M.G.X. Asia Ltd and Another v. China Way Global Company Ltd and Others

HCA 2001/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2001 OF 2013

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D E C I S I O N

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1.This is an application by the plaintiffs (“Ps”) for an interlocutory injunction against the 1^st, 2^nd, 3^rd and 5^th defendants (“Ds”) to restrain them from infringing P2’s registered trade marks in Hong Kong and P1’s copyright in relation to product drawings in Hong Kong, Thailand and the Mainland.

2.The intellectual property rights in question relate to security devices for motorcycles (“Devices”) which are manufactured and sold by P1 in Hong Kong and many countries around the world.  There are 8 models of locks covered by 10 copyright drawings.  Those locks are sold under the trade mark/brand name “Xena”.  There are almost identical products which are sold under the trade mark/brand name “Kovix”.  Hence this action. 

3.In respect of the complaint over the infringement of trade marks, Ds accept that there was an inadvertent minor infringement and are willing to offer an undertaking to the court that there will be no further infringement.  In these circumstances, there is no reason to grant an injunction.  Indeed, the relief was not pressed by Ps in light of the offer, which is of course accepted by the court. 

4.D2 and the people behind Ps used to be business partners in the production of the Devices.  Their cooperation came to an end in 2012.  It is fair to say that the parting was not on amicable terms.  Ps have since set up their own production facilities in the Mainland. 

5.D2 is a shareholder and director of D1.  He is responsible for operating D1’s business.  D3 is the wife of D2.  D5 is a merchandiser employed by D1.  There appears to be no dispute that Kovix is a brand and trade mark registered in the Mainland in 2012 by a Mainland company called Guangzhou Hanex Hardware & Electronics Ltd (“Hanex”) which was set up by D2.  It is reasonably clear on the evidence that D2 is the owner of Hanex, and probably D1.

6.Like many cases which had come before the court after an unpleasant breakdown of business relationship, the disputes here are extensive and bitter.  This court has been swamped by the amount of evidence filed in this application.  There are 10 hearing bundles and the affidavits run to nearly 200 pages.  Such amount of evidence is generally unhelpful to the court (and it is certainly unhelpful in this case) in resolving an interlocutory application of the present nature: see Chinaplus Wines Ltd v Berry Bros & Rudd Ltd & Ors, unrep, HCA 1818/2012, 13 December 2012, paras 52-59. 

7.Within the spectrum of disputes before this court, the most important one concerns the ownership of the copyright works in question.  As suggested by Ms Tam SC, who appeared for Ps with Mr Ling: “the main issue for trial … is the simple one: who was the author of the lock design drawings and owner of the copyright in them?”.  Ds’ case is that those drawings were made by the employees of 3 Mainland factories owned or jointly owned by D2, and therefore the copyright in them does not belong to P1. 

8.In this regard, Ps’ case has changed.  Ps’ pleaded case is that the drawings were created by Mr Ivan Foti (“Foti”) with his independent and substantial skill, labour and judgment in the course of his employment with P1.  Further, it is averred that “the original computer files comprising the Copyright Works are kept in his computer”.  Pursuant to Ds’ request for particulars, dates of creation of the Copyright Works were pleaded by Ps. 

9.In due course, an affirmation from Foti was filed in support of these allegations.  However, shortly before this hearing, on 24 January 2014 Ps took out a Summons for leave to file, inter alia, the 2^nd and 3^rd affirmations of Foti out of time (“Summons”).  In his 3^rd affirmation, Foti said that he was not in fact the sole author of the Copyright Works.  Instead, they were jointly created with others.  Three persons had been named as the joint authors.  Foti sought to explain the change of his evidence by suggesting that he “may not have fully understood the legal meaning of authorship”.  I incline to agree with Mr Yan SC, who appeared with Mr Wong for Ds, that the explanation lacks credibility bearing in mind that at all material times Ps had the benefit of legal advice. 

10.Putting aside the reason for the change of Ps’ case, the situation presents a real obstacle to their application for injunctive relief.  To begin with, there is no amended pleading before the court.  Whilst I am happy to accept Ms Tam’s explanation that Ps’ legal advisers are unable to prepare a draft amended pleading within the time they had despite their best endeavours, it is very difficult to assess the impact of the new case without any formulation of the same.  Valiantly, Ms Tam sought to persuade the court that Ps’ case has not changed, namely, that the copyright belong to P1.  It was said that the new case merely concerns matters of particulars.  I am unable to agree.  It emerged from the submissions, and with the help of a comparison table prepared by Mr Wong, that the Ps’ case is no longer one based on 10 drawings pleaded in the Statement of Claim.  The new case is that those 10 drawings are relied upon as part of various series of drawings and those series of drawings in their entirety are said to constitute the Copyright Works belonging to P1. 

11.Quite rightly, Ms Tam accepted that the series of drawings are required to be pleaded.  In this regard, I was referred by Mr Yan to the Court of Final Appeal authority of Mak Shiu Tong v Yue Kwok Ying & Anr (2004) 7 HKCFAR 228 where the following was said in the context of a strike out application in a defamation action at 242D :

“… Where a party invites the court to exercise a discretion on the basis of a case which differs from his pleaded case, the practice of the court has virtually invariably been to require the proposed amendment to be formulated so that everyone can properly see what the proposed new case is. It is difficult to envisage an exception. The simpler the proposed changes, the less excuse there is for not formulating them. The more complex they are, the more important it is that they are clearly set out.”

12.Perhaps more importantly, the present state of affairs is such that Ds have not had a proper opportunity to answer Ps’ case.  Indeed, Mr Yan’s main objection to the Summons is that Ds are prejudiced by the new case and the new evidence.  It is worth pointing out that the new expert evidence of Ps on Thai and Mainland law (contained in Foti’s 2^nd affirmation) have addressed the issue of joint authorship and, for obvious reason, that area has not been covered in Ds’ expert evidence.

13.Ms Tam argued that Ds have already put forward their best case and that further evidence from them would not change the fact that there are serious issues to be tried.  I am not attracted by this argument.  This court ought not to speculate as to what, if any, additional evidence will be marshalled by Ds in answer to the new case and it is quite unfair to assume that they will not be able to improve their case. 

14.It is not suggested by Ms Tam that the application for injunction should be adjourned so that Ds may have a proper opportunity to answer the new case (Ms Tam did suggest that a draft pleading could be produced with a few more hours of work).  On behalf of Ds, Mr Yan submitted, quite sensibly, that instead of spending more costs and time on this application, the parties should focus their energy on having these mattes tried.  Accordingly, Mr Yan asks for an early trial of this action pursuant to O 29, r 5 and offers an undertaking on behalf of his lay clients to keep proper record of the sale of the alleged infringing locks.

15.In the absence of a properly pleaded case and an opportunity for Ds to address the new case, it would certainly not be right for this court to grant any interlocutory injunction.  In the premises, this application must be dismissed.

16.For completeness, I should mention the following.  Firstly, I am unable to see any justification for injunctive relief against D3.  The evidence that she is a housewife and has no real participation in D2’s business is not challenged.  Quite rightly, Ms Tam did not press her case against D3. 

17.Secondly, on the assumption that it is a relevant consideration, I am persuaded by Ms Tam that P1 will suffer irreparable damage if no injunction is granted.  P1 has been in the motorcycle security devices market for some 16 years and has been described as one of the “top players” in the same.  It is true that the existence of almost identical products, albeit under a different brand, selling side by side with those of P1 will likely lead to damage to its reputation and goodwill.  Such damage is very difficult to quantify. 

18.On the other hand, I also accept that D1 and D2 will suffer irreparable damage if an injunction is granted.  They have been working hard to promote the brand of Kovix.  An injunction will likely result in considerable setback to such effort, especially in light of the fact that, due to actions taken by Ps, there are accusations flying around in the market that Kovix products are illegal counterfeits.  The damage to D1 and D2 is equally difficult to quantify. 

19.The ability of the parties to pay damages is disputed.  In this regard, Mr Yan has confirmed that D2 owns or co-owns a number of landed properties with a net equity of about HK$58 million.  There is an undertaking to put such matters in evidence. 

20.The balance is not an easy one to strike.  The court will have to take into account the delay of at least 5 months on the part of Ps prior to the institution of these proceedings (see King Fung Vacuum Ltd & Ors v Toto Toys Ltd & Ors [2006] 2 HKLRD 785, para 20).  In this regard, the letter from Hanex/D2 to Mr Meerveld of Ps dated 8 May 2013 [bundle C1, p 150-151] contained a reasonably clear admission that Kovix was a new brand developed by D2 and/or his companies.  Indeed, given the similarity between Ps’ products and those of Kovix, there were good reasons to believe that the Kovix products came from Hanex.

21.Had it been necessary to strike that balance, I would have declined to grant an injunction given the undertaking by Ds to keep a proper record of the sale of the relevant Kovix products.  With that record and D2’s ability to pay substantial damages, the damage to Ps can, to some extent, be mitigated. 

22.Thirdly, Ms Tam does not disagree with an early trial order.  However, in light of the need to file an Amended Statement of Claim and Mr Yan’s suggestion that discovery is necessary despite the very extensive evidence already in place, the better course is for the parties to, firstly, agree a set of directions for the consideration of the court with a view expediting the preparation of this action for trial.  I direct that the parties shall jointly file a set of proposed directions within 7 days from the date of this decision.

23.The terms of the undertakings in respect of the trade marks issue and the keeping of sale record should be agreed between the parties, failing which a short joint letter should be sent to the court for determination. 

24.As for costs and the appropriate order to be made in respect of the Summons, the parties should endeavour to agree the same, failing which they should file and serve a short written submission (limited to 3 pages) to address those matters within 7 days from the date of this decision.  Those matters will, if this court sees fit, be determined on papers.

25.I grant liberty to apply.

26.Last but not least, I am grateful to all Counsel for their assistance.

Ms Winnie Tam, SC and Mr C W Ling, instructed by T C Foo & Co, for the 1^st and 2^nd plaintiffs

Mr John M Y Yan, SC and Mr Philips B F Wong, instructed by Benny Kong & Yeung, for the 1^st, 2^nd, 3^rd and 5^th defendants