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MERGER CONTROL IN COMMUNICATIONS MARKET

Merger Control in Communications Market

On 21 May 2019, the Malaysian Communications and Multimedia Commission (‘MCMC’) announced that it has released two documents: Guidelines on Mergers and Acquisitions (“M&A Guidelines”) and Guidelines on Authorisation of Conduct (“Authorisation Guidelines”) both dated 17 May 2019. It will not be exaggerating if one says the announcement on the proposed merger between Axiata Group Berhad and Telenor ASA for their operation in ASEAN expedites the finalization of the M&A Guidelines and Authorisation Guidelines by MCMC since the public consultation on the drafts was held more than 1 year ago.

This article aims to provide an overview on merger control in the communications market in Malaysia.

MCMC is the competition regulator for communications market

Competition law in Malaysia is mainly regulated by the Competition Act 2010. The Competition Act 2010 specifically carve out the commercial activity which is regulated under the Communications and Multimedia Act 1998 (“CMA”). Given that, MCMC continues to regulate competition in Malaysia’s communications sector.

Key competition provisions under the CMA

The key competition provisions under the CMA are discussed below:-

  • Section 133 reads “A licensee shall not engage in any conduct which has the purpose of substantially lessening competition in a communications market”.
  • Section 139(1) reads “The Commission may direct a licensee in a dominant position in a communications market to cease a conduct in that communications market which has, or may have, the effect of substantially lessening competition in any communications market, and to implement appropriate remedies”.

Notably, there was a lacking of clarity on how MCMC will regulate M&A within the communications market before issuance of the M&A Guidelines and Authorisation Guidelines even though the CMA clearly regarded M&A as part of the regulated “conduct” under Sections 133 and 139 as mentioned in the SLC Guidelines (as defined below).

Merger control under the Guidelines

For merger control, the following guidelines which were published in 2014 will also be relevant besides the M&A Guidelines and Authorisation Guidelines:-

  • Guidelines on Substantial Lessening of Competition (“SLC Guidelines”), which explains how MCMC will apply the test in SLC in a communications market.
  • Guideline on Dominant Position, which explains MCMC’s general approach to the application of the “dominant position” test under Section 137 of the CMA.
  • Market Definition Analysis, which sets out MCMC’s proposed market definitions for a range of communications-related products, services and facilities.

A detailed examination of each Guideline will warrant a separate discussion.

Mergers regulated by MCMC

MCMC will deem a M&A to take place when any of the following occurs:-

  • 2 or more previously independent firms merge by (i) combining the firms into a new firm, with each firm ceasing to exist as separate legal entities; or (ii) 1 firm being absorbed into another, where the former ceases to exist as a legal entity and the latter retaining its legal entity;
  • 1 or more firms acquire direct or indirect control of the whole or part of 1 or more of the firms
  • A firm acquires assets (including goodwill) of another firm which results in the former replacing the latter in the business of which the latter was engaged in immediately before the acquisition; or
  • A joint venture is created to perform, on a lasting basis, all the functions of an autonomous economic entity, and involves changes in the shareholding structure of the firm

As indicated in Sections 133 and 139(1) of the CMA, the pre-requisite for MCMC to exercise their regulatory power is that at least 1 party to the proposed M&A is a licensee operating in the Malaysian communications market. A licensee is a person who either holds an individual licence issued by MCMC, or undertakes activities which are subject to a class licence, granted under the CMA. The M&A Guidelines further explains that the MCMC will also be interested in a M&A between a domestic entity and a non-domestic entity when the resulting merged or acquired entity would be in a position to obtain a license under the CMA.

Prohibited Merger

Not all mergers that lessen competition are prohibited. According to the CMA, a merger will only be prohibited if it substantially lessens compe¬tition. Notwithstanding that merger parties are not legally required to notify MCMC of a proposed merger, parties are encouraged to have the proposed merger considered on competition grounds. Proceeding with¬out clearance means merger parties may be at risk of MCMC taking legal action which may result in a court injunction order blocking the M&A. In addition, a person who contravenes Section 133 or 139(1) commits an of¬fence and shall, on conviction, be liable to a fine not exceeding RM500,000 or to imprisonment for a term not exceeding 5 years or to both. The M&A Guidelines cover both anticipated and completed M&A.

Options available

  • Confidential Assessment
  • Voluntary Assessment
  • Authorisation

Confidential Assessment

The assessment will be carried out in confidential as it will not be subject to third party consultation and MCMC will not make an announcement in respect of conducting an assessment or its final decision. To qualify for this confidential assessment, (i) the M&A must not be publicly announced; (ii) the M&A must be more than speculative or hypothetical; and (iii) the parties to the M&A must have a good faith intention to proceed with the M&A. Any view taken by MCMC following a confidential assessment is non-binding and qualified by the need for a full assessment of the M&A once it has been publicly announced. This informal assessment is expected to be dealt with more quickly than the voluntary assessment.

Voluntary Assessment

MCMC views the following M&A may raise competition issues and suitable for notification and assessment:-

  • 1 of the parties to the M&A is a licensee who is already in a dominant position in the communications market; or
  • The M&A results or may result in a licensee obtaining a dominant position in the communications market.

The indicative post-M&A dominance market share for a merged or acquired entity is 40% or more.

From a competition law and merger control perspective, it is possible to separate mergers into three types:-

  • horizontal mergers (involves firms at the same level functional level of supply chain),
  • vertical mergers (involves firms at the different level functional level of supply chain),
  • conglomerate mergers (neither horizontal nor vertical but involves firms operating in different product markets).

MCMC will consider M&A specific effects separately for horizontal and non-horizontal mergers. Horizontal mergers are usually primary concerns for some competition authorities in foreign jurisdictions because it tends to raise the level of concentration on market, thus reducing the competitiveness. In some foreign jurisdictions like the UK, non-horizontal mergers is generally accepted as not raising competition concerns, although they may weaken rivalry and result in SLC under certain conditions.

The overview of the assessment process provided in the M&A Guidelines indicates that MCMC aims to complete the assessment and issue a decision within 170 business days from the receipt of the application. On completing an assessment, MCMC may either make a favourable decision and not object to the M&A or make an unfavourable decision and object to the M&A.

Authorisation with undertaking

MCMC may authorise prohibited conduct under section 140 which might otherwise be prohibited under section 133 or section 139(1), if it is satisfied that the conduct is in the national interest. MCMC may need to be satisfied that the national interest in the conduct outweighs the possible negative effects (if any) of substantially lessening competition in a communications market.

An application for assessment does not constitute an application for authorisation. Parties to a M&A may apply for assessment of their transaction under M&A Guidelines and if unsuccessful, may then apply for authorisation of conduct under the Authorisation Guidelines. Parties to a M&A may opt parallel applications for both assessment and authorisation at the same time.

Appeal to Appeal Tribunal and Judicial Review to Court

A person who is aggrieved or whose interest is adversely affected by a decision or direction (but not a determination) of the MCMC may appeal to the Appeal Tribunal for a review of the merits and the process of certain decisions or directions. If this fails, a person may apply to the court for a judicial review of such decision or other action. However, judicial review cannot be resorted to unless all other remedies provided under the CMA have first been exhausted.

Concluding Remarks

The impact of implementation of 5G wireless technology appears to be fuelling the M&A trends in communications market globally. The 2 new guidelines issued by MCMC in May is timely as M&A activity is expected to increase as the entire industry is set to be impacted by the implementation of 5G wireless technology.

NLW
Nicole Leong
Partner
Tay & Partners
nicole.leong@taypartners.com.my

TRADEMARKS ACT 2019 - WHAT’S NEW?

Trademarks Act 2019 – What’s New?

“The 163-page Trademarks Bill 2019 certainly means more than just contracting “trade mark” into a single word. In these articles, we highlight the most important changes to our existing Trade Marks Act 1976.”

Since coming into force in 1983, the Malaysian Trade Marks Act 1976 is feeling the effects of the passage of time and will at long last be overhauled when the new Trademarks Act 2019 comes into force in late 2019. The bill was presented for first reading in Parliament on 9 April 2019 and was passed after the second reading on 2 July 2019.

While still fresh from the Parliamentary oven, we highlight some significant welcome changes in the new Act especially for the rights holders. It is worth noting that many of the proposed changes mirror or resemble the trademark provisions in other Commonwealth jurisdictions such as the UK Trade Marks Act 1994, the Australian Trade Marks Act 1995 and the Singaporean Trade Marks Act to name a few.

Accession to the Madrid Protocol

The new Act will facilitate Malaysia’s accession to the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (also known as the Madrid Protocol) which allows the filing of a single application to register a trademark in up to 120 countries. The days of Malaysian trademark owners filing separate national applications in these countries to obtain trademark protection will soon be over and so will filing Malaysian applications by foreign owners from these countries in Malaysia.

The new Act does not elaborate on the implementation of the Madrid Protocol but instead empowers the Minister to make regulations to give effect to the same, including all matters relating to international applications, requests to extend protection afforded by international registrations to Malaysia, transformation of international applications/registrations, cancellation of international registrations as well as fees and renewal procedure. It is expected that the regulations would substantially reflect the terms in the Madrid Agreement and the Protocol Relating to the Madrid Agreement.

Expansion of registrable subject matter

The new Act now recognises the registrability of non-traditional marks such as sound, scent, holograms, positioning and animations as long as they are capable of being represented graphically (can be visually depicted) and distinguishing goods or services of their owners from those of others. This expands Malaysia’s offering in the international arena but some challenges may be expected for the new registrable subject matters, such as the question of scent marks being graphically represented.

Applications in multiple classes

The new Act ushers in the long-awaited change: individual applications to register a mark in different classes will be replaced by a single application designating those classes. This brings about a reduction of paperwork with the intention of further reducing the time taken for the completion of the formality examination phase.

Together with the multiple-class applications are corresponding provisions for divisions and mergers of applications for effective management by rights holders of their portfolio of trademarks. Applications and registrations may now be divided into two or more separate applications or registrations, as the case may be. Similarly, two or more separate applications or registrations may now be merged into one application or registration.

Filing date unaffected by priority date

The new Act streamlines the filing date of applications which will now be the date of receipt by the Trademark Office of the trademark application. It further provides that any claimed priority date will have no effect on the filing date except in searches for earlier trademarks.

Another important change to note is that where the formality requirements are fulfilled on different dates, the filing date shall be the last of those days. For instance, under the existing Act, submission of the translation or transliteration for a mark containing non-roman or non-English characters after the application is filed has no impact on its filing date. Under the new Act, however, the filing date will change accordingly.

Series marks

The new Act sees a substitution of the words “other matter” with “standard fonts”. While this provides clarity for the scope of a series mark , it is a narrowing down of marks which may form a series as it now leaves almost no room for interpretation to decide if a group of marks are eligible for a series registration if it is not “standard font”.

Relative grounds and absolute grounds

Trademark applications will now be examined under two main sections, namely, Sections 23 and 24 of the new Act. Section 23 sets out an extensive list of absolute grounds for refusal concerning the inherent registrability of the marks with the primary grounds being that such marks are descriptive, nondistinctive, generic, or otherwise incapable of graphic representation. Specifically, the new Act prohibits registration of a shape mark if the mark is simply a result of the nature of the goods themselves, or the shape is necessary to achieve a technical result or the shape otherwise contributes substantial value to the goods.

Section 24 sets out a list of relative grounds for refusal which hinge on examination of earlier marks including well known marks. The provisions largely resemble the existing regime and it is anticipated that the Registrar’s current approach to examining new applications will continue.

Possibly no more second bite of the cherry

In an interesting development, the new Act now provides that an applicant may only avail itself to one round of argument at the Registry level if registration is refused as opposed to the present two rounds of arguments. This initial refusal is known as the Registrar’s provisional refusal. If the Registrar maintains his refusal following the applicant’s representations, he will issue the total provisional refusal where the applicant’s next course of action would be to appeal to the High Court. This may be undesirable for rights holders as it could signal an increased cost and complexity to overcome the Registrar’s objections in future.

Voluntary disclaimer irrevocable

Unlike the present regime on disclaimers, they may now be offered by applicants only and shall not be revoked if the Registrar accepts their applications. The “disclaimers” to be imposed by the Registrar would instead be known as “conditions” and “limitations”.

Registrable Transactions

The new Act introduces a new concept of “registrable transactions” which are to be defined by the Registrar in his guidelines or practice directions. While no such guidelines or practice directions have been issued, the Singapore Trade Marks Act defines “registrable transactions” to include an assignment of a trademark or any right in it, the grant of a trademark licence, the grant of any security interest (whether fixed or floating) over a trademark, a court order transferring a trademark and the making by a personal representative of an assent in relation to a trademark. It is expected that Malaysia will adopt a similar position.

The importance of these provisions lies in the enforcement, in that any registrable transaction that is not applied for registration would be ineffective against another person with a conflicting interest in the trademark to which the registrable transaction relates. For instance, a person who becomes proprietor of a trademark by virtue of a registrable transaction (e.g. assignment) may not claim remedies for any infringement which occurs before his application to register the assignment.

So Long, Registered Users

The new Act does away with the present system of registered users and replaces it with licensing provisions. Though being a registrable transaction, licences are exempt from registration and would be effective so long as it is in writing and is signed by the licensor.

The new Act further provides that a licence will be binding on the licensor’s successors-in-title unless otherwise stated, or where a person who acts in good faith and without notice of the licence has given valuable consideration for the interest in the trademark.

Renewals

Renewals that are due when the new Act comes into effect will be subject to the new provisions, while trademarks registered before the new Act comes into force will be dealt with under the existing Act.

It is further stated that the renewal fee under the new Act would be applicable even if such fee has been paid before the new Act comes into force. While this suggests an undesirable case of double payments, it is anticipated that the proprietors would only need to pay the additional amount, if any.

Duties of Trademark Agents

It is arguable in the past that trademark agents under the existing Act may refuse service of cause papers for court proceedings (e.g. infringement and rectification claims). The new Act now appears to provide that cause papers may be served on trademark agents. This departs from all other cases where plaintiffs are required to obtain leave from the Court for service on defendants who are out of jurisdiction.

It is also worth noting that the new Act now recognises that communications made between trademark applicants or proprietors and their trademark agents are privileged to the same extent as a solicitor-client privilege.

Conclusion

In this part of our two-part discussion, we highlight the salient changes to the present Malaysian Trade Marks Act 1976 in relation to trade mark applications and registrations. In our next article, we set out the changes to the Act with regards to the enforcement of trade mark rights by rights holders.

KJL
Low Kok Jin
Associate
Tay & Partners
kokjin.low@taypartners.com.my

LBY
Lim Bee Yi
Partner
Tay & Partners
beeyi.lim@taypartners.com.my

LLL
Lee Lin Li
Partner
Tay & Partners
linli.lee@taypartners.com.my

MERGER CONTROL IN COMMUNICATIONS MARKET

Trademarks Act 2019 – What’s New?

“The 163-page Trademarks Bill 2019 certainly means more than just contracting “trade mark” into a single word. In these articles, we highlight the most important changes to our existing Trade Marks Act 1976.”

Since coming into force in 1983, the Malaysian Trade Marks Act 1976 is feeling the effects of the passage of time and will at long last be overhauled when the new Trademarks Act 2019 comes into force in late 2019. The bill was presented for first reading in Parliament on 9 April 2019 and was passed after the second reading on 2 July 2019.

While still fresh from the Parliamentary oven, we highlight some significant welcome changes in the new Act especially for the rights holders. It is worth noting that many of the proposed changes mirror or resemble the trademark provisions in other Commonwealth jurisdictions such as the UK Trade Marks Act 1994, the Australian Trade Marks Act 1995 and the Singaporean Trade Marks Act to name a few.

Accession to the Madrid Protocol

The new Act will facilitate Malaysia’s accession to the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (also known as the Madrid Protocol) which allows the filing of a single application to register a trademark in up to 120 countries. The days of Malaysian trademark owners filing separate national applications in these countries to obtain trademark protection will soon be over and so will filing Malaysian applications by foreign owners from these countries in Malaysia.

The new Act does not elaborate on the implementation of the Madrid Protocol but instead empowers the Minister to make regulations to give effect to the same, including all matters relating to international applications, requests to extend protection afforded by international registrations to Malaysia, transformation of international applications/registrations, cancellation of international registrations as well as fees and renewal procedure. It is expected that the regulations would substantially reflect the terms in the Madrid Agreement and the Protocol Relating to the Madrid Agreement.

Expansion of registrable subject matter

The new Act now recognises the registrability of non-traditional marks such as sound, scent, holograms, positioning and animations as long as they are capable of being represented graphically (can be visually depicted) and distinguishing goods or services of their owners from those of others. This expands Malaysia’s offering in the international arena but some challenges may be expected for the new registrable subject matters, such as the question of scent marks being graphically represented.

Applications in multiple classes

The new Act ushers in the long-awaited change: individual applications to register a mark in different classes will be replaced by a single application designating those classes. This brings about a reduction of paperwork with the intention of further reducing the time taken for the completion of the formality examination phase.

Together with the multiple-class applications are corresponding provisions for divisions and mergers of applications for effective management by rights holders of their portfolio of trademarks. Applications and registrations may now be divided into two or more separate applications or registrations, as the case may be. Similarly, two or more separate applications or registrations may now be merged into one application or registration.

Filing date unaffected by priority date

The new Act streamlines the filing date of applications which will now be the date of receipt by the Trademark Office of the trademark application. It further provides that any claimed priority date will have no effect on the filing date except in searches for earlier trademarks.

Another important change to note is that where the formality requirements are fulfilled on different dates, the filing date shall be the last of those days. For instance, under the existing Act, submission of the translation or transliteration for a mark containing non-roman or non-English characters after the application is filed has no impact on its filing date. Under the new Act, however, the filing date will change accordingly.

Series marks

The new Act sees a substitution of the words “other matter” with “standard fonts”. While this provides clarity for the scope of a series mark , it is a narrowing down of marks which may form a series as it now leaves almost no room for interpretation to decide if a group of marks are eligible for a series registration if it is not “standard font”.

Relative grounds and absolute grounds

Trademark applications will now be examined under two main sections, namely, Sections 23 and 24 of the new Act. Section 23 sets out an extensive list of absolute grounds for refusal concerning the inherent registrability of the marks with the primary grounds being that such marks are descriptive, nondistinctive, generic, or otherwise incapable of graphic representation. Specifically, the new Act prohibits registration of a shape mark if the mark is simply a result of the nature of the goods themselves, or the shape is necessary to achieve a technical result or the shape otherwise contributes substantial value to the goods.

Section 24 sets out a list of relative grounds for refusal which hinge on examination of earlier marks including well known marks. The provisions largely resemble the existing regime and it is anticipated that the Registrar’s current approach to examining new applications will continue.

Possibly no more second bite of the cherry

In an interesting development, the new Act now provides that an applicant may only avail itself to one round of argument at the Registry level if registration is refused as opposed to the present two rounds of arguments. This initial refusal is known as the Registrar’s provisional refusal. If the Registrar maintains his refusal following the applicant’s representations, he will issue the total provisional refusal where the applicant’s next course of action would be to appeal to the High Court. This may be undesirable for rights holders as it could signal an increased cost and complexity to overcome the Registrar’s objections in future.

Voluntary disclaimer irrevocable

Unlike the present regime on disclaimers, they may now be offered by applicants only and shall not be revoked if the Registrar accepts their applications. The “disclaimers” to be imposed by the Registrar would instead be known as “conditions” and “limitations”.

Registrable Transactions

The new Act introduces a new concept of “registrable transactions” which are to be defined by the Registrar in his guidelines or practice directions. While no such guidelines or practice directions have been issued, the Singapore Trade Marks Act defines “registrable transactions” to include an assignment of a trademark or any right in it, the grant of a trademark licence, the grant of any security interest (whether fixed or floating) over a trademark, a court order transferring a trademark and the making by a personal representative of an assent in relation to a trademark. It is expected that Malaysia will adopt a similar position.

The importance of these provisions lies in the enforcement, in that any registrable transaction that is not applied for registration would be ineffective against another person with a conflicting interest in the trademark to which the registrable transaction relates. For instance, a person who becomes proprietor of a trademark by virtue of a registrable transaction (e.g. assignment) may not claim remedies for any infringement which occurs before his application to register the assignment.

So Long, Registered Users

The new Act does away with the present system of registered users and replaces it with licensing provisions. Though being a registrable transaction, licences are exempt from registration and would be effective so long as it is in writing and is signed by the licensor.

The new Act further provides that a licence will be binding on the licensor’s successors-in-title unless otherwise stated, or where a person who acts in good faith and without notice of the licence has given valuable consideration for the interest in the trademark.

Renewals

Renewals that are due when the new Act comes into effect will be subject to the new provisions, while trademarks registered before the new Act comes into force will be dealt with under the existing Act.

It is further stated that the renewal fee under the new Act would be applicable even if such fee has been paid before the new Act comes into force. While this suggests an undesirable case of double payments, it is anticipated that the proprietors would only need to pay the additional amount, if any.

Duties of Trademark Agents

It is arguable in the past that trademark agents under the existing Act may refuse service of cause papers for court proceedings (e.g. infringement and rectification claims). The new Act now appears to provide that cause papers may be served on trademark agents. This departs from all other cases where plaintiffs are required to obtain leave from the Court for service on defendants who are out of jurisdiction.

It is also worth noting that the new Act now recognises that communications made between trademark applicants or proprietors and their trademark agents are privileged to the same extent as a solicitor-client privilege.

Conclusion

In this part of our two-part discussion, we highlight the salient changes to the present Malaysian Trade Marks Act 1976 in relation to trade mark applications and registrations. In our next article, we set out the changes to the Act with regards to the enforcement of trade mark rights by rights holders.

KJL
Low Kok Jin
Associate
Tay & Partners
kokjin.low@taypartners.com.my

LBY
Lim Bee Yi
Partner
Tay & Partners
beeyi.lim@taypartners.com.my

LLL
Lee Lin Li
Partner
Tay & Partners
linli.lee@taypartners.com.my

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