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The recruitment and retention of talents are common issues faced by many employers. If you are a start-up company which does not have the cash to pay larger salaries to your employees or a growth-stage company struggling with retaining talents, Employee Share Option Scheme (ESOS) may be used to motivate, retain and remunerate your employees in the longer term. What is an ESOS? An ESOS is a scheme operated by an employer where the employer grants options to its eligible employees to acquire shares in the company. This allows the employees to have the opportunity to participate in the financial success and profitability of the company through ownership of shares in the company. The terms and conditions of an ESOS are governed by what is known as the ESOS by-laws (“By-Laws”). Basic features of ESOS Eligible employees The employees eligible to the ESOS would be set out in the By-Laws. A set of criteria on eligibility and criteria for allocation (if any) is to be determined by the board of directors of the company. The criteria may include, but not limited to; Performance, Length of service, Seniority, Contribution; and Any other criteria determined by the board of directors. Exercise price The ESOS may grant the eligible employees the option to acquire shares in the company at a future date Nil-cost: at no cost. Market value: at the market value of the employer’s shares on the date the option is granted by the employer; or Discounted value: at an exercise price which is less than the market value of the employer’s shares on the date the option is granted by the employer. Transferability of ESOS option Typically, the By-Laws will restrict the eligible employees from selling, assigning, transferring or otherwise disposing of the option. The option can only be held and exercised by the eligible employees to whom the option is granted. Dividend or voting right The right to dividends and votes is attached to the shares, rather than the ESOS options. The eligible employees are not entitled to any dividends, rights, allotments, distributions or other entitlements on the unexercised option. Further, the option must not carry any right to vote at any general meeting of the company. The foregoing rights will only available to the eligible employees when the option is exercised. Moratorium The By-Laws may provide that the shares to be allotted and issued to the eligible employees pursuant to the exercise of the option under the ESOS are subject to a retention period or restriction on transfer. This is to prevent the eligible employees from disposing of the shares to another third party without the consent of the company. Dealing with leavers The By-Laws will typically provide for what happens when the eligible employee leaves the company. The general position is that the option will lapse upon the employee leaving the employment.  Nevertheless, exceptions may be made to the employee leaving the company by reason of retirement, ill-health, injury, physical or mental disability, retrenchment and other circumstances acceptable to the ESOS committee. Lapse of option The option will often lapse upon the occurrence of the following events: The eligible employee leaving the company The eligible employee fails to exercise the option within the option period; or The bankruptcy of the eligible employee. Termination of the ESOS The By-Laws may provide that the ESOS may be terminated upon the approval of the board of directors of the company and the board of directors may do so notwithstanding that there may be eligible employees who have yet to exercise their options. Requirements under Companies Act 2016 (CA 2016) Pursuant to section 129 of CA 2016, a company must maintain a register of the option granted to the eligible employees to take up unissued shares in the company. Further, the company must, within fourteen (14) days from the granting of the option to take up unissued shares in the company to the eligible employees, enter in the register the particulars including the details of the eligible employees entitled to the option, the date on which the option was granted, the number and the description of shares in respect of which the option was granted, the consideration for the exercise of the option (if any) and the period or time or the occurrence of any event of which the option may be exercised. Any contravention of this section will be an offense penalized under CA 2016. Conclusion The offering of share options to potential employees will aid the company in terms of recruitment and the provisions of ESOS that the option will lapse upon the employee leaving the employment can help the company in terms of retention of employees. By granting your employees the option to subscribe for shares in the company, you are telling your employees that you are willing to share the financial success and profits of the company with the employees. If your employees feel motivated, it is likely that the productivity in the company will also be increased. ***** About the Author: This article was written by Zuan Yin, Poh (Spring),  Partner of LPP Law – law firm in Kuala Lumpur, Malaysia. The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

In this age of technology, the use of technology has become part and parcel of daily life to many people. One particular example is that more and more people are buying goods and services online, so what is your protection when you are doing online shopping? Electronic commerce (“e-commerce”) offers many benefits to consumers, such as convenience, easy access to a wide range of goods and services, and the ability to gather and compare information about goods and services. The Government also actively promotes the e-commerce industry and the use of e-Government services. To this end, the Parliament has enacted the Electronic Commerce Act 2006 and the Electronic Government Activities Act 2007 to give legal recognition and to facilitate all forms of electronic dealings. The Personal Data Protection Act 2010 is also enacted to protect consumers’ personal data, and this is important as large amount of personal data are transferred through e-commerce transactions. In terms of consumer protection, the Consumer Protection Act 1999 has also put in the relevant safeguards to consumers’ rights and interests when it comes to e-commerce. In this article, we talk about the legal recourse that a consumer has in the event of a dispute arising from an e-commerce transaction. Online Shopping Sites One of the most popular forms of e-commerce activity is online shopping. From buying books on Amazon, bidding for gadgets on eBay, shopping for goods on Taobao to downloading apps from app stores, people are getting more comfortable in doing transactions online. At one point in time, group-buying sites such as Groupon, MyDeal and Living Social became so popular in Malaysia, thanks to the large discounts and attractive deals that these sites offered. There are also online-only retailers such as zalora.com.my, lazada.com.my, blog shops such as stylesofia.com, peer-to-peer network sites such as mudah.my and eBay.com.my, as well as forums such as lowyat.net. In recent years, we have also witnessed the growth of many micro e-commerce models where private individuals do transactions and retails through social media platforms such as Facebook and Instagram and chatting sites such as WeChat and WhatsApp. Online traders are able to offer items with cheaper prices and still make a decent profit margin because they save on the expenses such as rentals, bills and employees’ salaries that they would have to pay if they were to set up physical shops. Online shopping provides an excellent alternative shopping avenue. One does not have to leave home to get the items that he or she wants. Most of the time, items bought are successfully delivered. But sometimes, customers receive items that are different from what they bought, or they never received their items at all. What recourses do consumers have if these incidents happen? 1. Read the fine prints Most of the credible online shopping sites have terms and conditions or fine prints prominently displayed on their sites. The first thing that customers should do is to read the refund or replacement policy carefully. Some sites offer a full refund or replacement with alternative products in the event of lost or faulty products whereas some sites state that items bought are neither refundable nor exchangeable. Some sites go even further to disclaim their liability in the event the merchants on their sites fail to deliver the products as promised or run away with money paid upfront by the customers. Under the law, once customers have agreed to the fine prints, they cannot subsequently turn around and say they did not read the fine prints or did not understand the clauses. That being said, if customers feel that the terms and conditions are substantially or procedurally unfair, they can challenge the terms and conditions on the basis that such terms are unfair under the Consumer Protection Act 1999. 2. Do research A quick Google search will show a whole list of product reviews of the items that other customers may have made. Read the reviews to understand whether the items are legitimate or usable as per what the merchants claim. Any good or bad reviews will usually be shared online via social media or forums. It is always worth the effort to spend some time doing research, and one should never fall into the marketing trap such as that “the offer is ending soon”, which often pushes customers to buy hastily. If the information on the sites is unclear or vague, drop them an email or give them a call to clarify. It may just be an oversight or miscommunication on the part of the sites. As the saying goes, if a deal looks too good to be true, it probably is. 3. Call to inquire In the unfortunate event that the items bought are not delivered to the customers, customers should always first call the sites to enquire the delivery status. Most of the time, they will entertain customers’ enquiry or complaint. A replacement or refund may be offered, depending on the terms and conditions that the customers have agreed to. 4. Legal action If despite calling the sites but the sites still fail to offer a replacement or refund, customers may consider taking legal action against them. Hiring a lawyer to file a legal suit for an RM200 item may seem a little impractical. Thankfully, Malaysian laws are quite pro-consumers. Aggrieved customers may file a claim with the Consumer Claim Tribunal (“Tribunal”), which provides an alternative forum for customers to file claims in a simple, inexpensive and speedy manner. A customer may file a claim with the Tribunal in respect of any claims not more than RM25,000 within 3 years of the dispute except for certain matters such as claims arising from personal injury or death; claims for the recovery of land, disputes concerning a Will, trade secret or other intellectual property, etc. A customer may file a complaint with the Tribunal claiming for any loss suffered arising from, amongst others: false or misleading conduct, representation or unfair practice; the safety or quality of goods or services; the goods

If you have ever purchased an item on the Internet or signed up for a service online, you have formed an electronic contract on the Internet. A contract is simply an agreement that would be enforceable under the law. Electronic contract or not, in general, contracts need not necessarily be in writing. An oral contract is legally recognised and enforceable, although proving its existence is another matter altogether. Overview An electronic contract is basically a type of contract formed by electronic means rather than traditional media – such as the exchange of signed written documents. Contracts formed through electronic (electronic contract) means (such as over the Internet) are legally recognised as valid and enforceable contracts in Malaysia under the Electronic Commerce Act 2006 (“ECA”). Only certain types of contract – such as contracts that involve disposition of lands or wills – are specifically required to be in writing and in physical copy as required by specific legislation. For other types of contract, where any law requires the information to be in writing, the ECA states that the requirement of the law is fulfilled if the information is contained in an electronic message that is accessible and intelligible so as to be usable for subsequent reference. \ It further states that where any law requires a signature of a person on a document, the requirement of the law is fulfilled, if the document is in the form of an electronic message, by an electronic signature which: is attached to or is logically associated with the electronic message; adequately identifies the person and adequately indicates the person’s approval of the information to which the signature relates; and is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required. An electronic signature is as reliable as is appropriate if: The means of creating the electronic signature is linked to and under the control of that person only; Any alteration made to the electronic signature after the time of signing is detectable; Any alteration made to that document after the time of signing is detectable. Offer and an invitation to treat Contracts are formed when the following elements are present, namely, offer, acceptance, consideration and intention to enter into legal relations. There is also a distinction between an offer and an invitation to treat in the eyes of law. Traditionally, case law has decided that the display of an item in a shop window is NOT an offer to sell that item, but rather it is an invitation to treat i.e. an indication by the seller that he may be prepared to sell the item to the buyer. The offer is ONLY MADE when the buyer picks up the item and approaches the counter saying that he would like to buy the item, and it is then up to the seller to accept the offer and close the deal. While this position has not been tested in our local courts, using the same analogy, the display of an item on a website will likely be treated as an invitation to treat, and a deal is only closed when the online seller accepts the buyer’s offer. This distinction is important because if the item displayed in the shop window or on the website is treated as an offer, then the moment the buyer accepts it, the seller would be bound by it and must perform the contract. This would be disastrous to the seller if, for example, there are only a limited number of items for sale, and the orders outnumber the items, which means the seller will be bound by contracts which he cannot fulfill. Online sellers should therefore ensure their terms and conditions state very clearly that the display of items for sale on a website is only an invitation to treat. If not, they must ensure that they have enough stocks to fulfil the orders. Acceptance and consideration Traditionally, the basic rule is that for acceptance to be effective, it must be communicated to the buyer. However, most of the online transactions nowadays are being processed automatically. This has blurred the line as to when an offer is accepted – is it when the seller presses the “Send” button, or when the credit card payment is accepted? The ECA states that unless otherwise agreed between the originator and the addressee, an electronic message is deemed sent when it enters an information processing system outside the control of the originator. An electronic message is deemed received: (a) where the addressee has designated an information processing system for the purpose of receiving electronic messages, when the electronic message enters the designated information processing system; or (b) where the addressee has not designated an information processing system for the purpose of receiving electronic messages when the electronic message comes to the knowledge of the addressee. That said, it would be prudent for the online sellers to state in the terms and conditions, the manner in which the contract is formed and the point at which acceptance takes place. Under Malaysian law, there must be a consideration for a contract to be valid and enforceable. Consideration simply means that each party must receive a benefit from the contract (regardless of whether it has monetary value). This is hardly an issue as the buyer receives the goods or services and the seller receives the payment. Intention to enter into legal relations is usually imputed unless proven otherwise. Incorporation of terms The terms and conditions on which the parties are contracting MUST BE agreed by both parties and incorporated into the contract. It may not be permissible to simply place the terms and conditions on a website or place a link to the page which contains the terms and conditions because the law requires that the terms and conditions must be shown to the customer and agreed by him before or at the same time when they are entering into the contract. It would be a good practice to

Trademarks are generally protected under trademark legislation (for a registered trademark) and common law tort of passing off (for unregistered trademark). Brand owners are always encouraged to have their trademarks registered because that will enhance their protection in the sense that registered trademark owners will enjoy exclusive rights in connection with the class of goods/services for which the trademarks are registered in. Courts in many jurisdictions, including Malaysia, have recognized that the protection of trademark laws extends to the use of trademark over the Internet. However, in this Internet age where the use of the trademark (whether authorized or unauthorized) is becoming so prevalent, registering trademark alone is not enough when it comes to protecting and enforcing trademark rights. The Internet presents many opportunities and challenges to brand owners. Brand owners will need to develop and implement strong brand management and protection strategy, alongside with continuously monitor, protect and enforce their trademark rights to prevent misappropriation of the goodwill and reputation in their trademarks. This article outlines several forms of trademark infringement that currently take place on the Internet. Cyber Squatting “Cybersquatting” is a form of trademark infringement. It refers to an act of registering, trafficking in or using a trademark belonging to someone else with bad faith intent to profit from such an act. For example, in 2008, an individual from Ipoh registered www.google.my as his domain name. When Google Inc. found out about that, Google Inc. filed a complaint against that individual and won the case because Google managed to prove that the domain name was identical with its trademark and that the individual had registered and/or used the domain name in bad faith. If a domain name dispute involves generic top-level domains (gTLDs)(e.g. .biz, .com, .info, .mobi, .name, .net, .org), the trademark owner can file a complaint with any of the approved dispute resolution service providers accredited by the Internet Corporation for Assigned Names and Numbers (ICANN) under the Uniform Domain Name Dispute Resolution Policy (UDRP). If a domain name dispute involves country code top-level domains (ccTLDs) (e.g. .my), the trademark owner can file a complaint with the Regional Centre for Arbitration Kuala Lumpur under the Mynic’s Domain Name Dispute Resolution Policy (MyDRP). Auction Sites Trademark owners have brought legal suits against large auction sites for allowing their users to misappropriate legitimate trademarks on their sites to attract buyers to buy counterfeit goods. In Tiffany v eBay (2010), Tiffany brought a trademark infringement suit against eBay for the sale of non-genuine jewellery of the auction site. The US Court of Appeals rejected the claim of direct infringement on the basis that eBay used the mark to describe the genuine Tiffany goods offered for sale on the site. The court held that eBay’s alleged knowledge of the availability of counterfeit goods on the site was not a basis of such a claim and to impose liability on such grounds would unduly inhibit the lawful resale of genuine Tiffany goods. The fact that eBay also removed those listings involving the sale of counterfeit goods upon being notified by Tiffany and suspended repeat offenders showed that eBay had not contributed to the infringement. Similarly, in L’Oréal v eBay (2009), the UK court decided that L’Oréal failed to prove that eBay had procured sellers’ particular acts of infringement and that eBay was not under a legal duty to prevent infringement and that mere facilitation with knowledge and intention to profit was not enough to establish a joint liability trademark claim. These two cases show that, while there is no doubt that the individual sellers have infringed the trademark rights by selling counterfeit goods online, it is difficult to also argue that the auction sites are jointly liable with the sellers. Virtual World Trademark infringement also takes place in virtual world online games such as Second Life, an online social community created by Linden Labs. Second Life facilitates and encourages user-generated content, which can be sold to other users for virtual currency, which can, in turn, be exchanged for real currency. There is a real risk that users may create and sell digital content which infringes the trademark rights of real-life brands. For that reason, many real-life brands have established themselves within Second Life. In the US case of Taser International Inc v Linden Research Inc (2009), Taser filed a trademark infringement suit against Linden as Second Life’s users have created and sold virtual guns bearing Taser brand in Second Life. The case was settled out of court subsequently. This case goes to show that brand owners will now have to also monitor the unauthorized use of their trademarks in both physical and virtual worlds. Social Media The popularity and the use of online social networking sites such as Facebook, Twitter, YouTube and LinkedIn have grown exponentially across almost all jurisdictions around the world. The username features on social networking sites have created a new form of cybersquatting. For example, a user who has registered an account on Facebook is given a vanity URL for his profile page. Hence, instead of www.facebook.com/id=8473659, a user’s vanity URL is known as www.facebook.com/yourname. This obviously posed a new risk to brand owners as users could, theoretically, choose a name consisting of a trademark not belonging to them. In light of this risk, many real-life brand owners have established an official Facebook page. Facebook has established a mechanism for reporting infringing usernames. If a brand owner discovers that a third party’s username consists of his registered trademark, he can complain to Facebook by using the forms provided by Facebook and ask Facebook to remove the contentious page or disable access to that page. To further ensure that only brand owners get to keep their username, Facebook’s usernames are not transferable (hence eliminating the problem of registering the username in bad faith with the intent to profit from such act) and that usernames which have been removed will no longer be made available to other users. Similarly, on Twitter, each user is given a username upon

The rapid growth of digital technology and the proliferation of the Internet have challenged the traditional notion of intellectual property rights protection, particularly with respect to copyright. Copyright Online Originally, the Internet only offered access to the World Wide Web, which was merely a collection of interconnected documents and resources. However, today, the Internet offers various services, ranging from email, file transfer, online gaming and e-commerce to social networking. Internet users have more control over the creation of content as they can easily create web pages and blogs and web profiles on social networking sites. While the Internet enables works to be made available to a wide audience at minimal cost, the ease of access to these works also means that works are easily copied, stored and distributed to others without the consent and knowledge of the owners of these works. The amendment to the Copyright Act 1987 (“Amendment”) seeks to address the challenges that the Internet has posed to copyright law. The Amendment also aims to fulfil the requirements that will allow Malaysia to accede to the WIPO Copyright Treaty and WIPO Phonograms and Performance Treaty as well as to keep the Copyright Act 1987 abreast with new developments and international standards. This article discusses two main features under the Amendment, namely (i) the circumvention of technological protection measures and electronic right management information systems; and (ii) the liability of Internet Service Providers. Circumvention of technological protection measures for copyright Certain copyright owners put in additional self-help technical measures such as access control measures and copy control measures (such as passwords, encryption, access codes) to restrict access to or prevent copying of their works. The Amendment makes it an offence for anyone to circumvent, or cause or authorize anyone to circumvent, technological protection measures used by copyright owners to protect their works. It is also an offence for anyone to manufacture, import, distribute or possess any technology, device or component which is used, designed or produced for the purpose of enabling or facilitating the circumvention of technological protection measures. Circumvention of electronic right management information systems Some copyright owners also implement electronic right management information systems to protect their works. Electronic right management information systems (such as electronic watermarking placed in the copyrighted work) are electronic means used by copyright owners to identify and track the utilization of their works as well as to set terms relating to the use of their works. The Amendment makes it an offence for anyone to do certain acts which he knows or has reasonable grounds to know that such acts will induce, enable, facilitate or conceal copyright infringement. The prohibited acts are: the removal or alteration of any electronic right management information without permission; or the distribution, importation for distribution or communication to the public without permission, of works or copies of works knowing that electronic right management information has been removed or altered without permission. Liability of Internet Service Providers Prior to the Amendment, there was no specific indemnity provision to indemnify the liability of Internet Service Providers (“ISPs”) in relation to civil suits brought by copyright owners. Arguably, ISPs may be jointly and severally liable with the copyright infringers as the Copyright Act 1987 is drafted so widely to catch both primary and secondary copyright infringers. The issue is, whether a person can be liable for copyright infringement simply by providing the gateway to the Internet or hosting web pages in which copyright infringing materials are available on the web pages. The Amendment now provides safe harbour provisions to protect and indemnify ISPs against any claims of copyright infringement in relation to the use of the services of intermediaries by third parties for infringing activities under copyright law. “Service provider” means a person who provides services relating to, or provides a connection for the access, transmission or routing of, data. It includes providers and operators of facilities for online services and network access and is arguably wide enough to cover ISPs which include website operators, web hosting, server and cloud computing providers. The Amendment exempts an ISP from liability for copyright infringement for certain activities such as transmitting, routing or providing connections of an electronic copy of the work through its primary networks or system caching, as Parliament recognises that these activities are necessary to provide efficient access of data. It states that an ISP will not be liable for transmission or transient storage provided: (a) the work is not initiated by the ISP; (b) the transmission is done through an automatic technical process; (c) the ISP does not select the recipient; (d) the ISP does not make any modification to the content of the work; or (e) there is no notice given by the copyright owner. Nevertheless, the court has the power to order the ISP to disable access to the account and/or terminate the account. As for storage and information location services, the ISP will not be liable for infringing materials stored on its network at the direction of the user or for providing hyperlink or directory or an information location service such as a search engine if: (a) the ISP has no actual knowledge of the infringing materials and/or is not aware of the facts that make the infringing activity apparent; (b) the ISP does not receive any direct financial benefit and has no right to control the infringing activity; and (c) the ISP responded timely to the take-down notice from the copyright owner. Notice and Take-Down Procedure When Copyright is Infringed A copyright owner whose work has been infringed on a network may give a notice to the ISP to remove or disable access to the infringing electronic materials on the network. The ISP must then remove or disable access to the infringing materials within 48 hours. It is an offence to give false notice. The person whose electronic copy of the materials was removed or to which access has been disabled may issue a counter notification to the ISP to request that the copy

Imagine this. You just bought a laptop two weeks back. But now the battery is emitting smoke and your hard disk has caught fire. Plus, you have an ugly burn mark left on your legs! And, all this despite the fact that the seller had guaranteed you that the laptop was in good condition and that he would give you your money back if it was not! Well, luckily in Malaysia, there are 3 POSSIBLE WAYS for you to take. You can assert three different claims against the seller and manufacturer as provided under the Malaysian law: product warranties, guarantees and liabilities. Now, it’s important to note that all three are usually categorized under “warranty”. But from the legal perspective, there are some differences between them. Trader’s liability under the law of supply of goods or services in Malaysia is generally governed by two legislation, namely the Sale of Goods Act 1957 (“SOGA”) and Consumer Protection Act 1999 (“CPA”). Both legislation provide for the obligations of the seller and the rights of the buyer. Product Warranties Warranties in the legal sense are optional obligations of the seller, which is why he – aka The Seller – can formulate them the way he wants. These are usually terms that are expressly stated in the contract between the seller and buyer. These terms can be made orally, in writing or by way of advertisement. Therefore, any statement made by the seller becomes an express warranty, especially if the buyer relies upon it to purchase the product. The seller is legally obliged to fulfil his warranties should the buyer decide to claim for the warranties. Some common examples of product warranties are such as limited, extended or lifetime warranty period, money back or satisfaction guarantee, insurance coverage, etc. The seller would also set out under what type of conditions the product can be returned, replaced or repaired, and cases in which the seller would not be liable for. Consumers are advised to read the product warranties carefully, as those fine print can often contain some pitfalls, and that certain things are excluded from the warranties. For example, the seller may provide warranty for the battery but not for the hard disk; or that labour, transport or spare parts charges would have to be borne by you. Certain product warranties contain a clause which states that; “This warranty becomes null and void if any sticker is tampered with; or if the damage is caused by misuse, abuse or accident; the attachment of any unauthorized accessory; alteration to the product; improper installation, etc.” Therefore, you have to ensure that the product is not tampered with, either by yourself or by anyone else. Also, please do keep the warranty card and the receipt of purchase. This is to help the manufacturers keep track of the product and to keep them informed of the expiry date of the warranty. Product Guarantees Guarantees are rights given to consumers under the law, and they are referred to as implied warranties. An implied warranty is based on an assumption that there is an understanding of some sort of guarantee between buyer and seller. Under implied warranties, the warranty is based upon the buyer’s reasonable expectations about the products. When the warranty is breached, the seller must either repair, refund or replace the product. When a buyer purchases a product, there is an implied warranty that the product must be of acceptable quality, unless the seller makes it clear to the buyer that the product is sold on an “as is, whereas” basis or “with faults”. A product will be considered to be of acceptable quality if it is: Fit and suitable for all the purposes for which the product is commonly used; Acceptable in appearance and finish; Free from minor defects; Safe; and Durable. Hence, when a buyer purchases a laptop, he is under a reasonable expectation that the laptop will be of acceptable quality within a reasonable period of time. If the laptop explodes without default, negligence or omission on the part of the buyer, that laptop is not of acceptable quality. There is also an implied warranty that the product will be; The same as the description or sample was shown to the buyer; That the product will be fit for a particular purpose when a buyer relies upon the seller to choose the product to fit a specific request; The seller has the right to sell the product and when the ownership of the product passes to the buyer, the buyer has the right to possess the product free from any interference; Where the price for the product is not stated in the contract, the buyer is expected to only pay for the reasonable price of the product; and lastly, The seller and manufacturer have an obligation to ensure that they provide repairs and spare parts for a reasonable period of time after the product is sold. Product liabilities Referring to the horror scenario above, what remedies do you have in the event you have suffered personal injury caused by a defective product? Under the law, any person (including non-buyer) who suffers death or personal injury caused by a defective product, or his property is damaged by the defective product, can claim for compensation from the manufacturer directly. It is logical that a manufacturer should be made liable for defective products because (a) they manufacture the products and (b) they have control over the quality and safety of them. Plus… Liability can be imposed without a contractual relationship and proof of fault. In addition to suing the manufacturer under breach of an implied warranty under product safety, a buyer may also sue the manufacturer for breach of contract and breach of duty of care under the tort of negligence. Conclusion The CPA, being a piece of legislation enacted to protect the consumers’ rights and interests, states it clearly that the provisions under the CPA cannot be contracted out. In other words, traders cannot, by way of limitation

In December 2014, it was reported in the news that the Ministry of Domestic Trade, Cooperatives and Consumerism had said that under the Consumer Protection (Electronic Trade Transactions) Regulations 2012 (“Electronic Trade Regulations”), online traders must first register themselves with the Companies Commission of Malaysia before they can start selling and trading on online marketplaces or their own e-commerce websites. The e-commerce industry is booming. The Alibaba Group, a Chinese e-commerce company founded by Jack Ma, claimed the title for the largest global IPO ever when it got listed on the New York Stock Exchange in September 2014. On the date of its IPO, Alibaba’s market value was measured at US$ 231 billion. In this part of the world, Malaysia and Singapore generate almost half of total online retail sales in Southeast Asia, and both countries are expected to record double-digit growth over the next few years. This article is therefore intended to set out some basic legal aspects that every online trader/operator should take note of, before venturing into, or continuing with, the e-commerce business. The Electronic Trade Regulations apply to individual person and business that sells and supplies goods or services via a website or an online marketplace (e.g. an online trader), as well as online marketplace operator (e.g. an e-commerce/marketplace website operator). One of the requirements under the Electronic Trade Regulations is that the individual person or business must disclose the business name (either the name of the owner, business or company) and the registration number of the business or company, if applicable. Furthermore, since Malaysian laws view online business as no different from physical business i.e. both are accorded with the same kind of legal treatment, it comes as no surprise that the Government now requires all online traders/operators to follow the same steps like what a physical trader/operator would take. As a matter of fact, doing business online includes many of the same business/legal risks and challenges that any brick and mortar business faces. Registration of business Apart from coming up with a business model that can be monetized, the first step that every online trader/operator would usually take is to register his business. There are several legal structures that an online trader/operator can choose, with each of them attracting different legal implications. Examples of the legal structures are such as sole proprietorship, partnership (general or limited liability), limited company (e.g. Sdn Bhd or Bhd) as well as a foreign company. Issues such as transferability, management, number of members, shares ownership, constitution, capital and liability, borrowing powers, security over assets and dissolutions must be thoroughly considered and discussed before deciding which legal structure to form. Accounting, taxes and other record-keeping requirements An e-commerce business, like any other business, must keep and maintain accurate records of its business transactions and accounts, and make sure that the business and accounting records are completely separated from personal financial records. An online trader/business may also enter into various types of online contracts for online services that he procures in order to conduct business. Copies of these contracts must be kept for future reference. Such records must also be kept in accordance with the minimum retention periods as prescribed by the relevant laws (for example, the Companies Act 1965, the Income Tax Act 1967 and the Goods and Services Tax Act 2014 requires that certain records must be kept for at least 7 years whereas the Customs Act 1967 requires that records pertaining to importation of goods must be kept for at least 6 years), so that in the event of an audit or investigation, the online trader/operator would be able to produce the records as evidence. Depending on the legal structure that an online trader/operator chooses, he may have to follow certain annual processes and procedures as required by law to keep the structure active and valid. For example, every limited company must file an annual return (accompanied by copies of documents, certificates, financial statements) with the Companies Commission of Malaysia within one month after the Annual General Meeting every year. Every company must also keep at its registered office a register of its directors, managers and secretaries containing all personal particulars and information relating to shareholdings, charges, accounts, minute books, share certificates book as well as a set of company common seal. The online trader/operator must also pay taxes to the Inland Revenue Board and the Royal Malaysian Customs Department, where applicable. Online Contracts Website terms of use and privacy policy are the two most common documents that will usually be put up on an e-commerce website. Website terms of use contain terms that essentially work as a form of contract that governs the terms under which users use the website. The terms of use should set out the responsibilities of both users and website operator; how users can use the website (including the materials on the website); the copyright ownership of the website (including the user-generated contents); the liabilities disclaimer and the limited warranties/indemnities that the website operator is willing to give as well as a refund/cancellation policy (if it is an e-commerce website) or a social media and comment moderation policy (if the website allows user reviews or it hosts a blog/forum). A privacy policy, on the other hand, sets out the manner in which the users’ personal data will be collected, processed and disclosed. If website cookies are used to collect personal data, that must also be disclosed accordingly in the privacy policy. All online traders/businesses must make sure that they comply with the obligations set out under the Personal Data Protection Act 2010 if they collect and process personal data in Malaysia (regardless of whether their users are Malaysians or non-Malaysians). The website terms of use and privacy policy are essentially online contracts that bind both the user and the trader/operator. Like any other contracts that a trader/operator would sign in the physical world, the contracts must be properly drafted and vetted. This is to make sure that the terms are consistent with

So, you have launched your technology startup. What’s next? Launching a startup is just the beginning of a long and often uncertain journey. Not only you will have to put in extremely long hours and spend a lot of money into developing and fine-tuning your product or service, but you will also have to learn how to manage your startup and run it like any other kind of business. Managing Your Employees No one can build a startup entirely on his own. You will have to start bringing people into your team and working with other people at some point in time. Jason Baptiste in his book, “The Ultralight Startup” says that “people are the most important asset of a startup. They breed perseverance, come up with great ideas, and let you build for the long haul and ultimately succeed. Once you have great people on board with what you are doing, everything will fall into place over time”. When you hire new employees, make sure that you put in place a proper letter of offer or employment agreement which sets out all the relevant terms of employment to prevent uncertainty liability and unnecessary dispute in the future. Clauses such as termination grounds, notice period, salary and other benefits, non-solicitation, confidentiality, limitations on the employee’s ability to compete with your business after the employee leaves employment, protection of intellectual property, etc should always be clearly set out in a letter of offer or employment agreement. You must also make employees provident fund (EPF) and social security fund (Socso) contributions to your employees as well as comply with the prescribed minimum wage and minimum retirement age requirements. The prominent business management guru Peter Drucker once said, “the most valuable asset of a 21st-century institution, whether business or non-business, will be its knowledge workers and their productivity.” In today’s knowledge economy, it is the people who create intangible assets such as intellectual property, patents, brands, designs, etc. If you manage your employees well, they will become your valuable asset, but if you don’t, they can also become your biggest liability. Intellectual Property Rights Protection If people are the most valuable asset in an organisation, then the next most valuable asset must be the intellectual property created by the people. This is particularly true in a technology startup where it is the innovative product or service that forms the core asset which generates profits for the startup. You should have a good understanding of intellectual property rights so that you will appreciate how to realise the full economic value of your intellectual property and incorporate them into your business strategies. Trade secrets are basically confidential information that is not publicly available, such as ideas, designs, methodologies, processes, marketing plans, methods of business operation, pricing policies, etc. One of the ways to protect the value of a trade secret is to enter into a non-disclosure agreement prior to the disclosure of any confidential information. In addition, you will also need to put in place a proper information protection program. If your invention provides a new way of doing something or offers a new technical solution to a problem in the field of technology, your invention can be protected as a patent. You should also register your brand as a trademark. If you are in the business of product design, the three-dimensional features such as the shape and configuration of your product, or two-dimensional features, such as pattern and ornamentation of your product can be protected as an industrial design. Copyright is a form of protection that is granted to authors of literary, dramatic, musical and artistic works. Copyright does not protect the idea, but rather the expression of an idea. Director Duties A company, while it is recognised as a legal person in the eyes of the law, cannot act on its own. Ultimately, the day-to-day affairs of a company will still have to be run and managed by a group of natural person i.e. directors, officers and shareholders. The Companies Act 1965 and the common law set out certain statutory and fiduciary duties of a director: Duty to act in good faith and for proper purpose in the best interest of the company with reasonable skill and care Duty to make independent assessment of the information, professional or expert opinions presented to him Duty to ensure dividends are declared from profit and not capital Duty to seek shareholders’ approval at the general meeting before carrying out any arrangement or transaction of substantial value relating to the company Duty to keep proper accounts and registers and to make the same available for inspection when required Duty of fidelity i.e. being faithful and loyal to the company Duty not to profit secretly from the company, or place himself in a position of conflict of interest between his duties to the company and his personal interests Duty not to fetter his discretion by agreeing, either with one another or with third parties, on how to vote at future board meetings Breach of any of the above duties may result in the director being judged as unfit to remain in the management of a company and lead to his disqualification as a director. He may also face civil and criminal liabilities and in certain cases, personally liable for the loss or damage suffered by the company. Financing the Business The growth in the technology startup ecosystem has attracted investors and fund seekers alike. Startups usually face challenges in raising enough money to fund their working capital, research and development as well as a marketing expenditure. Before you start looking for funding, you should first be sure that your business is ready to raise funding. Investors will look at three key factors when considering a startup for potential investment: people, product and market. Issues such as whether you have a strong management team, whether you have developed a good product or service and whether your product or service has gone through market validation must first be dealt

So you have an innovative idea and you are very confident that your idea is of a revolutionary nature that will change the world and become the next big thing. You think it is about time to turn that idea into reality. So you quit your job and start a company. Launching a startup requires far more than just a good idea. You need to come up with a business model, write a business plan, design your sales and marketing strategies, hire people, make good use of your assets as well as look for funding to finance your startup. All of these require your careful analysis and attention since they all bring along different types of risks, including legal risk. Many entrepreneurs do not realise the importance of having a strong legal foundation for their startup until it is too late. They fail to appreciate that launching a startup is as much about the structure as it is the product or service. Entrepreneurs who seek legal advice at the early stage of their business enjoy the benefit of avoiding any unnecessary legal pitfalls. Duties to Previous Employers Many entrepreneurs were once employees of another company before launching their own startups. It is very important for the entrepreneurs to make sure that they do not breach their duties to their previous employers when starting their own companies. Such post-employment duties are usually found in the form of assignment of intellectual property (IP), confidentiality obligation, non-compete and non-solicitation covenants. Assignment of IP – Many companies (particularly technology-based companies) require employees to sign IP assignment agreements which provide that the employee agrees that any inventions, ideas, work product or other development conceived or developed during the course of the employee’s employment will belong to the employer. Even in the absence of a written agreement, the Copyright Act 1987 and the Patents Act 1983 state that, unless otherwise agreed by the parties, the employer is deemed to be the first owner of the work made in the course of the employee’s employment. In other words, if you had invented an invention or written a source code as part of your job, you cannot bring along with you and use it when you leave the company. Confidentiality Obligation – Under the common law, an employee owes a duty to maintain the secrets and confidential information of an employer, whether or not there is a written agreement to that effect, and such obligation continues even after the employee has left employment. Certain things like trade secrets and customer lists are considered confidential information. The employee must refrain from disclosing or using such information for the purpose of operating a new startup. Non-compete and non-solicitation covenants – Depending on the position of the employee, certain employment agreements also include covenants from the employee not to compete with the business, or to solicit employees, customers or suppliers of the former employer for a period of time after the employee has left employment. Generally, non-solicitation covenants are enforceable if properly drafted. As for non-compete covenants, usually, such covenants are void to the extent of the restraint unless such covenants are drafted in such a way as to include an element of the use of confidential information belonging to the former employer. There is generally no restriction on stopping an ex-employee from making any use of experiences or skills that he had acquired in the course of his employment or starting a business to compete with his former employer’s business. Legal structure, licenses, permits Startups may run their business through different legal structures, such as sole proprietorships, partnerships or companies. Sole proprietorships/conventional partnerships enjoy flexibility in administration as in there is no issuance of shares, no formal requirement to submit financial statements to the Companies Commission of Malaysia (CCM) and no need to hold Annual General Meetings. However, sole proprietorships/conventional partnerships do not enjoy the benefit of limited liability like what a private limited company would enjoy. The owners of a private limited company will only be liable for the company’s debts up to the amount of their shareholder investments, except in cases where they are found to be personally liable by law, such as fraud or breach of directors’ fiduciary duties. In light of this, startups should consider setting up their business through a limited liability partnership (LLP). The LLP is a hybrid between conventional partnership and company whereby the partners enjoy both flexibilities in terms of administration and the limited liability status. However, if you hope to attract investors, a private limited company might be a better structure. Depending on the location and nature of your startup, there may be federal, state and/or local licensing and permit requirements that you must follow before launching your startup. Co-founders agreement, shareholders agreement If you have one or more than one co-founders, it would be good to put a co-founders/shareholders agreement (depending on the legal structure) in place. The agreement should address each party’s role, duties and obligations in the startup, how profit and equity will be divided, the voting process, board composition, how the shares will be broken down and at what price the shares will be sold if a founder leaves, how the startup can be dissolved, etc. Whether you are bringing in an investment or hiring an employee or developer, it is important to have a written agreement in place at the outset to avoid disputes in the future (Remember the movie “The Social Network”)? Some startups issue shares to key personnel under a share option scheme to incentivize them to work towards the success of the business. This should also be properly documented. What’s in a name? Names are always important. The power of words should never be underestimated. The company name must contain the word “Sendirian” or “Sdn.” and “Berhad” or “Bhd.” For LLP, the name must end with the words “Perkongsian Liabiliti Terhad” or “PLT”. The company/partnership name must not be the same as any other company/partnership in Malaysia. The law prohibits or regulates