Malaysia: A Gem of a Story

October 29th, 2012

 

In the case of Degem Berhad & Anor v De Gem Goldsmith & Jewellery Sdn. Bhd. & Ors, the High Court of Malaya at Kuala Lumpur adjudged De Gem Goldsmith & Jewellery Sdn Bhd & Ors to have committed the tort of passing-off their business as that of Degem Berhad & Anor.

Degem Berhad (hereinafter referred to as "the 1st Plaintiff") was incorporated in Malaysia in March 1997 and deals in high end fine jewellery aimed at the luxury market. In 2002, the 1st Plaintiff adopted the trade name "DeGem" for its retail jewellery outlets. Diamond & Platinum Sdn. Bhd. (hereinafter referred to as "the 2nd Plaintiff"), a subsidiary of the 1st Plaintiff was incorporated in Malaysia in September 1999 and commenced operation of its retail jewellery outlets under the name "Diamond & Platinum".

De Gem Goldsmith & Jewellery Sdn. Bhd. (hereinafter referred to as "the 1st Defendant") was incorporated in Malaysia in April 1985 and traded under the full corporate name De Gem Goldsmith & Jewellery Sdn. Bhd. In July 1997, De Gem Goldsmith & Jewellery (Johor) Sdn. Bhd. (hereinafter referred to as "the 2nd Defendant") was incorporated. In February 2003, De Gem Jewels Sdn. Bhd. (hereinafter referred to as "the 3rd Defendant") was incorporated and in May, 2005, De Gem Diamond & Platinum Sdn. Bhd. (hereinafter referred to as "the 4th Defendant") was incorporated.

The 1st Plaintiff issued letter of demand to the 2nd Defendant regarding their use of the corporate name De Gem Goldsmith & Jewellery (Johor) Sdn Bhd in 2003. However, the solicitors for the 2nd Defendant advised their client from ceasing the use of the corporate name. The 1st Plaintiff took no further action as it had used the ‘DeGem' corporate name extensively for a number of years. Also, the Defendants had used their full company names as trading names, used Chinese characters on their signboards and were primarily dealing as small localized businesses confined to Johor Bahru, a city in the State of Johor which borders Singapore.

The 1st Plaintiff, in 2003, launched jewellery retail outlets bearing the trade name of just "DeGem". In 2005, the 4th Defendant commenced operation of a retail outlet in City Square Johor Bahru bearing the trade name of "DE GEM", without using Chinese characters and used the words "DE GEM" and "Diamond & Platinum" in smaller print on its signboard.

The Plaintiffs sued the Defendants for passing-off their business as that of the Plaintiffs' over the use of the words "DeGem" and "Diamond & Platinum". The Defendants, on the other hand, countersued the Plaintiffs for passing-off. The Plaintiffs and the Defendants agreed that the 1st Defendant was incorporated with a name including the word "DE GEM" before the incorporation and use by the 1st Plaintiff; however, the Plaintiffs alleged that the Defendants made intentional and fraudulent changes to the manner in which they used the name "DE GEM" after the Plaintiffs had honestly acquired extensive nationwide goodwill to the name and mark "DeGem".

The High Court first set out to establish the ownership of goodwill on the part of the Plaintiffs and the Defendants. The Defendants argued that as the 1st Plaintiff carried on the jewellery business under the trade name "DeGem" through its subsidiaries, any goodwill, therefore, was owned by the subsidiaries and not the 1st Plaintiff. The High Court acknowledged the facts that the annual reports of the 1st Plaintiff showed the performance of the whole group which included the three subsidiaries; that the Plaintiff witnesses had identified the retail jewellery business as associated with the 1st Plaintiff; and that the Defendants did not furnish any evidence that the "DeGem" trade name is distinctive of the three subsidiaries and not the 1st Plaintiff. On such grounds, the High Court adjudged that the 1st Plaintiff owns the goodwill. The High Court further agreed that the 1st Plaintiff had widely promoted it's DeGem products, through nationwide advertisement in leading newspapers, through numerous road shows in various places in Malaysia; therefore, the "DeGem" name had been distinctive of the 1st Plaintiff throughout Malaysia. Also, the High Court sided with the 1st Plaintiff when it adjudged that the 1st Plaintiff had honestly used the name "DeGem". Supporting its decision, the High Court said that the there was no reason for the 1st Plaintiff, a public listed company with an extremely successful multi-million dollar business, to intentionally associate itself with the Defendants, a local company in Johor Bahru. Further, the High Court also agreed that through extensive use, sales and promotion of the 2nd Plaintiff's retail outlets nationwide since 1999, the name "Diamond & Platinum" had been distinctive of the 2nd Plaintiff.

On the issue of the Defendants' goodwill, the High Court acknowledged that in 2003, the Defendants' retail outlets in Johor Bahru used the full company name, along with Chinese characters, as it trade name on its signboards; therefore, the corporate names of 1st Plaintiff and 1st Defendant were completely distinguishable from each other. However, after 2007, the 1st Defendant started using the name "De GEM" on its advertisements. However, the name "De Gem" had already become distinctive of the 1st Plaintiff by 2007.

The Defendants contended that the word "DeGem" was a descriptive word which meant completely gem, or formed from or derived from gem. The High Court agreed that although the word "DeGem" was descriptive of the business as it is a combination of two English words; it has acquired a secondary meaning and had become distinctive of the 1st Plaintiff by virtue of extensive use.

The High Court, next, addressed the issue of misrepresentation i.e. whether a purchaser to the Plaintiffs' "DeGem" products would have confused the Defendants' trade mark as the Plaintiffs'. The Plaintiffs adduced that the Defendants, intentionally and fraudulently, adopted the name "De Gem" after the 1st Plaintiff had acquired goodwill nationwide in the name "DeGem". The Defendants counter-argued and tendered photographs, allegedly taken in 1997 and 1999, that showed Defendants' signboards with the name "De Gem". The Plaintiff objected to such evidence stating that such photographs were never produced or disclosed prior to the commencement of the trial and also, that with today's technology, data on digital cameras and photographs could be easily doctored. The High Court admitted the photographs to be inadmissible evidence as the Defendants were not able to furnish the negative or call the photographer for cross-examination.

The High Court stated that the Defendants' decision in 2003, to give prominence to the name "De GEM" must be seen in the light of the knowledge that the Defendants already knew about the existence of the 1st Plaintiff. The High Court also accepted that the Defendants had ceased the use of the Chinese characters on all external signboards of all the outlets.

On the grounds of further evidences, i.e. the "De Gem" name on the Defendants' website and Facebook page, the High Court adjudged that the Defendants, intentionally and dishonestly, expanded their business to take advantage of the Plaintiffs' goodwill. The High Court also established that prior to 2007, the name "DeGem" had become distinctive of the 1st Plaintiff and that the Defendants were a small local business whose activities were confined to Johor Bahru or if at all, Johor. As such, the High Court allowed the 1st Plaintiff seeking an injunction restraining the Defendants from expanding beyond the State of Johor.

On the claim of the 2nd Plaintiff regarding the use of the name "Diamond & Platinum" by the Defendants, the High Court rejected the Defendants' contention that the words "Diamond & Platinum" were descriptive on the grounds that the 2nd Plaintiff had, exclusively and extensively, used the name since 1999 thereby furnishing a distinctive meaning to the name "Diamond & Platinum". Also, it was adjudged that the 2nd Defendants main products did not include diamonds or platinum. The High Court stated that the 4th Defendant knew about 2nd Plaintiff and yet opened its outlet opposite to the 2nd Plaintiff's bearing the name "Diamond & Platinum"; hence the Defendants' adoption of the name "Diamond & Platinum" was with an intention to cause a misrepresentation.

The High Court also rejected the Defendants' counterclaim stating, in addition to the above facts, that any association with the 1st Plaintiff can only benefit the 1st and 2nd Defendants and not cause damage. Thus, the Defendants cause of action in passing off against the 1st Plaintiff was rejected.

The Defendants also contended that the Plaintiffs had acquiesced their right to bring this trial as they knew about the Defendants in 2001 or 2002, yet allowed the Defendants to build their goodwill and only commenced the present trial in 2009. The High Court sided with the Plaintiffs' claim that they were only aware of the Defendants' outlet in Johor Bahru in 2002 or 2003 and the cause of the current action related to advertisements which commenced in 2005 or 2006.

Therefore, the High Court rejected the Defendants' counterclaim and acknowledged that the Plaintiffs have established, on the balance of probabilities, that the Defendants have committed the tort of passing-off; thereby allowing the Plaintiffs' claim ordering costs against the Defendants.