggesting that the geographical origin of the Agawa Tequila Gold is in a geographical area other than the true place of origin.  The word “Tequila” is being used in the course of trade as identifying a spirit not originating in the place indicated by the geographical indication in question. 

 

The plaintiff argued that it suffered damage as a result of the defendant’s unlawful use of the geographical indication and that the principles relating to damage to goodwill in passing off cases would be relevant to be considered herein, namely, the two fundamental kinds of damage to goodwill; firstly, the destruction, damage or depreciation of the Plaintiff’s goodwill; and secondly, the goodwill as such may not initially be damaged but the claimant is deprived of its benefit. The plaintiff relied on English and Indian authorities on the point. In particular, in Barnsley Brewery Company Ltd v RBNB (1997) IP & T Digest 46, the English High Court reaffirmed that a remedy in passing off may be available to protect a geographical name for a beer. In India, the common law right to sue in passing off in respect of unregistered geographical indications is preserved under section 20(2) of the Indian Geographical Indications of Goods (Registration and Protection) Act, 1999. It is stated by Indian authorities that the right in respect of geographical indications is an intellectual property right and is protected in the same manner as a right in a trade mark. The principles laid down in a passing off action based on a right in a trade mark would be equally applicable in protecting an action based on a right in a geographical indication.

 

The damage to the plaintiff’s goodwill resulting from the defendant’s unlawful acts would, it was contended, arise where relevant members of the trade such as authorised producers, distillers, blenders, bottlers, wholesalers, retailers and traders and consumers of “Tequila” would believe or would be led to believe that the plaintiff had failed to carry out its functions as the sole certification body for the production and marketing of “Tequila” in failing to control the use of the geographical indication “Tequila” by unauthorised persons or the plaintiff discriminates or had discriminated in the application of its standards by allowing the defendant to unlawfully use the geographical indication “Tequila”. The plaintiff argued that the defendant’s unlawful acts expose or would expose the geographical indication “Tequila” to the risk of becoming generic due to uncontrolled and unauthorised used. Further, damage may be caused by injurious association with the plaintiff where none exists, the risk of litigation to the plaintiff and the diversion of business away from the authorised producers of “Tequila”.

 

In its defence, the defendant argued that the tequila in the defendant’s products is legally imported from authorised producers in the United Mexican States. Hence, it was argued that the plaintiff’s application was filed in bad faith as the plaintiff was aware that the tequila used in the defendant’s products are legally imported from these producers. The defendant also argued that the plaintiff’s claim is academic as the defendant will cease using the label Agawa Tequila Gold in view of new labeling regulations under the Malaysian food regulations. It denied that there was any form of deception practiced upon members of the trade and public since it has complied with regulations under the Ministry of Health and had obtained certificates certifying that the Agawa Tequila Gold is safe for consumption.

 

The defendant sought to distinguish their case from Maestro Swiss Chocolate Sdn Bhd & Ors v Chocosulsse Union Des Fabricants Suisses De Chocolat (a co-operative society formed under title XXIX of the Swiss Code of Obligations) & Ors and another appeal [2016] 2 MLJ 359 by arguing that tequila content used in its products were legally imported from authorised producers, and thus, there was no unlawful use of the geographical indication “Tequila”.

On the issue of legal imports, the plaintiff did not dispute that the defendant had entered into several joint responsibility agreements with authorised producers of the alcoholic beverage Tequila.  However, it was pointed out that the joint responsibility agreements only permitted the import of Tequila for the purpose of bottling alcoholic beverages exclusively for the trade marks “TRES REYES” (expired in 2008), “Pelican Long Island T” and “INNOMINADA”, and no others. The clear language in the agreements prohibiting use of “Tequila” outside the scope permitted under the agreements, demonstrates the defendant’s knowledge that any use of “Tequila” not covered under the agreements such as use upon its Agawa Tequila Gold products is unlawful and a flagrant breach of the agreements. Accordingly, the defendant’s contention that use of the geographical indication “Tequila” on Agawa Tequila Gold is permitted since the tequila is obtained from authorised producers is misconceived.

 

Whether the Plaintiff is protected under the Geographical Indications Act 2000

 

The parties entered into a consent judgment wherein the defendant consented to be restrained from using the geographical indication “Tequila” upon its products, acknowledged that the plaintiff is the only certification body of the Official Mexican Standard including instituting legal proceedings for the unauthorised use of the geographical indication, the defendant will not interfere with the plaintiff’s ownership of the geographical indication, the defendant will cease manufacturing and distributing the AGAWA Tequila Gold products, the defendant will recall and inform its customers to cease distribution of the AGAWA Tequila Gold products.

 

Notwithstanding and without prejudice to the consent judgment, the court proceeded to render its decision and grounds citing that the relative novelty of the matter calls upon the court to do so. It reiterated Section 5(2) which provides that the court may grant an injunction to prevent any unlawful use of the geographical indication and award any damages including general, special and exemplary damages and other remedy or relief as its deems fit. The court was of the view that there was unlawful use of the geographical indication “Tequila” by the defendant for the following reasons:

 

  1. the court reviewed the certificate of registration of Tequila as a geographical indication admitted by the plaintiff, and was satisfied that “Tequila” falls within the ambit of Section 2 because it identifies an alcoholic beverage as originating from 181 municipalities in the 5 United Mexican States, where a given quality, reputation or specified characteristics of Tequila are essentially attributable to its geographical origin as stated in the affidavits and exhibits and accepted it as prima facie evidence under Section 20(2);
  2. the plaintiff, an interested person by virtue of being the registered proprietor of the registered geographical indication under the Act, may institute court proceedings to prevent, in respect of the geographical indication, use in the course of trade of any means in the designation or presentation of any goods;
  3. as the name “Tequila” and the ingredients “Tequila” were found in the products of the defendant, it naturally falls within a prohibited act under unfair competition within Article 10bis of the Paris Convention to constitute a statutory cause of action.

 

The court noted that the only defence recognised in the Act is the exception for prior use and the exception for use of a personal name which the court held do not apply to the defendant.  The defendant’s defence of lawful import of the “Tequila” as an ingredient in its product was not a defence in the Act.

 

The court also rejected the defendant’s reliance on the Food Regulations 1985 and the food safety certificates issued by Ministry of Health as a defence in its case. It noted that compliance with Food Regulations 1985 and food safety certificates do not constitute a defence to Section 5(1).  Any contravention of the Food Regulations 1985 is a separate offence under Regulation 397(1) and (2) of the Food Regulations 1985.  Such a defence has also been rejected in the tort of extended passing off in The Scotch Whisky Association & Anor v. Ewein Winery (M) Sdn Bhd [1999] 6 MLJ 280.  In any event, the Food Regulations 1985 which is a subsidiary legislation cannot be inconsistent with a parent act.

 

The court further noted that unlawful use extended to use of the geographical indication as part of the description of an ingredient of the product and this constituted an act of unfair competition as being an indication or allegation which is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for their purpose or the quality of the goods.

 

 

Lee Lin Li partner, appeared for the plaintiff. She was assisted by associate Shawn Voon.

 

Lin lee(Website) 
Lee Lin Li
Partner
Tay & Partners
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