Novex Electronics Co Ltd v. Wave-sonic Electronics Ltd

HCA003170/1980

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 3170 OF 1980.

-----------------

-----------------

Coram: LIU, J. in Chambers.

Date of Judgment: 5th August, 1980.

-----------------

JUDGMENT

-----------------

1. The plaintiff company (hereinafter referred to as "Novex") was incorporated in Hong Kong in 1976 and deals in design, manufacture and sale of electronic equipments including radio clocks. Novex is associated with a Western Europe importer by the name of Novex Europa GmbH and at the same time exports to other traders in Western Europe and Australia. Novex has a paid-up capital of $750,000.00 and possesses assets of 2.431 million dollars. Its last year's turnover was some 32 million dollars. Novex claims to be dependent on its goodwill established by exclusive design and price competitiveness.

2. In early 1979, Novex had a radio clock known as RC-200 designed. After some initial drawings including a pictorial drawing, a model described as "a mock-up sculpture" was crafted by the designer. Subsequent to the approval of the initial drawings and the mock-up sculpture, 16 working drawings were prepared by the designer. These working drawings are all dated 27th June 1979 with the modification of the "three bend switch" in drawing Sheet 7, finalised presumably on the 28th February 1980.

3. All industrial property rights including copyright in these drawings and in the mock-up sculpture have been duly assigned to Novex by the designer.

4. The defendant company was incorporated in 1975 and is concerned with the manufacture and sale of electronic equipments including radio clocks. The defendant has a paid-up capital of $1,000,000.00 with assets in the region of $4,000,000.00. Last year's turnover was in excess of twenty million dollars despite a general strike and some labour problems in their factory. The defendant contends that the appearance and design of RC-200 are not artistic nor special, but are principally geared to suit the radio circuitry produced by its factory. A director of the defendant is an electronics engineer, and the defendant has had the assistance of other engineers.

5. The defendant company was under contract to manufacture 50,000 sets of RC-200 for Novex. The first shipment of RC-200 was made on the 15th January 1980 to Novex Europa Gmbh. Up to the commencement of this action, the 18th June 1980, slightly over 9,000 sets had been shipped. Novex has yet to meet outstanding orders for shipment of some 66,000 units. The average C.I.F. unit price asked for by Novex was US$19.30.

6. Sometime in April this year, Novex received a complaint from its Italian importer to the effect that the same radio clock was offered by a Hong Kong company by the name of Companhia Electric Oceano (HK) Ltd. for a unit price lower by some US$2. Novex unearthed no evidence to substantiate the complaint. According to the defendant, Companhia Electric Oceano (HK) Ltd. advertised in the May 1980 issue of the "Hong Kong Trader" published by the Hong Kong Trade Development Council a radio of like neat and slim appearance and design, RC-202 (Exhibit "LWC-2" referred to in the affirmation of Mr. William Leung filed herein on the 24th July 1980). RC-202 is metallic silver. In response to this complaint from Italy, Novex reduced its unit C.I.F. price by US$1.30 to US$18. The Italian company also revised its original order of 25,000 sets to a mere 5,000.

7. Novex engaged the services of an investigator who visited the defendant factory premises on the 19th April. He was met by a Mr. Lui, an employee who had allegedly joined the defendant company for only 5 days. Among a range of products on display was the RC-200 of Novex. Mr. Lui categorically stated that RC-200 was an exclusive model for a customer and could not be made available. Mr. Lui further informed the investigator that a similar model was in the process of being made and offered him a photograph of RC-302, which is Exhibit "ARG-3" referred to in the affidavit of Mr. Gurka filed on the 18th June. Price was quoted at US$14.50 per set. There has been some disagreement as to what precisely transpired, but what is clear is that ultimately on the 1st May, by arrangement a sample RC-200 was collected by the investigator principally for demonstrating the virtually identical electronic performance.

The defendant company takes issue with Novex on the alleged copying of any physical material in the drawings and the mock-up sculpture. The defendant's designer Mr. Kwong stated on affidavit that in designing the defendant's RC-302, he made no reference to the appearance and design of RC-200, a model then unknown to him. The defendant company relied on the general design and neat and slim appearance of radio clocks available in the market.

8. In his affidavit filed on the 24th July, Mr. Kwong exhibited a colour drawing for RC-302 known as "colour rendering of model", "KKK-1"

9. In fact, the proposed manufacture of RC-302 is said to be a joint venture between Hong Kong Telecom Enterprise and the defendant company. The Hong Kong Telecom Enterprise was formed in 1975 and deals with import and export of electronic products. In December 1979, Mr. Kwong was commissioned by the Hong Kong Telecom Enterprise to design a radio clock which is said to materialize in model RC-302. In mid January 1980, subject to approval of sample Hong Kong Telecom Enterprise ordered 50,000 sets RC-302 from the defendant with delivery to commence in early July, at a rate of 10,000 sets per month. The unit price was US$14.50 F.O.B. Hong Kong.

10. The defendant has allegedly incurred $120,000 in the development of RC-302 in the course of seven months. The defendant is at liberty to market RC-302 itself. It has been explained that radio clocks export is competitive and that the selling season is between May to end of October. In addition to the order of 50,000 from the Hong Kong Telecom Enterprise, the defendant had a further order of 20,000 sets for another customer, in all enjoying a turnover of well over $5,000,000.00. All these orders are subject to submission and approval of samples. The defendant can project a sale of some 200,000 sets in the coming year representing a possible sales turnover of over $15,000,000.00.

11. The defendant has disclosed no working drawings for RC-302. The photograph given by Mr. Lui to the investigator "ARG-3", the colour drawing of RC-302 by Mr. Kwong, "KKK-1", and radio clock RC-200 of Novex Look uncomfortably similar in more features than one. However, this is not the proper approach, and I have doubly ensured that no regard be paid to any of the visual impressions thus formed.

12. We are dealing with "the negative right of preventing the copying of physical material existing" in the drawings and the mock-up sculpture of Novex.⁽¹⁾ It is not out of place here to deal with the Copyright Act, 1956 which is applicable to Hong Kong. I propose to make general references to the provisions of the Act. Naturally, what I am about to say is to be understood within the framework of the specific wording in these relevant sections.

13. Section 3(1)(a) includes, as "artistic work", drawings and sculptures "irrespective of artistic quality". Provided that a work was reduced with some skill or labour on the part of its author, it is protected. Under section 3(2) & (3), copyright subsists in a work if its author was a qualified person at the time of its creation or if the work was first published in, inter alia, Germany or Italy, its author was a qualified person at the time of such first publication. Section 36 permits an assignment of the subsisting copyright.

14. Section 1(2) of the Copyright Act, 1956 provides that copyright in a work may be infringed by a person other than the owner, who does or authorizes another person to do, without the consent of the owner, any of the prohibited acts set out in the relevant provisions of the Act. For sculptures and drawings the prohibited acts, better describe as "acts restricted by the copyright", are enumerated in section 3(5) which disallows, inter alia, reproduction of the work in any material form. However original an idea is, it is not protected by the 1956 Act. It is a physical form, be it a drawing or a sculpture, into which an original idea is put (but not the idea itself) which enjoys the protection. For drawings, in addition to the reproduction of it in any material form, when a three-dimensional object is alleged to infringe the copyright in a drawing, section 9(8) lays down a somewhat peculiar yardstick whereby the situation is to be gauged. In Merchant Adventurers Limited v. M. Crew & Co. Ltd.,⁽²⁾ Graham, J. suggested the following guideline:

"There is infringement of drawing by a three-dimensional reproduction of those drawings if they are sufficiently clear for a man of reasonable and average intelligence to be able to understand them from an inspection of them to such a degree that he would be able to visualize in his mind what a three-dimensional object, if made from them, would look like."

15. The average man in question is required by section 9(8) to be one who is not an expert "in relation to objects of that description".

16. As for sectional working drawings, it was observed by Buckley, L.J. in Solar Thomson Engineering Co. Ltd. & Another v. Barton⁽³⁾ that "it has never been judicially decided whether working drawings of this kind" (sectional drawings) "are 'artistic works' within the meaning of the Copyright Act 1956, section 3, although this seems to have been assumed in Merchant Adventurers Ltd. v. M. Crew & Co. Ltd. [1973] R.P.C. 1."

17. Lastly, by section 20(1)(a) of the Copyright Act, 1956, copyright is to be presumed to subsist if the defendant in an action brought under the Act does not specifically dispute the subsistance of copyright.

18. In the course of these proceedings, by consent, an "Off-2 model" of RC-302 was submitted and marked "A". It is metallic-silverish in appearance and not in black as the RC-302 depicted in photograph "ARG-3" given by the newly recruited employee to the investigator or in the colour drawing "KKK-1" of Mr. Kwong, the designer of the defendant and its joint venture partner, Hong Kong Telecom Enterprise.

19. The defendant claims that "A" is a model of their RC-302 and that it was proposed to manufacture and sell radio clocks, not in black but only either in metallic silver or wood appearance.

20. On the force of the Newsweek Inc. v. British Broadcasting Corporation⁽⁴⁾, the court was invited by the defendant to adjudicate forthwith or at least delve into the merits as, so submitted by counsel, no essential fact was left in controversy. In that case, an American magazine "Newsweek" was seeking to restrain B.B.C. from broadcasting four times a week a programme entitled "Newsweek". It was a case where no facts remained unascertained and even the evidence was virtually uncontradicted. When the case reached the Court of Appeal, Lord Denning, M.R. seemed to attach special importance to the nature of the action. At page 448 (line 29) the learned Master of the Rolls had this to say:

"This is a typical case which we should decide today and not send to trial. It is one of the cases which we had in mind in Fellowes & Son v. Fisher [1976] 1 Q.B. 122. In passing off cases and the like the practice has always been to decide them on motion. We look to see whether the plaintiffs have or have not a strong, prima facie case and whether there is a reasonably good answer to it on the defendants' side, and then decide what is to be done."

21. In this case, no argument was addressed to me on the correlation between industrial design and the mock-up model of Novex but it is not concede that such mock-up model is a sculpture. It is challenged that the author of the drawings and the mock-up model of Novex was a qualified person either at the time of the making of the works or at the time when the same were first published in Germany or Italy. It is denied that Novex has accumulated any goodwill in Europe or elsewhere by reason of the recent introduction of RC-200 and the comparatively small volume of its shipment up to date. The allegation of the defendant's conduct being calculated to cause deception or confusion and the allegation of deception or confusion having actually been caused have throughout been hotly debated. It is suggested that there is an element of foreign law for the alleged misuse of confidential information. There remains certain controversial evidence as to the conduct of and statements made by Mr. Lui, the newly recruited employee of the defendant. The design of the base or better described as "Bottom Cabinet" is alleged to form part of the chassis. It is maintained that a number of features in the design emanated from the defendant. It has been constantly urged that the drawings and the mock-up scrulpture of Novex express no more than the trendy design and appearance of radio clocks. Therefore, at this stage, I should merely be concerned with whether Novex is likely to establish, at the trial, the subsistance of copyright in the drawings and sculpture and the alleged infringements. First and foremost, I need consider whether there is any serious question to be tried.

22. In Merchant Adventurers Limited v. M. Crew & Co. Ltd. ibid.,⁽²⁾ two of the issues before the court were that the drawings were not published works within section 3(3) of the 1956 Act and that the authors thereof were not qualified persons envisaged by the same section. At page 10 (line 6) Graham, J. observed:

"The first question is whether copyright subsists in the plaintiffs' drawings. In my judgment, the plaintiffs are likely to establish this point, since the drawings are published works within section 3(3), publication having been made by their reproduction in three-dimensional form as light fittings and subsequent sale to the public from May 1966 onwards. I do not think it is correct to give the word 'reproduction' in section 49(2)(c) a meaning which is more limited than that given to it in the immediately preceding definition in section 48. The context of section 49(2)(c) does not seem to me to require that the meaning there should be limited. If I am wrong on the question of publication, I would still, if necessary, be prepared to hold that all in drawings except PB. 2 seem likely to qualify under section 3(2) as having been made by qualified persons. They were made by employees of the plaintiffs and, though Mr. Skone James took the technical point that the language used in the relevant affidavits (see for example Mr. Hoare's affidavit), 'Mr. R. Jones, a draughtsman employed by the plaintiff company', is not sufficient to prove that they were made 'under a contract of service' within section 4(4). I am not prepared to accept it. I am concerned here with civil and not criminal proof and with the making out of a prima facie case only, and consider that I am entitled to infer from the words used that at the trial the plaintiffs will be able to establish what prima facie they mean, namely, that the draughtsmen in question were employed under contracts of service to make drawings for the plaintiffs."

23. The first shipment of RC-200 was made on the 15th January to Novex Europa Gmbh. Up to mid June, over 9,000 sets had been exported. It may reasonably be inferred that the new arrivals must have been offered for sale and sold to the public soon thereafter. It would be unrealistic to ignore business efficacy. There lies in this disclosure the prima facie evidence of first publication in Western Europa including Germany. The author of the drawings and the sculpture was professionally retained by Novex. Even Mr. Leung of the defendant is prepared to concede that Mr. Ng "did design the graphics and the cosmetics of the dial scale of RC-200" and that he, Mr. Leung, was requested by Novex to contact the author "directly to generally discuss the design of the clock-radio".

24. In my view, it is likely that at the trial the plaintiff will be able to establish first publication and the qualification of the author of the drawings and sculpture within the meanings of section 3 of the 1965 Act.

25. It need be remembered that the acts restricted by copyright in any of the drawings or sculpture are, inter alia, reproducing the work in any material form. I have reached the conclusion that Novex is likely to be able to establish the subsistance of copyright in their drawings and sculpture at the trial. I turn next to consider matters relating to the alleged infringements.

26. The pictorial drawing of Novex ("HWE-3") contains no measurements, but when that is being compared with the defendant's RC-302 in the photograph ("ARG-3") and the colour drawing of its designer ("KKK-1"), there is prima facie evidence of copying of physical material. The same, perhaps to a less degree, may be said of RC-302 in its metallic silverish appearance as in Exhibit A. For the mock-up sculpture ("HWE-4"), subject to the reservation of Mr. Tong, counsel for the defendant, as to whether or not it is as sculpture within the meaning of the Act, its comparison with the same articles gave me the same impression, more so in its comparison with the defendant's "Off-2 model" (Exhibit A).

27. When I compared the defendant's colour drawing ("KKK-1") with the working drawings ("HWE-5") particularly sheets 1, 2 and 3 for the Front Lens, Top Cabinet and Bottom Cabinet, only with difficulty was I able to detect some copying of physical material existing in the first three sheets as mentally visualized in the form of a three-dimensional object. The same difficulty was experienced in my comparison of the defendant's photograph of RC-302 in "ARG-3" with these drawings as aided by the guideline suggested by Graham, J. in Merchant Adventurers⁽²⁾. In the same manner of comparison, prima facie evidence of copying was more readily observed between the defendant's "Off-2 model" with the first three sheets of the working drawings of Novex by reason that the "Off-2 model" was at hand for matching the linear dimensions given thereon. For the present purpose, I have assumed that sectional drawings depicted as "Section A-A" in "HWE-5" are drawings within the meaning of s.3(1)(a) of the 1956 Act.

28. It is not impertinent to set out verbatim a short paragraph in Copinger on Copyright, 11th Edition:

"Paragraph 498: It is equally an infringement of copyright whether the size of the copy has been increased or reduced, and whether the whole or part only of the original has been copied."

29. I have borne in mind the alleged dissimilarities between RC-302 and RC-200 in the course of these comparisons, but in my view, sufficient prima facie evidence of alleged infringements has been shown. There is indeed a serious question to be tried.

30. I need only briefly deal with the alleged passing off. In order to succeed, Novex must first establish at the trial that RC-200 has been in the market long enough to acquire a public reputation and further that RC-302 of the defendant's is calculated to and will likely cause deception or confusion. The first shipment of RC-200 was made on the 15th January this year. There is no evidence on affidavits as to what promotion has been made. The radio-clocks of Novex can only have been in the market for 4 or 5 months. Goodwill or reputation in RC-200 does not seem to have been seriously sought to be established by Novex. Novex complains, in the main, that "customers are likely to feel that they can no longer rely upon the fact that the plaintiff's designs are exclusive to the plaintiff, similarly they will consider that the plaintiff charges comparatively expensive prices for items which can be obtained elsewhere." For this reason, I take the view that there is little substance in the allegation of passing off. It would be quite unnecessary for me to consider the arguments that without any local marketing of RC-302, the defendant cannot commit a tort actionable in Hong Kong and that as to any actionable tort committed in Europe, it would involve foreign law and its application. This matter, if pursued, will have to be fully canvassed at the trial, but it would be of interest to note the comment of Foster, J. in John Walker & Sons Limited v. Henry Ost & Co. Ltd.⁽⁵⁾, where a sale of instruments of deception including labels was made by the 1st defendant to the 2nd defendant in England to enable the latter to pass off goods as Scotch Whisky in Ecuador:

"I would be slow to decide that if a trader sells good and labels which are true and has no knowledge of any improper use of those goods in a foreign country, such trader has committed a tort in England. But when I have already held as a fact that Mr. Jindrich Ost, the proprietor of the first defendant, not only knew that the second defendant was going to add cane spirit and sell it as Scotch Whisky but intended that the whisky which was supplied should be admixed, bottled and have the labels put on the bottle describing it as Scotch Whisky, then in my judgment the first defendant's acts in selling those instruments amount to tortious acts done in England."

31. As for the alleged misuse of confidential information, there is no evidence of likelihood of repetition, and it would be futile to embark on the contentions advanced by counsel on the present application.

32. The defendant has by contract ("LCW-1") bound itself, inter alia, not to "offer, show or sell" RC-200 "to any other customers". There is no direct evidence that the defendant used the information in the drawings or sculpture of Novex. Furthermore, such alleged use or continued use of any information contained in the drawings or sculpture of Novex is, in substance, wholly covered by the plaintiff's application for an injunction restraining the defendant's alleged infringement of its copyright. Insofar as the alleged misuse of confidential information concerns the parting of possession of the RC-200 sample of Novex, the evidence is disputed. In addition, the effect of the allegations is simply that the defendant showed and lent another customer a sample of RC-200 for the purpose of demonstrating electronic performance. It is not suggested that such conduct would likely be repeated.

33. At counsel's invitation to attempt a final resolution on the parties' disputes in these interlocutory proceedings, it was necessary to examine the law and the extent and nature of the controversial evidence. It has thus become convenient to begin with my views on the injunctions sought, but what must not be lost sight of is the question of delay.

34. The photograph of RC-302 in "ARG-3" was given by Mr. Lui, the newly recruited employee of the defendant to an investigator of Novex on the 19th April this year, and a sample of RC-200 was collected by the investigator on the 1st May. Two months had elapsed from the 19th April before the plaintiff commenced the present action. No ex parte application was sought, and the hearing of the inter partes summons came before me on the 25th July, more than three months after the first sighting of the design and appearance of the defendant's RC-302 in the photograph "ARG-3". Despite Mr. Rogers' eloquent plea as to all possible predicaments of litigants in Hong Kong, the plaintiff's application for interim injunctions has not been made with prompt promptitude. I am not satisfied that delay in making the present application has been sufficiently explained. The defendant has been deprived of valuable time required to develop an alternative or substitute sample for meeting the orders for 70,000 sets. Delay would have been sufficient to dissuade me from acceding to the plaintiff's request for interlocutory injunctions.

35. The defendant's partner in the venture, the Hong Kong Telecom Exterprise, has not been joined. It is quite true that Novex came to be aware of its existence about the time of the first hearing of these proceedings, but being instrumental to the creation of RC-302, the Hong Kong Telecom Enterprise may not be effectively restrained by any injunction granted in terms of prayer (1).

36. Apart from the questions of delay and effectiveness, it is charged, and I think not without justification, that there has been imitation of the physical material subsisting in the drawings and sculpture of Novex. There is no lack of indication on the affidavits that there has been an attempt to filch the business of Novex. The allegation of Novex is that in addition to the revision of its Italian order to 5,000 from 25,000, its reputation of being a reliable and competitively priced supplier will suffer. Both Novex and the defendant are relatively new in the market for radio-clocks. Any goodwill of Novex in this field has been tarnished by the alleged activities of one Messrs. Companhia Electric Oceano (HK) Limited. Few traders can to-day pride themselves on exclusiveness. Imitation is unfortunately swift and widespread. This sad aspect of life was recognised by the Italian customer of Novex as can be seen in their telex: "We can appreciate that a model fine designed (sic) is copied". There is no suggestion of Novex having since been active in the promition of RC-200 or secured further orders for it. Novex will currently have to rely wholly on the defendant for the manufacture of electronic circuitry unless a supplier of a suitable substitute can readily be found within time to capture the market or fulfil the orders. These radio clocks are trendy goods. The defendant was bound by contract to ship the balance of the 50,000 sets by the end of February, but contractual obligation is vulnerable to strained relationship. The understandable loss or lack of keen interest may well have attributed to the dilatoriness of Novex. However, I should hasten to add that this is only the impression that I have gained on the affidavits.

37. The defendant and its partner are eager to promote sales and appear optimistic in the orders for the coming year. Loss of a transient market for such trendy goods will bring no comfort to any party. An interim injunction as sought would disrupt the defendant's factory production. The defendant has undertaken to restrict its manufacture of RC-302 to metallic silver or wood in appearance, and that would reduce the likelihood of close resemblance. Moreover, there are similar radio clocks in metallic silver in the market e.g. RC-202 in "LWC-2" of Messrs. Companhia Electric Oceano (HK) Limited.

38. In the circumstances, I am not at all persuaded that Novex would not be adequately compensated by damages for any loss sustained between this application and trial.

39. There is little doubt in my mind that the balance of convenience lies in favour of the defendant. If I were wrong on the question of delay, for all these reasons I would refuse even the first prayer in the plaintiff's summons. As in the case of Coco v. A.N. Clark (Engineers) Limited,⁽⁶⁾ the defendant has undertaken to keep an account of their profits.

40. The rest of the prayers are consequential. The plaintiff's summons is therefore dismissed on the defendant undertaking by itself, its directors, officers, servants, agents or otherwise howsoever, not to manufacture, sell offer to sell, supply or otherwise in any way deal in articles of like dimensions, appearance and design as those of Exhibit A save in metallic silver or wood and on the defendant's further undertaking to keep an account of all profits arising therefrom or in connection therewith. Cost in the cause.

Representation:

Mr. Anthony Rogers instructed by Wilkinson & Grist for Plaintiff.

Mr. Ronny Tong instructed by Tsang & Chau for Defendant.

(1) Para. 1 Copinger on Copyright, 11th Ed.

(2) [1973] R.P.C. 1 at p. 12 (line 44).

(3) [1977] R.P.C. 537 at p. 558 (line 11).

(4) [1979] R.P.C. 441

(2) [1973] R.P.C. 1

(5) [1970] R.P.C. 489 at p. 508 (line 46).

(6) [1969] R.P.C. 41

H.C.A. 3170/80

Interlocutory Injunction

Hearing: 25th, 26th of July 1980.

Coram: Hon. LIU, J. in Chambers.

Judgment reserved on 26th July 1980.

Judgment delivered on 5th August 1980.

Cases and authorities cited in Judgment:

Cases referred to the Judge in submissions of Mr. Tong, counsel for the defendant, but not referred to in judgment:

Cases referred to the Judge in submissions of Mr. Roger, counsel for the plaintiff, but not referred to in judgment:-

Representation:

Mr. Anthony Rogers instructed by Wilkinson & Grist for Plaintiff.

Mr. Ronny Tong instructed by Tsang & Chau for Defendant.