Factually Fraudulent – The effect of fraud on the assignment of trademarks

By Daniella Fiocco

The recent Malaysia High Court case of Doretti Resources Sdn Bhd v Fitters Marketing Sdn Bhd & Ors (2015) has been the subject of discussion in IP circles because of its controversial decision that permits manufacturing companies to get away with infringement of a trademark provided they don’t sell the product directly to members of the public. While this is an interesting aspect of the decision that does warrant further comment, my reading of the case brought to mind another interesting question;

What happens to the assignment of a trademark when it was originally acquired through fraud?

It is with the intention of finding an answer to this question that I turn to examine the facts of the case.

Fraud on the Facts

The case arose because several parties were simultaneously using the mark “PYRO” in the production of their goods, all claiming that they had the right to exclusively do so.

Mr Ng claimed that he was the original owner of the Mark, having created it whilst in business with a partner at Kah Lock Marketing. He couldn’t produce any evidence in support of his claim, but when he incorporated a second company, “Solid Kah”, he obtained registration of the mark. This registration was dated 25 November 2004.

It was later found out, however, that he had not been the creator or first user of the Mark. The Fitters Group, another Malaysian company, proved through the production of invoices that they had used the mark in the course of trade as early as 2002. They hadn’t applied to register the mark, as they were under the impression that ‘PYRO’ was too common a term to be registered.

The Fitters Group was also able to demonstrate that they had been in a business relationship with both Kah Lock Marketing and Solid Kah at this time. This made it clear; Mr Ng, described by the court as being “untruthful” and an “unreliable witness”, had knowingly stolen the Mark and registered it as his own. He had committed fraud on the Register.

Fraud on the Register

As you are by now aware, the Fitters Group had successfully demonstrated that they were the first ones to have used the PYRO mark. In making the application for the registration of the Mark in 2004, then, Mr Ng had claimed that he was the true proprietor of the trademark. If this were a claim made innocently and ignorantly of the prior use of the mark by Fitters, then Mr Ng’s claim could have received legislative protection; however because of his business relationship with the Fitters Group, his claim was clearly “made with the knowledge of the prior rights of another”. This knowledge of the prior use of the PYRO Mark by the Fitters Group demonstrated that his claim was false, made for a dishonest purpose and amounting, ultimately, to fraud on the register.

The trouble was, however, that the Mark no longer belonged to Mr Ng.

In 2008, Mr Ng had assigned the registered PYRO trademark to Mr Lim for RM10. Mr Lim proceeded to assign the Mark to Mr Yeo in 2010 for the same price, before it was finally assigned to Doretti in 2012, the company where Mr Ng worked as a marketing manager. A chain of assignment had emerged, but the question still remained;

What happens to the assignment of a trademark when it was originally acquired through fraud?

Fraud and assignment

Mr Ng, having acquired the registered Mark through fraud on the Register, had no authority to assign the Mark to Mr Lim. Our sympathies, then, turn to Mr Lim who now believes he has rightful ownership of a trademark when, in fact, he does not. Or, at least, our sympathies would turn to Mr Lim except for the suspicious fact that he bought the trademark from Mr Ng for a mere RM10, which can hardly be described as an adequate or ample amount of consideration for a supposed trademark of value. To borrow the words of the presiding Judge, this first assignment was a “sham”.

Similarly, the second assignment – from Mr Lim to Mr Yeo – was described as “dubious” largely because, again, there was an inconceivably small price paid for the ‘valuable’ trademark. In the final assignment to Doretti, in whose name the Mark remains registered, the price paid as consideration was even less. Doretti, however, is the registered proprietor of the Mark and, under section 36 of the Trademark Act, that registration provides prima facie (on the face of it) proof that the ownership of the Mark is valid. Or, at least, it would be valid if it weren’t for section 37, which states that the registration of a trademark is valid proof of ownership unless it is shown that the original registration was obtained by fraud. It is here that any defence Doretti tried to mount ultimately fell.

In the words of the learned Judge, “Mr Ng had obtained the original registration of [the] Registered Mark by fraud… and this finding in itself has invalidated the three assignments.” These three assignments were found to be “null and void”, and the fraudulently acquired trademark was able to be expunged from the Register altogether.

So where does this leave us?

There seems to be, implied into this decision, a suggestion that true ignorance – rather than willful blindness or recklessness with regards to the information available – might protect someone who has acquired a fraudulent trademark through assignment. The standard of proof in demonstrating this, however, appears to be high; if you are receiving a trademark through assignment, you have a duty to look into the history and validity of that trademark, especially if a red-flag (for instance, a strangely low consideration price) appears during the negotiations. Registration will not necessarily protect you from the effect of fraud on the Register, and claiming “Oh, but sir, I didn’t look there!” is simply not an adequate defence when it comes before the Bench.

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