NU LOOK IPI ENTERPRISES LTD v. TUNG LICK PLASTIC MANUFACTORY

HCA 1880/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1880 OF 2003

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J U D G M E N T

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Introduction

1.  This is a dispute about a battery-operated toy frogman.  The Plaintiff and the Defendant are designers, manufacturers and sellers of a variety of toys.  In 1992, the Defendant was contracted by the Plaintiff to make the moulds from which the frogman would be mass produced also by the Defendant to the Plaintiff’s order.  That production took place between 1992 and 1998.  This toy was then very successfully sold by the Plaintiff.  Its sales figures show that between January 1997 and December 2003 $7,281,078.00 worth were sold by the Plaintiff at an average unit price of $13.50, which means that over half a million of these toys have been sold.

2.  The background to how the Defendant was engaged to produce the moulds appears in the affirmation of Mr Tam Kam Fai dated the 10 December 2003 [page 70 of the bundle].  Briefly stated it is this.  In December 1991, the Plaintiff commissioned a company called Artcourse Design Limited (“Artcourse”) to design and produce working and tooling samples for the frogman.  A Mr Sam Chan, the principal of Artcourse, produced two-dimensional design drawings from which his company made up working samples of the toy.  Under the agreement with Artcourse, ownership of the drawings and of the samples vested in the Plaintiff as does, according to Mr Tam, the copyright in the “design drawings”, which are said to be artistic works within the meaning of the Copyright Ordinance.

3.  In January 1992, the design for the frogman was registered in the United Kingdom as a “Registered Design” under the Registered Designs Act 1949, with the Plaintiff named as its registered proprietor.  The protection period under the Act has been extended twice up to 7 January 2007.  By virtue of section 91 Registered Designs Ordinance (“RDO”), this design is deemed to have also been registered in Hong Kong.

4.  The contract for the production of the moulds by the Defendant is dated the 18 February 1992.  In order that the Defendant might be able to make the moulds, the Plaintiff provided it with the drawings and working samples made by Artcourse together with the specifications and the registered design details.  As I have already related, the Defendant having made the production moulds, was contracted to manufacture the toy until December 1998.  The relationship terminated on the 11 December 1998 when the Defendant returned to the Plaintiff all the moulds that it had in its possession.

5.  As I have already related the Plaintiff was able to make substantial sales of this toy, which it has done world-wide including, Europe, North America and for the Hong Kong market as well.  It has promoted the frogman by, amongst other means, participating in various trade shows, such as the leading Nuremberg Toy Fair.  Mr Tam affirms that its annual promotional expenses for this product come to $600,000.  It has also been regularly featured in leading toy promotional magazines so that its presence has been well advertised and what it looks like is readily available to individuals and companies in the toy industry, be they retailers, distributors or manufacturers.

The complaint

6.  What has happened is that the Defendant had decided to make its own toy frogman.  Whilst not identical, by any means, it is basically the same type of toy being a battery operated frogman which swims along once placed into water, be it a child’s bath, pond, large bowl of water or such other receptacle as may be available.  When one holds the two products side by side, it is very plain that they are similar toys, performing the same function.  That being the case, they also have a number of immediately noticeable differences, such as their respective sizes in terms of length as well as the size of the frogman’s oxygen tanks.  There are also differences in colour.  A more detailed analysis will readily demonstrate more differences.  Nevertheless, they are basically the same type of product.  Not surprisingly, the respective boxes in which they are sold describes both as “Frogman”, and it is also the case that the boxes are very similar in terms of size, colour and shape.  That rather unscientific description of the similarities and differences between the rival products is sufficient for the purposes of providing an understanding of that is involved in the dispute between these parties.

7.  Given their similarities, the Plaintiff has issued a writ on the 24 May 2003, the Statement of Claim having since been amended and re-amended, in which it alleges breaches of the Plaintiff’s registered design, breach of copyright in respect of the original drawings and the moulds and passing-off of the Defendant’s frogman as that of the Plaintiff.  In the prayer of the re-amended Statement of Claim, the Plaintiff seeks an injunction to restrain the Defendant from further acts of passing off, breaches of the registered design and breaches of copyright as well as orders for delivery up and/or destruction of any offending articles and/or materials, damages, an enquiry as to damages and the other relief that is commonly associated with actions of this type.

The Summons

8.  The particular matter before me is a summons dated the 10 December 2003 [six and a half months after the issue of the writ] in which the Plaintiff seeks to have determined in its favour three matters.  Firstly, judgment under Order 14, or alternatively an interim injunction to restrain “until judgment or further order” infringement of the registered design, infringement of copyright and of passing-off or attempting to pass-off the Defendant’s frogman as that of the Plaintiff’s frogman.  Failing which, the Plaintiff seeks an order for a speedy trial.

9.  Put shortly and before I go to the detail of the matter, the Defendant’s reply to this is that the merits of the claim are such that they can only be determined following a conventional trial, so that an Order 14 judgment is simply not appropriate given the state of the evidence.  As to an injunction, the delay is now such that in the exercise of my discretion, I should, without more, decline to grant an injunction and that, in any event, the evidence does not measure up to the grant of an injunction and that the Plaintiff should be left to resolve what remedies it should have until after the trial of the action.  As to the application for a speedy trial, it is submitted that given the Plaintiff’s lack of expedition hitherto, no good reason can be advanced for having the case take its place in the list on any accelerated basis.

10.  Plainly, the individual elements of the summons fall to be considered separately, which is what I propose to do.

The application for an interim injunction

11.  Although this appears second in the summons which is expressed to be alternative to the Order 14 application, I consider that it should, in the circumstances of this case for reasons which will immediately become clear, be taken first.

12.  There is no doubt that the Plaintiff has been guilty of very serious delay in applying for the interlocutory injunction.  The relevant chronology is that the writ was issued as long ago as May 2003, at which time it would have been open for the Plaintiff to have made its application in a case where alleged breaches of Registered Designs and of copyright, as appear in the Statement of Claim, relate back to 2002.  The summons applying for the Interim Injunction was six and a half months in coming, it having been issued on the 10 December 2003 and returnable inter partes on the 22 December 2003 before Deputy High Court Judge To.  Instead of pursuing the matter then, the Plaintiff decided to pull back and, by consent, the summons was adjourned generally with liberty to restore, the Plaintiff agreeing to pay the Defendant’s costs in any event.

13.  Just under a year later, the Plaintiff’s solicitors wrote a letter dated the 4 December 2004 to the court asking for the summons to be restored, which it was, originally on the 22 December 2004 and then for substantive argument on the 2 and 3 March this year.  In other words, the Plaintiff has delayed for over 18 months since the issue of the writ to have the question of whether it should have an injunction determined by the court [23 May 2003 to 4 December 2004 when the Plaintiff’s solicitors wrote to the court].

14.  In the meantime, the Plaintiff has amended and then re-amended its Statement of Claim, the final version coming on the 28 December 2004 with consequent amendments being made by the Defendant to its Defence and Counterclaim, the final pleading in the series dated the 21 February 2005 being a Reply and Defence to counterclaim by the Plaintiff.

15.  In relation to delay, Mr Albert Yau, for the Plaintiff, has drawn attention to para. 22-85 in Copinger & Skone James on Copyright Vol. I which states that;

“The tendency of the court is not to refuse an injunction at the hearing of the action merely on account of delay in instituting proceedings, subject to the provisions of the Limitation Act 1980.  Of course, such delay may be a factor in establishing general equitable defences such as latches acquiescence, waiver and estoppel.  Under certain circumstances delay might be held to amount to a tacit permission to reproduce the work.”

He also submits that delay is just one of the factors to be considered.  In this regard, the passage in Copinger clearly relates more to the situation at trial where substantive relief is being considered rather than the present position relating to the grant of an interim injunction and so this passage is of very limited assistance to him.

16.  Mr Ling, for the Defendant, submits that given this substantial delay it is now quite inappropriate  to grant an injunction.  The matter had been allowed to fall into abeyance for more than 18 months after the adjournment by Deputy High Court Judge To following a delay of more than 6 months after the issue of the writ.

17.  It seems to me that the cases of Jaggard v Sawyer (1995) 1 WLR 269 and Husky Injection Moulding Systems China Ltd v Lau Kwong Fat & Anr. (2002) 3 HKC 223 are in point.  The question is helpfully summarised in the High Court Practice 2004 in the note to Order 29 r. 1 at 29/1/41 (page 506) in this way;

“… in a case in which trial damages may properly be awarded in lieu of an injunction as final judgment [as they undoubtedly can be in this case], a plaintiff who does not seek interlocutory relief at a time when he would almost certainly have obtained it takes a risk as the failure to make timely application may properly be taken into account in considering whether it would be oppressive to the defendant to grant an injunction.”

These remarks are entirely appropriate to the chronology in this case which discloses a case of very serious delay during which the Defendant has been allowed to continue to conduct its affairs unrestrained and without interruption.

18.  The same note to Ord. 29 r. 1 [page 506] I think fairly underlines the need for a plaintiff to proceed with expedition.  In relation to an ex parte application, the point is made that a plaintiff will be required to apply promptly after becoming aware of the facts in relation to which he seeks protection.  If he delays, it is likely that he will not succeed in obtaining ex parte relief, at all events, because his failure to move with real expedition may be taken by the courts as an indication of the lack of any urgent need to grant relief ex parte.  Reference is made there to two English cases from which this proposition can be made out.  See Hunter v Wellings (1987) FSR 83 at 86 and Bates v Lord Hailsham (1972) 1 WLR 1373 at 1379.  Whilst these remarks are confined to ex parte relief, it seems to me that the same sentiments will apply to inter partes relief where the delay must be considered as particularly long, as it is, in my judgment, in this case.

19.  It is also worth having regard to HongKong Toy Centre v Tomy UK (1994) (The Times January 14^th) and Global Faith Investments Ltd v Eyi International Ltd unreptd., CACV 248/2000 (2001) HKEC.  This latter decision reinforces the need to proceed to an inter partes hearing with expedition.  The earlier of these two cases is of particular assistance.  In that case, the Plaintiff had obtained interim relief in the form of undertakings from the Defendant until the hearing of the motion for the injunction.  In such circumstances, the court held that the Plaintiff is then under a particular duty to take steps to ensure that the hearing of the motion is held promptly.  Where the Plaintiff is guilty of inordinate and inexcusable delay, the motion may be dismissed.  Here the position is even more difficult for the Plaintiff where the motion has been adjourned, without undertakings, and allowed to remain in abeyance for more than 18 months before it was restored.

20.  Mr Ling has, additionally, relied on two decisions at first instance in this court, Novex Electronic Co Ltd v Wave-Sonic Electronics Ltd (1980) HKC 708, 717 per Liu J., and Harbour Fit Industrial Ltd v Tam Kwai Garden Seafood Restaurant Ltd (2002) 2 HKC 387-494 per Deputy High Court Judge Saunders, where delays of three and four months respectively were held to be too long, and the court declined to grant the injunctions sought.

21.  This case must suffer the same fate in circumstances of very bad delay indeed.  Unless the application is made timeously, the court may well conclude, as I have in these circumstances, that there is no urgency which would require the court to step in and grant the injunction before trial, otherwise the Plaintiff would have moved far more quickly than has been the case here, where it has, on the contrary, shown no urgency at all.  The Plaintiff must therefore have to content itself to wait the outcome of the trial to see whether it has been able to persuade the court to grant the injunctions at that stage or merely to content itself with damages on the assumption, in both instances, that it will be able to succeed.  For these reasons, I will dismiss the application for the injunctions in the exercise of my discretion without the need to have regard to the merits of the application where in my judgment the Plaintiff, having failed to act timeously, cannot even get to the starting gate.

Order 14

22.  This, of course, requires an examination of the merits.  It is convenient to divide the various elements of the claim and consider these separately.

Infringement of Registered Design

23.  The Plaintiff accepts that the statutory protection of the registered design in Hong Kong lapsed on the 7January 2002, although it continues to subsist in the United Kingdom. The consequence of this is that the Plaintiff is now unable to obtain any relief from the courts of Hong Kong in respect of any infringement that it may be able to prove against the defendant after the 7 January 2002.  Its claim is therefore limited to the period from 8 January 1992 to the 7 January 2002

24.  Mr Ling submits that there are two defences available to the Defendant which are sufficiently arguable to require the matter to go to trial.  These are that the original registration was invalid for want of novelty by reason of prior publication of similar or identical designs and that the Defendant did not know and had no grounds for believing that the design was registered.

25.  The Registered Designs Act 1949 and the RDO requires a design to be new or novel.  This will relate in features of shape, configuration, pattern or ornament of the article in question which appeals to and will judged by the eye.  That having been said an application for registration does not require the item or article in question to undergo any substantive examination to ensure that the criteria as to novelty are met.  Such examination would only need to be gone through if and when a challenge has been raised, as is now the case, by way of the Defendant’s defence and counterclaim.

26.  The registration as appearing in the Certificate of Registration asserts novelty in the “shape and configuration” of the article shown in the three photographs.  This being so, Mr Ling submits that it would not be surprising to find that the shape and configuration of a scuba diver as applied to aquatic toys was nothing new in 1992 and in this regard he refers to prior art dating back to 1982, and the items referred to in paragraph 3(b)(i), (iii) and (v) of the amended defence. These items are said to have been published in leading trade journals in Hong Kong prior to 1992.  If this can be demonstrated, it is open to the court to declare that the exclusive privileges and rights in the design have not been acquired in Hong Kong.  This declaration being one pursuant to s. 93(3) of the RDO and if that is so, the registration is liable to being revoked and deemed never to have been made.  See sections 45 and 46 of the same Ordinance.

27.  Pausing there, it seems to me that this defence is one that is sufficiently credible, in Order 14 terms, to require the matter to go to trial.  The fact that there is solid evidence of prior art going back to 1982 must provide a sufficient basis to allow the matter to go to trial on this ground alone.

28.  As to the second defence based on lack of knowledge, the Defendant has denied that it was aware of the registration at the time of the alleged infringement.  Although Mr Tam has said that the Plaintiff provided the “Registered Design detail” to the Defendant to enable it to make the moulds in February 1992 I cannot see how Mr Tam can also say that the Defendant was made aware of registration which did not in fact take place until April 1992.  The other feature relied on by Mr Ling is that it is highly arguable and therefore sufficient for present purposes for the defence to assert that it had no reason to believe that the design had been registered.  The design of a scuba diver is commonplace and the fact of registration was not notified by the Plaintiff in its own advertisements.  Section 51 of the RDO provides a defence to a defendant who proves that at the date of infringement he was not aware and had no reasonable grounds for believing that the design was registered.  A defence of this sort is of course very evidence sensitive and I am satisfied that the Defendant has done enough to suggest that this should be allowed to go to trial in the conventional way.

Copyright Infringement

29.  Copyright infringement requires proof of copying.  The action is brought on two sketches said to be the “original artistic works” and, by re-amendment to the Statement of Claim, to the six moulds.  I am not minded to consider this enlarged claim which now seeks to bring in the moulds where the summons itself only relies on matters pleaded in the Amended Statement of Claim.

30.  Mr Ling has submitted that the issue here is whether the sketches can be said to be original as understood in section 3(2) Copyright Act 1956 which requires the work to originate from the author and not to have been copied from elsewhere.  Independent skill and labour is required.  What is the evidence of originality?  There is no evidence from the artist, Mr Sam Chan, to say that these are his “original” works.  Mr Tam makes the assumption that they are.  Added to this is the fact that these sort of toys are common in the market place.  I have been shown many similar scuba divers in the promotional materials.  The sketches themselves are also rudimentary, although that of course need not be fatal, see for example, Fossil Inc v Trimset Ltd (2003) 3 HKLRD 11.  Mr Ling has also raised the question as to what he says is the absence of evidence that the Defendant copied Mr Chan’s drawings, given the banality as opposed to any intricacy in the sketches relied on.

31.  Mr Ling has also referred to a number of other matters which appear at page 6 of his skeleton submission.  I am bound to say that none of these arguments can be cast aside at this stage.  They will need to be tested in the course of live evidence before the trial judge.  This is not an appropriate case for an Order 14 judgment.  The defendant therefore must also have unconditional leave to defend this part of the claim.

Passing off

32.  This tort, requires proof of three elements.  Firstly, goodwill, secondly misrepresentation and lastly damage.  The fundamental difficulty that the Plaintiff faces here is that it is not passing-off to copy (even precisely) the construction or appearance of goods if what has been copied is valued by the customer for practical, functional or aesthetic reasons and not as an indication of origin.  The Plaintiff relies on the fact of its Registered Design as an indication of origin which in turn provides it with its goodwill.  In doing do, it is rather driven to say that any other toy in the shape of a scuba diver would amount to a misrepresentation that it comes from the Plaintiff. This is a simple design and a readily available toy and whilst there are obvious similarities between the two, it is going too far at this stage of the enquiry to say that the Defendant has no answer to a claim of passing off so as to deprive it of a trial.  If anything, it seems to me, that this may ultimately prove to be the weakest of the Plaintiff’s claims.  There must be unconditional leave to defend.

Speedy trial

33.  Given the Plaintiff’s lack of urgency hitherto I can see no good reason to now order a speedy trial.

Costs

34.  Where the Plaintiff has failed on every limb of the summons, I would have thought that, inevitably, it must pay the Defendant its costs in any event.  This order will be an order nisi in the usual way.