Creative Technology Ltd v. Videocom Technology Ltd

HCA001434/2002

HCA1434/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1434 OF 2002

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Coram: Deputy High Court Judge Fung in Chambers

Date of Hearing: 21 February 2003

Date of Decision: 21 February 2003

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D E C I S I O N

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1.The plaintiff is suing the defendants for passing off, infringement of trademarks and infringement of copyright.

2.In this application, the plaintiff is seeking to enter judgment under Order 14, Rules of the High Court against the defendants for passing off and infringement of trademark only, and for the relief of injunction, enquiry as to damages, discovery and delivery up.

3.The plaintiff's case is that it is a Singaporean company carrying on the business of, inter alia, provision of sound cards for personal computers. The plaintiff is the registered proprietor of the following trademarks in Hong Kong in respect of the sound cards :

(1) Vibra;

(2) Sound Blaster;

(3) Sound Blaster PCI 128 and Device.

4.The plaintiff also alleges that it enjoys reputation and goodwill in the following names, marks or indicia :

(1) Creative, whether alone and as part of the plaintiff's name Creative Technology Limited;

(2) Sound Blaster;

(3) Sound Blaster PCI 128;

(4) Vibra; and

(5) Vibra 128.

5.The plaintiff's evidence against the 1st defendant is as follows : On 17 January 2002 the plaintiff's investigator went to each of the 1st defendant's four retail shops and bought a sound card and installation CD from each shop. In each case, the goods was sealed in an anti-static packaging bag with a barcode sticker with the marking "SCCRE001080" and four invoices on the 1st plaintiff's letterhead were issued and they bore "Part No. SCCRE001080". SCCRE001080 is not a stock code used by the plaintiff.

6.In documents seized from the defendants under an Anton Piller order executed earlier, the stock code SCCRE001080 appeared in numerous documents of the defendants including the price list, transaction history, inventory list, stock transfer record, purchase order record and repair notes.

7.On 11 March 2002 the plaintiff's solicitor's clerk went to three of the 1st defendant's retail shops and bought a sound card from each shop. The barcode sticker and invoice references were the same as in the earlier case.

8.The seven sound cards were found to be counterfeit by the plaintiff by running a series of tests as well as visual examination. Further, from the documents seized from the defendant, SCCRE001080 appeared in none of the invoices of the 1st defendant's six named suppliers, and in the invoice of the supplier Vision Technology Corporation Limited, the plaintiff's authorised distributor, the plaintiff's own product code appeared therein.

9.The plaintiff's evidence against the 2nd defendant is as follows : in January 2002, the plaintiff's investigator posed as an overseas customer and approached the 1st defendant by fax in relation to prospective purchases of sound cards. The 2nd defendant responded to this fax. Thereafter, the investigator had a meeting with the 2nd defendant's Overseas Account Manager Michael Pang ("Pang") at the 2nd defendant's office which, incidentally, is also the 1st defendant's office. During negotiations, Pang said that the 2nd defendant sourced their Creative sound cards from a manufacturer in Shenzhen. The products were genuine Creative products manufactured by Creative's OEM in a factory in China. The label could either be "Creative", any specific brand, or neutral (i.e., blank). The packaging could be otherwise than Creative's OEM packaging and it could be supplied separately. For those cards supplied under Creative's label, the items must be sent back to the Shenzhen factory for repair, but not to Creative's local manufacturer. Visits to the Shenzhen factory could be arranged.

10.On 17 January 2002, a sample was handed over to the investigator in the 2nd defendant's office and it was found to be a counterfeit sample.

11.In March negotiations continued. Pang said Creative's chip set was in short supply, but more would be available in a few weeks. Pang said they could make sure that the supply would carry the chip set No.1373, which is the plaintiff's chip designation. On 28 March 2002, the 2nd defendant faxed a quotation to the investigator offering to sell 2,000 pieces "Creative Vibra 128 PCI" sound card with box set, chip set No.1373, at US$9 each.

12.On 10 April 2002, the 2nd defendant gave another counterfeit sample to the investigator. It came without packaging and without the installation CD.

13.The plaintiff further alleges that the 1st and 2nd defendants were acting in a common design and their liability should be joint and several. The evidence is :

(1) the investigator approached the 1st and 2nd defendants responded;

(2) the 1st and 2nd defendants had a common address, telephone and fax number;

(3) on a sample invoice of the 2nd defendant seized, in the payment details section, the name of the 1st defendant and the 1st defendant's bank account number was given for payment;

(4) Hong Chi Kwong ("Hong") is a majority shareholder and director of the 1st defendant and he is also a shareholder and director of the 2nd defendant;

(5) the 2nd defendant is a $2 company only; and

(6) according to the investigator, Pang told him that the 2nd defendant was the daughter of the 1st defendant and the 1st defendant's line of business was retail and the 2nd defendant, export and wholesale. Pang said Hong was the boss and he managed both the 1st and 2nd defendants, and it was submitted that this division of lines of business between the 1st and 2nd defendants pointed to a common design in the enterprise involved.

14.The defendants' case is as follows : Hong categorically denied the sales to the investigator and the clerk. He said he had obtained photographs of the goods allegedly purchased from 1st defendant's shop from the plaintiff's solicitors and showed them to his shop staff. They did not recall selling those items. The staff also said they could recall only ever selling plaintiff's sound card with the marking "Assembled in Singapore". Hong also queried the investigator's evidence that his staff had told him that the stock position of the plaintiff's sound card held by them, as his staff would normally not tell customers such matters.

15.He queried the counterfeit evidence of one of the items sold, i.e., Exhibit TK4A, by pointing out that the marking "FCC", "C√", "CE", "EMI", etc. also appeared on the plaintiff's authentic product of that model.

16.Hong said the 1st defendant purchased finished products from six named sellers, including the plaintiff's authorised distributor. The purchase price was between $120 to $128 and the selling price between $124 and $133. He suggested that the counterfeit was not readily detectable or distinguishable even to traders, and they must have got mingled when the 1st defendant's order was delivered to it.

17.Hong did not touch upon the transaction with the 2nd defendant and the conversation between the investigator and Pang, nor did he have anything to say about the common design point.

18.Mr Man, for the defendants, pointed out that at the earlier execution of the Anton Piller order, the 1st defendant's four shops and the office premises were searched. No counterfeit products nor documents directly implicating the defendants were found. It supports Hong's belief of the mixing up of the genuine and the counterfeit items without his knowledge.

19.It is well settled that an Order 14, rule 3 application puts a threshold onus upon a defendant to satisfy the court that there is an issue or question in dispute which ought to be tried. The mere assertion in an affidavit of a given situation which was to be the basis of defence did not, ipso facto, provide leave to defend. The court must look to the whole situation and ask itself whether the defendant has satisfied the court that there was a fair or reasonable possibility of the defendant having a real or bona fide defence. Unlike the situation in a criminal proceeding, there was a positive burden placed upon the defendant. In statements and affidavits which were incredible or almost incredible by reason of their inherent implausibility or inconsistency with documents were not sufficient to raise an issue or question in dispute which ought to be tried. (See Tandy/Rank Video& anor. v. Yee Hing Cassette Factory Ltd. [1991] 1 HKC 136.)

20.As far as passing off is concerned, it is well established that the three essential elements of the torts of passing off which must be established by a plaintiff are as follows :

(a) that the plaintiff enjoys reputation and goodwill in the name mark or indicia which it wishes to prevent the defendant from using;

(b) that the defendant has made the representation which was likely to lead members of the public to believe that his business, goods or services are the business, goods or services of the plaintiff; and

(c) that the plaintiff was suffering and was likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation.

(See Reckitt & Colman Products Ltd. v. Borden Inc. and Ors. [1990] RPC 341.)

21.There is no challenge to the reputation and damage. The challenge as to sale and offer for sale in respect of 1st and 2nd defendants goes to misrepresentation. Common design or joint liability is also challenged.

22.As for trademark, under section 29 of the Trademark Ordinance (Cap. 43), registration is prima facie evidence of the validity of the registered trademark. Originally Mr Man queried that two of the three registered trademarks of the plaintiff were liable to be expunged. It was later abandoned.

23.Mr Man had also raised the point of the lack of knowledge on the part of the defendants, which he said would go to the discretion as to what remedy the court should grant.

24.Are there triable issues? In respect of the sale to the 1st defendant, there is no explanation at all as to the 1st defendant's invoices bearing the part No. SCCRE001080 on the adhesive seal of the packaging. The evidence of Hong was that the staff has no recollection of selling the sound cards appearing in the photographs. I note the choice of the words "not recall", and I note that even the photographs themselves are not exhibited.

25.There is also the recollection that the sound cards they ever sold were "Assembled in Singapore". I am of the opinion that this is inherently implausible. I was shown that in one of the sound cards purchased, TK4A, "Assembled in Singapore" appears in fine print at the lower end of the sound card. I bear in mind that the sound cards are put inside sealed anti-static packaging bags, which is either a silvery bag or a translucent bag with overlaid patterns. It is simply incredible that the staff would be able to see the place of assembly in all boards they ever sold.

26.As to the point that they normally do not tell customers how many sound cards they have in stock, it does not mean that they would not do so when asked.

27.I fail to see how there can be any bona fide defence to the issue of sales.

28.As to the examination of the counterfeits, there is no challenge to the plaintiff's evidence save that in one of the exhibits, TK4A, the alleged false marking of "FCC", "C√", "CE" and "EMI" also appeared in the plaintiff's genuine product.

29.In the supplemental evidence filed by the plaintiff it was explained that TK4A was purportedly a CT4180 model and the chip set was ES1373. But in the plaintiff's product of CT4180 model, chip set No.1373 was not used. And as to the markings, those markings would appear in CT4180 model but only for version 050008 onwards, and TK4A was version 039925. Upon such supplemental evidence, Mr Man submitted that there was actually not much he could usefully add. I do not find there was any triable issue as to examination evidence of the counterfeit or the identification of counterfeit.

30.Hong was completely silent on the dealings with Pang, and Mr Man had to concede that the 2nd defendant's case is weaker than that of the 1st defendant.

31.I noted the very important evidence that there is actually a quotation of the 2nd defendant. It is not controverted by positive evidence nor is there any explanation at all. This quotation quoted the price of US$9. The plaintiff has pleaded that it was a counterfeit price. It was not controverted by any particulars. There was no explanation as to why this price is so unusually low. Mr Man submitted that perhaps it was bulk discount, but it is not borne out by any evidence on affidavit at all. I find that this is simply unbelievable, not simply whether it will or will not be believed.

32.As such, I do not find there is any triable issue as far as 2nd defendant's case is concerned.

33.Mr Man submitted the fact that 1st and 2nd defendants are related entities does not necessarily mean that they are acting under a common design. He referred to The Mead Corporation and anor. v. Riverwood Multiple Packaging Division of Riverwood International Corporation [1997] FSR 484, per Laddie J. From the headnote :

"Evidence which showed that the defendant was closely associated with its subsidiaries and regarded itself and its subsidiaries as a single economic unit was of no assistance to the court in resolving the issue...The fact that the defendant asserted a strong proprietorial claim to all the assets and activities of its subsidiaries was neutral and did not advance the plaintiff's argument of joinder...To demonstrate a common design involving the defendant, the plaintiffs were required to show that the defendant did more than look on the activities of its subsidiaries with approval."

34.Mr Man pointed to the following facts. The 1st and 2nd defendants are in different lines of business. The documents show that the 1st defendant has different sourcing of products, and they have different bank accounts, notwithstanding 1st defendant's bank account also appears on 2nd defendant's invoices as a suggested mode of payment.

35.Mr Yan, for the plaintiff, pointed out that the mere fact that they have a division as to the export side and the retail business means that there must be a common design to how the business is to be run. Not only that, there is uncontroverted evidence that the approach to the 1st defendant was actually handled by 2nd defendant and as to the role of Hong.

36.The points raised by Mr Man are very lame defences. I find the inference of common design is uncontrovertible.

37.Mr Man submitted that insofar as the court is to find whether the defendants were knowingly infringing the trademark and/or passing off the goods of the plaintiff, there must be a triable issue as to knowledge. The reason is as follows: the original claim of the plaintiff included infringement of copyright where the plaintiff is required to prove knowledge. Mr Yan conceded that in view of Hong's evidence, his claim is left out in the application for summary judgment. Mr Man said, ipso facto, it must be a concession of a lack of knowledge.

38.As to this knowledge point, Mr Yan said firstly, it is a red herring as far as liability is concerned. Knowledge is not relevant for liability as innocence is no defence to infringement of either trademark or passing off. (See Gillette UK Limited v. Edenwest [1994] RPC 279.) In the finding of liability, there is no need to find knowledge. The fact that the plaintiff has left out the copyright claim is because it has a positive onus to prove knowledge where otherwise in passing off and trademark there is none.

39.Mr Man submitted that in any event, knowledge might affect the remedy in that the court has a discretion not to grant an injunction if it is satisfied that the infringement was innocent or inadvertent and there is no threat of repeated infringement. The court has a discretion to limit the scope of the injunction to the acts of infringement proved.

40.Mr Man has cited three cases. The first is the Wayne V. Myers Coy., Ld. v. L.E. Fields Auto Services Ld. [1954] 71 RPC 435 where the court was satisfied that the infringement was not malicious nor intentional, nor anything of the kind, but were by inadvertence or misunderstanding. The court did not grant the injunction but made a declaration instead.

41.Mr Man also referred to the first instance decision of Laddie J in the Coflexip SA v. Stolt Comex Seaway MS Ltd. [1999] FSR 473 where the court departed from the usual form of the injunction and tailored the injunction to match the wrong which has been committed and is threatened.

42.It is noted that the decision of Laddie J is reversed by the English Court of Appeal, but Mr Man referred to Pendleton, Garland & Margolis, The Law of Intellectual and Industrial Property In Hong Kong, Volume 1, 2003, page V121 footnote 1, which refers to Coflexip and commented that :

"The limited injunction granted by the judge was subsequently discharged by the Court of Appeal and an injunction in the traditional form granted. The Court of Appeal however expressed no objection to the principle of a limited injunction being granted in an appropriate case."

43.Mr Man also referred to Microsoft Corporation v. Plato Technology Limited [1999] FSR 834 where an injunction embodying an undertaking that the defendant was not to sell software which it knew or ought reasonably to know was counterfeit was ordered instead of the usual wide form of injunction, where the first instance decision of Coflexip's case was cited.

44.Mr Yan submitted that knowledge as a consideration of remedy is also a red herring as the test for the injunction is the threat of future infringement. Mr Yan submitted that once infringement was found, the plaintiff was prima facie entitled to an injunction to protect his right. It is then upon the defendant to show that the infringement was either innocent, one-off, and there was no threat or possibility of future infringement and it is not necessary for the injunction to be granted. But there is no such evidence in this case. Mr Yan submitted that the evidence of the plaintiff is in fact they have been dealing with the 1st and 2nd defendants pursuant to common design as counterfeiters.

45.Mr Yan also referred to Wayne v. Fields. He explained that the basis of the order in that case was based on inadvertence which is not present here. He cited from the judgment of Vaisey J at p.439 line 37 :

"I think in all the circumstances that there is prima facie the right to an injunction here and now. On the other hand, it is such a futile deception, from which the Defendants cannot possibly obtain, as far as I can see, any tangible reward, such a stupid thing to have done and such a foolish invasion of the plaintiffs' rights that I can hardly believe they would ever seriously contemplate repeating this kind of wrongful act. Therefore, I am rather disposed to think, although the right to an injunction has been made out, having regard to what I think is the extreme improbability of any intention to inflict damage upon the Plaintiffs, the granting of an immediate injunction is almost too large a weapon with which to deal with so trifling and so trumpery an affair. I feel disposed to give the Plaintiffs liberty to apply for an injunction so that if there is the least suspicion of this sort of thing happening again (and I warn the Defendants that they must be careful) the Defendants can be restrained. There would be liberty to apply in this action for an injunction based on a declaration which I can make, if necessary, in an appropriate form, that the Plaintiffs have established to my satisfaction an infringement of their trade mark rights and a passing-off of goods as theirs, but I should say in the order, being satisfied that the acts of the Defendants were not malicious, or intentional, or something of that kind, or were by inadvertence or misunderstanding, I should only give liberty to apply for an injunction."

46.Mr Yan also referred to the Microsoft's case and submitted that the facts are very different from present in that there was a one-off infringement of five copies purchased from one specific supplier. In that case, it was stated by Mr Ellensborough QC (sitting as a Deputy Judge) at p.836:

"As to this last point, it would appear on the evidence before me that the only feasible way in which it could have been discovered that the products were counterfeit was by closely examining the so called 'Certificate of Authenticity' which is supplied with all genuine Microsoft products. That would have involved first of all having to remove each product from its cellophane wrapping so as to be able closely to examine the Certificate. (I reject on the evidence before me the suggestion that such could be done by looking through the wrapping.) The defendant would then have had to have had knowledge of the particular features which distinguished a genuine from a counterfeit certificate. No doubt now with the benefit of what has been found to have occurred the defendant can be expected to take this precaution when purchasing Microsoft products from persons who are not authorised Microsoft distributors, although even this would not necessarily guarantee the product was not counterfeit."

I agree that the facts are very different.

47.Mr Yan also referred to the first instance decision of Laddie J in Coflexip, p.477, para. 7 :

"(i) Is there a threat?

7. Damages or an account of profits look to the past and are designed to compensate the plaintiff for the harm inflicted on him or to deprive the defendant of the benefit obtained by the activities performed in breach of the plaintiff's right. The injunction looks to the future. Its purpose is to restrain threatened breaches of the plaintiff's right. Normally, when a defendant has infringed, the court will assume it is not a one-off activity and will grant an injunction to stop repetition. This course is not inevitable. In a few cases courts have concluded that even though infringement has occurred, no future threat exists. In such cases, injunctive relief has been refused."

48.I agree that injunction is a discretionary remedy and it will not be granted unless some threat, possibility or likelihood of future infringement is shown. I echo Laddie J in Coflexip that normally, when a defendant has infringed the plaintiff's goods, the court will assume it is not a one-off activity and will grant an injunction, unless persuaded otherwise. It is up to the defendant to show hardship and also to show steps to be taken to ensure or at least avoid no future infringement.

49.In the Microsoft's case it was stated in the headnote at p.834 that :

"(3) A trader, however honest, who purchased the plaintiff's software otherwise than from an authorised distributor owed the plaintiff a duty to take some steps to satisfy himself that the product was genuine."

50.In this case, I have found against innocence or lack of knowledge on the part of the defendants. But even upon Mr Man's submissions, the defendants could not tell the true from the false, and it is practically impossible for them to take any precaution. With such cavalier attitude, I cannot see any other way but protection of the plaintiff's right by way of injunction. In any case, this is not the basis for my decision because I have found a common design to deal in counterfeit.

51.The plaintiff has elected enquiry as to damages instead of account of profit. I am satisfied that the quotation of 2,000 infringing copies at such low price called for further enquiries.

52.As to further discovery, I am mindful of the fact that the Anton Piller order has revealed no infringement. But I do not think it is futile. At this stage, with the complexion of the 2,000 pieces offered, further order of discovery and delivery up is necessary.

53.I have also considered whether there is yet to be tried the copyright action should qualify as some other reason to be tried under Order 14, rule 3. I have considered all the plaintiff's evidence, and the absolute absence of bona fide defence disclosed by the defendant. That would not deter me from entering judgment at this stage at all. I will enter judgment against the 1st and 2nd defendants in respect of the passing off and the trademark action.

54.The injunction in paragraphs 1 and 2 of the summons are in usual form for passing off and trademark actions, and I am not persuaded I should tailor it. I make an order in terms of them. Paragraph 4 should also be included. Paragraph 5 will now be election enquiry as to damages; also 7 & 8 as well.

55.I shall make an order nisi as to costs.

Representation:

Mr John Yan, instructed by Messrs Baker & McKenzie, for the Plaintiff

Mr Bernard Man, instructed by Messrs Benny Kong & Peter Tang, for the 1st and 2nd Defendants