Quality Oracle Group

We’ve all hunted down a cheaper, imported version of our favourite skincare or tech online, but major reforms in Malaysian law mean those bargain ‘grey market’ goods are no longer safe legally.

Read this newsletter by Quality Oracle to figure out where the grey market stands right now in Malaysia.

IT’S HISTORY AND WHAT IS IT

What is a Parallel Import?

A parallel import occurs when a trader legally purchases genuine, branded products in an overseas country (where they are cheaper) and imports them into Malaysia to sell at a lower price, compared to the local market, all without the permission of the local authorised distributor or the brand owner.

The Distinction Between the Grey and Black Markets

The difference between the 2 is quite simple.

The Black Market (Counterfeit) : sells fakes, pirated or replicated goods. Universally, this is illegal

The Grey Market (Parallel Imports) : sells 100% genuine products or brands. The products are still manufactured by the actual brand owner, but are distributed outside the brand owner’s intended supply chain.

The Problem with Grey Markets

The core problem is that grey market goods create a parallel reality where the brand owner loses control over their own creation, and local authorised businesses are left holding the bill.

The Consumer Warranty Vacuum

A consumer buys a cheaper grey-market camera online, assuming a global brand will fix it if it breaks. But when it cracks, the local service centre can’t fix it under warranty because the serial number shows it belongs to the US market, hence, its warranty is void here in Malaysia

Hidden Variations

Another issue is that for different countries selling the same product, the local manufacturers might not use the same material or ingredients in their product. This is due to climate, local tastes, or safety laws. A grey-market snack or cosmetic brought in from overseas might taste different, feel different, or lack proper local allergen labelling, leaving consumers confused or even at risk.

HOW THE LAW USED TO HANDLE IT

For decades, Malaysia was a safe haven for grey market traders because the law focused entirely on one question: Is the product fake?

Under the old Trade Marks Act 1976, Malaysia practised what lawyers call the International Exhaustion of Rights doctrine.

In plain English, this meant that once a brand owner sold their genuine product anywhere in the world, their right to control what happened to it was “exhausted.” If a trader legally bought bulk stock in Europe or China and shipped it to Malaysia, the brand owner couldn’t stop them. The trader had an absolute shield in court: “The goods are original, so I am not infringing your trademark.”

THE LAW NOW ON GREY MARKETS

Today, that old shield has been completely shattered. The legal net has tightened, and the law has shifted from focusing on authenticity to focusing strictly on consent.

This can be showcased in both statute and case law.

Malaysia updated its written laws, the old ‘genuine goods’ loophole was systematically deleted through reforms. Under Section 55(3)(c) of the current Trade Marks Act 2019, a trader can only sell imported goods if the brand owner explicitly or implicitly consents to those specific goods entering the Malaysian market.

The courts, in turn, followed this new rule in the case of Guangzhou Light Industry v Lintas Superstore [2022] 4 MLJ 339

The Parties Involved:

  • The Plaintiffs (Appellants)
    • Guangzhou Light Industry: A China-based canned food manufacturer and the global owner of the famous “Eagle Coin” trademark (known for canned fried dace fish).
    • Guangzhou Eaglecoin Enterprises: Its subsidiary, in charge of exporting and marketing the products outside China.
    • Kim Guan Hap Kee Sdn Bhd: The sole authorised distributor and registered user of the “Eagle Coin” trademark in Malaysia (specifically based in Sabah).
  • The Defendants (Respondent)
    • Lintas Superstore Sdn Bhd: A supermarket business operating in Kota Kinabalu, Sabah

The Facts:

  • Lintas Superstore wanted to sell ‘Eagle Coin’ canned fried dace in its supermarket. But instead of buying stock from Kim Guan Hap Kee, they used an agent to buy in bulk from legitimate retail outlets owned by the subsidiary in China
  • They then imported these cans directly into Sabah, Malaysia
  • However, while the cans were 100% genuine and not counterfeits, the batch they bought was strictly produced for China’s domestic market.
  • The packaging explicitly featured a printed territorial restriction – “For sale in China only”
  • Because the cans were meant for China, they were structurally different from the Malaysian version
    • Did not satisfy local Malaysian Halal requirements
    • Failed to comply with mandatory local labelling laws under the Food Act 1983
    • The ratio of fish content inside differed from the version authorised for sale in Malaysia
  • The plaintiffs sued Lintas Superstore for trademark infringement and the tort of passing off. Lintas defended itself entirely on the grounds of parallel importation, arguing that because the canned fish was genuine and legally purchased, the trademark rights were exhausted worldwide, and they could not be sued for infringement.

The Decision:

  • The Court ruled that trademark rights are not exhausted worldwide if the brand owner places clear geographic boundaries on the product.
    • As the cans clearly stated ‘for sale in China only’, the brand owner had explicitly withheld consent for those goods to enter Malaysia
  • The Court also ruled that a brand owner can legally block parallel imports if the grey-market goods are materially different in content, quality, or packaging from what is authorised locally
    • As the imported goods have different packaging and formulas and fail to comply with specific local laws, it legally constitutes trademark infringement because it deforms the brand’s local identity

SUMMARY

The landscape for parallel imports in Malaysia has officially transformed. The old rule of just being ‘100% genuine’ was overhauled to focus on consent instead, whether explicit or implied.

Contact Quality Oracle, with Quality Oracle’s 30 years of specialised experience in Intellectual Property protection, if you have any questions, whether on parallel markets or registering your trademark.

Note: The information provided in this newsletter is for general informational and educational purposes only and does not constitute formal legal advice from Quality Oracle.