SEIKO INSTRUMENTS INC AND ANOTHER v. PYXIS ENTERPRISES (HK) LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. The first plaintiff makes watches. It sells them to the second plaintiff and its subsidiaries. The second plaintiff and its subsidiaries are responsible for all the wholesale and retail marketing and sales of the first plaintiff's watches. The watches are marketed under several trademarks, one of which is the ALBA trademark. The plaintiffs say that the first plaintiff created and produced the design of a watch called the SPOON watch, which is part of the ALBA range.

2. The plaintiffs assert that the first plaintiff is the owner of the copyright subsisting in the original artistic works and drawings relating to the design of the SPOON watch, which was manufactured by the first plaintiff and marketed by the second plaintiff.

3. The plaintiffs also allege that the first plaintiff is the registered proprietor of, amongst other things, United Kingdom Registered Design number 2054840 dated 7 November 1995 relating to the SPOON watch design.

4. The plaintiffs say that the defendant, which is an importer, trader and distributor of watches, has infringed the plaintiffs' copyright and registered design.

The Ex Parte Order

5. On 29 January 1997, on an ex parte application, the plaintiffs obtained an injunction restraining the defendant from specified acts that might infringe the plaintiffs' rights and from interfering with the infringing goods and documents relating to them. The plaintiffs also obtained an Anton Pillar order in the usual terms.

6. The defendant now applies for the discharge of the orders. The plaintiffs apply for their continuance.

Non-disclosure

7. The defendant applies for discharge on the grounds of material nondisclosure to the ex parte judge. There are three areas in which the defendant says that the plaintiffs failed to make full disclosure of material evidence. These are-

• evidence relating to the registered design;

• evidence relating to delay in taking action; and

• evidence relating to the standing of the defendant.

8. I will deal with each of these in turn.

Evidence relating to the Registered Design

9. The defendant says that the plaintiffs failed to disclose evidence that would have, at least, cast doubt on the validity of the registered design.

10. The evidence adduced by the defendant is that, in or about September 1995, Mr Donny Yeung, the managing director of another watch dealer, received from a Japanese supplier the ALBA 1995 catalogue. This catalogue illustrated the SPOON range of ALBA watches and said that they would be launched in November 1995. Mr Wong Kwok Keung, the managing director of the defendant, says that he was told by a director of another watch company that the catalogue had been freely available to dealers in Japan since September 1995, and that many of the catalogues had been sent or brought to Hong Kong by watch dealers for the purpose of soliciting business. In this way, SPOON watches were available in Hong Kong by parallel importation before the launch.

11. On this topic, Mr Yamaguchi, the general manager of the second plaintiff's legal and intellectual property department, says that the catalogue was published in 1 October 1995 for the Japanese market only. It was in the Japanese language only. It is probable that no catalogues were sent by the plaintiffs out of Japan before 7 November 1995.

12. By virtue of the United Kingdom Designs (Protection) Ordinance, Chapter 44, the relevant law is contained section 6(4) and (5) of the Registered Designs Act, 1949 of the United Kingdom. Subsection (4) says that, subject to subsection (5), a design shall not be treated as being other than new by reason only of any use previously made of the artistic work. Subsection (5) says that subsection (4) does not apply if the previous use consisted of or included the sale, letting for hire or offer or exposure for sale or hire of articles to which the design had been applied industrially and this was by or with the consent of the owner. Under section 1(4) of the Act, and section 2 of Chapter 44, and in accordance with Bissell AG's Design Application [1964] RPC 125, the acts contemplated in subsection (4) are acts, by or with the consent of the owner, in the United Kingdom or Hong Kong.

13. It is probable that, if there was a previous use as mentioned in subsection (4), this took place only in Japan. Certainly, none of the acts contemplated by subsection (4) took place in the United Kingdom or Hong Kong by or with the consent of the plaintiffs.

14. It follows that the publication of the catalogue is irrelevant, and there is no material non-disclosure here.

Delay

15. The defendant also says that the plaintiffs failed to disclose to the ex parte judge the extent of their delay in taking action. In this connection, it is important to bear in mind that what the ex parte judge was being asked to consider was whether or not there was a case for granting an interim injunction and an Anton Pillar against the defendant. Consequently, what the judge was entitled to expect was all evidence that was material to the weighing operation in making that decision. The judge was not considering whether or not the plaintiffs had a case against other infringers, or when the plaintiffs should, perhaps, have taken action against these other infringers.

16. The plaintiffs' evidence before the ex parte judge was from Mr Phillip Layton, an investigator, and Mr Yamaguchi.

17. Mr Layton said that on 11 November 1996 he was instructed by the plaintiffs' solicitors to investigate various companies in Hong Kong, Singapore and Malaysia that were suspected of being involved in infringing acts. The defendant was one of these companies. By this, the ex parte judge was told that there might be other alleged infringers.

18. Mr Yamaguchi said that the activities of the defendant first came to the plaintiffs' attention during the 1996 Hong Kong Watch and Clock Fair held in Hong Kong during 9 to 13 September 1996. It was noticed that the defendant was offering a watch that was a copy of the SPOON watch. In a later affirmation, Mr Yamaguchi says that the plaintiffs discovered that "several exhibitors" were offering high quality SPOON imitation watches. No sample was obtained at that time.

19. At that time, the plaintiffs did not know how successful the SPOON watches would be in Hong Kong, they were not aware of the extent of the defendant's unlawful activities, and did not know whether it would be worthwhile taking action against the defendant. The plaintiffs decided to monitor the situation.

20. By November, it was clear that the SPOON watch would be successful in Hong Kong, and that, because of this popularity, infringements were starting to surface in Hong Kong and elsewhere. It was decided to take urgent action to stamp out these infringing activities.

21. Accordingly, on 11 November 1966, the second plaintiff instructed Mr Layton to conduct investigations.

22. The plaintiffs' distributor in Hong Kong also conducted investigations to obtain samples. In early to mid-December samples were purchased and sent to the plaintiffs. Further investigations after Christmas and New Year brought forth samples in Singapore that had originated from the defendant.

23. The ex parte judge was also told that there were other infringing copies on the market that did not appear to have originated with the defendant.

24. Accordingly, it was decided to make the application against the defendant.

25. That was the evidence before the ex parte judge.

26. Mr Hayashi, the general manager of the plaintiffs' distributor, says in an affirmation filed on 11 April 1997 that he was aware that some dealers were parallel importing genuine SPOON watches in early 1996. From around April 1996 onwards, he was also aware there were small quantities of low quality imitation SPOON watches on the market. Most of these watches were sold by street hawkers and some low-end watch companies; most were cheap imitations of low quality not incorporating illumination buttons. Mr Hayashi says that potential purchasers of SPOON watches would not be interested in these cheap imitations. He says that, although there were some fake SPOON watches available on the market before November 1996, the problem was not serious. The launch of the SPOON watch had not been hampered by these fakes. However, complaints came from dealers in November 1996 that there were some high quality Mickey SPOON watches on the market and these were seriously affecting sales of the genuine SPOON watch. His company investigated, and then asked the plaintiffs to take action.

27. Mr Wong, of the defendant, says that it is clear from statements in various magazines and newspapers that imitation SPOON watches were freely available in Hong Kong from the middle of 1996. Mr Wong says the plaintiffs must have been aware of this. He says, however, that, in November 1996, the defendant "was still at an early stage in the dealings with the alleged infringing watches".

28. Thus, it appears that the ex parte judge was told that others were suspected of copying the SPOON watch, but he was not told that there were infringing copies on the market earlier than September 1996 or that other exhibitors were offering high quality SPOON watches in September 1996. Mr Yamaguchi confirms that the plaintiffs did know that, by mid-1996, some cheap imitation SPOON watches could be found sold by street hawkers and at some low-end retailers in Hong Kong.

29. It seems to me that the plaintiffs did place before the ex parte judge all the evidence that was relevant to the weighing operation in considering whether there was an adequate case against the defendant. I do not think that there was any reason to suppose that the ex parte judge might also be interested to know what sort of case there might have been against other infringers.

30. The evidence relevant to the delay in taking action against the defendant was squarely placed before the ex parte judge. Clearly, he did not think that this was such that he should not grant the order.

31. It is another question whether the delay in taking action against the defendant is such as to deprive the plaintiffs of the remedy of an injunction, but it is convenient to deal with it here.

32. The plaintiffs first knew of the defendant infringing activities in September 1996. It did not take action because it did not know how successful the SPOON watches would be in Hong Kong, they were not aware of the extent of the defendant's unlawful activities, and did not know whether it would be worthwhile taking action against the defendant. Mr Wong agrees that, in November 1996, the defendant "was still at an early stage in the dealings with the alleged infringing watches". The plaintiffs decided to monitor the situation. This, in my view, is entirely sensible. I do not believe the courts, by encouraging parties to act quickly in these circumstances, should be seen to be encouraging them to act precipitately, when it may transpire that there is no real business or economic reason to act at all. By November 1996, it seemed the situation warranted further action, so the plaintiffs instructed investigators. This again seems wise. The plaintiffs needed evidence of what the defendant was doing, and the extent of its activities. It would have been foolish to act without this evidence. The investigators investigated, and met Mr Huang on 29 November 1996. During December and early January 1997, they conducted investigations outside Hong Kong. The plaintiffs commenced proceedings in late January 1997. The delay was fully explained by the plaintiffs, and is no greater than one would expect, in a case of this nature, where the courts would wish a plaintiff to act cautiously and carefully.

33. I do not think the delay is anything like sufficient to deprive the plaintiffs of the remedy of an injunction.

34. Nor do I think that it destroys the plaintiffs' case on irreparable damage. In this context, the argument must be that the plaintiffs did not think they would suffer irreparable damage. If they did think that, they would have taken action earlier. But once one concludes, as I have done, that a plaintiff acted sensibly in making sure the action was necessary, economic and businesslike, a delay in order to ensure this cannot be strong evidence that the plaintiff did not think the activities of a defendant would cause irreparable damage.

The Standing of the Defendant

35. The defendant also complains that the ex parte judge was not told that one of the directors of the defendant, Dr Samson Sun, was a very eminent per son and permanent honorary president of the Federation of Hong Kong Watch Trades and Industries.

36. It is, of course, important that, in an ex parte application of this sort, that the plaintiff should disclose information about the defendant so that the ex parte judge can assess what the defendant is likely to do when it has knowledge that the plaintiff is pursuing it.

37. In this case, what the plaintiffs told the ex parte judge would have left the impression with him that the defendant was a sound company of substance. No attempt was made by the plaintiffs to paint a picture of a hole-in-the-wall, fly-by-night defendant that, by reason of its lack of standing, was likely to behave irresponsibly. The information conveyed was such that there could have been no doubt in the mind of the ex parte judge that the defendant was an apparently respectable company engaged in dealing in watches in a substantial way, and that it was licensed to use the trademarks of a number of internationally known companies. The ex parte judge was also told that the defendant was dealing with what were alleged to be infringing copies in an open manner.

38. The plaintiffs did not describe the high standing of Dr Sun, although they did say that he was a director of the defendant. They say that, at the time of the ex parte application, they did not know of this. The truth is that, if the plaintiffs had described the eminence of Dr Sun, this would have been misleading because we know that Dr Sun had very little to do with the defendant's day-to-day operations.

39. In my judgment, there was no failure to disclose material facts in this respect that would justify the discharge of the ex parte orders.

Conclusion on the Application to Discharge

40. It does not seem to me that there is anything of substance in the defendant's complaints of non-disclosure. Accordingly, the application to discharge is refused.

The Other Evidence before the Ex Parte Judge

41. The investigators acting on behalf of the plaintiffs went to the defendant's premises on 29 November 1996 where they met Mr Stanley Huang, who was then the defendant's general manager, and his assistant. Mr Huang's business card identified himself as the defendant's general manager, and described the defendant as licensee or agent of several well-known brand names, such as "Snoopy", "Mickey Mouse" and "Satchi".

42. The conversation at the meeting was secretly recorded. The investigators professed to be exporters of watches to Australia, and said they were very keen on SPOON watches. They said they were interested in buying 5000 pieces. There is no need to give details of the whole conversation. It is quite clear from what was said that Mr. Huang, on behalf of the defendant, was prepared to supply to the investigators copies of SPOON watches, which, he said, was a new design; an original design from SPOON. I say he was prepared to supply copies of the SPOON watch but he sought to convey to the investigators that, if the watch carried the "Mickey" mark, it was not a copy. The investigator said, "I don't want the Mickey", to which Mr Huang responded that he would "just leave it blank". Mr Huang said the defendant had two factories in Shenzhen, and the defendant had its own factory in Taipei. Mr Huang said the defendant had produced 50,000 pieces of the SPOON type watch. Mr Huang produced two samples that appeared to be copies of the SPOON watch. The investigator purchased one of these samples of the SPOON watch. He asked for a receipt, but Mr Huang said that the computer was doing "some of our updates". It is also clear from the conversation that the defendant was prepared to supply copies of other branded watches, included copies of another type of watch marketed by the plaintiff and copies of watches produced by Casio.

43. Later on the same day as this conversation, Mr Huang telephoned one of the investigators and asked for the return of the sample, saying it was defective. On 2 December, Mr Huang telephoned again. He asked for the return of the sample, this time saying that he needed to show it to another potential buyer. On the same day, someone claiming to be an employee of the defendant came to the investigators' office and attempted to return the $78 paid for the sample. On 3 December, another attempt was made to return the $78.

Assessment of the Evidence before the Ex Parte Judge

44. There was ample clear evidence before the ex parte judge that the defendant had in its possession incriminating documents and other things. The judge was entitled to infer from what Mr Huang said as general manager of the defendant that the defendant was quite prepared to unlawfully infringe the intellectual property rights of others in order to make a profit. The defendant, it was revealed, was in the business of pirating the property of others, and it was prepared to do pretty well what a potential customer wanted to secure his order. Whatever explanation one wants to give about Mr Huang's desperate attempts to recover the sample watch and return the money, his conduct was highly suspicious. When one is dealing with a defendant that is prepared to act in this way, there must be a real possibility that the defendant might take steps to avoid the consequences of its actions by putting evidence out of reach if it has notice of the application.

Evidence Filed after the Ex Parte Orders

45. None of what Mr Huang is alleged to have said and did is denied. The evidence is that, on 29 November 1996, the defendant sacked Mr Huang, and his assistant was sacked later. The defendant says that this had nothing to do with their conduct in dealing with the investigators.

46. The defendant attempts discredit Mr Huang as being little short of a fool. Mr Wong, the defendant's managing director, says that Mr Huang was employed only in October 1996. He was not familiar with the defendant's business. He proved to be an unsatisfactory employee, and he was dismissed on 29 November 1996. Mr Wong says that the defendant had only ordered or sold about 22,000 of the alleged infringing watches. No documentation is produced to support this assertion, except, belatedly on the first day of the hearing, some reports from the defendant's own computer. He says that, in November 1996, the defendant "was still at an early stage in the dealings with the alleged infringing watches".

47. Although much effort is devoted by the defendant to show that what Mr Huang said to the investigators revealed that he did not know very much about the defendant's business, it is most improbable that, after only a month or so into his employment with the defendant, he had independently converted the defendant's legitimate business into a pirate operation.

The Evidence as to the Execution of the Anton Pillar Order

48. Miss Anita Leung, one of the plaintiffs' solicitors, says that, during the execution of the Anton Pillar order, she received a report that Mr Dominic Wai, who had accompanied her, had seen an employee of the defendant come out of the workshop with three boxes, one of which was marked "SPN-2", which is the code used by the defendant to identify their SPOON look-a-like watches. The employee took these boxes to the lift area. Miss Leung told Ms Cheung, who was the defendant's employee dealing with the matter, that no items covered by the order should be removed. Miss Leung asked what was in the three boxes. Ms Cheung said that "there should not be anything in the 3 boxes".

49. Mr Wong then arrived on the scene. Miss Leung explained the order to him. Mr Wong said that the watches were not theirs. Later, Mr Wong said that some watches, including those bearing the JAGA trademark, had not been ordered by the defendant. In a subsequent affirmation, Mr Wong retracted this. He said, in fact, the defendant had ordered watches bearing the JAGA mark. Mr Wong was asked to provide the plaintiffs' solicitors with all documents and articles covered by the order. Mr Wong agreed to do so. Later, Mr Wong handed over two colour drawings of the Mickey SPOON look-a-like watch and a sample of this watch. Mr Wong said that these were all the relevant materials he could locate.

50. Mr Wong's version of this, given only on the first day of the hearing, is that Miss Anita Leung asked him if there were any drawings. He said 'yes' and produced two colour drawings of "the Mickey Mouse spoon look-alike". He denies that he said that these were all the relevant materials he could locate. His attitude was that the plaintiffs' solicitors were going to search "everywhere in the office anyway".

51. The plaintiffs' solicitors continued the search and found 765 watches and a large number of documents that fell within the terms of the order.

52. Mr Dominic Wai says that he was waiting outside the workshop at the time of the execution of the order. An employee went into the workshop and came out with three cartons. Mr Wai noticed that one carton had SPN-2 written on it. While waiting for the lift, the employee turned and appeared to notice Mr Wai watching him. The employee "then quickly took out a black felt tip pen from his pocket and crossed out the 'SPN-2' marking". The employee then entered the lift with the boxes and proceeded upwards. When the employee returned, Mr Wai asked him what he had done with the boxes. He said he had moved them down to the office. Mr Wai asked him if they were SPN products. The employee said that they were not. About two hours later, Mr Wai saw the same employee, and again asked him where he had taken the three boxes. This time the employee said that the boxes contained defective goods and had been sent back to China.

53. Mr Wong says, in the affirmation filed on the first day of the hearing, that he has "since ascertained that the said boxes did not contain any watches of the type complained of by the plaintiffs". He says that the plaintiffs "never asked us the whereabouts of the carton boxes". He thought the boxes were not important at all.

54. In an affidavit filed again only on the first day of the hearing, Mr Hau Wun Fai, the defendant's solicitor, who had already filed three affidavits, said that Miss Leung did not mention in her first affidavit that she had asked Mr Wong to deliver up all relevant watches and watches. This is true. What she said was that another of the plaintiffs' solicitors, Mr Arnold, asked Mr Wong to do so. The point Mr Hau is making, otherwise there is no point at all, seems to be that there was no evidence, until much later, that anyone asked Mr Wong to do this. Mr Wong himself says that he was asked for drawings. It is unlikely that he was asked for drawings only; that makes no sense at all. Mr Hau says he did not hear Mr Wong say that "these were all the relevant materials he could locate". Mr Hau says that no one complained to him about the three boxes being removed. He says the plaintiffs "chose not to pursue ... to find out what was inside those carton boxes but to wait for some 70 odd days so that they would have something to attack the honesty of the defendant's staff when they filed the plaintiffs' evidence in reply". It is very difficult to understand what Mr Hau is trying to say here. The incident about the boxes is fully recounted in affidavits filed by the plaintiffs on 4 February 1997, some five days after the incident. The defendant did not deal with this evidence until very late in the day. I do not understand Mr Hau's reference to 70 days. And Mr Wong, apparently, had no difficulty finding out that the boxes did not contain infringing copies. No evidence has been adduced by the defendant to explain just what was in those boxes - Mr Wong says what they did not contain, not what they did contain - or to deny that the plaintiffs' solicitors showed a great interest in them.

55. Mr Wong says that some of the alleged infringing watches were supplied by something called Creative Plus, but he was shy about disclosing the name of the supplier of other alleged infringing watches, and he initially produced no documentation about the supply. The only document found that may be of some relevance is a single sheet of paper discovered during the execution of the Anton Pillar order. This is dated 4 December 1996. In this document the defendant gives instructions to a company called Creation Plus regarding one kind of the alleged infringing watches. In the affirmation by Mr Wong filed on the first day of the hearing. Mr Wong produces invoices from Creation Plus relating to some 10,700 watches, but he still does make a full disclosure of the sources of all the watches concerned.

56. The defendant's evidence on what happened during the execution of the Anton Pillar order is unsatisfactory. It is probable that Mr Wong was asked to produce the documents and articles mentioned in the order. He failed to do so, and his explanation for this is not credible. He has still failed to make a compete disclosure of the origins of all the alleged infringing copies. The defendant's conduct regarding the three boxes is suspicious. The plaintiffs' solicitors made their interest in the contents of the boxes quite clear, but the defendant's employees made no attempt to satisfy their interest. Ms Cheung implied that the boxes were empty, apparently without checking. Mr Wong says that they did not contain offending items, but he does not tell us what they did contain. Mr Wong must have obtained his information as to the contents of the boxes from the employee who moved them, or some other employee who knew what they contained. But the defendant does not file any evidence from this employee.

57. The impression I get from this late evidence filed by the defendant regarding the happenings at the time of the execution of the Anton Pillar order is that the defendant is wriggling to get off the hook. The affidavits of Miss Leung and Mr Wai were filed on 4 February 1997. In spite of their clear statements of the events, Mr Wong and Mr Hau, who both filed evidence earlier, do not challenge what they say until the twelfth hour, and when they do so, what they say is unsatisfactory.

Other Aspects of the Plaintiffs' Case

58. There can be no doubt that the plaintiffs have established at least a good arguable case on infringement. In my view, their case, taking into account the defendant's conduct, is stronger than that.

59. The only attempt made by Mr Wong to suggest that the plaintiffs do not have a cause of action is to say that the SPOON watch may not be "unique". He suggests that watches produced by others in the past were "closely similar" to the SPOON. This, of course, is not relevant if the work originated from the original skill and labour of the plaintiffs' employees.

60. On the question of irreparable harm, I have already held that such delay as can be laid at the door of the plaintiff is not evidence that they will not suffer irreparable harm. Otherwise, in my view, the plaintiffs have established that damages will not be an adequate remedy. It would be very difficult, if not impossible, to assess what damages the plaintiffs would suffer by pirate copies of its products being marketed by the defendant. How does one begin to estimate what damage will be caused to the name of SPOON, ALBA and the plaintiffs' products generally by cheaper infringing copies being sold on the market? Mr Tang made no serious effort to argue against this view.

61. There is no reliable evidence that the defendant will suffer irreparable damage if the injunction is continued, and Mr Tang did not argue that this would be so. Mr Tang told me that the defendant would not offer any undertaking in lieu of an injunction.

62. The balance of justice and convenience is, in my view, clearly on the side of the plaintiffs. Again, there was no strong argument addressed by Mr Tang on this point.

Conclusion on Continuing the Injunction

63. In my view, the plaintiffs have established a strong case for a continuation of the injunction, and this is granted.

Costs

64. The matter of costs was not argued before me, but, at first blush, it seems to me that the proper order is that costs be in the cause. I make an order nisi accordingly.