DIGITAL THEATER SYSTEMS, INC AND ANOTHER v. SHINCO INTERNATIONAL AV CO LTD AND OTHERS

HCA 1811/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1811 OF 2004

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REASONS   FOR   DECISION

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1.  The 1^st plaintiff applied by summons dated 15 February 2007 for orders that:

(1)     summary judgment be entered against the 1^st defendant under O.14, RHC for all relief sought on the trade mark claim only;

(2)     judgment in default of defence be entered against the 2^nd defendant under O.19, r.7, RHC for all relief sought on the trade mark, copyright and passing-off claims.

2.  The 2^nd plaintiff was joined out of an abundance of caution and is no longer taking active part in the proceedings.

3.  The 1^st defendant has filed an Re-Amended Defence and an affirmation in opposition to summary judgment.  Miss Ng, for the 1^st defendant, indicated that she had no further instruction to oppose the application, and was holding a watching brief only.

4.  Miss Chiu, for the 2^nd defendant, indicated that she had no instruction to file any defence, and was holding a watching brief only.

5.  The present application did not concern the 3^rd defendant.

6.  At the hearing, I entered judgment against the 1^st defendant on the trade mark claim, and against the 2^nd defendant on the entire action.  I now give my reasons.

Background

7.  The 1^st plaintiff is a developer of digital audio technology.  The technology involves the encoding (in the DVD) and decoding (in the DVD player) of bitstream algorithm.  The 1^st plaintiff is the registered proprietor of the trademarks in Hong Kong including “DTS”, “dts”, “dts DIGITAL OUT” and “dts DIGITAL SURROUND” (“the Trade Marks”) used for indicating presence of such technology in the device.  The 1^st plaintiff also owns the copyright in the source code of the technology.  The 1^st plaintiff has built up and owns valuable goodwill in the trade marks.

8.  The 2^nd defendant is the manufacturer of electronic goods including DVD player under the trade name “Shinco”.  It is the registered proprietor of the trademark “新科” (transliteration of “Shinco”) in Hong Kong.  The 3^rd defendant is a subsidiary of the 2^nd defendant. 

9.  The 1^st defendant is the importer and distributor in Hong Kong of DVD players supplied by the 2^nd defendant.  The 1^st defendant promoted itself as the “overseas sales centre” of “Shinco” products in Hong Kong.

10.  In 1999, the 1^st plaintiff licensed the 2^nd defendant to use the “dts Digital Out” trademark on its DVD players (“DTLA” agreement), and in 2000, 1^st plaintiff licensed the 2^nd defendant to use the “dts DIGITAL SURROUND” trademark on its DVD players (“CMLA” agreement) indicating the presence of decoding and passing out of decoded “dts” signals in the DVD player.  On 12 October 2000, the 2^nd defendant’s rights in the two licensing agreements were assigned to the 3^rd plaintiff with effect from 5 September 2000 (“the Cut-off Date”).  On 11 March 2003, the two licensing agreements were terminated.

11.  Hence, since 5  September 2000, the 2^nd defendant ceased to be licensed to use the “dts” technology and/or the Trade Marks and/or the copyright works.

 Plaintiffs’ case

12.  The 1^st plaintiff’s case can be summarized as follows:

(1)     The 2^nd defendant continued to manufacture DVD players with “dts” trade marks after the Cut-off Date.

(2)     The 1^st defendant imported and distributed the DVD players with the infringing trade marks manufactured by the 1^st defendant.

13.  The licence of the 3^rd defendant and the termination thereof is not relevant for the present application by reason of the claim being based on manufacture after the Cut-off date by the 2^nd defendant.

14.  Between 22 July and 2 August 2004, the 1^st plaintiff’s agents made 3 control purchases in Hong Kong of “Shinco” DVD players bearing the “dts DIGITAL SURROUND” and/or “dts DIGITAL OUT” trade marks:

(1)     DVD-8700 serial no. 20020118410-3C from Radio Unison Co Ltd;

(2)     DVD-8610 serial no. 20020607026-3B from Radio Unison;

(3)     DVD-8320 serial no. 201114071-7B from Big-D Trading Co Ltd.

15.  There were other control purchases of “Shinco” DVD players allegedly containing “dts” technology without the Trade Marks which are not relevant for the present application against the 1^st defendant.

16.  The 1^st plaintiff alleged that the DVD players purchased were imported and distributed by the 1^st defendant:

(1) The 1^st defendant admitted that the 2^nd defendant was the supplier of its DVD players (see Re-Amended Defence para. 19).

(2) The 1^st defendant admitted that the 2^nd defendant manufactured the DVD players where the 2^nd defendant’s name and website address appeared in the packaging box (see  Re-Amended Defence para. 18).

(3) The packaging for each of the DVD players bore the name and website www.shinco.com of the 2^nd defendant.

(4) The 2 DVD players purchased from Radio Unison were accompanied by Guarantee Registration cards bearing the name, address, e-mail address, telephone and fax numbers of the 1^st defendant and the trademark “新科” (or “Shinco”) registered in the name of the 2^nd defendant in Hong Kong.

(5) The 1^st defendant admitted that each DVD player sold by it was accompanied by a Guarantee registration Card bearing its name, address, e-mail address, telephone and fax numbers (see Re-Amended Defence para. 16).

(6) The 1^st defendant’s Shinco AV Website described itself as the overseas sales centre of Shinco products in Hong Kong.

(7) The 2^nd defendant’s Lalasho Website exhibited DVD players bearing the Trade Marks.  The “Contact us” section of the website has a “HK branch” link of export@shincoav.com.hk with the domain name of the 1^st defendant.

(8) The 2^nd defendant is listed in the trade directory website www.globalsource.com with a branch office in Hong Kong with the address of the registered office of the 1^st defendant.

17.  The 1^st plaintiff alleged that the infringing products were manufactured by the 2^nd defendant:

(1) The www.shinco.com  website described that the 2^nd defendant as a manufacturer of, inter alia, DVD players.

(2) The packaging for each of the DVD players bore the name and website www.shinco.com of the 2^nd defendant.

18.  An agent of the 1^st plaintiff made enquiries with the customer service department of the 1^st plaintiff and was told the dates of manufacture of the DVD players were as follows:

(1)     DVD-8700 in January 2002;

(2)     DVD-8610 in June 2002;

(3)     DVD-8320 in November 2000.

19.  The agent was also told that in cases of DVD players (1) and (2), the date of manufacture was indicated by the first 6 digits of the serial number.

1^st defendant’s case

20.  There was non-admission of the control purchases of the DVD players in the Re-Amended Defence with specific denial of sales to Radio Unison (para. 15).

21.  Mr. Mak Kwai-yin, manager of the 1^st defendant filed an affirmation and stated that:

(1)     The 1^st defendant has no association in shareholding and management with the 2^nd and 3^rd defendants.  It merely promoted itself as the “overseas sales centre” of the 2^nd and 3^rd defendants with their permission.

(2)     The 1^st defendant was given to understand that the 1^st plaintiff had granted the DTLA and CMLA licences to the 2^nd and the 3^rd defendants.

(3)     The 1^st defendant had no knowledge that the DVD supplied by the 2^nd defendant were infringing items.

(4)     The 1^st defendant was given to understand that all the DVD players in question were manufactured by the 3^rd defendant.

(5)     Preliminary search revealed no record of sales to Radio Unison.

Discussion

22.  Registration of the trade mark is prima facie evidence of its validity (see section 80, Trade Marks Ordinance (Cap. 559)).  No issue has been raised as to the registration, termination of the licences, or that the DVD players did not bear the Trade Marks.  The issues raised by the 1^st defendant are:

(1)     No sale by the 1^st defendant to Radio Unison and/or Big-D;

(2)     Manufacture by the 3^rd defendant as opposed to the 2^nd defendant;

(3)     Lack of knowledge of any infringement.

23.  On the sale point, Mr. Alder, for the 1^st plaintiff,  pointed out that 1^st defendant denied in the Re-Amended Defence of sale to Radio Unison without specifically dealing with Big-D.  However, the Affidavit of Mr. Mak stated upon preliminary search, there was no record of sales to Radio Union, and undertook to conduct further searches.  Now, there is no supplemental affirmation following up the situation.  The 1^st defendant’s denial of the sale to Radio Unison and Big-D was half-hearted and lacked particularity especially in view of the evidence of the Guarantee Registration Card of the 1^st defendant.  I agree with Mr. Alder that the evidence that the 2 DVD players sold by Radio Unison have come from the 1^st defendant is overwhelming.

24.  On manufacture, Mr. Alder pointed out that the 1^st defendant admitted that the 2^nd defendant manufactured the DVD players where the 2^nd defendant’s name and website address appeared in the packaging box.  All the 3 boxes showed the 2^nd defendant’s name.   It is only a bare assertion that the DVD players were manufactured by the 3^rd defendant.  Even so, that is contrary to the pleading that the 2^nd defendant was the supplier of the 1^st defendant’s DVD players.  There is also the evidence of the 1^st defendant being the overseas sales centre for the 2^nd defendant’s DVD players.  I also agree with Mr. Alder that the 1^st plaintiff has proved that the 2^nd defendant has distributed DVD players manufactured by the 2^nd defendant.

25.  The evidence that the DVD players were manufactured after the Cut-Off date is not controverted.  The contrary plea is that they were manufactured by the 3^rd defendant.  As demonstrated, that plea is not capable of belief.

26.  As to knowledge, Mr. Alder submitted that knowledge is not relevant for liability as innocence is no defence to infringement of trade mark.  He referred to my judgment in Creative Technology Ltd v. Videocom Technology Ltd & anor HCA 1434/2002 citing Gillette UK Ltd v. Edenwest [1994] RPC 279. 

27.  In Creative Technology, I said that knowledge might be relevant in the remedy of an injunction as if the defendant were to show that the infringement was either innocent, one-off and there was no threat or possibility of future infringement, it might not be necessary to grant an injunction in the discretion of the court.

28.  Mr. Alder submitted that knowledge on the part of the 2^nd defendant could be imputed on the 1^st defendant by reason of the evidence that the 1^st defendant was held out as the overseas sales centre of the 2^nd defendant, and the 2^nd defendant’s Hong Kong Branch shared common address and website domain of the 1^st defendant.  I also agree with Mr. Alder on imputation of knowledge.

Conclusion

29.  I am satisfied there is no triable issue that the 1^st defendant has infringed the 1^st plaintiff’s 2 trade marks “dts DIGITAL SURROUND” and “dts DIGITAL OUT” by distributing DVD players bearing such trade marks in Hong Kong.  

30.  As to the 2^nd defendant, I am also satisfied the claims based on trade marks, copyright and passing-off are made out.  Judgement will be entered in default of defence.

31.  Having considered the conduct of the 1^st defendant in the lack of substantive opposition to the present application, and also the conduct of the 2^nd defendant in avoiding the problem, I consider that an injunction should issue, with the usual order for delivery up and discovery on affirmation.

32.  The 1^st plaintiff has prayed for an inquiry as to damages alternatively an account of profits.  Judgment can only be entered for one but not both, and an election has to be made.  Mr. Alder submitted that as judgment is entered upon application without a full trial, the 1^st plaintiff is unable to make an informed choice.  He submitted that the plaintiff should be allowed postponement of the election until it has the necessary information upon discovery on affirmation by the defendants.  Such an approach was sanctioned in Island Records Ltd v. Tring International Plc & anor [1996] 1 WLR 1256 per Lightman J.  There, the court granted a declaration that the plaintiff was entitled at his election to judgment for either remedy and gave directions to secure that the plaintiff obtain such information as was reasonably required to enable it to make an informed election and that it was made within a reasonable time.  I adopt the same approach and allow the 1^st plaintiff to make the election within 14 days upon the service by the 1^st and 2^nd defendants of the affirmations making the requisite discovery as set out in the draft order.

Costs

33.  On the costs of the summons, I ordered that the 1^st and 2^nd defendant do make interim payment of costs of $140,000 under O.62, r.9A, RHC. 

34.  Mr. Alder indicated that the plaintiffs are not abandoning the copyright and passing-off claims against the 1^st defendant.  Hence, I  ordered the 1^st defendant do pay the plaintiff's costs of the action in relation to the trade mark claim only.

35.  The 2^nd defendant shall pay the plaintiff’s costs of the entire action.