KABUSHIKI KAISHA YAKULT HONSHA AND OTHERS v. YAKUDO GROUP HOLDINGS LTD. AND ANOTHER

HCA 2409/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2409 OF 2002

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REASONS FOR RULING

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1. Yakult is a famous brand name originated from Japan. Its products include health beverages and as their leading counsel put it, their flagship product is a live lactobacillus drink marketed in a distinctive plastic bottle. In Hong Kong, the products are sold in such bottles bearing the names "Yakult" and "益力多". They were introduced into Hong Kong in the late 1960's. According to the evidence filed by the Plaintiffs, the sale in Hong Kong in 2001 was 439,000 bottles per day. Yakult products are marketed all over the world and different Yakult companies have been set up in different parts of the world. According to the Plaintiffs, the 1st Plaintiff is the Japanese company which owns the beneficial interest in all the trade names and trademarks relating to Yakult products all over the world. The 2nd Plaintiff is the company which manufactured and marketed Yakult products in Taiwan using the trademark "養樂多" instead of "益力多". Although it is not a subsidiary of the 1st Plaintiff, the two companies have some common shareholders and directors. The largest shareholder of both companies is a Japanese company called Matsusho Kabushiki Kaisha. Further, the relationship between the two companies is governed by several agreements. Those agreements provided for transfer of technology from the 1st to 2nd Plaintiffs. The 1st Plaintiff granted licence to the 2nd Plaintiff regarding the use of its intellectual properties in Taiwan. The 2nd Plaintiff acknowledged that the 1st Plaintiff was the beneficial owner of the trademarks used and registered by the 2nd Plaintiff in Taiwan. Further, all flavourings for Yakult products in Taiwan were manufactured and supplied to the 2nd Plaintiff by a subsidiary of the 1st Plaintiff. The evidence clearly shows that a substantial goodwill has been built up in Taiwan by reference to the mark "養樂多". The name "Yakult" also appeared on the products sold in Taiwan. The 3rd Plaintiff is the Hong Kong subsidiary of the 1st Plaintiff. The promotional material of the 1st Plaintiff put forward an image that Yakult is a multinational group spreading throughout the world. Both the 2nd and 3rd Plaintiffs are introduced as members of this worldwide group. They are linked together by the distinctive Yakult bottles containing the live lactobacillus drink developed from the distinctive lactobacillus casei strain Shirota, a strain of human intestinal lactobacilli cultured by Dr Shirota, the founder of the 1st Plaintiff. The word "Yakult" is derived from the concept of yogurt and is pronounced by Japanese as "yakudo" (according to the Plaintiffs) or "yoguruto" (according to the Defendants).

2. The 1st Defendant is a company incorporated in Hong Kong on 16 May 2001. The 2nd Defendant is one of its shareholders and directors. The Plaintiffs alleged that the 2nd Defendant controlled and managed the 1st Defendant. The 2nd Defendant is the son of Lee Tuan Ju, a former president of the 2nd Plaintiff and Lee Lai Chin-Chao, a current director of the 2nd Plaintiff. The Defendants said that the Lee family had developed their own strain of human intestinal lactobacilli and the 2nd Defendant intended to market this product in mainland China. Companies and factories were set up in mainland China for that purpose. The names "Yakudo" and "養樂多" were adopted and attempts were made to register such trademarks in mainland China and in Hong Kong. Those are being opposed by the 1st Plaintiff. Up to now, production has not been started although the Defendants have solicited for investors. There is evidence that the parents of the 2nd Defendant disapproved such actions on the part of the 2nd Defendant although he said otherwise. In a newspaper announcement dated 20 September 2001, the parents stated that they had no knowledge nor involvement with regard to the businesses of the Defendants.

3. Not surprisingly, the Plaintiffs objected to such activities of the Defendants when they came to know about the same. The first move was, however, made by the Defendants rather than the Plaintiffs. The 1st Plaintiff had registered marks embodying the words "養樂多" in mainland China since 1981 under Registration Nos. 147692 and 147697. Those registrations were renewed on 21 June 2001. A company set up in mainland China by the 2nd Defendant called Daoguang (Hengyang) Industrial Development Company Limited applied to cancel these registrations by reason of non-use. On 12 April 2002, the mainland Trademark Office cancelled the registration regarding No. 147697. The 1st Plaintiff is appealing to the Trademark Review and Adjudication Board ("TRAB") against that order. The application regarding Registration No. 147692 is pending.

4. Since the cancellation proceedings in mainland China was brought in the name of Daoguang (Hengyang) Industrial Development Company Limited, the Plaintiffs were not aware of the activities of the Defendants initially. Although there was a search report in respect of that company dated 25 December 2000 revealing the relationship between the 2nd Defendant and that company, it was clarified at the hearing before me that the report was wrongly dated. I am satisfied on the material presented to me that the correct date should be 25 December 2001.

5. The Plaintiffs first learnt about the Defendants in September 2001. In an article dated 12 September 2001 published in a newspaper called 時事速報, the 2nd Defendant gave an interview to a reporter in that he announced the setting up of the 1st Defendant to launch "養樂多" into mainland China. The Plaintiffs alleged that the 2nd Defendant misrepresented the 1st Defendant to be connected with the Plaintiffs in that article and was thereby guilty of passing off. The Defendants denied that the Defendants had made such misrepresentation.

6. Given the relationship between the 2nd Defendant and the director and past president of the 2nd Plaintiff, the Plaintiffs initially tried to resolve the matter without resorting to litigation. However, it must have been clear to the Defendants that the Plaintiffs would not tolerate the use of the word "養樂多" as the trade name or in the trademarks of the Defendants. Even before the Plaintiffs learnt of the 2nd Defendant's involvement in the matter, in a letter dated 29 August 2001 from the patent agent of the 1st Plaintiff in mainland China to Daoguang (Hengyang) Industrial Development Company Limited, the 1st Plaintiff clearly intimated that they would not give up their interest in the mark "養樂多". The parents of the 2nd Defendant were asked by the 2nd Plaintiff to demand the Defendants to stop the use of "養樂多" in Hong Kong and mainland China. In a letter dated 12 December 2001, the parents reported to the 2nd Plaintiff that their efforts were unsuccessful.

7. After several months' preparation, the Plaintiffs' solicitors issued a cease and desist letter to the 1st Defendant on 16 May 2002. The response from the 1st Defendant's solicitors on 5 June 2002 indicated that the matter could not be settled. Writ was therefore issued on 21 June 2002 together with a summons for interlocutory injunction.

8. When the application for interlocutory injunction was opened before me, Mr Liao SC (who appeared with Mr Kwan for the Plaintiffs) informed the court that the Plaintiffs agreed that the order that I am going to make herein shall not have any extra-territorial effect. In other words, the Plaintiffs accepted that in respect of activities carried out by the Defendants in mainland China, they should be dealt with by the courts in mainland China.

9. At the same time, Mr Wong SC (who appeared with Mr Ho for the Defendants) informed the court that the Defendants did not intend to manufacture or sell their products in Hong Kong in the near future. In the light of that, Mr Wong indicated that the Defendants could give certain undertakings to the court pending trial. On the second day of the hearing, after Mr Liao have opened for the Plaintiffs, Mr Wong put forward the following undertakings on behalf of the Defendants,

"1. The undertakings given on behalf of the Defendants set out hereunder are given against the cross undertakings given on behalf of the Plaintiffs to abide by any order the Court may make as to damages, in case the Court shall hereafter be of opinion that the Defendants or any them shall have sustained any by reason of any of the undertakings which any of the Plaintiffs ought to pay.

2. The Defendants and each of them undertakes in the case of the 1st Defendant whether acting by itself, its directors, officers, servants, agents, nominees or any of them or otherwise howsoever, and in the case of the 2nd Defendant whether acting by himself, his servants, agents, nominees or any of them or otherwise howsoever, until after adjugment in this action or further order from doing the following acts or any of them in Hong Kong, that is to say:-

(a) Manufacturing, ordering, importing or exporting, offering or exposing for sale or supply, selling, supplying, promoting, advertising, possessing, exhibiting in public or distributing for the purpose of trade or business, disposing or parting with possession, custody, power or control of, any products, particularly fermented milk drinks, milk, fruit juices, soft drinks and/or other non-alcoholic beverages not the goods of or in any way connected or otherwise associated with the Plaintiffs or any of them, under or by reference to the trade names and/or trade marks "YAKULT", "YAKUDO" and/or "養樂多"for any other names or marks that are confusingly similar thereto. For the avoidance of doubt, this undertaking does not extend to communication between any of the Defendands and Yakudo Foodstuff (Zhongguo) Co. Ltd ["YFZ"] and Daoguang (Hengyang) Industrial Development Co. Ltd ["DHI"] pertaining to YFZ and DHI's commission of any of the aforesaid acts in China.

(b) Forming, operating, participating in and/or carrying on any business in respect of or in connection with the said products as referred to in (a) above, not the business of or in any way connected or otherwise associated with the Plaintiffs or any of them under or by reference to the trade names and/or trade marks "YAKULT", "YAKUDO" and/or "養樂多"or any other names or marks that are confusingly similar thereto. For the avoidance of doubt, this undertaking does not extend to all relationships between any of the Defendants and YFZ and DHI nor to the securing of the listing of the 1st Defendant in the Stock Exchange of Hong Kong ["the Stock Exchange"] referred to in paragraph 3 below.

(c) Making and/or publishing any representation, whether orally or in writing, to the effect that the 1st Defendant, YFZ and DHI or any of them is the business of any of the Plaintiff and that the products of YFZ and DHI are the products of the Plaintiffs. For the avoidance of doubt, this undertaking does not extend to the use by the 1st Defendant of its name Yakudo Group Holdings Limited and "養樂多集團控股有限公司"for the purpose set out in paragraph 3 below.

3. An undertaking on the part of the 1st Defendant that until after judgment in this action or further order that it will only use the names "YAKDUO GROUP HOLDINGS LIMITED and (養樂多集團控股有限公司)" for the purpose of securing a listing in the Stock Exchange. The 1st Defendant further undertakes that in any application to the Stock Exchange or in any public statement pertaining to such listing, it will state that the 1st Defendant and (in so far as they are relevant), YFZ and DHI are not the business of or connected in any way with any of the Plaintiffs.

4. The Defendants do undertake to file within 14 days from these undertakings an affidavit confirming that save for distribution of the brochure exhibited and marked "KS-21" to the Affidavit of Kosei Sakai filed in these proceedings, they had not, prior to the date of these undertakings, commit in Hong Kong any of the following acts, that is to say, manufacturing, ordering, importing or exporting, offering or exposing for sale of supply, selling, supplying, promoting, advertising, possessing, exhibiting in public or distributing for the purpose of trade or business, disposing or parting with possession, custody, power or control of, any products, particularly fermented milk drinks, milk, fruit juices, soft drinks and/or other non-alcoholic beverages not the goods of or in any way connected or otherwise associated with the Plaintiffs or any of them, under or by reference to the trade names and/or trade marks "YAKULT", "YAKUDO" and/or "養樂多"."

10. After taking instructions, Mr Liao informed the court that apart from the proviso and the exception in respect of listing in the Stock Exchange, the Plaintiffs were prepared in principle to accept the undertakings subject to some clarifications in some respects. The issue with regard to listing became the only substantive dispute between the parties in this application. The matter was argued before me. The position of the Defendants was that the undertakings offered by the Defendants were sufficient protection to the Plaintiffs and the Defendants should be allowed to proceed with an application for listing to obtain finance for their businesses in mainland China. On the other hand, the Plaintiffs' stance was that to allow such application would cause irreparable damages to the Plaintiffs in term of the dilution of and potential damage to the good-will pertaining to the names and marks in question. Mr Liao also submitted that the balance of convenience was in favour of prohibiting such application to be made.

11. After hearing submissions, I ruled on 28 August 2002 that there are serious questions to be tried and on the balance of convenience, until trial, the Defendants should not be permitted to apply for listing in Hong Kong by using the name "Yakudo" or "養樂多". In the light of my ruling, the terms of the undertakings were agreed between the parties and I also give directions for speedy trial. According to those directions, the parties are to attend court on 2 January 2003 to apply for setting down for trial. I now give reasons for the said ruling.

Serious questions to be tried

12. Mr Wong did not argue that there is no serious question to be tried. Rather he argued that in the context of balance of convenience, I should not regard the Plaintiffs to have a cast iron case. Be that as it may, for reasons given below, I am satisfied that there are serious questions to be tried. In Reckitt & Colman Products v Borden Inc. [1990] RPC 341 at p.406, Lord Oliver identified the essential elements constituting the tort of passing off as goodwill, misrepresentation and damage. In respect of goodwill, Mr Wong submitted that each Plaintiff has to be considered separately and there is no concept of group or international goodwill. He invited me to consider each market in turn and ask whether any one of the Plaintiffs has any goodwill in that market. Mr Wong submitted that the Plaintiffs have deliberately adopted a policy of segregating the markets and there is no spill over of goodwill from one territory to another.

13. For present purposes, I shall focus on the goodwill in Hong Kong. Mr Wong did not dispute that the 3rd Plaintiff has a goodwill in Hong Kong. He however submitted that the goodwill was in the name "益力多" alone. I cannot accept that submission. As stated in Paragraph 1 above, the products are marketed in Hong Kong in bottles bearing the name "Yakult" together with "益力多". Whether the name "Yakult" is a badge of the goodwill in Hong Kong must be a triable issue. Further, given the fact that the trademarks were registered in the name of the 1st Plaintiff and the 3rd Plaintiff was a registered user of the marks, and given the relationship between the two of them, it is arguable that the goodwill in Hong Kong is owned by the 1st Plaintiff or shared between the 1st and 3rd Plaintiffs.

14. In view of the evidence as to the Japanese pronunciation of the word "Yakult", it is arguable that word "Yakudo" is deceptively similar to "Yakult". In coming to this conclusion, I bear in mind that Hong Kong is a cosmopolitan society and the evidence indicated that there is a considerable number of Japanese visitors to Hong Kong every year. Further, Hong Kong also has a significant Japanese speaking population residing here. In addition, by reason of the imperfect recollection of the consumers, it is arguable that the two words might cause confusion to English speaking members of the public. I also take into account of the evidence which shows at least an arguable case that the Defendants adopted various means to confuse others into believing that their businesses were connected with the Plaintiffs. I would not go into the details of such evidence. That includes evidence about the representations made in the brochures of the 1st Defendant, the statements made by the staff of the Kunshan factory during the course of the visit by private investigator, the get-up of the products intended to be manufactured by that factory. The Defendants might have innocent explanations as to these but that is a matter for trial. As matter stands, there is evidence on which inference could be drawn that the Defendants deliberately chose the words "Yakudo" and "養樂多" as the name of the 1st Defendant with a view to pass off. At the interlocutory stage, it is inappropriate for me to decide whether such inference should be drawn. However, if such inference is drawn at the trial, the principle extracted by Mr Liao from Slazenger & Sons v Feltham (No.2) (1889) 6 RPC 531 at p.538 is applicable. Cotton LJ said,

"One must exercise one's common sense, and, if you are driven to the conclusion that what is intended to be done is to deceive if possible, I do not think it is stretching the imagination very much to credit the man with occasional success or possible success."

15. Mr Wong argued that the 2nd Plaintiff does not have any goodwill in Hong Kong because it has neither business nor customer here. He cited passages from a textbook Bently & Sherman, Intellectual Property Law to advance a proposition that to sustain a claim in passing off, the plaintiff must have either business or customer in Hong Kong. At p.686, the learned authors did express some tentative views to that effect by reference to Anheuser-Busch v Budejovicky Budvar Narodni Podnik [1984] FSR 413 and Pete Waterman v CBS United Kingdom (1990) 20 IPR 185. However, as pointed out by the authors, there are other approaches adopted in other common law jurisdictions. The leading cases in that approach are ConAgra v McCain Foods (1992) 23 IPR 193, Orkin v Pestco [1985] 19 DLR (4th) 90, Dominion Rent a Car v Budget Rent a Car [1987] 2 NZLR 395. I have been referred by Mr Liao to three Hong Kong cases which followed the alternative approaches: Hong Kong Caterers v Maxim's Ltd [1983] HKLR 287, Ten-Ichi v Jancar [1990] FSR 151, Harbour Fit Industrial Limited v Tan Kwai Garden Seafood Restaurant, HCA 4535 of 2001, 22.5.2002. It seems that other textbook writers also regarded the law in this respect as developing (see Kerly's Law of Trade Marks and Trade Names, 13th Edn, Paras 14-55, 14-56, 14-60; Drysdale & Silverleaf, Passing Off, 2nd Edn, para 3.12; McKeough & Stewart, Intellectual Property in Australia, 2nd Edn, Paras 17.13 and 17.14). In the light of these authorities, irrespective of the question whether the 2nd Plaintiff could establish a separate goodwill here, I am of the view that it must be arguable that the law should recognize the concept of an international goodwill and it is a pure question of fact whether the goodwill of the Yakult Group in Hong Kong manifests not only in the words "Yakult" and "益力多", but also the word "養樂多" by way of spill over from Taiwan due to the close proximity and substantial commercial connection between Hong Kong and Taiwan (see also C & A Modes v C & A (Waterford) Ltd [1978] FSR 126), and the linkage of the products in Hong Kong and Taiwan in terms of the get-up and the name "Yakult". In Dominion Rent A Car v Budget Rent A Car (1987) 9 IPR 367 at 379, Cooke P said,

"The weight of judicial opinion appears to recognize the possibility that an international business may have one individual goodwill, the reputation of any local branch or agency being that of association with the international organization."

16. I emphasize that I have not come to any concluded view on the law in this respect. I only hold that the point is arguable. As Mr Liao pointed out, parties have not fully deployed their arguments on the point. Given the respective position taken by the parties and the narrow scope of the dispute at the hearing before me, this is understandable.

17. Notwithstanding the persuasion of Mr Wong, I think there is a triable issue on the facts of this case whether the Plaintiffs enjoyed a group reputation. The evidence before me did not lead to the inevitable conclusion that the Plaintiffs have conducted their businesses in a manner which prevented the establishment of a group reputation.

18. Thus, I hold that there is a triable issue whether the use of the names "Yakudo" or "養樂多" would constitute misrepresentation by the Defendants to members of the public in Hong Kong leading them to believe that the businesses of the Defendants were those of the Plaintiffs.

19. The third element is damage. Since the Defendants have offered the undertakings set out in Paragraph 9 above, I only need to consider this in the context of application by the 1st Defendant for listing by using a name containing the words "Yakudo" and "養樂多". Mr Wong did not make any submission in this regard. I have however brought up the issue in the course of the opening by Mr Liao. Mr Liao submitted that although there would not be any damage in terms of loss of sale or profit, the reputation of the Plaintiffs in Hong Kong could be tarnished by activities of the Defendants if they could apply for listing in the Stock Exchange. One of the reasons why the Plaintiffs sought an interlocutory injunction is to protect the goodwill of the Plaintiffs in its trade names. Taiwanese investors and Hong Kong investors who knew that Yakult was known as "養樂多" in Taiwan might be misled into subscribing for the shares of 1st Defendant in case of listing. Mr Liao submitted that in that event, irreparable damages would be caused to the Plaintiffs.

20. Although I have some doubts initially, I come to the conclusion it is arguable that the law of passing off does protect a plaintiff against this kind of damages. Mr Liao referred to the passing off cases regarding non-commercial entities and charitable organizations. The case of British Legion v British Legion Club (1931) 48 RPC 555 is relevant. More recently, in Harrods v Harrodian School [1996] RPC 697, Millett LJ (as he then was) said at p.715,

"In the classic case of passing off, where the defendant represents his goods or business as the goods or business of the plaintiff, there is an obvious risk by substitution. Customers and potential customers will be lost to the plaintiff if they transfer their custom to the defendant in the belief that they are dealing with the plaintiff. But this is not the only kind of damage which may be caused to the plaintiff's goodwill by the deception of the public. Where the parties are not in competition with each other, the plaintiff's reputation and goodwill may be damaged without any corresponding gain to the defendant. In the Lego case, for example, a customer who was dissatisfied with the defendant's plastic irrigation equipment might be dissuaded from buying one of the plaintiff's plastic toy construction kits for his children if he believed that it was made by the defendant. The danger in such a case is that the plaintiff loses control over his own reputation."

See also the recent English Court of Appeal decision in Burge v Haycock, 31 May 2001, unreported.

21. The evidence also indicates that the 2nd Defendant was personally involved in the setting up and the activities of the 1st Defendant. I am satisfied that the Plaintiffs have shown serious question to be tried regarding the personal liability of 2nd Defendant.

Balance of convenience

22. Again I will focus on whether the Defendants should be allowed to apply for listing by using names containing the words "Yakudo" or "養樂多". Since the damage sought to be prevented is damage flowing from potential damage to their goodwill in the manner explained in Paragraph 18 above, it would be difficult to quantify in monetary term. Further, there is no evidence from the Defendants as to their financial ability to pay damages. An award of damages is not an adequate remedy to the Plaintiffs.

23. On the other hand, Mr Wong submitted that the Defendants would also suffer unquantifiable damages if they were not allowed to apply for listing using these names. Mr Wong argued that frustration of the Defendants in term of financing would frustrate the Defendants' effort in procuring market share in mainland China.

24. The evidence shows that Defendants have not started production or marketing in mainland China. Factories are still under construction and the product samples are being tested internally. The Defendants did not suggest that huge sum has been invested in advertising the names "Yakudo" or "養樂多" in mainland China. In any event, it has been agreed by the Plaintiffs that the orders made herein would not have any extraterritorial effect. Unless restrained by an order from a court in Mainland China, the Defendants are free to continue with their activities in mainland China.

25. With regard to financing, the Defendants did not produce any evidence as to their financial positions. There is not an iota of information as to the extent to which the Defendants are ready in terms of preparation for listing in Hong Kong. The court was not told about the exact timetable as to the intended listing application. I do not know whether financial advisers and underwriters have been engaged, whether documents have been submitted to the Stock Exchange. In fact, I was not even told whether the Defendants intended to apply for listing in the main board or the GEM board. Pending the final resolution of this piece of litigation, it is extremely unlikely that the Stock Exchange would approve an application for listing using these names. In the first place, I doubt very much whether the Defendants could secure the support of an underwriter for such an exercise. Moreover, given the fact that the Defendants' factories are still under construction, it would be quite some time before the Defendants could produce the necessary track records as to trading to support their application for listing. With directions for speedy trial, the action could probably come on for trial some time next year. I am not satisfied on the evidence available that the Defendants would be in a position to apply for listing before the end of the trial. I do not see any real prejudice to the Defendants in term of delay in application for listing.

26. Moreover, even if I were wrong in that regard, I also do not see why the Defendants could not proceed with a listing exercise in the name of a company not bearing the names "Yakudo" or "養樂多". Since the only professed objective of the Defendants in listing is to secure financing, and there is no suggestion that the names "Yakudo" or "養樂多" are material in that regard, I really do not understand why the Defendants must insist on having these two names in the company making the application for listing. Mr Wong submitted that alteration of the corporate structure could affect the Defendants' business in mainland China. I cannot find any evidence to support that submission. In fact, there may not be any need to disturb the existing corporate structure. According to the Memorandum of Association of the 1st Defendant, the largest shareholder is a BVI company called Dong Long Group Limited which holds more than 50% of the shares of the 1st Defendant. There is no explanation as to why it is not possible for application for listing to be made in the name of Dong Long Group Limited instead of the 1st Defendant.

27. I am therefore not satisfied that the Defendants would suffer any irreparable damages if they are not allowed to make any application for listing by using the names "Yakudo" or "養樂多" in the meantime.

28. Mr Wong submitted that the court should not intervene because of the lack of interest on the part of the Plaintiffs in these names. He submitted that the present application was in substance an exercise by the Plaintiffs to curtail the business plan of the Defendants. Mr Liao said there was no evidence to support such allegation and disavowed on behalf of the Plaintiffs that there was any intention on their part to hamper fair competition from the Defendants. Mr Liao also emphasized that there had been continuous and substantial sale of Yakult products in mainland China since 1997 and the letter dated 29August 2001 from the Chinese patent agent demonstrated the Plaintiffs' determination to protect their interest in the names.

29. Taking into account of all the evidence, I agree with Mr Liao that there is insufficient material to attribute to the Plaintiffs an ulterior motive in making the present application as alleged by Mr Wong. In any event, the lack of extraterritorial effect of the orders to be made herein substantially reduce the force of Mr Wong's submission. Such orders would not affect the Defendants' activities in mainland China. Faced with such difficulty, Mr Wong was driven back to the argument on the frustration of the Defendants' plan in term of financing. I have already dealt with that in Paragraphs 24 and 25 above.

30. If one were to consider the status quo, it is obvious that the Defendants have not yet made any application for listing. I see no reason why this state of affairs should not be preserved.

31. The last point on which Mr Wong placed considerable reliance is delay. He submitted that there was a substantial delay on the part of the Plaintiffs in taking legal actions against the Defendants and the Defendants have been lulled into a false sense of security. With respect, I disagree. I have recited the history of the matter. Since the discovery of the activities of the Defendants by reading the article in September 2001, the Plaintiffs have tried to resolve the matter through the parents of the 2nd Defendant. Given the relationship between the parties, that is understandable and I do not think Mr Wong levelled any criticism against the Plaintiffs in so doing. After the letter of 12 December 2001, the Plaintiffs took up quite some time in preparation for legal action. There was a lapse of 6 months before the letter to cease and desist was issued. The Plaintiffs offered some explanations for this lapse of time. Whilst I am of the view that the Plaintiffs could have proceeded more promptly than they did, I bear in mind that this action is more complicated than an ordinary passing off action and evidence have to be collected and collated from different jurisdictions.

32. The more crucial issue is whether the Defendants have been lulled into a false sense of security and thereby acted to their detriments. Mr Wong referred to three matters in this regard: the making of fresh applications for registration of trade marks in mainland China in January 2002, the continuous construction of the factories in mainland and the opening of Shanghai office in June 2002. I note that none of these related to the application for listing. Further, I do not perceive these as evidence of the Defendants labouring under a misconception that the Plaintiffs would not take action against them. The Plaintiffs have already passed on a clear message that they would take action to protect their interests in the names in the letter of 29 August 2001. Objections to the use of the names were put forward by the parents on behalf of the Plaintiffs. The Defendants are not total strangers. They carried on their activities with their eyes open to the risk of litigation in mainland China and Hong Kong.

33. The opening of the Shanghai office took place after the letter of cease and desist. Instead of showing the Defendants acted under a false sense of security, such conduct on the part of the Defendants showed that they were prepared to carry on with their activities notwithstanding threat of legal proceedings. View thus, I am not convinced that the Defendants carried on with the construction of the factories and applied for the registrations of various trademarks because they thought the Plaintiffs would not sue them. The Defendants probably had already committed to the construction of the factories in any event. There is no evidence that the construction works have ever been suspended after the Defendants learnt of the objection from the Plaintiffs and construction works restarted again after December 2001. In fact, the 2nd Defendant did not say in his affirmation that he had been lulled in a false sense of security. Paragraph 60 of his affirmation is not a statement to that effect.

34. Further, all these acts of the Defendants were only preparatory steps for their businesses in mainland China. They can still reap the benefit of the same since the Plaintiffs have made it clear that the orders herein would not have extraterritorial effect. Moreover, the Defendants could always continue with their activities in mainland China by using other names. In the applications for registration of trademarks made in January 2002, the marks consisted of names like "雅樂多" and "益樂多" instead of "養樂多". It is not suggested that due to the inaction of the Plaintiffs, the Defendants have advertised the names "養樂多" or "Yakudo" in mainland China and built up certain goodwill thereunder.

35. Mr Wong also suggested that the true reason for the delay was to enable the Plaintiffs to set themselves up in the market in mainland China in order to tilt the balance in their favour for the present application. With respect, this submission is unsupported by evidence. As Mr Liao pointed out, the Plaintiffs have been selling and advertising in mainland China since 1997.

36. In the circumstances, although Mr Wong has said everything he could for the Defendants, I do not think the lapse of time is fatal to the Plaintiffs' application.

37. For these reasons, I made the ruling stated in Paragraph 11 above.