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LegalTAPS (January 2018)

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CURRENT STATUS FOR PROTECTION TO RETAIL SERVICES FOR TRADE MARKS



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Current Status for Protection to Retail Services for Trade Marks

Retail services are classified under Class 35 of Nice Classification, which was established by the Nice Agrement in 1957, for the purposes of regristration of marks. The Nice Classification was expanded to include Classes 43 to 45 which cover services in 2000,

The explanatory note of the 11th edition of the Nice Classification provides that Class 35 includes:-

“…. mainly services rendered by persons or organizations principally with the object of: 1. help in the working or management of a commercial undertaking; or 2. help in the man-agement of the business affairs or commercial functions of an industrial or commercial enterprise, as well as services rendered by advertising establishments primarily undertak-ing communications to the public, declarations or announcements by all means of diffusion and concerning all kinds of goods or services.”

and in particular:-

“-the bringing together, for the benefit of others, of a variety of goods (excluding the transport thereof), enabling customers to conveniently view and purchase those goods; such services may be provided by retail stores, wholesale outlets, through vending machines, mail order catalogues or by means of electronic media, for example, through web sites or television shopping programmes;
-services consisting of the registration, transcription, composition, compilation or systematization of written communications and registrations, and also the compilation of mathematical or statistical data;
-services of advertising agencies and services such as the distribution of prospectuses, directly or through the post, or the distribution of samples….”


Therefore, retailers who wish to protect their service marks which are used in relation to retail services in Malaysia may register their mark under Class 35 with the Registry of Trade Marks.

With reference to decided cases, this article aims to examine the current state of protection that is afforded to retail services in Malaysia in respect of their trade marks. This article will also briefly discuss on the rules and practices pertaining to trade marks that must be followed when launching franchises in Malaysia.

The case of Suria KLCC Sdn Bhd v Makamewah Sdn Bhd1 concerned an action for trade mark infringement and passing off by the Defendant for using the mark ‘Suria Sabah’ and/or a ‘swirl device’ and/or ‘Suria Sabah & a swirl. The Plaintiff was the registered proprietor of the trade marks ‘Suria KLCC’, ‘Suria KLCC & Swirl device’ and the ‘Swirl device’ under Class 35 and Class 36 (“the Plaintiff’s trade marks”). The Plaintiff’s trade marks were used in the Plaintiff’s business of leasing and managing a shopping centre and providing business and property management services in Malaysia.

The Plaintiff claimed that the Defendant had committed trade mark infringement and passed off the Plaintiff’s trade marks as its own in the course of trade which was calculated to deceive and confuse by using the name ‘Suria Sabah’ and/or a ‘swirl device’ and/or ‘Suria Sabah and a swirl device’ (“the Defendant’s trade marks”). The Defendant’s trade marks were used to advertise, promote, lease and manage the development and construction of a commercial complex.

The High Court held that an infringement would take place if a person, who is not the owner of the trade mark uses a mark which is identical with or so nearly resembling it as is likely to deceive or cause confusion in the course of trade. In determining whether a mark is likely to deceive or cause confusion, the test in Re Pianotist Co’s Application2 was cited:

“You must take the two words. You must judge them, both by their look and their sound. You must consider the goods to which they are to be applied. You must consider the nature and kind of customer who would be likely to buy those good. In fact you must consider all the surrounding circumstances; and you must further consider what is likely to happen if each of those marks are used in a normal way as a trade mark of the goods of the respective owners of the marks.”

The High Court held that the Defendant did not infringe the Plaintiff’s trade marks in taking into account several factors. Firstly, the High Court noted that the word ‘suria’ (which means the sun) is an ordinary word, commonly used as a name for businesses in Malaysia. The High Court took the view that as the word ‘suria’ was not an invented word, the Plaintiff did not have a monopoly or exclusive use of the word or name ‘suria’.

Secondly, although the marks contain phonetical similarity in that ‘Suria KLCC’ and ‘Suria Sabah’ may sound similar, and the services fall under the same class, there are distinct differences when the marks are compared as a whole. Putting the marks next to each other, showed off the differing design, lettering and devices in the marks.

Thirdly, the High Court made a distinction between ordinary consumer goods and shopping mall services and held that an ordinary person in the street may not be able to differentiate genuine goods from counterfeit goods where the get-up so closely resembles the original or trade-marked goods and thus, would likely be deceived or confused whereas there would be less likelihood for shoppers to be confused as the type of shopping malls they visit depends on the shops, brands, types of goods, ambiance, experience and location of the mall. Upon comparison, the shopping malls operated by the Plaintiff and Defendant were different. The Plaintiff operated a high-end shopping mall which carried luxury goods which catered to high-end shoppers whereas the Defendant’s shopping mall catered more to ordinary shoppers. In addition, the court was of the view that since the shopping malls are situated in different cities, it is unlikely that the public would be deceived or confused by the marks adopted by the parties.

Likewise, in MIFF Sdn Bhd v Kuala Lumpur & Selangor Furniture Entrepreneur Association and Ors3 phonetical and visual similarity of marks contributed little in proving trade mark infringement. In this case, the Plaintiff operated a business which provided services relating to the organising and holding of exhibitions, trade fairs and shows related to furniture. The Plaintiff was the registered owner of the trade mark ‘MIFF’ in Class 35 which was used as its corporate name. The Plaintiff claimed that the First Defendant had infringed the Plaintiff’s ‘MIFF’ mark and committed passing off when they organised and held similar exhibition and trade fair for the furniture industry using ‘MFF’ mark.

The High Court held that although the First Defendant’s ‘MFF’ mark was very similar to the Plaintiff’s ‘MIFF’ mark phonetically as a person would pronounce ‘MFF’ as ‘MIFF’, infringement could not be proven by adopting such a simple method. In determining whether there was trade mark infringement, the marks ought to be considered as a whole.

Upon a visual comparison of the marks, the Court found that the First Defendant’s ‘arm chair like’ device, being an essential and significant feature of the mark was characteristically different from the Plaintiff’s mark which had a device of a ‘bird in flight device’. The First Defendant’s mark had a high level of inherent distinctiveness and did not so nearly resemble the Plaintiff’s trade mark as to be calculated to deceive or cause confusion. Thus, the First Defendant’s mark did not infringe the Plaintiff’s ‘MIFF’ mark.

On its claim for passing off, the Plaintiff asserted that it had the exclusive right to use the term ‘MALAYSIAN INTERNATIONAL FURNITURE FAIR’ and its abbreviation ‘MIFF’. However, the Court held that it was the natural tendency of furniture related business entities to use descriptive factual wordings such as ‘MALAYSIA’ and ‘FURNITURE’ to associate themselves with the furniture trade and business or exhibition. The court took the view that the phrase ‘MALAYSIA FURNITURE FAIR’ and ‘MFF’ used by the First Defendant were descriptive and commonly used to denote the nature and type of exhibitions organized in Malaysia. Thus, there was no passing off in using ‘MALAYSIA’, ‘FURNITURE’, ‘FAIR’ or its abbreviation ‘MFF’ to describe the Defendant’s service or business. The court also held that the Plaintiff did not establish that it had acquired secondary distinctiveness over the terms through usage. The Plaintiff’s claim was dismissed.

In the High Court case of Mutiara Rini Sdn Bhd v The Corum View Hotel Sdn Bhd (previously known as The Curve Hotel Sdn Bhd)4, the Plaintiff claimed against the Defendant for trade mark infringement and passing off in respect of the Defendant’s use of the mark ‘The Curve’. The Plaintiff was the developer of the shopping mall, ‘The Curve’ and the registered proprietor of various ‘The Curve’ marks in multiple classes including Class 35. On the other hand, the Defendant was the owner of The Curve Hotel Sdn Bhd and was neither the registered proprietor nor user of the mark ‘The Curve’.

In this case, trade mark infringement was proven as the court found that the Defendant used a mark identical with or so nearly resembling the Plaintiff’s registered trade mark without the Plaintiff’s consent which was likely to deceive or cause confusion. The Plaintiff’s trade mark, ‘The Curve’ had been used as part of the Defendant’s business name and in the course of the Defendant’s hotel business.

The Court also found that the Defendant had committed the tort of passing off as all the elements of passing off were established. On the element of goodwill, the court held that the Plaintiff had acquired goodwill and reputation through the extensive use, promotion and sale of the Plaintiff’s business by reference to the Plaintiff’s trade mark. The Defendant had also misrepresented that it was part of the Plaintiff when it used the same mark in their business name which would lead the public to erroneously believing that the Defendant’s hotel business, The Curve Hotel Sdn Bhd was associated with the Plaintiff. On the degree of confusion, the High Court held that actual confusion by the public need not be established and mere proof of association would suffice. The Court also agreed with the Plaintiff’s contention that the misrepresentation by the Defendant would cause a likelihood of damage to the goodwill and reputation of the Plaintiff as there would be an erosion of distinctiveness of the Plaintiff’s trade name and trade mark.

Although the Defendant submitted that the Plaintiff’s ‘The Curve’ trade mark was made up of descriptive and common words, it was dismissed by the High Court on the basis that this should be dealt with in a rectification proceeding. Since the alleged wrongful entry of the mark in the register issue was not raised in a counterclaim, the Plaintiff, being the registered proprietor of the trade mark had exclusive use of the mark.

The case of WB Fresh Coconut Supplier Sdn Bhd v Gan Boon Wah & Anor5 involved an ex parte application for interlocutory injunction against the Defendant for infringement of the Plaintiff’s registered trade mark, ‘WB Fresh Coconut Thailand’ and passing off. The Plaintiff was one of the leading suppliers and distributors of fresh Thai coconut beverages in Malaysia which were sold under the ‘WB Fresh Coconut Thailand’ brand.

The High Court held that it was not concerned with the differences between the Plaintiff’s registered trade mark and the Defendant’s mark when they were placed side by side. Rather, the Court was concerned with whether the essential features of the marks would confuse members of the public. The Court in comparing the marks, applied the imperfect recollection test and concluded that as both marks had the same shape, pictorial device and letters, members of the trade and public would likely be deceived into thinking that the Defendant’s mark is associated with the Plaintiff’s mark.

Therefore, the Court held that the balance of convenience was in favour of the Plaintiff in that if the injunction was not granted, the Plaintiff would suffer greater injustice.

In Industria De Diseno Textil, SA v Edition Concept Sdn Bhd6, the Plaintiff had on 3 August 1998 applied to register the mark ‘ZARA’ under Class 35 for retail services in Malaysia. The mark was subsequently registered on 5 February 2002.

The Defendant applied for an order to expunge the Plaintiff’s ZARA mark from the register on the basis that the Defendant had used its mark ‘ZARA’ and through the use, made their ‘ZARA’ mark well-known in Malaysia for clothing in September 1999 before the Plaintiff’s mark was entered on the register on 5 February 2002.

The Defendant claimed that the Plaintiff’s ZARA mark should be expunged for being wrongfully entered in the Register as (i) the use was likely to deceive or cause confusion to the public and alternatively, (ii) the Plaintiff’s ‘ZARA’ mark was identical or so nearly resembles its ‘ZARA’ mark which was well-known in Malaysia for the same goods or services.

In dismissing the Defendant’s application, the High Court decided that the correct date on which confusion and deception and whether the Defendant’s trade mark was well-known so as to bar the registration of Plaintiff’s trade mark is to be determined is at the filing of the Defendant’s application to register its ‘ZARA’ mark on 3 August 1998 and not on the date the mark was entered in the register. The Defendant had not started using its ‘ZARA’ mark on 3 August 1998. Thus, the ground for expungement of the Plaintiff’s ZARA mark failed and no other evidence was forwarded by the Defendant to show that the Plaintiff’s ZARA mark was wrongfully entered in the Register at 3 August 1998. The Plaintiff’s ZARA mark was therefore properly entered in the Register.

Although a trade mark was properly entered in the Register, Section 45(1)(a) of the Trade Marks Act 1976 empowers the court to expunge or vary a trade mark as wrongfully remaining in the Register. The court in citing the decision by the House of Lords in GE Trade Mark7 which was adopted by the Court of Appeal of Malaysia in Lim Yew Sing v Hummel International Sports & Leisure A/S8, held that in order to remove a trade mark which has been properly entered, it must be shown not only that there is a likelihood of deception but that such likelihood arose because of some blameworthy act of the Plaintiff as the registered proprietor of the said mark. Even if the grounds for removal under Section 45 have been proven, the power of the court to remove the registration is discretionary and the court must exercise the discretion judiciously based on public interest.

In this case, the Defendant failed to show any instances of confusion or deception and any blameworthy conduct by the Plaintiff. Not only was the Plaintiff’s ZARA mark properly entered on the register, the Plaintiff has shown good faith and genuine interest in the trade mark by making early applications for its protection and continued using the mark in Malaysia. The Defendant’s application to expunge Plaintiff’s ZARA mark therefore failed.

The franchising business model is rapidly gaining popularity among retailers in Malaysia. The rapid increase in franchises is apparent in Malaysia and is even recognized by some judges as “one of today’s preferred methods of doing business.” 9. Franchises may cover many forms of goods and services where its key attraction is the “ready availability of well-known and established concepts of business” 10. Franchises in Malaysia are governed by the Franchise Act 1998 (“Franchise Act”). A franchise is defined as a contract or an agreement between two or more persons by which the franchisor grants to the franchisee the right to operate a business according to the franchise system as determined by the franchisor during a term to be determined by the franchisor. An important feature of a franchise is the rights possessed by the franchisor to administer continuous control during the franchise term over the franchise system11. In a franchise, the franchisor grants to the franchisee the right to use a mark, or a trade secret, or any confidential information or intellectual property, owned by the franchisor or relating to the franchisor.

A franchisor is required to register his service mark under the Trade Marks Act 1976 if it is a registrable mark before it may apply to register its franchise under the Franchise Act12. The agreement must state the franchisee’s rights to use the mark pending registration or after registration of the franchise and provide a description of the mark or any other intellectual property owned or related to the franchisor which is used in the franchise13. Under the Franchise Act, compliance with the specific terms set out in the Franchise Act is compulsory and any condition, stipulation or provision in a franchise agreement purporting to bind a franchisor or a franchisee to waive compliance with any provision of the Franchise Act is void14. This however does not prevent a party from entering into a settlement agreement or to execute general release regarding a potential or actual civil action filed in respect of the franchise or to arbitrate any claim arising from the franchise.

The courts have taken a wholistic approach in trade mark infringement and passing off cases, focusing not only on enforcement of the trade mark rights conferred upon registered proprietors through the registrations but also restraining registered proprietors from unjustifiably extending their exclusive rights over the trade marks. Retail services operating under the franchise system will benefit from the certainty that the Franchise Act requires in all franchise agreements. The trade mark rights granted to a franchisee is required to be set out clearly in the franchise agreement. By clearly setting out the rights to use the trade mark in the franchise, the parties are guided by the franchise terms and the possibility of a dispute arising from a misunderstanding between the parties substantially are reduced.

1 [2011] 8 CLJ 883
2 [1906] 23 RPC 774
3 [2010] MLJU 1216
4 [2016] 7 MLJ 771
5 [2013] 6 CLJ 659
6 [2005] 3 MLJ 347
7 [1972] 2 AII ER 507
8 [1996] 3 MLJ 7
9 Noraimi Alias v Rangkaian Hotel Seri Malaysia [2009] 9 CLJ 815
10 Ibid
11 Section 18(2)(f) of the Franchise Act 1998.
12 Section 18(2)(i) of the Franchise Act 1998.
13 Section 18(3) of the Franchise Act 1998.
14 Section 24 of the Franchise Act 1998.

Lee Lin Li
Partner
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SHIP MORTGAGES IN MALAYSIA



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Ship Mortgages In Malaysia

A mortgage over a ship provides a creditor with security for the repayment of loans or the performance of other obligations by the acquisition of a property interest in the ship. There are two types of mortgages which can be taken over a ship – the statutory mortgage and the equitable mortgage.

A statutory mortgage is one where the ship is registered in Malaysia under the Merchant Shipping Ordinance 1952 (“MSO”) and the mortgage over such ship is also registered in accordance with the MSO. There are two types of statutory mortgages recognized in Malaysia - One to secure a loan of a principal sum with interest and another to secure a current account or similar transactions.

If the ship, when capable of being registered, is not registered, or the mortgage of a registered ship is not registered, the mortgage can take effect as an equitable mortgage.

Statutory Mortgages under the MSO
The Marine Department of Malaysia (“MDM”) maintains the register of mortgages. The information recorded on the register includes a description of the type of mortgage which is registered.

Section 41 of the MSO provides that a Malaysian registered ship or a share in a Malaysian registered ship may be “made in security for a loan or other valuable consideration”. It further states that the Registrar shall record mortgages in the order in which they were produced to him. This means that the priority and ranking of statutory mortgages is time based and a mortgage which is registered earlier will have priority over a mortgage which is registered later over the same ship.

A statutory mortgage must be made in a prescribed form. On production of all the documents required for the registration of mortgage and the required application fee, the Registrar will record the mortgage in the register book.

Equitable Mortgages
An equitable mortgage is created when a mortgage, although validly created, is not registered at the MDM. An equitable mortgage is also sometimes deliberately used for foreign flagged ships (whether or not registered under the registration regime of the flag). Whilst an equitable mortgage is a valid security, it will be lower in priority to a statutory mortgage.

Priority of Mortgages
As discussed above, statutory mortgages will generally rank in priority over all unregistered mortgages (including equitable mortgages).

Where two or more mortgages are registered in respect of the same ship or the same share in the ship, the priority of the mortgages will be determined by the order in which the mortgages are registered. This is provided under Section 43 of the MSO.

Section 45(2) of the MSO further states that where there is are more than one person registered as a mortgagees in respect of the same ship or the share in the same ship, a subsequent mortgagee may not, except under an order of a court of competent jurisdiction, sell the ship on the foreclosure of the mortgage without the concurrence of every prior mortgagee.

Rights of Mortgagees
It is important to note that a mortgage over a ship only creates a security interest in the ship and does not confer any ownership rights on the mortgagee. The ship charged under the mortgage is redeemable by the mortgagor upon the satisfaction of debt or the performance of the obligations to which the mortgage relates. This is reflected in Section 44 of the MSO which provides that the mortgagee shall not by reason of the mortgage be deemed to be the owner of the ship or the shareholder of it nor shall the mortgagor be deemed to have ceased to be the owner thereof.

The mortgagee only has such rights as are necessary to make the ship available as security. These include the right of foreclosure, arrest, interception of freight, sale and possession. Further, it is necessary to ascertain whether the right to these remedies has arisen before such remedies can be exercised by the mortgagee.

Assignment and Transfer of Registered Mortgages
Pursuant to Section 47 of the MSO, a registered mortgage of a ship or share in a ship may be assigned to any person and the deed effecting the assignment must be made in the prescribed form. The assignee of the registered mortgage will have the same right of preference as the assignor.

In addition, Section 48 of the MSO provides for the transmission of a registered mortgage. Where the interest of a mortgage in a ship or share in a ship is transferred, the person to whom the interest of the mortgage is transferred must make a declaration in a prescribed manner. The declaration must then be produced to the registrar for registration. Upon registration, the transferee is substituted as mortgagee under the registered mortgage with all the powers, rights and obligations of the mortgagee being assumed from that time.

Discharge of Statutory Mortgages
When the mortgage debt has been repaid or the obligation to which the mortgage relates has been satisfied, the mortgagee should complete and execute a memorandum of discharge. The duly executed memorandum of discharge should then be registered with the Registrar. The application fee for discharge of mortgage is calculated based on the gross tonnage of the ship.

Where a registered mortgage has been discharged, the Registrar must make an entry in the register book to that effect and the ship will re-vest in the mortgagor.

Mendy Tan
Associate
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AN OVERVIEW OF CONTRACTUAL OBLIGATIONS & REMEDIES IN AIRCRAFT LEASING



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An Overview of Contractual Obligations & Remedies in Aircraft Leasing

In most aircraft leases, be it a lease for an aircraft engine or the entire aircraft1, the bulk of contractual terms contained in it are primarily the lessee’s obligations. In fact, the lessor’s obligations are essentially limited to the covenant of allowing quiet enjoyment of the aircraft to the lessee. In other words, under the aircraft lease, the lessee has to comply with way more obligations as compared to the lessor. This is logical and understandable as the lessee has possession and control of the aircraft during the term of the lease. The lessee must therefore be well-prepared when it enters into an aircraft lease agreement as it would not be an easy task for the lessee to observe all contractual obligations as particularised in the lease.

From the legal perspective, there is a lot more scope for breach on the part of the lessee under the aircraft lease than on the part of the lessor. In this article, we propose to examine 3 main contractual obligations of the lessee under an aircraft lease agreement – (1) the obligation to pay rent throughout the lease term; (2) the obligation to maintain and repair the aircraft so as to keep it in a fully operational, serviceable and airworthy condition; and (3) the obligation to redeliver the aircraft to the lessor at the end of the lease term.

All of these contractual obligations of the lessee have recently been considered by the High Court of Kuala Lumpur in a suit filed by Tay & Partners on behalf of a US aircraft lessor against a Malaysian aircraft operator. After a full trial, the High Court decided that the aircraft operator has defaulted on its contractual obligations under the aircraft lease agreement and awarded substantial damages to the aircraft lessor.

Failure to pay rent
The chain of event of default commonly begins when the lessee is unable to pay rent to the lessor in accordance with the lease agreement. When this happens, the lessor may demand the lessee for interest as a result of the late rent payment and to cease the utilisation of the aircraft in accordance with the lease agreement. Consequently, the lessor may take possession of the aircraft as a remedy to the lessee’s default. The lessee will then be compelled to redeliver the aircraft to a specified location in order for the lessor to take possession or regain control over the aircraft.

Failure to maintain and repair
From the time of taking possession of the aircraft, the lessee is under the obligation to ensure that the aircraft is fully operational, serviceable and airworthy. If the condition of the aircraft was found to be the opposite, the lessee will be responsible for the costs of repair, replacement of parts and maintenance. The figures for such costs can be astronomical as aircrafts are highly expensive properties.

Failure to adhere with redelivery obligation
At the end of the lease term or in the event of default, the lessee is required to redeliver the aircraft to a specified redelivery location pursuant to the lease agreement. The aircraft must be in a good operating and physical condition2 with a complete set of accompanying parts as listed under the lease agreement and proper documentation relating to maintenance, inspection and preservation of the aircraft. Further, the lessee is responsible to prepare for the transportation in accordance with the generally applicable procedures and recommendations by the aircraft manufacturer. Under normal circumstances, the lessee will also be required carry out a final inspection and all other requisite tests on the aircraft prior to the redelivery.

It is also interesting to note that if the lessee does not fully comply with the redelivery conditions and requirements specified in the lease agreement, the lease term may be automatically extended until the date the lessee fully complies. In other words, the lessee may be required to continue to pay rent for the extended term.

Conclusion
Aircraft leasing is commonplace in this day and age. It is steadily assuming an ever increasing importance in the aviation sector to the point where a multitude of companies were established to provide aviation services, leasing of aircraft and other related equipment to commercial airlines all over the world. More often than not, aircraft operators are merely lessees of the aircrafts they operate.

In light of the abundance of such leases, contractual disputes and litigations are common occurrences. A claim against the lessee for failure to comply with the obligations mentioned may go up to several millions depending on the severity of the breach. It is therefore highly advisable for the lessee to be mindful of the compliance with the terms of the aircraft lease.


1 The term ‘aircraft’ in this article denotes an aircraft as a whole or any part of it.
2 In the same technical condition as it was initially delivered to the lessee by the lessor at the commencement of the lease.

Chuah Chong Ping
Associate
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