Breaking new ground: Court of Appeal rules that ‘first use’ principle is not applicable to disputes between related entities

By Teo Bong Kwang and Eugene Ee

The Malaysian Court of Appeal has recently decided that the courts are not bound by “hard and fast” legal principles when it comes to deciding on the proprietorship of a trademark among related entities.

Background

In Pathmanathan v Portcullis (Singapore) Pte Ltd (Civil Appeal No W-02(IPCV)(W)-1798-09/2016), which concerned a dispute between different entities that were previously part of the Portcullis group of companies, the Court of Appeal was faced with the thorny issue of the proprietorship of a trade mark used within the group.

The corporate structure of the Portcullis group is rather elaborate:

  • the Portcullis companies in Malaysia – the third to twelfth appellants/defendants in this appeal were owned by Portcullis Holdings (Malaysia) Sdn Bhd (‘PH’), the second appellant/defendant; and
  • the respondent, Portcullis (Singapore) Pte Ltd, and PH were both owned by Portcullis Holdings International Limited (‘PHIL’), which in turn was wholly owned by First Finance Holdings Ltd.

On 2 April 1998 a memorandum of agreement was signed by the first appellant/defendant, George Pathmanathan, and PHIL, whereby George was given 25% of the shares in PH. Sometime in 2006, George filed a minority oppression petition against PHIL, among others. The High Court ruled in George’s favour and ordered PHIL to transfer 75% of its shares remaining in PH to George. As a result, PH and the Portcullis Malaysian entities became wholly owned by George.

Subsequently, George filed two applications to register the PORTCULLIS marks in Malaysia. However, he was outdone by the respondent, Portcullis (Singapore), which managed to register twelve PORTCULLIS word and device or pictorial marks in various classes in Malaysia. Armed with the registrations, the respondent proceeded to sue the appellants for passing off, trade mark infringement and copyright infringement. The respondent contended that, when PH ceased to be part of the Portcullis group, its right to use the PORTCULLIS marks and logo also ceased.

In response, the appellants argued that the acquisition of PH by George was together with the goodwill and the other IP rights of the respective companies by virtue of the memorandum of agreement. Accordingly, the appellants led a counterclaim to expunge the twelve registered trade marks registered in the name of the Singaporean entity from the register.

In an extensive decision, the High Court ruled in favour of the Singaporean entity, based predominantly on the factual finding that it was the first user of the PORTCULLIS marks and logo in Malaysia.

Court of Appeal decision

At the appellate level, the Court of Appeal summarised the issue at hand in the following manner:

In the context of a corporate group, how is the issue of ownership of trade marks, corporate names and goodwill determined, including whether the principle of ‘first user’ is applicable when determining such ownership within a corporate group?

In answering this question, the court referred to the English Court of Appeal’s decision in Scandecor Development AB v Scandecor Marketing AB ((1998) EWCA Civ 1282). It held that, while the ‘first user’ principle is useful when determining any issue relating to the use of trade marks between unrelated competitors, such approach would not apply to cases involving related entities. If the court were to adopt the conventional approach, then the Singaporean entity would obviously prevail as it was the first user of the PORTCULLIS marks.

Instead, the court examined the facts of the dispute and highlighted one of the clauses in the memorandum of agreement, which provided that the goodwill and other IP rights shall vest in the respective Malaysian companies. Given that the ownership of PH was transferred to George, the goodwill in the PORTCULLIS marks and logo remained with the Malaysian entities. The High court’s decision was therefore overturned.

Comment

Interestingly, the Court of Appeal chose to deviate from a long line of cases – including the apex court’s decision in Mesuma Sports Sdn Bhd v Majlis Sukan Negara Malaysia ([2015] 6 MLJ 465), which held that proprietorship of a trade mark is established by first use of the mark within the country. In arriving at its conclusion that the Malaysian entities retained goodwill in the PORTCULLIS mark, the Court of Appeal placed great emphasis on a contractual provision in the memorandum of agreement. This raises the important question of whether contractual provisions on the alleged ownership of a trade mark should take precedence over the exclusive rights of a registered trade mark owner.

(This article first appeared in the 26 November 2018 issue of World Trademark Review www.worldtrademarkreview.com.  Used by permission.)

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