UIP2612 Intellectual Property Law

Topic 1: Introduction
Dr. Dennis W. K. Khong
wkkhong@mmu.edu.my
June 2016
Handout

Reading

1. Tay Pek San, Intellectual Property Law in Malaysia (Sweet &

Maxwell Asia, 2013) ch 1.
2. Lionel Bently and Brad Sherman, Intellectual Property Law (4th
edn, OUP, 2014) ch 1.

Introduction

3. The phrase intellectual property is used but not defined in the

Intellectual Property Corporation of Malaysia Act 2002 (Act 617).
4. It is a non-legal collective term to refer to different intangible
property rights, known as intellectual property rights (IPR) covering
inter alia,
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Copyright,
Patents,
Industrial designs,
Trade marks,
The tort of passing off,
The tort of breach of confidence, and
Other newer forms of rights.

5. In Malaysia, these IPRs are governed separately by:

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Copyright Act 1987 (Act 332)

Patents Act 1983 (Act 291)
Industrial Designs Act 1996 (Act 552)
Trade Marks Act 1976 (Act 175)
Geographical Indications Act 2000 (Act 602)
Layout-Designs of Integrated Circuits Act 2000 (Act 601)
Protection of New Plant Varieties Act 2004 (Act 634)

6. Additionally, torts such as passing off and breach of confidence are

governed and developed through case law.
7. Some IPRs may overlap and cover the same subject matter, e.g.
copyright in 3D objects and industrial designs, or trade marks and
the tort of passing off.
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8. Alternatively, the same object may have related aspects of it being

covered by different IPRs, e.g. copyright for the source code and
object code of the computer program, versus patent protection
for computer software. Alternatively, non-disclosed aspects of a
computer program, such as its source code, may be protected as
confidential information.
9. In modern technological devices, hundreds, or if not more,
thousands of different IPRs may be involved.

Traditional Justifications for IPRs

10. Traditional justifications for intellectual property rights are based

on two theories:
(i) labour theory,
(ii) personality theory.
11. The labour theory is premised on the idea that a labourer should
be able to enjoy the fruits of his labour. Therefore, the creator of a
new knowledge should own the right to his creation.
12. The personality theory is premised on the idea that the intellectual
creation is an extension of the personality of its creator, just like a
calf embodies the personality of its mother, and therefore belongs
to its mother.
13. Both the labour theory and the personality theory are rhetorical
devices to explain for intellectual property rights, but by themselves
do no reflect the reality faced by creators.

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4.1

Economic Justifications for IPRs

Nature of Information

14. The economic justification for intellectual property rights is related

to the idea of investment and the need to recoup an investment.
15. It should be noted that all intellectual properties are informational
in nature. According to economic theory, information has the
characteristics of public goods:
(i) non-rivalrous in consumption,
(ii) non-excludability.
16. Non-rivalrous in consumption means that information can be used
with unlimited number of people, for unlimited times, without
degradation in quality or reduction in quantity. This is a good
characteristics and makes information an infinite good.
17. The second characteristics is non-excludability. This means that
once information is released to the public, it is impossible or
extremely difficult to prevent people from having access to it. The
difficulty of exclusion means that non-payers may enjoy the same
information without paying.

18. In the context of information, enjoying without paying whereas

others may have to pay for the same is known as free-riding or
free-loading. Free-riding is a sign of market failure, meaning a
market for information without further laws, regulations or legal
enforcement, will not by itself lead to the socially desirable outcome.
19. Thus, due to the public goods characteristics, production of (new)
information suffers from a market failure, i.e. the amount of (new)
information produced is below what is socially optimal (desirable).
This is because the production of new information is expensive
(high fixed cost), but the reproduction of addition copies of the
information is cheap (low marginal or variable cost).
20. By granting an intellectual property right to its creator, in the form
of an exclusive right, the owner will be able to prevent competitors
who uses his intellectual property without incurring the high fixed
cost of creation. Without this competiton, the owner can then sell
their products comprising the intellectual property rights at a price
higher than a competitive price with free-riding competitors, and
with that additional profit, will be able to recover the high fixed
cost and reinvest any surplus in future research and developement
(R&D).
21. Generally, all IPRs can be economically grouped into two categories:
(1) To solve the market failure in creating new inventions or
creations:
(i) Copyright
(ii) Patents
(iii) Industrial designs
(iv) Confidential information and trade secrets
(v) Layout-designs of integrated circuits
(vi) Plant varieties
(2) To solve the market failure in investing in reputation/quality:
(i) Trade marks
(ii) Passing off of a businesss goodwill
(iii) Geographical indications
(iv) Domain names

4.2

Incentive to Create

22. Intellectual property rights can be considered as a legally sanctioned

means to prevent unauthorised/un-consented reproduction of
protection information for the benefit of the rights-holder. Thus,
the rights-holder will, in theory, be able to recoup his high fixed cost
by selling his products at a price higher than just his reproduction
cost.
23. Consider the case of a music CD. The cost of a blank CD-R is about
50 sen, and the cost of electricity to record music onto the CD-R
is a fraction of a sen. This must be the lowest cost of reproduction
of a CD. However, the fixed cost of recording the music and paying
for the various production processes amounts to tens or hundreds of
thousand ringgit. If a music producer is forced, by competition from
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pirates to sell at the cost of CDs, he will never be able to recover

his fixed cost, and thus, there will be less incentive to record music
at the first place.
24. New information such as inventions and scientific discoveries are
useful for society because this is how society and economies
developed exponentially in since the industrial revolution. Civilisations
prospers because of new inventions in the arts and sciences.
25. Therefore, intellectual property rights such as copyright, patents
and design rights make the use of information in specific contexts a
property rights in the hands of the rights-owners. With this, they
may then legally exclude non-payers from using those information,
and those who do so without consent are liable to criminal
punishments and civil infringement suits.

4.3

Incentive to Invest in Reputation

26. A second group of information are not inventions or creations per

se, but symbols or insignia of trade which connotes a certain leval of
reputation of the business. The type of intellectual property rights
which falls into this category includes trade marks, geographical
indications and the tort of passing off.
27. Unlike the first category above, the incentive here is the incentive to
invest in building a reputation so that consumers may safely rely on
a trade mark to infer the potential quality and source of a product.
28. This second type of information may also be succeptible to
free-riding by counterfeiters who sell similar goods using the trade
mark owners mark. As producing quality products is more
expensive than producing cheaper but inferior quality products,
counterfeiters have incentive to free-ride on the quality associated to
the marks, which robs the trade mark owners investment in quality.
29. Additionally, counterfeiters also free-ride on advertising efforts and
costs of a trade mark owner or his users.
30. When trade marks are not protected, business have little incentive
to invest in product quality because it could be free-rided by
counterfeiting competitors. The effect is that the market will have
few high quality products.

Other Political Justification

31. Sometimes, new forms of IPRs have been argued to be created,

even though it does not solve any of this market failure problem,
e.g. protection of ancient cultural property. These forms of IPRs
are mainly used as a protectionist device or to transfer wealth from
the right to the poor (e.g. aboriginal communities).
32. In essence, intellectual property law has to strike a balance between
the rights-holders ability to recoup and profit from his investment,
and the publics right to enjoy and disseminate information relating
to the protected creation.

6 Characteristics of Intellectual Property

Rights
33. Although intellectual properties are essentially information, different
types of intellectual property rights have different characteristics
and legal requirements.
34. These characteristics can be classified as:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Subject matter
Registration requirement
Publication requirement
Duration of protection
Scope of protection
Availability of an independent creation defence
Other excetions and defences

Recap

35. In this topic, we cover:

(i)
(ii)
(iii)
(iv)
(v)

Different types of intellectual property rights (IPRs)

Sources of law and legislation for IPRs
Informational nature of IPR protection
Two economic justifications for IPRs
Characteristics of IPRs