Licensing agreements with territorial restrictions must be strictly enforced to uphold trademark integrity, and courts have discretion in enforcing undertakings for damages based on the parties' conduct.

[1] This appeal is by the defendant who is dissatisfied with the decision of the Court of Appeal in dismissing its appeal against the decision of the trial judge who allowed the plaintiff's claim and dismissed the defendant's counterclaim.

Facts

[2] The facts of this case are rather straightforward and comprehensively described by the Court of Appeal which we append below:

The defendant is a well known sports goods retailer. It sells all sorts of sports apparel as well. There is a range of sports apparel under the name of "Le Coq Sportif". The plaintiff is the owner of that trade mark. It entered into three agreements with the defendant under the terms of which it gave to the defendant the right to manufacture and retail goods carrying Le Coq Sportif mark. They are dated 16 December 1991 ("the first licence agreement"), 4 July 1995 ("the second licence agreement") and 26 August 1996 ("the third licence agreement"). But there was an important restriction imposed on the defendant. It could only market the goods in question within Malaysia and Singapore. Exporting the goods outside these two countries was strictly prohibited. Each of the three agreements contained a clause to that effect. Absent (Aside) the plaintiff's licence it was unlawful for the defendant to do any of the things permitted by the respective licence agreements. At this point I would mention three matters. Although the first licence agreement was expressed to be effective for only a period of 12 months, that is to say, from 1 January 1992 to 31 December 1992, it appears to have been consistently renewed until the second licence agreement was entered into. Next, although the second licence agreement expired on 31 December 1995, the plaintiff permitted the defendant to continue as before until the third licence agreement had been executed. Last, under the terms of the respective agreements, in the event of non-renewal of the licence by the plaintiff, the defendant had 6 months to dispose of the licence goods that it had in its hands.

Now it is evidence that during the currency of the first and second agreements problems arose between the parties. The plaintiff had found Le Coq Sportif goods manufactured in Malaysia in the Japanese market. If such goods were available in Japan, they must in all probability have come from the defendant. For, there were no other sources from which the goods could have come. Not unnaturally, the plaintiff was the most concerned about this and about granting a fresh licence to the defendant whom it suspected of having violated a most important term of the existing agreement. After the third licence agreement had been entered into, the plaintiff decided to put the defendant to test. In 1996, it engaged the services of one Isaac Leung through the firm of M/s Rouse & Co of Hong Kong to assist it to see if the defendant was in fact exporting Le Coq Sportif goods. Isaac Leung came to Kuala Lumpur on two occasions. He first came on 8 August 1996. He went to the defendant's premises with the object of obtaining samples and quotations for Le Coq Sportif goods marketed by the defendant. But he was unable to obtain any. He next came in 30 December 1996, that is to say, on the eve of the expiry of the third licence agreement. On this occasion he was able to obtain samples. He also purch