The Gruber Deal

(I know I said in my previous post that Google Shopping would be the next post but since this is more recent… some urgent comments about it)

For people who can’t drive, people who do not want the trouble of finding a car park, people want to go out for lunch and people who would miss the last train (thanks to OT), Grab and Uber would be a staple app in the phone. According to The Edge Markets, Grab itself offers 3.5million rides a day which shows how reliant people have become on ride-hailing services compared to the traditional taxis.

I won’t talk about why the merger happened (you can read more here and here) but rather I want to focus on the market implications of the merger. Indeed it as raised red flags amongst Competition Commissions in Singapore, Vietnam and Philippines about what the implication of the merger will bring as it will be a monopoly in the region. Unfortunately, Malaysia has yet to have merger controls in place as the recent Competition Act focuses on dominant players and anti-competitive practices.

How might this concern me?

If all goes well and as expected, Grab would be a monopoly player in the ride-hailing market. For the society as a whole, we would want to prevent the existence of a monopoly if possible. Imagine if you could only go to Tesco for your groceries, wanting to buy a carton of milk and it costs you RM20? Sure you’ll be unhappy and unwilling to buy it but you have no alternatives, hence you plan what you can save throughout the week to afford that bottle of milk. Monopoly players might just do that, jacking up prices for their own profit gains.

Competition authorities are more cautious when approaching the topic of mergers compared to anti-competitive activities for 2 reasons:

  1. A merger would lead to a permanent structural change in the market and may damage the competition of the market. Once it is done, you cannot undo it. It has a much more lasting change than a cartel/ price-fixing agreement.
  2. A merger can actually lead to efficiencies and higher productivity compared to anti-competitive activities. For example, firms may want to combine IP resources to create a better product/ service.

Of the two possible outcomes, Competition authorities can only predict and make assumptions about the post-merger entity possible moves. They would have to look in the long term, such as 7 years from now, what economic benefits the entity would bring and at what cost to the society. It’s all based on speculation. This is a very onerous and risky decision just like how it is hard to speculate whether a 5-minute ride might either cost you an arm or just RM5.

How do Competition authorities come to a decision?

(I’m referencing merger control in place in the EU since Malaysia lacks one currently)

Currently, the test for whether mergers would affect competition negatively in the EU is the SIEC test: Will the concentration Significantly Impede Effective Competition in the common market?

The burden is on the Commission to establish that the merger is either compatible or incompatible with the internal market. In making the determination, the merger must be assessed in the context of the position that would exist were the merge not to be completed (counterfactual). The standard of proof is the balance of probabilities.

In fact, EU authorities have previously prevented several mergers such as O2/3 and Ryanair/ Aer Lingus.

For O2/3, they are both strong players in the telecommunications market which appears to be an oligopoly market. Market regulators focus on promoting competition and ensuring competition remains strenuous by keeping it fragmented. The mobile telecoms sector should be competitive so that consumers can enjoy innovative mobile services at fair prices and high network quality. The principle that efficiency claims can be put forward to outweigh any negative effects is more rhetoric than reality. Competition authorities are more prudent and cautious for merger cases and efficiencies play only a marginal role compared to the perceived negative effects.

In Ryanair/ Aer Lingus, the parties would have very high combined market shares on a large number of routes, but that the merger would eliminate competition between 2 closest competitors on the routes and that barriers to entry into the market were very high. The parties closely monitored the other’s marketing campaigns and price changes and constrained each other’s behaviour in relation to both price and other parameters of competition.

In cases where the parties are found not be close competitors, such as Facebook/Whatsapp, an unconditional clearance decision is likely. In contrast, a merger between firms which produce products with high degree of substitutability is more likely to produce anti-competitive consequence i.e. Ryanair/ Aer Lingus.

The reason for CCSS to delay the merger until May 9th is perhaps to assess either to allow the merger to pass and give commitments to ensure competition structure, prevent it and as such “Gruber” is not allowed.

But what if Uber said that because it keeps making losses hence selling off the SEA entity was to improve its business?

This is also called the “rescue merger” where a firm takes over another to prevent the latter from “failing”. This defence is well established in US antitrust practice where it seeks to give a “second chance” involving a firm which would face an inevitable liquidation. There are various advantages for this such as to protect all stakeholders, creditors, employees, and the economy. This approach is seen to be involved with distributive justice instead of focusing on efficiency gains by forcing a loss-making company to stay alive for the benefit of competition at the expense of others.

However, there are 3 criteria which the authorities will consider:

  1. The failing firm would in the near future be forced out of the market because of financial difficulties
  2. There is no less anti-competitive alternative purchase than a notified merger and in absence of a merger
  3. The assets of the failing firm would inevitably leave the market.

Note that this is a “last resort defence” and should be assessed very strictly to prevent abuse. Companies may record losses but have valuable assets such as Twitter and Instagram.

In Aegan/ Olympic II, the Commission approved it unconditionally accepting that Olympic was a failing firm and would be forced. The ongoing Greek financial crisis meant that domestic air travel would drop drastically. Absent the merger, it would leave the market completely and the merger would have no adverse effects on competition.

In Grab/ Uber’s case, Uber has been recording losses for years especially in SEA whilst Grab has been innovating rapidly with various initiatives. Uber, with various protocols and guidelines, has been said to lose to Grab due to lack of local preference. However, the situation does not seem to be as dire and critical as Aegan/ Olympic II because they are airlines which focuses on Greece region and there is a financial crisis ongoing. In fact, just a few weeks before the merger announcement, Uber said that it would invest more in SEA region to improve its market position.

It is probable that this argument will fail if we follow EU’s merger regulations and it’s (often criticised) strict approach to competition regulation. I personally prefer Uber over Grab for various reasons but I’ll leave this to the Competition authorities.

Okay, but can’t competition authorities stop Grab for anti-competitive practices post-merger?

Competition authorities would normally have 2 options if later they find the merger to be unfavourable: to unwind the merger or to assess the post-merger entity on anti-competitive practices legislation. Authorities are less likely to unwind a merger because of the significant cost involved and the structural changes to the market already caused. In the EU, once a merger is said to satisfy certain features, it must notify the Commission of intention to merge or else if it “gun-jumps”, a hefty fine can be penalised on it.

This brings us to the second option– under the Competition Act. Most Malaysian Uber/ Grab users would every now and then receive a text “free RM60 off your next 10 rides!” or “book now and redeem up to RM5 on your next ride!” but once that competitive pressure is off-loaded, would we still continue to see these rebates? According to Grab Malaysia Country Head Sean Goh, the merger would not make things any different and prices would remain the same. How much confidence or scepticism should Competition Authorities have on this statement?

Analysis of anti-competitive practices often takes much longer than preventing a merger. The previous may require months of overseeing, various economic theories and it is less obvious. For the latter, it’s all about speculation (and common sense), goes to the root of the problem instead of just plucking the weed and the Commission makes a judgment much faster than anti-competitive practices as businesses want finality and a decision fast before either party changes their mind. As mentioned previously, once a merger goes through, the damage is done. Catching them after the merger is definitely possible, but one that is less preferable than stopping it before and takes more time.

Comments

Personally, I don’t look the merger in a favourable light and 120% sceptical about the merger. My reasons are as follows

1.Monopolies are nightmares

When I was in the UK and Uber was the dominant player, Uber rarely ever had any promotion, discounts or rebates like I’ve been receiving in Malaysia where it’s almost every other week that I’ll receive a text about one. As such, I can imagine the same to happen here where it’s a matter of time where Malaysians would bid goodbye to those promotion texts and are forced to pay higher prices. Without Uber to offer those promotions, Grab would similarly find no reason to give offers as well. As such, it’s just a matter of time.

2.The efficiency gains might not be able to compensate for the reduction in competitive pressure

Unfortunately, and strangely, we live in a decade where monopolies are “normal” and hostile takeovers may be an everyday affair. China is an excellent example where the whole country’s technology lies in the hanof on a few who holds a monopoly in every market. Perhaps the citizens are more patriotic and hence support local apps more than foreign ones (Didi vs Uber) but within China itself, a country with a huge economy, there are very few players in each market i.e. Alipay dominates the card-less payment, Wechat reigns over Whatsappp and Weibo is the new Facebook there. It creates a no-choice, no-second option if I dislike any of them.

I’m really not a big fan of the theory “the bigger the more efficient” theory but I advocate for “the bigger the more risky to fail” theory. The bigger the company gets, the more it absolutely cannot fail and the more the need to sustain it. Call me a pessimist but when it comes to competition, no allowance should be made and no risk left unaccounted for. Look at the Financial crisis 2008/ 2012 and it’s obvious why.

Withholding tax 101

My Civil Procedure lecturer would always say this: There are 2 things that are certain in this world– death and tax, even when you die, you still need to pay tax. Now, most of us would know that there are certain types of taxes we need to pay to the country i.e. Income tax, Goods and Services Tax (GST), Capital Gains Tax (CGT) but the lesser few know about Withholding tax (WHT). Withholding tax isn’t one of those tax you might incur on a daily basis but it’s good to know about it to determine whether it applies to you (or risk IRB penalties)

  1. What is withholding tax

Withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to the IRB. For example, A engages B who is a foreign consultant to give consultation on a project and pays $100,000. Under the S109B Income Tax Act 1967, A would need to withhold 10% of that amount as withholding tax, paying B only $90,000. (unless otherwise agreed)

Failure to withhold by the payer would have to pay an increase in tax of a sum equal to ten percent of the amount and no deduction is given for the payment made to a non-resident payee against business income in the income tax computation of the payer

WHT only applies to services/ income and not goods. Goods would incur import duty or GST instead. Under the Income Tax Act, the various types of services that would incur withholding tax and their respective rates are (accurate at the time of writing)

Screen Shot 2018-03-27 at 21.36.20.png

Full list can be found here

2. How do I determine if I need to pay withholding tax

I’ll explain this via examples of some types of payments taxable.

i) Contract Payments

Under the Income Tax Act, it reads 107A.

(1) Where any person (in this section referred to as “the payer”) is liable to make contract payment to a non-resident contractor in respect of services under a contract, he shall upon paying or crediting such contract payment deduct therefrom tax at the rate of—

(a) 10% of the contract payment on account of tax which is or may be payable by that non-resident contractor for any year of assessment; and

(b) 3% of the contract payment on account of tax which is or may be payable by employees of that non-resident contractor for any year of assessment,

This provision was included to allow the collection at the source of tax due by non-resident contractors and professional firms engaged in services under a contract. This tax is not a final tax and will be refunded to the contractor upon finalization by the tax authorities.Payments made by Malaysian residents to non-resident contractors for services under a contract carried out and performed in Malaysia are subject to withholding tax of 13% (10% + 3%) on the service portion of the contract.

This would be akin to the example I gave above where A engages B, a foreign consultant for consultation services.

ii) Royalties and interest

Both come from the same statutory provision which is s109A of the Act.

However, the Finance Act 2017 has expanded the definition of Royalties. General understanding of the word “royalty” would encompass from common copyrights and trademarks i.e. payment to McDonald HQ for carrying out business in Malaysia using the brand “McDonald”.

Now, the definition includes any consideration for the right to use software, the reception of or the right to receive visual images or sounds transmitted to the public by satellite, cable, fibre optic or similar technology or in connection with television or radio broadcasting. Further, royalties paid for the use of or the right to use radio frequency spectrums. This is a much more comprehensive list and to my mind, would include everything and anything related to the use of others’ assets.

iii) Technical services

Amount paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme is subjected to WHT. However, day to day administrative work, such as bookkeeping and other routine services (no specialized knowledge, skills or expertise are needed) does not fall under the category “administration”; those amounts are not subject to WHT.

The definition of what amounts to “technical services” has also been enlarged and increased by the Finance Act 2017. Previously, the WHT provisions for service fees, WHT would only be applicable to service fees falling within Sections 4A(i) and (ii) where the services are rendered in Malaysia. From the enactment of the Act onwards, all payments made by a Malaysian resident taxpayer to a non-resident taxpayer for technical services are subject to 10 % WHT regardless where the services are physically performed.

For example, A UK based consulting firm provides consulting services to a Malaysian taxpayer, the services have been wholly performed in Singapore. Previously, the service fee paid to the legal firm was not subject to WHT. Under the new rules, the Malaysian service recipient has to withhold 10 % WHT on the whole amount.

3) Additional:

Now, you might be thinking why I said “unless otherwise agreed” in para 1 (and if you did, Good Job!!) and no, you cannot contract out of the Income Tax Act. This is because sometimes, especially with online advertising platforms, they ask that whatever price they name is the price you’ll pay them, and you’ll have to top up that amount as withholding tax.

As stated in Google’s Advertising Program Terms:

7. Payment. Customer will pay all charges incurred in connection with the Program… Charges are exclusive of taxes… Customer will pay (i) all taxes and other government charges ….

The formula works like this: if the advertising cost was $100,000, you would need to divide it by 0.9 and then multiply it by 0.1 and the withholding tax payable to the IRB would be $11,111. Hence, you are not entitled to say that from the $100,000, you would withhold 10% making it $10,000 but you would need to spend additional resources for the payment, making an additional burden because you’ve agreed to take on the supplemental cost.

If you’re interested more about taxing on online advertisement, you can read more here and here which talks more about Facebook and Google adverts where it is unclear whether the WHT is under royalties or technical services.

 

Teaser: next week I’ll be writing on the largest fine the EU Competition Commission has ever imposed on a single entity so stay tune!

Resources:

  1. HLB Malaysia, Malaysia Understanding Withholding Taxes
  2. Techmonitor, Understanding Withholding Tax
  3. Azmi & Associates, Withholding tax in Malaysia
  4. Deloitte, International Tax Malaysia Highlights 2017
  5. Malaysia Luther News, Malaysia Enacts Finance Act 2017 – Expanded Scope of Withholding Tax
  6. KPMG: Malaysia: Withholding tax, royalty and service fee payments to non-residents

Life at LSE

London has always been one of my dream cities to live in. I’ve previously had the privilege to live in one of the most interesting city in the world (Dubai) but still, nothing compared to the excitement when I knew I was going to London to the school of my dreams– LSE. LSE was also my dream university since IGCSE hence it is exhilarating to be educated in one of the top political science institutions in the world

LSE is amazing. No question about that. In the 3 years of law school, I was there, there was so much to learn and so much LSE could give. It was pretty much like a pot of gold on the end of the rainbow which wouldn’t stop giving. However, there were nights that I would just hide under my blankets to sleep off the stress and demotivating that is LSE. So what was it like studying in LSE and how is it different from studying locally? I’ve listed quite a few points below as well as my life in London in general.

 

1. Why LSE for Law? Isn’t it like, for economics?

That is very much not true. To be honest, I wanted to do economics when I doing my IGCSE. I did economics then and in A-Levels and thoroughly enjoyed every part of it. Well, it didn’t go as plan and I had to do another discipline. In college, I was very involved in MUN and since then I did develop the interest in international debates, pointing fingers and pressing liability as well as making alliance whilst destroying others. It definitely helped in building my confidence and even more my passion for talking very loudly argumentatively. Therefore, I chose law.

2. What was law school in LSE like?

Unlike the CLP I’m doing now, we only had at max 15 hours of lectures and tutorial (here, it can as many as 30 hours a week) and even then if we ever had 2 hours back-to-back, we’ll start groaning. Throughout all 3 years of university, we were needed to take 4 full modules each year. In my first year, they were all compulsory modules: Criminal Law, Introduction to Legal System (0.5), Property I (0.5), Contract Law (0.5), Tort Law (0.5) and Public Law. The (0.5) meant you’ll do one each semester. By the end of the school year, there will be a final exam.

Second year is when life gets more interesting. All the modules are free to choose so I chose: EU Law, Taxation Law, Commercial Contracts and Property II (Land and Trust). I loved every module of it and in it was so much to learn.

In my third year, all but one was free to choose. The compulsory module was Jurisprudence whilst for elective modules, I chose Elements of Accounting and Finance, Competition law and Company Law. Final year started with like a chocolate, it was bittersweet. It was the last 22 weeks in LSE of my university life and then it was adulthood. I chose the first because I wanted some knowledge on accounting whilst Competition Law was a module I was determined to take since the summer of 1st year (it was the closest I could get to anything Economics related).

© the BLSAdvocate

3. Why do you have so few hours of lectures?

12 hours of lecture is certainly not as it amounts to about 2-3 hours a day or classes. Most of my days start at 10am with the first lecture, a 2-hour break then a class at 2pm followed by another 1-hour window and then another class. You’re given this amount of free time to ideally spend it in the library doing extended and extra readings. After all, LSE isn’t called to have one of the largest libraries in the UK devoted to the social sciences for nothing.

Extended readings and reading list are mandatory for Law School students to compensate the short lecture hours you have. Lecturers just can’t afford to go at length about everything from A-Z about a case so well you’re just going to need to find that out yourself: from facts to court judgment and even read the judgment at length. For example, a chapter in Company Law was concerning “Piercing the corporate veil” where the reading was about 80 pages of pure court language and this is normal. Average individual reading time per chapter is about 4 hours for me. Unfortunately, reading lists are barely in existence here.

You’re also required to be very prepared during tutorial classes to get the full advantage. They’re much smaller in size, normally about 20 people at max. The teacher will just go in and start asking “what does the judge mean when it means “by object” doesn’t create any economic efficiencies?” “In what circumstances can an agent be made liable to the principal despite having done so outside the scope of his job?” “Why do you think the court was wrong in dissenting that the director did not breach his duties?” It’s not meant to be a mini and summary lecture but an avenue for you to demonstrate your understanding and test yourself as to how much you actually understand the subject matter. And indeed, you’ll feel small and tiny if you do not speak up.

I might sound like a total nerd but I LOVED my reading list. What I’ll often do to get different perspective is after having done the core reading, I’ll do the reading on the same chapter but from another book with another author. For any module, there are many textbooks available out there and each provides a different commentary on the matter concerned. Unfortunately, I now couldn’t afford the time due to the increase in lecture hours.

© lse.ac.uk

4. Do you get time off studies to do something else?

With 12 hours of lecture and at least 16 hours of reading time and 10 hours of homework time each week, it can average to about 8 hours of work time each day. 8 hours to sleep, 8 hours to work, the remaining 8 hours can be put into areas to gain experience and knowledge beyond the walls of your classroom. In my uni days (wow I feel so old now) I participated in quite a few student societies but the two societies where I was more involved in were International Council of Malaysian Scholars and Associates (ICMS) and the Kesatuan Penuntut Undang-Undang Malaysia (KPUM).

ICMS is a cross-border student society with an establishment in 6 different countries. It’s a very engaging and interesting society and knowing people of different backgrounds in different cities gives an interesting outlook on things. I was part of the Malaysian Public Policy Competition committee back then and it is one of the most memorable experiences of my student years.

On the other hand, KPUM is a law society but it was in the process of reforming then so there was a lot going on and a shortage of manpower too. I helped in 2 events which were dated back to back so my days were filled with 10pm meetings, Skype calls before going to school and running errands throughout the City of London. There is also much more to do such as debating society, music society, MUN and netball for example. Life at the LSE, and London, in general, is very fast paced and it only depends how much time you’re willing to invest in it.

5. What did you enjoy most and disliked the most?

Wow, how do I start? I loved

  • The amount of independence you get for your studies
  • The lecturers in LSE are so helpful and emphatic
  • Classmates and friends are helpful
  • The accessibility of public lectures and lots of them too.
  • The busy and lively life of London
  • Student society activities taught me a lot
  • LSE taught me a lot
  • Public transport is just amazing
  • Traveling is accessible and affordable
  • All those Tumblr posts you’ve seen

What I did not enjoy so much?

  • The stress.
  • The school fees and cost of living (£17000 a year and £1200 a month, yikes)

Conclusion:

Looking back at the wonderful 3 years I had in London, I truly would not have it any other way. It taught me a lot from the independence of how to fix a light bulb to moving houses by myself, from zero knowledge about cases and statutes to flipping 200 pages of judgment in 2 hours. It taught me about resilience and most importantly, about how strong you can be once you put your mind to it.

I had my nights just asking “why I did law school?” but I never regretted taking a law degree. There were times when I look at my parents and how I felt “if only I knew the law, I could help” or “if only I could be a qualified lawyer, I could help my parents on X and Y”. Instead of saying the law is to give justice, I think it’s more about fairness and equality.

My advice to all law students, chin up and be strong. Take your time in university to explore the world much more and find what you enjoy most. Go do some volunteering or helping to organise an event. If there isn’t a committee you can join, make one! It’s going to be all worth it and you’ll make it through this.

The “right” in copyright

null

(I hope you’ve understood the pun)

Foreword: During the summer after my first year of law school, I did 2 internships in 2 different law firms. One of the law firms gave us a training session every week which was very interesting and something my first internship did not have. The IP partner then told us about this story and this is THE CASE that got me interested in IP law. It’s an old case but nevertheless an interesting one. Enjoy 🙂

Maxis Sdn Bhd v Suruhanjaya Syarikat Malaysia [2004] 2 MLJ 84

Maxis is one of the strongest names in Malaysia and I’m sure that whenever someone says the word “Maxis”, a distinct green squiggly line will appear in your head. What if, Maxis was not the Maxis you knew?

The two parties in the case are Maxis Sdn Bhd on one side and the Registrar of Companies along with Maxis Group of Companies on the other (the latter is the one that we are well versed with). Maxis Sdn Bhd was incorporated in 1992 and was engaged in the business of information and system services provider in 1993. Then after, it ceased operations and became dormant. On the other hand, the principal companies in the Maxis Group of Companies do not previously carry the forename ‘Maxis’. They were formerly known by their principal name: ‘Binariang’. With subsequent changes made to their names, all the companies in the Maxis Group of Companies have the word ‘Maxis’ as its leading character. The latter was established in 1995 and was one of the first mobile communications providers in Malaysia.

Maxis Sdn Bhd sought a declaration that the Registrar was wrong in approving the use of the name “Maxis” by Maxis Group Companies and therefore, should be canceled. Maxis Group Companies counterclaimed for an interim injunction and several others for passing off. This case concerns the counterclaim.

Maxis Group of Companies now allege the defendants of passing off or assist in passing off the defendants’ business as and for that of the Maxis Group of Companies. Some of the instances are as follows:

  1. Saw and Yeoh had acquired Maxis Sdn Bhd in 2001, a then inactive company with the intention to revive it.
  2. They have incorporated Maxis Capital Sdn Bhd in 2001 by using the name Maxis as the lead name.
  3. They have caused a name change in Maxis Biotech Sdn Bhd which previously does not carry the word Maxis.
  4. Maxis Sdn Bhd, Maxis Capital Sdn Bhd and Maxis Biotech Sdn Bhd took premises in Menara Maxis that housed most of the offices of the Maxis Group of Companies.
  5. Printing letterheads and distributing name cards which carry the name Maxis in similar fashion and style as the brand name used by Maxis Group of Companies.

Defendant’s defence:

The Defendants deny that they had in any way “passing off” business as being part of Maxis Group of Companies because Maxis Sdn Bhd existed before Maxis Group of Companies did. They also stressed the fact that although they had at one point rented an office in Menara Maxis, they said it was due to the advantage of the location. Also, Maxis’s business activities are only confined to telecommunication; they have not acquired goodwill for goods or services outside this area.

*pause and drink a sip of coffee*

First things first, what is “passing off”?

Passing off occurs when someone uses very similar traits of a product/ service/ brand to create some false representation likely to induce a person to believe that the goods or services are those of another. Example:

 

It occurs when the following are satisfied in the landmark case of Reckitt & Colman Products Ltd v Borden Inc

  • The trader must establish goodwill or reputation attached to the goods/ services
  • The trader must demonstrate that the defendant made a misrepresentation
  • The trader must demonstrate that he will suffer damage by reason of erroneous belief

Each will be discussed below.

 

  1. Goodwill/ reputation

Unlike above, goodwill is easy to describe, difficult to define. It is the one thing which distinguishes an old established business from a new business at its first start. In other words, it is the business interest that the claimant is trying to protect.

Whether the claimant has the reputation (or goodwill) is a question of fact and entirely dependent on evidence showing that consumers recognize the sign as indicating origin. In simpler terms, it is the attractive force which brings in custom and that which distinguishes old business from a new. (Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd)

Adding up the above, a passing off action is a remedy for the invasion of the right of property, not in the mark, name or get-up improperly used, but in the business or goodwill in which it has been used.

An argument tender by the defendant is that passing over should only exist in the line of business or services that the applicant was in. They are of the view that the applicants’ business activities are only confined to telecommunication; they have not acquired goodwill for goods or services outside this area, namely for their company Maxis Capital Sdn Bhd and Maxis Biotech Sdn Bhd.

However, case law has suggested that this is insufficient to protect the goodwill of businessman from appropriation and misuse by another businessman. It may very well extend to any business that may mislead anyone into thinking that the products or services were the goods and services of the plaintiff. This is especially where a business is a conglomerate.

Example: AirAsia also owns Tunehotel and Tunetalk. If TuneTaxi pops up, I would think 70% Malaysians (modest estimation) would think it relates to Tune Group.

This is the case EVEN IF the defendant promises that he would never enter into the same business line as the applicant. Where there is an invasion or likelihood of invasion into the rights of the property of the applicants, the cause of action is a well-founded one. Maxis has expended huge sums of money to promote and market the name ‘Maxis’ aggressively throughout this country in the field of telecommunication, which they are primarily engaged in but also to other fields of business the Group owns. It doesn’t take a lot for one to think it’s unfair that someone else should usurp the benefit when another has spent millions to develop the name.

For now, Maxis Group 1 – 0 Maxis Sdn Bhd

*Pause and eats a chocolate*

2. Misrepresentation

What is funnier than having a Maxis-named non-Maxis company breathing existence in Maxis Tower. *facepalm*

The D’s argument was that they mistook that this building is within the Multimedia Super Corridor and since such setup taking up premises there would be advantageous when it wasn’t. They even declared that they would not move into this building and reiterated that they will never set up an office there, even if they are successful in this suit.

(still, the thought of it is already baffling)

I don’t think anyone would be convinced and the judge was certainly not amused. The judge considered them to have an intention to deceive and where Kuala Lumpur being so vast and wide, and filled with available office space could have easily accommodated the defendants’ companies, they had to choose Menara Maxis. The judge notes the similarity of the name made the slip-up of by the building management into allowing them to penetrate this fortress of the Maxis Group of Companies.

On the point of Maxis using the word “Maxis”. Maxis Sdn Bhd was incorporated before Maxis Group of Companies used the name “Maxis” and as such, they had every right to use the name. They stressed that at no time they had represented themselves to be part of Maxis Group of Companies.

(Perhaps Maxis Group of Companies knew this because all the companies under the parent are named Maxis XXX Sdn Bhd)

They claimed that and yet the judge found the use of the shape, style, and character of the word ‘Maxis’ printed on these documents are almost identical to that trade name which the applicants are promoting. (I couldn’t find the exact logo of Maxis Sdn Bhd which is regrettable) Similar to the above, there are about 69 fonts in Microsoft word so why choose the one that Maxis uses and in such a form and fashion so similar to that of the applicants’ unless they did it with some sinister intentions. The crucial issue is what effect the false statement has on the minds of the claimant’s customer and make them think that this was ‘something for which the (claimant) was responsible’

On the contrary, if the consumer is not confused and does not mistaken, then there can be no misrepresentation and no liability for passing off. Looking at the above, it is difficult for this court to accept the defendants’ explanation that their actions as being reasonable and are devoid of any intention to deceive and mislead.

Maxis Group of Companies 2 – 0 Maxis Sdn Bhd

3. Likelihood of damages suffered by reason of erroneous belief

The applicant must now show that they have suffered or likely to suffer losses and must affect the goodwill of the company. The test is that the applicants need not prove “actual damage in order to succeed. Likelihood of damage is sufficient. One of the ways in which a business reputation may be injured is by the appropriation of that reputation or part of it by a third party. Such appropriation may be brought about by the adoption of a name which suggests that the person or company adopting it is in some way connected or associated with the person or company enjoying the reputation.

It is quite obvious that Maxis Group of Companies would be adversely affected by the use of the word “Maxis” by another. If any undertakings that go by the name “Maxis” were to conduct illegal dealings or be bankrupt, the general public would understand it to be somehow related to the applicant instead of being distinct.

Owing to the above reasons, Maxis Group of Companies obtained interim injunction and Maxis Sdn Bhd was precluded from conducting business using the word ‘Maxis’. An intriguing point to add is according to Bloomberg, as of January 18, 2006, Maxis Sdn Bhd operates as a subsidiary of Maxis Communications Bhd.

Comment:

Whilst reading the facts of the case and the judgment therein, I can’t help but think about the prominent staircase shot widely shared on Instagram in APW Bangsar. Before going to APW Bangsar myself, I’ve always thought that the staircase was within the property/ vicinity of BT. Little did I know when I went there, it was directly below a sushi burrito shop and NOT on the same structure as where BT was located and most commonly tagged on Instagram. The sushi burrito shop owns the stairs (or at least the landlord I presume) and not BT but since the latter popularise it so hypothetically, does it justify that BT should be allowed to call it their stairs?

I do acknowledge that Maxis Sdn Bhd had overstepped the line and became from dormant to active very shortly after Maxis was listed to be very suspicious indeed. However, where does one draw the line where a product came first but some other undertaking popularised it? The staircase (I would consider) was part of the structure of the sushi burrito shop but Breakfast Thieves was the one who popularised it so does that mean the staircase belonged to Breakfast Thieves instead?

Maxis Sdn Bhd was registered prior to Maxis Group of Companies changing their name so was it right that Maxis Sdn Bhd should be allowed to continue trading in its name? Even the judge acknowledged that this legal issue is debatable. The basic rule is that reputation and goodwill should be exclusive to the claimant but sometimes there may be a sharing of reputation such as where two companies, by coincidence, acquire a separate reputation and neither can stop the other from using the name. An example is Anheuser-Busch Inc v Budejovicky Budvar NP where BUDWEISER was the trademark of both and the net outcome was that they were forced to co-exist, neither having a right of priority over the other.

Personally, I do think it’s unfair if, by market power, one were to be allowed to dominate (and steal) another’s business because they have better resources for marketing and investing. Perhaps the truth is, the bigger company knew about the smaller company but figured it could overpower it (not suggesting this was the case in Maxis). However, market power also isn’t everything. In 2009, McCurry (short for Malaysia Chicken Curry) won it’s lawsuit against McDonald when the latter sought an injunction to prevent the former from using the prefix “Mc” in its business. The Court of Appeal stated that there were several distinguishable grounds such as the business logo was noticeably different, none of McCurry’s menu had used the prefix “Mc” and the menu was very different in that it only sold Indian food. What amounts to a “passing off” seems to me to vary quite acutely depending on the parties in the case and many other factors.

In the end, it’s up to the courts to weigh on where the balance of convenience lies and the degree of damage that would cause one an undertaking should the application be refused based on reasonable judicial principles.

Resources:

  1. Compagnie Generale Des Eaux v Compagnie Generale Des Eaux Sdn Bhd
  2. Bulmer v Bollinger
  3. Commissioners of Inland Revenue v Muller and Co Margarine
  4. https://asia.nikkei.com/Company/00C8GY-E
  5. Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd
  6. Anheuser-Busch Inc v Budejovicky Budvar NP
  7. Reckitt & Colman Products Ltd v Borden Inc
  8. Helen E Norman, Intellectual Property Law

About the proposed decision on 7 Tuition and Daycare Centres: Sharing is not caring

Screen Shot 2018-02-28 at 20.00.15

They say sharing brings joy and happiness… but when the Malaysian Competition Commission comes knocking on your door? Not so much joy.

(Below is based on the Proposed Decision under Section 36 of the Competition Act – Infringement of Section 4(2)(a) of the Competition Act by 7 Tuition and Daycare Centre. When the full judgement is released, this post will be updated accordingly. Certain facts may be circumstantial or speculative.)

The facts are as follows. 7 tuition and day care centres were penalised with a financial penalty of RM33K for collectively agreeing to fix and standardise the fees charged for the tuition and day care services in the SS19 Subang Jaya area. The price fixing agreement caught the Commission’s attention and were penalised accordingly. (The Commission is allowed to impose a financial penalty not exceeding 10% of the undertaking’s worldwide revenue given in the Competition Act 2010)

Competitors collude more frequently than consumers might think and it is extremely naive to think that only high profile companies collude. It exists from your neighbourhood bakery sellers ((No. MyCC.0045.2013)) to ice manufacturers ((No. MyCC.700.2.0001.2014)) [Suggestion: the MYCC should come up with a shorter name for each case]. Healthy competition means competitors are striving to better serve customers than their rivals. As a result, competitors are never sure what their competitors will do next in trying to gain a competitive advantage. However, especially in oversaturated and concentrated markets, instead of going head-to-head with their competitors, why not just make a phone call to the CEO and collude? Where competition is stiff and there’s a lack of consumer choices in a concentrated market,  that sure seems like a win-win situation for the undertakings but not for consumers… or themselves when they find themselves within MYCC’s list.

Article 4(1) of the Competition Act 2010 states that “A horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.” (An improvisation of Article 101 TFEU) agreement cannot be examined in isolation from the earlier context, that is, from the factual or legal circumstances causing it to prevent, restrict or distort competition. Firstly, it is necessary to assess the impact on the relevant market and then weigh them with any possible efficiency gains or positive effects. Price-fixing agreements would predominantly fall under the object category because it’s quite clear that price-fixing would only benefit themselves and have pecuniary effects on the consumers.

It’s no surprise for information exchange to be regarded as a waving red flag to competition authorities for the presence of a cartel. In fact, information exchange is often considered as the no.1 ingredient of a cartel. However, information exchange can be a double edged sword. On one hand, information exchange allows concerted practice amongst undertakings which means this allows collusion amongst the parties. On the other hand, they may also be a source of efficiency gains to remedy some market failures such as information asymmetries. In Asnef‐Equifax case, information sharing can help to reduce the disparity between the information available to credit institutions and that held by potential borrowers.

So where does one cross the line when sharing information is deemed anti-competitive or not? As a general thought, information exchange restricts competition by object if the exchange of information is individualised (as opposed to aggregated) and the exchange concerns firms’ future conduct (removes strategic uncertainty). Features of the relevant market such as concentration, nature of the product or nature of the market plays an important role.

In Bananas (EU Case), the Commission found the bananas importers had engaged in direct bilateral pre-pricing communication had taken part in a concerted practice to coordinate quotation prices for bananas. It was found that the parties communicate frequently and the conversations which took place were about future pricing policies. It would be easy to assume that the undertakings would take the information into account when determining the policy which they intended to pursue on the market. The court laid down an interesting point where in Competition law, the requirement of independence precludes direct or indirect conduct between operators designed to disclose to actual or potential competitors decisions or intentions concerning their own conduct on the market.

There are however several circumstances where information sharing is legal such as between franchisors and franchisees since communication is vital for the success of both parties to profit. Another example is where the following criteria are satisfied: (i) the arrangement must contribute to improving the distribution of the services in question or economic progress as a whole; (ii) consumers must be allowed a fair share of the resulting benefit, (iii) it must not impose any non-essential restrictions on undertakings and (iv) it must not afford the possibility of eliminating competition in respect of a substantial part of the services in question. (Asnef‐Equifax)

Comment:

Price fixing is a straightforward case because it has a ‘pernicious’ effect on competition and to be so unlikely to produce efficiencies. This is why it is a “by object” restriction instead of “by effect” because to prove the latter is harder, takes longer time and more resources.

There are, however, many much more complicated situations. I’ll touch on what was the European Competition Commission’s biggest fine ever of £2.1million on an undertaking we used everyday– Google.

Sources:

  1. Proposed decision on seven tuition and day care centres for price fixing conduct
  2. Competition Act 2010
  3. MYCC Guidelines on Anti-competitive Agreements
  4. https://www.twobirds.com/en/news/articles/2007/ecj-preliminary-ruling-information-exchanges-between-competitors
  5. Jones & Sufrin Competition law