Techware Computer (Inc.) Ltd v. Eurone (HK) Co Ltd

DCCJ 2672/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2672 OF 2002

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

BETWEEN

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

Coram : H.H. Judge Chow in Chambers

Hearing dates : 25^th, 26^th and 27^th October 2004

Date of handing down Judgment : 6^th January 2005

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

JUDGMENT

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

1.On 5^th March 2001, the Defendant delivered to the Plaintiff 300 units (“CPUs”) of processors with the descriptions of “Intel Pentium III – 866 MHZ 256K, PC-133, FC-370, TRAY, CPU”.

2.This sale contract was reached orally between two telephone conversations made between Madam Choi Lai-kwan (PW2), the Plaintiff’s sales manager, and Ching Chi-ming, the sales manager of the Defendant.  The Defendant obtained the said goods from another company, namely, A Top.  After checking the packaging of the boxes containing the said goods, the Defendant delivered the same to the Plaintiff on 5^th March 2001.  PW2 and Mr. Luk Kwok-fai (PW3), a general clerk of the Plaintiff, did not find any problem about the packaging of the boxes.

3.Neither the Plaintiff nor its sub-buyer, Smith & Associates (“Smith”), made any complaint about the packaging of the goods.  According to Mr. David Himel (PW1), the former Lead Export Coordinator of Smith, Smith also checked the original packaging of all the 710 CPUs received from the Plaintiff and did not find anything problematic about the packaging of these 710 CPUs.  Throughout the chain of sales from the Defendant to the Plaintiff, then to Smith and to Compaq, I find that there was no tampering of the CPUs inside the packaged boxes. 

4.On or about 27^th March 2001, the sub-buyer of Smith, namely Compaq Corporation (“Compaq”) discovered that 300 CPUs were suspected to be counterfeit CPUs.  Based on the lot code number, both Plaintiff and Smith believed that the 300 suspected counterfeit CPUs were supplied by the Defendant.

5.I accept the evidence of the Plaintiff’s expert, Mr. Fung Kwok-shun (PW5), that the 4 CPUs he examined were remarked and that the same were over-clocked.  I accept his evidence relating to the method of testing he conducted on the goods.

6.The Plaintiff’s allegations against the Defendant are as follows :-

(1)	The Defendant was in breach of the express term of the contract regarding description;
(2)	The Defendant was in breach of the implied term of the contract that there must be original package with Intel Corporation’s trademark and the product identification markings of Intel Corporation;
(3)	The Defendant was in breach of the implied term of the contract that the goods should be of merchantable quality.

7.The fundamental issue the Court has to decide is whether the Plaintiff could establish that the 300 suspected counterfeit CPUs were supplied by the Defendant.  How did Compaq identify the 300 suspected counterfeit CPUs to be supplied from the Defendant through the Plaintiff?  There was no evidence to show how Compaq handled the goods it received upon their arrival on 7^th March 2001.  The quantity of such goods was 5,810 units.  There is a complete lacuna in this respect.

8.According to the evidence of PW1, Smith’s order for 1,200 CPUs placed with the Plaintiff was part of an order of 20,000 CPUs from Compaq.  On 6^th March 2001, Smith not just received 710 CPUs from the Plaintiff, but many other units from other sources in order for Smith to deliver a total number of about 5,810 CPUs to Compaq in one lot.

9.According to the Plaintiff’s evidence, the boxes containing the 300 CPUs bear a lot code number, which is 7048A114.  PW5 explained that the lot code number refers to a set of goods manufactured at one time.  The set of goods could cover more than one purchase orders from customers.  PW3 said that he had come across on various occasions that there were different sets of goods bearing the same lot code number.  Thus, even assuming that Compaq discovered the problem with the said 300 CPUs by reference to the code number, such method of identification was not reliable.

10.There is a letter dated 4^th May 2001 issued by Intel Corporation to Smith.  The relevant parts of this letter are set out as follows :-

“Re : Remarked Intel® Pentium® III processors, Lot#7048A114

Dear Mr. Morrissey,

Your company, Smith & Associates, has been identified as a supplier of 300 counterfeit Intel® Pentium® III 866 processors (Lot#7048A114) to an OEM in the Houston, TX area on March 7^th, 2001.  This OEM introduced these counterfeit processors into their production line where the processors were identified as 650 MHz units and not 866 MHz units.

According to your records, these units were obtained from Tech Ware Computer (Inc.) Limited (Euro Main) in Hong Kong on March 6^th, 2001.

I have since examined this product and found that Intel’s trademark and product identification laser markings have been counterfeited on the product.  Furthermore, I have found that the processors have been mechanically altered (over-clocked) to run at a speed greater than the 650 MHz that Intel originally manufactured and distributed the processors to run at.

Since these units have been identified as counterfeit goods, they are considered contraband and should not be transferred, sold, or otherwise re-circulated back into market.  Subjects and/or entitles intentionally doing so could be criminally prosecuted under 18 U.S.C. § 2320 for Trafficking in Counterfeit Goods.  We have requested that the contraband processors be seized and sent to our testing facility for further examination, and if need be, turned over to Law Enforcement for further investigation.”

11.This letter does not show how Compaq identified the 300 CPUs from the 5,810 CPUs it received.  It also does not show on what basis Intel Corporation came to the conclusion that the 300 CPUs were identified to be counterfeit CPUs.  No explanation was advanced to this Court as to how it reached such a conclusion.  The writer of this letter did not testify in Court on the contents of this letter.  Thus there is no evidence to show how Compaq examined the 300 CPUs upon their arrival as being counterfeit CPUs.  On this basis I attach no weight to the contents of this letter.

12.The Plaintiff so far can only prove that 4 CPUs (Exh. P5) were counterfeits CPUs.  It has not proved that the other 296 CPUs were also counterfeits.  PW5 testified that he received the 4 CPUs (Exh. P.5) at the Intel Hong Kong Office. But there was no evidence to show that these 4 CPUs were retrieved from the 300 CPUs allegedly received by Compaq pursuant to the sale order it made with Smith.  Throughout the chain of sales, none of the three parties, i.e. the Plaintiff, the Defendant and Smith were able to record the individual serial number of the 300 CPUs, because according to the practice of this trade, they could not open the boxes containing the CPUs and examine their contents.  That renders it uncertain as to whether the said 4 CPUs formed part of the 300 CPUs received by Compaq.

13.The Plaintiff bears the burden of proving that the said 4 CPUs form part of the 300 CPUs, and that the 300 units were all counterfeit CPUs.  It fails to discharge this burden of proof.  I therefore dismissal its claims against the Defendant.

Costs

14.I make an order nisi, to be made absolute in 14 days’ time, that the Plaintiff do bear costs of these proceedings, with certificate for Counsel, to be taxed, if not agreed.

The Plaintiff : represented by Mr. Wong Ting Kwong Peter instructed by Messrs K.M. Lai & Li, solicitors.

The Defendant : represented by Mr. Roland Lau, instructed by Messrs Tong Chan & Co., solicitors.