Zvl Vyzkummy Ustav Pro Valiva and Another v. Multicom (Machinery) Ltd and Another

HCA001529/1977

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Mr. Commissioner 0'Connor in Chambers.

Date of Judgment: 11th July 1977.

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JUDGMENT

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1. The plaintiffs apply for an interlocutory injunction to prohibit the defendants from infringing the 1st plaintiffs patent relating to spindles used in open end spinning textile machinery and the 1st plaintiffs copyright in drawings relating to the patent. The 1st plaintiff is a Czechoslovakian company owned and controlled by the State, which is the registered owner of the patent which has a priority date in the U.K. of 10th September 1971 and was registered in H.K. on 3rd March 1977. The 2nd plaintiff is alleged to have the sole right in H.K. to sell articles produced under the patent. It seems, though it is not clear, the plaintiffs have been supplying their spindles to the Hong Kong market since 1971 or shortly there-after. The 1st defendant was incorporated in Hong Kong in October 1976 and is an agent and representative in Hong Kong for a number of manufacturers of textile machinery. The 2nd defendant was incorporated in Hong Kong in 1971 when it commenced overhauling, servicing and repairing textile machinery. The defendants are alleged to have infringed the plaintiffs rights by supplying the Hong Kong market with spindles manufactured in West Germany which are in breach of the plaintiffs patent and copyright.

2. I should apply the law and exercise my discretion in accordance with the principles of American Cyanamid Co. v. Ethicon Ltd. 1975 2 W.L.R. 316 as clarified in Fellows & Son v. Fisher 1975 3 W.L.R. 184 and J.C. Penney Co. Incorp. v. Penneys Ltd. 1975 H.K.L.R. 598. The defendants concede that, subject to one matter, there is a serious question to be decided. The exception is the matter of whether or not the 2nd plaintiff has any locus standi to sue. That matter is the subject of a summons by the defendants to strike out the 2nd plaintiff as a party, which is for hearing immediately after my decision on the interlocutory injunction. In the light of the fact that I am refusing the application for an interlocutory injunction on other grounds it is unnecessary for me in this judgment to consider whether the 2nd plaintiff has locus standi. Accordingly I find on defendants concession that there is a serious question to be decided and I go on to consider the other relevant matters.

3. There are at present about 250 open end spinning machines operating in Hong Kong and they produce about 20% of Hong Kong's output of yarn, the other 80% being produced by conventional machines. Each open end machine has 200 sets each of two spindles. There are therefore 50,000 spindles of each of two types, (both types would be subject matter of the patent). One type of spindle has a life of about a year while the other has a life of about two years. On the assumption that the patent is good the plaintiffs would expect to receive the business generated by the wearing out of spindles and they say that the profit they would make would be $15.- on the spindle with a life of two years and $20.- on the spindle with a life of one year. Of course the plaintiff would expect to receive additional business due to other firms changing to open end spinning, which has many advantages over the conventional type. The defendants claim to have 75% of the market at present but the plaintiffs say defendants share of the market is not more than one third. Whichever figure is correct it is clear that the defendants have a substantial share of the market. Furthermore the defendants have been supplying their spindles to the Hong Kong market since May 1976. It was about March 1976 that the plaintiffs came to know that some companies were putting on the market spindles infringing the patent. They ought to have become aware in May or June 1976 that some were being put on the market by the 2nd defendant. The plaintiffs did not issue the writ in this action until 15th June 1977. They give three reasons for this delay, the difficulty in obtaining instructions from firms in Czechoslovakia, that the instructions had to be obtained through London, and delays in obtaining registration of the patent in Hong Kong. I would have thought the delay in obtaining instructions was a delay the remedy for which lay largely in plaintiffs hands, and is not on the face of it excusable. The plaintiffs affidavit is unnecessarily sketching as to what periods of delay are attributable to each of the supposed causes and I give more weight therefore to the fact that the defendant has over a period of 13 months established himself as supplier to at least 1/3 of the Hong Kong market before plaintiffs took any action in regard to the defendants.

4. I now consider whether the plaintiffs have established that unless an interlocutory injunction is granted they will, in the event that they succeed in the action, be damaged in a way that would not be remedied by damages. That involves consideration of the damage they would suffer, whether damages would remedy it and the defendants ability to pay. Prima facie the damage that the plaintiffs would suffer is the profits they would lose. That would depend on the number of spindles that the defendants supply to the market. That figure can be easily arrived at by the defendants keeping an account, as they have indicated they are prepared to do. The plaintiffs also suggest that if relief is not granted they will lose goodwill due to the activities of the defendants, which they say will allow inferior articles to enter the market and so affect the attitude of existing and would be customers to the invention. As I understand the law any loss of good-will which is proven at the trial will be allowed for in arriving at a figure for damages. I accept, as a generality, that there could often be loss of goodwill in fact, which it would be difficult for a plaintiff to prove or a court to put a figure on, however in this case I consider that the risk to the plaintiffs goodwill and the reputation of the invention is not substantial, and I consider the plaintiffs have exaggerated this matter. I keep in mind that failure to grant interlocutory relief will cause some disruption to the plaintiffs business and inconvenience them in the running of it. This is so in any case of this type, but it is not in the circumstances of this case a very weighty matter. I do not consider failure to grant relief, for the 12 months that counsel agree it will take the case to come to trial, would cause any significantly uncompensationable or lasting and drastic damage to plaintiffs business. In cases where a patent only has a short period to run a court may be more inclined to grant interlocutory relief, because before trial the defendant may establish himself so strongly in the market as to deprive the plaintiff of the opportunity to establish himself before the patent expires. That is not the position in the instant case where the patent still has 10 years to run. If the plaintiffs succeed the damages would be substantial and I would doubt the ability of 1st defendant to pay, however I am satisfied that 2nd defendant would be a good mark for damages. I consider that if plaintiffs succeed at the trial they will be adequately compensated by damages.

5. I should go on to consider whether in the event defendants were successful at the trial, they would be adequately compensated by damages under the plaintiffs undertaking. Prima facie the loss the defendants would suffer would be their loss of profits which would depend on the amount of sales they lost between now and trial. This is a figure which could not be accurately arrived at as it would depend not only on the overall size of the market but on the part of the market which they would manage to procure and hold between now and trial if they were not interdicted by the court. At best that could only be arrived at by an estimate. In addition if an injunction were granted, this already established part of the defendants business, would have to close down leaving plant idle and investments non productive. They might find some difficulty in reestablishing themselves in the market later. I consider that it is doubtful that damage caused to the defendants by the grant of an injunction would be adequately compensated by damages. I consider the risk of injustice to the defendants if an injunction is granted, is greater than the risk of injustice to the plaintiffs if it is refused, and accordingly I dismiss this application for an interlocutory injunction.

6. Order defendants to keep accounts. Order defendants costs in cause. Certificate for counsel. Leave to report judgment.

Representation:

A. G. Rogers (Wilkinson & Grist) for plaintiffs.

Andrew Liao (Deacons) for defendants.