In the Malaysian business context, Intellectual Property (IP) is ever regarded as important for exclusive rights of innovation, brand recognition, and long-term success. Though IP is inclusive of a wide range of rights such as copyright, industrial design, patent, and geographical indications, layout designs of integrated circuits, trade secrets, and new plant varieties, this article is desirous to solely discuss on the matter of trademarks, one which is a critical and crucial ingredient to the longevity of Small and Medium Enterprises (SMEs) and Startups.[1] To generally understand the concept of trademark, the World Intellectual Property Organization (WIPO) defines trademark as being a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises. The Malaysian Trademarks Act 2019, in the other hand, construes trademark in a more comprehensive manner in Section 3 of the Act.
It is well known that SMEs and Startups are collectively considered among the backbones of Malaysia’s economy by driving innovation, creating jobs, and contributing to GDP growth.[2] Trademark registrations are not trivial recognition from the Intellectual Property Corporation of Malaysia (MyIPO), they are a strategic tool that helps businesses distinguish themselves in crowded markets, build consumer trust, and safeguard their reputation against unfair competition.[3] Despite the pivotal role of trademarks, many SMEs and Startups overlook the importance of registering their trademarks, exposing themselves to risks that could undermine their growth potential. In this article, we will delve into why trademark registration is essential for SMEs and Startups aiming to secure their place in the Malaysian business landscape.
Instilling Confidence in Shareholders and Attracting Investors
When SMEs and Startups register their business/products/service logo as a trademark, the trademark will act as an asset for such SMEs and Startups, significantly increasing their appeal to shareholders and investors. A company with a good trademark portfolio signals a sense of professionalism, commitment to quality, and an intricate future planning of the company, that would leave a lasting impression towards potential investors.[4]
A study pioneered by the European Union Intellectual Property Office (EUIPO) indicates that startups with registered trademarks are ten times more likely to secure Venture Capital (VC) funding than those without.[5] This issue is as simple as it seems. Investors would like for their investments to have returns, and trademark registration signals that the company has initiatives to be competitive in the long run through their show of commitment. To add to that, Intellectual Property Rights are assets of a company that possesses financial value, a strong IPR portfolio significantly impacts negotiations of the business for any mergers or acquisitions (M&A) exercise, as well as having a strong outcome should there be any legal due diligence.[6] This also serves as a key factor in determining the company’s strategic value and long-term profitability, ultimately influencing the transaction’s outcome.
From the consumer’s perspective, a business logo is an integral part of a company. Research has found that logos impact consumers on brand awareness, brand perception, brand attitude, brand image, purchase intention, and customer loyalty.[7] A good logo not only etches in the mind of consumers, but it also builds a sense of familiarity that, in return, creates an indispensable customer base that boosts sales and exponentially increases business trajectory. A registered business trademark, in contrast to one without, fosters trust towards the brand by providing the assurance that the business is legitimate and trustworthy.
Combating Counterfeit via Enforcement of Intellectual Property Rights (IPR)
It cannot be debated that in the highly competitive marketplace, SMEs and startups face an unprecedented challenge of gaining goodwill in the consumer market. Trademark registration provides a leeway for businesses to procure brand recognition, product protection against counterfeiting and having a reputable brand identity. Trademark registration is not exclusively towards a business logo, it is also advisable to register trademarks for your product logos, product packaging and the product itself with the correct specifications. Peruse through the illustration below for comprehension of trademark protection for a honey product in the consumer market that is registered with the MyIPO.
Here, the registered trademark is the device mark ‘Natural Honey’ in Class 16 and Class 30 of the Nice Classification, for its Product Packaging and Honey Product respectively. Thus, the proprietor owns exclusive legal rights (IPR) to the trademark, acquiring a strong foundation to combat counterfeiting. It enables the proprietor to take legal action against any infringers or counterfeiters, because registration serves as evidence of trademark ownership and priority in disputes. With a registered trademark, remedies such as injunctions, and damages in court are available as legal recourse at the proprietor’s disposal.
Rampant counterfeiting can cause damage to the brand’s reputation and loss of consumers’ trust. A registered trademark provides proprietors with a legal standing to make a report to the Malaysian Ministry of Domestic Trade and Cost of Living and initiate seizure of counterfeit goods.[8] Protecting your brand from counterfeiters is essential to maintaining its integrity, reputation, and customer trust. Counterfeits can harm your brand by undermining quality and disappointing customers, even when the fault lies elsewhere. Taking strong steps to prevent counterfeiting shows your commitment to authenticity and excellence, ensuring that customers associate your brand with reliability and value.
Leveraging Trademark Protection for Revenue Growth and Global Expansion
Registering your trademark not only safeguards your brand but also open avenues for revenue generation through licensing and franchising. By licensing your trademark, you permit other businesses to use your brand in exchange for royalties, creating a steady stream of income. In Microsoft Word, certain fonts, including Helvetica, Gill Sans, and Arial, are registered trademarks of Monotype Imaging Inc. Any commercial use of these fonts requires prior written approval from the company that holds the rights to them.[9]
On the other hand, franchising extends this concept by allowing others to operate under your brand’s established identity and business model, facilitating rapid expansion with reduced capital investment.[10] These strategies can significantly enhance your business valuation, as investors and partners perceive a registered trademark as a testament to your company’s credibility and commitment to protecting its intellectual property.
For startups and SMEs aiming for international growth, there are generally two methods of international registration of trademark, via the direct filing of trademark registration, and by utilising the Madrid Protocol System. Both options serve the purpose to register a proprietor’s trademark and acquire IPR in the designated country. This global protection is crucial in preventing trademark squatting—where others register your brand in foreign markets to exploit its value—and in maintaining brand consistency across borders, thereby avoiding market confusion. While the initial costs of trademark registration may seem significant, they are a prudent investment compared to the potential financial and reputational damages from counterfeiting or brand misuse. Moreover, trademarks can last indefinitely with periodic renewals, providing enduring protection and value to your business.
The Perodua Case: Combating Counterfeits through Trademark Registration
This case highlights the critical role of trademark registration in combating counterfeit products and protecting brand integrity in the Malaysian automative market. The parties involved in the case are Perodua Otomobil Kedua Sdn Bhd & Perodua Sales Sdn Bhd, both of which are part of Perodua.[11] Perodua acquired registered trademarks for a plethora of their products, including engine lubricants, which were at the center of the infringement case. The defendant in the case is Lee Lap Kee, the sole proprietor of Eco Auto Supply, who was found in possession of counterfeit Perodua products.
The Kementerian Perdagangan Dalam Negeri dan Kos Sara Hidup (Ministry of Domestic Trade and Cost of Living, KPDNKSH) conducted a raid on Lee’s premises on May 16, 2019, and discovered counterfeit items, including Perodua-branded engine oils and related products. Lee was charged under the Trade Descriptions Act 2011 and was fined RM52,920 by the Shah Alam Sessions Court for his involvement in the counterfeit activities.
The court awarded a total of RM516,777 in damages to Perodua, which included RM16,777.91 for the loss of business profits and RM500,000 for the loss of goodwill and reputation. Additionally, Perodua was granted RM15,000 in legal costs.
It must be highlighted here that had Perodua failed in procuring trademark registration for their products, their report to the KPDNKSH might not have had any solid legal basis, as the products in question would not have been protected under intellectual property law which provides for a stronger right, in comparison to the action of passing off under tort law. Without a registered trademark, Perodua would have only been able to pursue civil claims for damages, which would likely lack the concrete legal backing needed to demonstrate IP infringement. The case would have been harder to prove, relying on arguments about unfair competition or harm to business reputation without the protection of intellectual property rights.
Fret not, should you require local trademark registration, or you desire for your trademark to be registered to countries beyond Malaysia, Azmi & Associates are willing to assist you on this matter accordingly.
For further information, please contact:
Muhammad Amirul Rafeeq Aznorashiq, Azmi & Associates
amirul.rafeeq@azmilaw.com
- https://www.mida.gov.my/wp-content/uploads/2020/07/Chapter-7-Intellectual-Property-Protection-1.pdf.
- Fauzi, Siti & Ghazali, Puspa & Abdul Razak, Roslida & Mohamad Zain, Eni Noreni & Muhammad, Norhilmi. (2022). Risk Management of Start-up Business for SMEs: A Review Paper. The Journal of Management Theory and Practice (JMTP). https://www.researchgate.net/publication/367700332_Risk_Management_of_Start-up_Business_for_SMEs_A_Review_Paper.
- Jörn H. Block, Christian O. Fisch, Alexander Hahn, Philipp G. Sandner, Why do SMEs file trademarks? Insights from firms in innovative industries, Research Policy, Volume 44, Issue 10, 2015, Pages 1915-1930, ISSN 0048-7333, https://doi.org/10.1016/j.respol.2015.06.007.
- Capella, C. (2024) Understanding the Importance of Trademarks to Your Investors. tech. https://ipworkslaw.com/understanding-the-importance-of-trademarks-to-your-investors/#:~:text=A%20strong%20trademark%20portfolio%20can,risk%20and%20enhancing%20investor%20confidence.
- (2023) Patents, trademarks, and startup finance. rep. European Union Intellectual Property Office. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/2023_Patents_trade_marks_and_startup_finance/2023_Patents_trade_marks_and_startup_finance_FullR_en.pdf.
- The Implications of Intellectual Property Rights during Mergers and Acquisitions. https://generisonline.com/the-implications-of-intellectual-property-rights-during-mergers-and-acquisitions/.
- Liang, Lyu & Abidin, Sazrinee & Shaari, Nazlina & Yahaya, Mohd & Jing, Lyu. (2024). Logo Impact on Consumer’s Perception, Attitude, Brand Image and Purchase Intention: A 5 Years Systematic Review. International Journal of Academic Research in Business and Social Sciences. 14. 10.6007/IJARBSS/v14-i3/20084. https://www.researchgate.net/publication/379216337_Logo_Impact_on_Consumer’s_Perception_Attitude_Brand_Image_and_Purchase_Intention_A_5_Years_Systematic_Review.
- Official Portal, Ministry of Domestic Trade and Cost of Living: Protecting Intellectual Property https://www.kpdn.gov.my/index.php/en/submenu/enforcement-submenu/protecting-intellectual-property.
- Trademark Licensing and Franchising, Liesegang & Partner. https://www.liesegang-partner.com/knowhow/trademarks/trademark-licensing-and-franchising.
