FRAUD & ASSIGNMENTS

by Joanne Kong

 

In recent times, the Malaysian Courts have come to rather interesting decisions concerning trade mark assignments whereby fraud was found to be involved.

In the case of GS Yuasa Corporation v GBI Marketing Malaysia Sdn Bhd [2016] 1 LNS 978], GS Yuasa Corporation (“Plaintiff”), a public listed company in Japan in the battery manufacturing business, had used the trade mark “GS” in Malaysia and had registered 2 marks in relation to batteries in Class 9. The Plaintiff applied to expunge the Defendant’s Mark (depicted below) which was also registered in Class 9 in relation to the same products. The Plaintiff alleged that the Defendant was part of an international conspiracy which had fraudulently applied for and obtained registration of trade marks which were confusingly similar to the Plaintiff’s Marks in Malaysia and Indonesia. 

Amongst other issues, the Court considered whether the Plaintiff could expunge the Defendant’s Mark on a few grounds, including fraudulent registration of the original registration of the Defendant’s Mark by Osima Batteries Ind Sdn Bhd (“OBI”) which had assigned the Defendant’s Mark to the Defendant pursuant to an Assignment in 2010.

Having quickly concluded that the Plaintiff was a “person aggrieved” since the Defendant’s Mark was confusingly similar to the Plaintiff’s Mark and that both parties were actively trading in the battery industry, the Court also found that the Plaintiff was the first user of the “GS” mark in Malaysia based on an invoice for the Plaintiff’s GS Automotive Batteries which were exported to Malaysia. The Court then moved on to consider whether the original registration of the Defendant’s Mark was fraudulently obtained.

In the course of allowing the Plaintiff’s application and expunging the Defendant’s Mark, the Court decided to pierce the corporate veil and held that OBI and the Defendant constituted the same entity due to their common registered address, business address, had the same business, shared common directors and shareholders, and even had the same company secretary.

The most interesting part of the decision is the Court’s finding that the Assignment between OBI and the Defendant was a “sham” for the following reasons:-

  • if the trade marks (there was another trade mark assigned together with the mark in question) were genuine and had valuable goodwill, it wouldn’t make commercial sense for OBI to assign the marks to the Defendant for a mere RM10 (approximately USD2.50);
  • there was no evidence of any negotiations between OBI and the Defendant before the Assignment was executed;
  • there was no documentary evidence to prove the Defendant’s payment of RM10 to OBI as valuable consideration for the Assignment; and
  • the Assignment was executed on 1 September 2010 but the transfer of the Defendant’s Mark on the Register was only effected on 4 December 2012. There was therefore an inordinate delay of more than 2 years and 3 months for the Assignment to be recorded in the Register (Note: For an assignment to be valid in Malaysia, it must be recorded).

This decision is especially of pertinence to assignments within corporate groups which are often effected with token consideration (e.g. RM10 or USD10) and with little to no documentary evidence of negotiations between the assignor and assignee. Understandably, related entities rarely maintain a paper trail of pre-assignment negotiations, particularly when such assignments are carried out for simple reasons such as a company restructuring exercise.

In the recent case of Doretti Resources Sdn Bhd v Fitters Marketing Sdn Bhd & 4 Ors [2017] 1 LNS 738, a trade mark assignment was likewise held by the court to be a sham due to the low amount of consideration involved (2 trade marks for RM10) as well as the absence of negotiations and proof of payment. In this case, the registration of the trade mark in question was similarly obtained by fraud.

We are of the view that the Court’s findings regarding sham assignments are derived from the particular facts of both these cases and ought not to be applied generally to all assignments. For example, it must be noted that a nominal consideration will not automatically make an assignment a sham or invalid as it does not depart from established contractual principles that consideration must be sufficient, but need not be adequate.

While we await clarification on what constitutes a sham assignment through future reported cases, we believe that that such judgments regarding sham assignments will be reserved for instances involving fraud, such as in the cases mentioned herein. One should thus consider adopting the following practices in the course of purchasing a trade mark from a third party:-

  • Conducting due diligence to assess the historical background of the registration and validity of the trade mark. If the consideration sought for the assignment is unusually low and does not commensurate with the “value” of the mark, this should some raise flags.
  • To insert the actual consideration sum in the Deed of Assignment and keep proof of negotiations and payment. There may be occasions where the parties involved would prefer to adopt a nominal consideration instead of disclosing the actual consideration paid, since the assignment document is required to be filed with the authority for the assignment to be valid. For such cases, the parties may wish to execute a simple form assignment agreement making reference to the main sale agreement, without disclosing the actual purchase sum in the simple form agreement.