UIP2612 Intellectual Property Law

Topic 1: Introduction
Assoc. Prof. Dr. Dennis W. K. Khong
[email protected]
July 2020
Handout

1 Reading
1. Tay Pek San, Intellectual Property Law in Malaysia (Sweet &
Maxwell Asia, 2013) ch 1.
2. Dennis W. K. Khong, ‘Intellectual Property: Economic Justification’,
Encyclopedia of law and Economics (Springer 2018).
3. Justin Hughes, ‘The Philosophy of Intellectual Property’ [1988] 77
Georgetown LJ 287.

2 Introduction
4. The phrase ‘intellectual property’ is used but not defined in the
Intellectual Property Corporation of Malaysia Act 2002 (Act 617).
5. It is a non-legal collective term to refer to different intangible
property rights, known as intellectual property rights (IPR)
covering inter alia,
(i) Copyright,
(ii) Patents,
(iii) Industrial designs,
(iv) The tort of breach of confidence,
(v) Trademarks,
(vi) Geographical indications,
(vii) The tort of passing off, and
(viii) Other newer forms of rights.
6. In Malaysia, these IPRs are governed separately by:
(i) Copyright Act 1987 (Act 332)
(ii) Patents Act 1983 (Act 291)
(iii) Industrial Designs Act 1996 (Act 552)

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 (iv) Trademarks Act 2019 (Act 815)
(v) Geographical Indications Act 2000 (Act 602)
(vi) Layout-Designs of Integrated Circuits Act 2000 (Act 601)
(vii) Protection of New Plant Varieties Act 2004 (Act 634)
7. Additionally, torts such as passing off and breach of confidence are
governed and developed through case law.
8. 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.
9. 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.
10. In modern technological devices, hundreds, or if not more,
thousands of different IPRs may be involved.

3 Characteristics of Intellectual Property

Rights
11. Even though different types of IPRs serve different purposes, they
share some characteristics that may be examined for similarities
and differences:
• Source of law,
• Subject matter of protection,
• Whether registration is required (method of protection),
• Publication/disclosure requirement,
• Duration of protection,
• Scope of protection,
• Whether independent creation is a defence,
• Other exceptions and defences
12. Intellectual property rights are not absolute. Various types of
exceptions are available to constraint their monopoly effects
(exclusive rights).

4 Traditional Justifications for IPRs

13. Traditional justifications for intellectual property rights are based
on two theories:
(i) labour theory,
(ii) personality theory.

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 4.1 Labour Theory
14. The labour theory is premised on the idea that a labourer should be
able to enjoy the fruits of his labour. Under the labour theory, the
creator of a new knowledge should own the right to his creation.
15. The labour theory of property stems from John Locke’s (1690) idea
of Theory of Property:
The labour of his body, and the work of his hands, we may
say, are properly his. Whatsoever then he removes out of
the state that nature hath provided, and left it in, he hath
mixed his labour with, and joyned to it something that
is his own, and thereby makes it his property. It being by
him removed from the common state nature placed it in, it
hath by this labour something annexed to it, that excludes
the common right of other men.
16. Note that Locke’s theory of property is not absolute:
Nor was this appropriation of any parcel of land, by
improving it, any prejudice to any other man, since there
was still enough and as good left, and more than the
yet unprovided could use. So that, in effect, there was
never the less left for others because of his enclosure for
himself. For he that leaves as much as another can make
use of, does as good as take nothing at all. Nobody could
think himself injured by the drinking of another man,
though he took a good draught, who had a whole river
of the same water left him to quench his thirst. And the
case of land and water, where there is enough of both, is
perfectly the same.

4.2 Personality Theory

17. 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. This is a more continental approach than the one
adopted by the Anglo-American legal systems.
18. The personality theory is commonly ascribed to Georg Wilhelm
Friedrich Hegel (1821):
Mental aptitudes, erudition, artistic skill, even things
ecclesiastical (like sermons, masses, prayers, consecration
of votive objects), inventions, and so forth, become
subjects of a contract, brought on to a parity, through
being bought and sold, with things recognized as things.
It may be asked whether the artist, scholar, &c., is from
the legal point of view in possession of his art, erudition,
ability to preach a sermon, sing a mass, &c., that is,

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 whether such attainments are “things.” We may hesitate
to call such abilities, attainments, aptitudes, &c., “things,”
for while possession of these may be the subject of
business dealings and contracts, as if they were things,
there is also something inward and mental about it, and
for this reason the Understanding may be in perplexity
about how to describe such possession in legal terms.
because its field of vision is as limited to the dilemma
that this is “either a thing or not a thing” as to the dilemma
“either finite or infinite.” Attainments, erudition, talents,
and so forth, are, of course, owned by free mind and are
something internal and not external to it, but even so, by
expressing them it may embody them . . . and in this way
they are put into the category of “things.”

5 Economic Justifications for IPRs

5.1 Nature of Information
19. The economic justification for intellectual property rights is related
to theory of market failure in public goods.
20. The starting point of this analysis is to recognise that all subject
matters of intellectual property are actually intangible information,
and not their physical embodiments.
21. According to economic theory, information has the characteristics
of ‘public goods’:
(i) non-rivalrous in consumption,
(ii) non-excludability.
22. 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’.
23. The second characteristics is non-excludability. This means that
once information is released to the public, it is impossible or
extremely difficult to prevent others from having access to it. The
difficulty of exclusion means that non-payers may enjoy the same
information without paying.
24. Enjoying without paying whereas others may have to pay for
the same is known as ‘free-riding’ or ‘free-loading’. Free-riding
leads to ‘market failure’. A market is said to fail, when
the quantity produced by suppliers in the market, i.e. new
information/knowledge creators, is below the socially optimal
quantity due to non-paying by free-riders.
25. Thus, due to the ‘public goods’ characteristics, production of (new)
information suffers from a market failure, i.e. the amount of (new)

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 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).
26. 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. So an intellectual property right,
is a solution—albeit a sometimes inefficient one—to the market
failure problem of creation of new information.
27. With intellectual property rights, the owner can, without competition
from copiers, sell his products comprising the intellectual property
rights at a price higher than a competitive price, and with that
additional profit, will be able to recover the high fixed cost and
reinvest any surplus in future research and development (R&D).
28. 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 business’s goodwill
(iii) Geographical indications
(iv) Domain names

5.2 Incentive to Create

29. 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.
30. 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

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 of thousand ringgit. If a music producer is forced, by competition
from ‘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.
31. 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.
32. 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.

5.3 Incentive to Invest in Reputation

33. A second group of information are not inventions or creations
per se, but symbols or insignia of trade which connotes a certain
level 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.
34. 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.
35. This second type of information may also be susceptible 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.
36. Additionally, counterfeiters also free-ride on advertising efforts
and costs of a trade mark owner or his users.
37. 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.

6 Other Political Justification

38. 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).

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39. In essence, intellectual property law has to strike a balance between
the rights-holder’s ability to recoup and profit from his investment,
and the public’s right to enjoy and disseminate information relating
to the protected creation.

7 International Influence
40. Since intellectual property are informational in nature, they can
easily be transferred across national boundaries without much
of customs’ control. In order to ensure that right-holders are
‘rewarded’ beyond the creation’s country of origin, countries are
‘pressured’ into agreeing to a set of similar intellectual property
laws.
41. Intellectual property laws are rarely unique to one country,
even though they exist largely as domestic laws, because they
operates substantially similar across different countries due to
treaty obligations.
42. International treaties, particularly trade treaties, and conventions
(treaties supported by an international body) seek to harmonise
various aspects of domestic intellectual property laws, e.g.:
(a) Agreement on Trade-Related Aspects of Intellectual Property
Rights 1996, being an annex to the Agreement establishing the
World Trade Organization (TRIPS Agreement)
(b) Paris Convention for the Protection of Industrial Property 1883
(Paris Convention)
(c) Berne Convention for the Protection of Literary and Artistic
Works 1886 (Berne Convention)
43. Increasingly, due to international pressure, it is impossible for a
developing or less-developed country to recognise a new type of
intellectual property rights or to expand the public rights under
existing intellectual property regime without prior agreement at an
international level.