3 August, 2017
The chemical industry in Malaysia has recently caught the interest of many European SMEs as the industry offers several promising business opportunities for the European companies. Since counterfeiting and other IP violations are still commonplace in Malaysia, South-East Asia IPR SME Helpdesk has decided to address the issue of IP protection in Malaysia in today’s blog post, focusing especially on the chemical industry.
Malaysia’s chemical industry
Malaysia’s chemical trade with the European Union, excluding pharmaceuticals, reached 1.19 billion euros in 2015, equalling 8.4% of all EU exports to Malaysia. Chemical imports into the EU reached 1.03 billion euros, a total of 5.3% of all EU imports from Malaysia[1]. The chemical industry feeds into most of Malaysia’s other major industries, including automotive parts, electronics, and construction equipment, and is dominated by petrochemicals (43.6%, with major exports consisting of polymers of ethylene in other forms, methanol, and saturated polyesters in primary forms) and oleo-chemicals (21.9%, with major exports consisting of industrial fatty alcohols, palm fatty acid distillates, stearic acid, soap noodles, and acetic acid)[2]. Major chemical production centres include dedicated zones in Gebeng, Kertih, Pasir Gudang, and Pengerang.
Patents and utility models
Patents for unique chemical formulations or for particular machinery or methods of chemical production form the backbone of a chemical firm’s intellectual property. These key assets ensure that competitors cannot use these processes and thereby can secure a firm’s market share by protecting the quality or price advantage that use of technological innovations brings. For certain chemical compositions, protecting patented processes can also slow down or entirely deter competitors by leaving them with no choices but to wait for the patent protection to expire (which can take 20 years) or to undertake the costly process of developing their own methods.
Malaysia has a first-to-file system to patents, meaning that it is important to file patents early to prevent other companies from capitalising on your firm’s intellectual property.
Trade secrets
Trade secrets are confidential proprietary information which is guarded from public disclosure. Essentially, they are the secrets that companies keep regarding production processes, raw material sourcing, or any other sensitive information that gives the companies an edge over their competitors. For the chemical industry, information regarding the exact composition of products is often either easily discoverable (for example, by legal reverse engineering) or advertised as a key part of products’ value (for example, when consumers seek products with high purity or with certain chemical properties). Many petrochemical and oleo-chemical products are furthermore naturally-occurring molecules, meaning that they cannot be patented. Furthermore, precise production methods can be impossible to tell from external appearances, meaning that firms may be unable to determine if competitors are using their patented IP. In these cases, the best method for protecting a firm’s intellectual property may be to just keep it under wraps.
However, producing these chemicals is a complex process which offers many opportunities for companies to create a competitive edge. Confidential knowledge of your companies’ production processes is protected as trade secrets in Malaysia.
Protecting trade secrets through NNN agreements (non-use, non-disclosure, and non-circumvention) can ensure that local producers or partners do not reveal trade secrets and do not jeopardise an SME’s competitive advantage.
Licensing agreements
It is not always in a firm’s best interest to entirely prevent competition. Firms with strong patent portfolios may find that leasing this technology can open new revenue sources while still allowing the firm to compete on grounds of quality or price. Firms may also come under threat of government anti-monopoly action for industries in which patented innovations are essential for meaningfully competing.
In such cases, licensing agreements allow firms to protect their IP while permitting others to exploit it within given boundaries. When drafting these agreements, always seek out the aid of legal professionals to ensure that your agreement adequately protects your IP.
Enforcement
Protecting intellectual property opens the door to legal action against those who infringe upon patents, trade secrets, or licensing agreements. When seeking to take legal action, SMEs should always first seek out the advice of experienced, local legal professionals. Before taking civil or criminal actions, SMEs should also strongly consider mediation. Firms with limited budget options and a need to quickly halt infringement can use mediation as a quick and cost-efficient means of halting infringement.
Beyond mediation, the two main avenues of enforcement in Malaysia are the Enforcement Division of the Ministry of Domestic Trade, Cooperatives, and Consumerism (for criminal enforcement) and IP court litigation. Before any enforcement action, you should always gather proof of your ownership of the IP in question and proof of infringement.
In criminal enforcement with the Enforcement Division (ED), counterfeiting and piracy cases can quickly yield goods seizures, injunctions, and prosecutions. To prepare for such actions, you should provide proof of infringement and a letter of complaint. After raids or product seizures, SMEs should assist the ED by providing identification and analysis of seized goods to prove infringement.
In litigation through IP courts, IP owners can bring cases before specialised Malaysian IP courts. These courts are empowered to issue injunctions which immediately halt infringement and to assign unlimited damages to be paid to the rights owners. Nine months is the proscribed maximum waiting time for these cases between filing and their day in court, offering a reasonable expectation of timely resolution. There are six “High Courts” (in Kuala Lumpur, Johor, Perak, Selangor, Sabah, and Sarawak) which focus on civil cases (as the damages are often difficult to quantify), as well as 15 “Sessions Courts” spread among the Malaysian states which focus on criminal cases and which have unlimited power to issue fines.
[1] http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113416.pdf
Helika Jurgenson, China IPR SME-Helpdesk
