Malaysia's Legal Framework for Promoting Technology

by Loong Caesar
Partner, Raslan Loong, Malaysia

Bangalore, March 13, 2001

Legal History and Perspective

Malaysia became an independent sovereign member of the British Commonwealth in 1957. Independence was followed by good governance and a system of laws founded on the best common law traditions. These laws ensured a firm link to modern commercial and company laws practised and recognized throughout the world. This tradition has made it easy for Malaysia to adapt and assimilate the latest and most progressive laws in force in advanced common law jurisdictions such as England, the United States, Canada and Australia.

Although a strong common law tradition has survived, in recent years the judicial and legal system of the country has come under attack. Criticisms of the system arose after the sacking of 3 senior Federal Appeals court judges in 1988 which resulted in a 12 year period of estrangement between the Bench and the Bar. This period was marked by a general decline in the level of professional courtesy and cooperation between the two institutions, judicial pronouncements that showed a departure from some long established principles and conventions of the common law, open criticisms of the government and the Bench by prominent lawyers, a lack of consultation with the Bar in the enactment of new laws and an increasing number of contempt proceedings against lawyers.

Recent moves by the Government have gone some way towards improving the tarnished reputation of the Malaysian judiciary.

Intellectual Property Laws

It can safely be said that Malaysia has extensive and progressive legislation in the field of intellectual property rights protection.

These laws include four principal statutes dealing with intellectual property rights namely:

The Trade Marks Act 1976
The PatentsAct 1983
The Copyrights Act 1987 and
The Industrial Designs Act 1996.

With the exception of the Industrial Designs Act, the first three pieces of legislation mentioned have undergone many amendments to keep pace with developments in intellectual property laws. For instance, the Trade Marks Act has undergone 61 amendments over the last 25 years principally, to streamline and simplify the process for registration of trade marks.

Since 1997, the Trade Marks Act permits the registration of Service Marks under 11 new categories much in the same way as a trade mark for products may be registered.

As a developed common law jurisdiction, Malaysia's laws also protect through legal principles expressed in case law, non-registrable trade secrets and other valuable confidential information. Passing off actions may also be brought against any person who injures the reputation of an established product or attempts to hold himself out as being the owner of someone else's goodwill.

Cyber Laws

In tandem with these laws a plethora of new legislation has also brought into play laws dealing with new technologies principally those in connection with the internet and telecommunication. These laws include:

The Computer Crimes Act, 1997
The Digital Signature Act, 1997
The Telemedicine Act, 1997
The Communication and Multimedia Act, 1998
The Optical Disc Act, 2000, and
The Layout Designs of Integrated Circuits Act, 2000

In addition, the Copyrights Act of 1987 was amended in 1999 to deal with copyright infringement on the internet. A brief description of the ambit of these Acts is set out below:

1. Computer Crimes Act (Act 563) 1997

The Act aims to provide for offences relating to the misuse of computers. Amongst other things, it deals with unauthorised access to computer material, unauthorised access with intent to commit other offences and unauthorised modification of computer contents. It also makes provision to facilitate investigations and permits prosecution of cross border or international fraud and offences committed overseas.

2. Digital Signature Act 1997

This Act is an enabling law that facilitates the development of, amongst others, e-commerce by providing an avenue for secure on-line transactions through the use of digital signatures. The Act provides a framework for the licensing and regulation of certification authorities and the recognition of digital signature. The Controller of certification authorities is given the authority to monitor and license recognised certification authorities.

3. Telemedicine Act 1997 (Not in force)

The Act provides a framework enabling licensed medical practitioners to provide telemedical services using audio, visual and data communications.

4. Communications and Multimedia Act 1998

The Act provides a regulatory framework to cater for the convergence of telcommunications, broadcasting and computer technologies, with the objective of, amongst other things, making Malaysia a major global hub for communications and multimedia information and content services. The Malaysian Commission for Communications and Multimedia was formed on first November 1998 as the sole regulator of the new regulatory regime. Although regulation in the form of licensing is provided for, one of the cornerstones of the new regulatory framework is self-regulation by the various industries, including the IT and multimedia content industries.

5. Optical Discs Act 2000

This Act provides for the licensing and regulation of the manufacture of optical discs. This will help combat piracy of VCDs and CDs in Malaysia by controlling licenses granted to manufacturers of optical discs.

6. Layout Designs of Integrated Circuits Act 2000

The Act governs and gives protection to layout designs of integrated circuit boards.

7. Copyright (Amendment) Act 1987

The Act makes unauthorised transmission of copyright works over the internet an infringement of copyright. It also makes it an infringement of copyright to circumvent any effective technological measures aimed at restricting access to copyrighted works. These provisions aimed at ensuring adequate protection of intellectual property rights for companies investing in the IT and multimedia environment.


The Government is presently debating the Data Protection Bill which will deal with the collection, holding, processing or use of personal data by any person with a view to protection of individual privacy. Once enacted into law the Act will help to build consumer confidence and create a level playing field by preventing the misuse of personal information for competitive advantage.

The Multimedia Super Corridor

One key aspect of Malaysia's technology blueprint is the development of the Multimedia Super Corridor intended to make Malaysia an attractive destination for people who develop new technologies and as a country of choice for investments in new technology. It was also intended as a new engine for economic growth at a time when traditional Malaysian industries, particularly, manufacturing and agriculture, were beginning to become less competitive.

The multimedia super corridor master plan provides extensive tax incentives and business guarantees by the Malaysian Government for suitably qualified technology based companies and businesses. The objective is to provide the best possible business environment by removing administrative and financial obstacles wherever possible for qualifying companies.

The Malaysian Exchange of Securities Dealing and Automated Quotation

In recognition of the close relationship between the development of new technologies and capital funding, the Government has developed MESDAQ which stands for the Malaysian Exchange of Securities Dealing and Automated Quotation. This is to facilitate fund raising activities for new start up companies at a relatively early stage and provides a suitable exit position for venture capital investors and private equity funds after a relatively short period. This is achieved by allowing strong technology companies to obtained a listing and make public offerings of securities without the need of an extensive business track record.

Capital Markets Masterplan

More recently (March 2001) the Government announced a Capital Market Master Plan designed to chart the future direction of Malaysian capital markets over the next 10 years. The intention here is to create a suitable capital market within Malaysia which would support development and growth of the country to meet the challenges of a global environment in line with the expectations of WTO conventions. The principal objective of the Master Plan is the liberalising the capital markets and the implementation of a full disclosure based regime. The Master Plan is both progressive and timely.

Enforcement

Clearly, Malaysia does not lack laws or regulations that promote the development of new technologies. Legislation in respect of intellectual property rights, is adequate, progressive and in compliance with the best international expectations. However, Malaysian authorities have a tendency to stop at the law-making stage and to neglect administration and enforcement.

Malaysia's track record in law enforcement of commercial crimes in the physical world has been far from satisfactory and it is unlikely that the enforcement machinery will be able to cope effectively with prosecuting the complex crimes in cyber space. Detection of cyber crimes is made more difficult by the speed of transmission on the internet. This speed also increases the incidence of cyber crimes and at far greater locations and distances. With new technologies making internet communications practically, instantaneous, evidence of crimes becomes more ephemeral and less easy to compile and present for a successful prosecution in court. It is unlikely that Malaysia will on its own have the means to police crimes committed on the internet. Greater international cooperation and a system of data collection and sharing is required.

Knowledge

Enforcement agencies may have scant understanding of internet based laws or lack the technical knowledge which will be necessary for them to detect criminal behaviour. Very often the issues that may be relevant in the physical world do not have any relevance in cyberspace. Enforcement agencies must not only be good prosecutors they must also have a good working knowledge of cutting edge technologies.

Capital Controls

Controls on the free flow of capital imposed shortly after the Malaysian economy started to decline in 1997, have largely been removed. The original regulations have been replaced by monitoring policies and a system of levies on capital gains or profits. It is fair to say that existing regulations do not hamper the movement of capital in and out of Malaysia.

Transparency

Policy flip flops make things difficult for many foreign investors especially where foreign funds look for certainty and predictability as a means of assessing their investment risks. This has greatly reduced Malaysia's competitive advantage and has slowed the entry of foreign direct investments in the technology sector.

A lack of transparency in the system also means that many official decisions and policies are not readily explained or explainable. This results in frustration, disillusion and at the end of the day a loss of confidence and credibility in the system.

High corporate governance is often mooted but seldom practised.

Legacies

Restrictions on the ownership of companies by foreign nationals discourage many foreign investors who see these restrictions as unacceptable impediments, especially when neighbouring jurisdictions have deregulated at a far greater pace. Politically, the Government still considers the existence of equity controls on foreign ownership necessary but there are signs of a liberalisation of these policies. Many promoted activities and businesses are free of equity restrictions, particularly those related to technology and export orientated manufacturing.

Communal sentiments and politics sometimes interfere with the promotion of a knowledge based economy. There is a need to appreciate that the knowledge based economy espoused by the Government ultimately means a merit economy.

In a society where top down management has always been the norm, it is difficult for Government agencies to give up their instinctive desire to regulate and control the result of economic activity. This very often hampers creativity and results in too many administrative obstacles where a freer, less regulated environment is called for. It has also meant that large government controlled companies are slow to implement unbundling and deregulation programmes needed to instill new management styles or to bring in new technical skills.

Conclusion

Malaysia has, by comparison to most countries in the region, an excellent legal infrastructure and still offers a stable an safe environment for foreign investment in technology related businesses. On the other hand the following improvements are needed:

1. More resources must be devoted towards providing an effective and impartial enforcement of our existing laws. Laws must be seen not only as a deterrence but something that everybody must practice. Enacting laws that are not enforced diminishes respect for and the credibility of legal institutions.

2. The public and the relevant industries must be consulted in the enactment of laws and regulations. This will avoid unnecessary amendments to statutes after they have become law, and avoids the perception that "the ground rules" are constantly being changed or manipulated.

3. A strong political will to ensure that enforcement of all crimes is needed more than ever.

4. Our rich common law traditions must be re-inforced and not lost.

5. The Government must facilitate but not interfere in the legitimate processes of a free market economy.

6. In the final analysis, financial and legal incentives alone are not sufficient. Law reform must be coupled with a liberal political agenda for promoting all forms of creative thought and endeavour, necessary to nurture home-grown talents, as well as attract the most talented and creative minds in the world.

If clarification is required, please contact rexlex@raslanloong.com.my. Further information is also available at www.raslanloong.com.my