XCHRX LEE HANDERSON (HK) LTD. v. FINEST PRODUCTS MANUFACTURING CO. LTD. AND OTHERS

HCA17820/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.17820 OF 1998

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J U D G M E N T

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1. The Plaintiff is a company incorporated in Hong Kong, carrying on business in the design, manufacture and sale of inter alia, calculators. This is the Plaintiff's application by summons issued on 23rd December 1998 under Order 14 of the Rules of the High Court for summary judgment against the 1st Defendant in respect of alleged copyright infringements and of the Plaintiff's layout design in BT1227M.

2. Mr Raymund Chow, Counsel for the 1st Defendant, informed me that for the purpose of this hearing, the 1st Defendant does not take issue on :

a) subsistence and ownership of copyright in drawings referred to in paragraph 3 of the Re-Amended Statement of Claim except drawings of the packaging box for Model Nos. 1052E and 1052R in paragraph 3(vii); and

b) the 1st Defendant's Model Nos. 223 and 225 are substantially similar to the Plaintiff's Model Nos. 1052E and 1076E/1080E respectively.

And that, the only issues are :

a) ownership of proprietary right in BT1227M;

b) subsistence of copyright in drawings of packaging box for Model No. 1052E and 1052R referred to in para.3(vii) of the Re-Amended Statement of Claim; and

c) knowledge or reason to believe of the 1st Defendant in secondary infringement of the Plaintiff's copyright.

3. The 1st Defendant was incorporated in Hong Kong on 9th January 1998. Mr Lam Chi Kit, Kelly ("Mr Lam") and Mr Ng Sai Ho, Aldous ("Mr Ng") are and have been its only subscribers and directors.

BT1227M

4. The Plaintiff's case on the integrated circuit BT1227M is that its Managing Director, Mr Howard Lee ("Mr Lee") in about December 1996, devised the concept of a calculator with the additional function of converting any currency to or from Euro on the touch of a single key. He approached Bontex Technology Ltd. ("Bontex") to develop an I.C. capable of performing this one-touch function. The Plaintiff and Bontex entered into a non-disclosure agreement dated 30th December 1996 whereby the parties agreed :

"... to enter into a confidential agreement for the development of a new CONVERTER/CALCULATOR I.C. (hereinafter called 'New Product')."

And that, Bontex agreed :

"... all related information and documents regarding the 'New Product' shall remain the property of 'LEE HANDERSON' and shall be returned to 'LEE HANDERSON' upon its request."

5. By letter dated 19th March 1997, Bontex wrote to the Plaintiff stating that Bontex agreed :

"... to develop a special calculator CMOS (hereinafter called BT1226LH) for single currency exchange application for LEE HANDERSON (HK) LIMITED (hereinafter called Lee Handerson). The specification and terms of condition are as follows:

SPECIFICATION

The BT1226LH will be modified from the standard calculator CMOS BT1226M (The specification of BT1226M is attached). The BT1226LH will be very similar to BT1226M and the following feature will be added into BT1226M and deleted from BT1226M."

At this stage, the model number of the 'New Product' was BT1226LH and was to be modified from the standard calculator Model No. BT1226M.

6. By letter dated 21st March 1997, Bontex set out its quotation of development fee and the manufacturing price of the 'New Product' :

"Development fee will be absorbed by Bontex if Lee Handerson completed 1,000 K of order with ONE YEAR counted from the Engineering Samples approval date. If Lee Handerson cannot complete the above mentioned quantities within the above mentioned period, Bontex will charge Lee Handerson a amount of USD 8,000.00 to share a portion of the development fee."

7. By an Indenture dated 1st August 1997 made between the Plaintiff as the customer and Bontex as the supplier, Bontex agreed that :

"1. The function of the I.C. BT1227M is being originated and designed by the Customer. The Supplier is not allowed in sell the I.C. BT1227M to any third parties.

....

4. Development Fee

There is no development charge. If the Customer cannot complete a total order of 800,000 PCs within Two years counted from the Engineering Samples approval, the Supplier shall charge the Customer an amount of USD8,000.00 as development fee.

....

8. In consideration of the payment of deposit by the Customer to the Supplier, the Supplier shall programmed (sic) the I.C. BT1227M to suit the Customer's specifications.

9. If the Customer finds any function which does not follow the final specification after the I.C. masking, the Supplier shall be responsible for All costs and expenses incurred by making modification or improvement.

....

11. The Customer is entitled to have the legal title including the copyright of the design of the I.C. BT1227M.

12. The Supplier agree only sell the BT1227M to the Customer and not to sell the BT1227M to any other Customer without obtaining the acceptance by the Customer."

The model number of the 'New Product' had become BT1227M.

8. On the Plaintiff's case, Bontex sub-contracted to a Russian manufacturer to develop and manufacture BT1227M. The 1st Defendant has not put forward a positive case or even a suggestion that the Russian manufacturer, which we now know is Integral, is the owner of the layout design (topography) in respect of BT1227M.

9. In his revised skeleton, Mr Chow contended that :

"3. P instructed Bontex to develop BT1227M. But there is no evidence that the Russian manufacturer, Integral gave any proprietary right in BT1227M to either Bontex or P.

Paras 4-9 of 1st Affirmation of Homer Lee (p.32-34 of Bundle 1)

HL-3 (P.79 OF Bundle 3) & HL-7 (p.90 of Bundle 3)

4. On the contrary, Integral denied that either Bontex or P had any right in BT1227M in a letter sent to D6.

WKC-1 (p.532 of Bundle 3)"

Mr Chow relied on a letter dated 21st December 1998 by a Mr Vecher, Vice-President of Integral, exhibited in an affidavit filed on behalf of the 6th Defendant.

10. This is a somewhat curious way to seek to raise the issue of the rights of Integral. Curious because Mr Ng is also the General Manager of the 3rd Defendant which Mr Ng held out in his name card as authorised agent and distributor of Integral Semiconductor.

11. In September 1998, the 3rd Defendant supplied a total of 40,000 pieces of I.C. Model No. BT1117M, the same product as BT1227M, to the Plaintiff. Mr Lam alleged that Mr Ng "merely acts as an investor and is not involved in the day-to-day running of" the business of the 1st Defendant. Mr Ng's E-mail address : kingchamp@hkstar.com (Kingchamp is the name of the 5th Defendant) is printed on the 1st Defendant's name card but not on the 3rd Defendant's name card. One does not give one's E-mail address unless one wishes to be contacted by E-mail. The 1st, 3rd and the 5th Defendants all share the same offices. Mr Ng is, and has been, in the chip business which is essential to any electronic products such as calculators and currency converters. In my judgment, Mr Lam's allegation that Mr Ng is just a passive investor taking no part in the business is unbelievable.

12. I turn now to the letter from Mr Vecher :

" TO ALL WHOM IT MAY CONCERN

RE: IC1227M

1. Integral has never had before and is not having now any contacts with the company of Bontex. All its activities in Hong Kong Integral performs through its distributors: Integral semiconductor (SEA) LTD and T & F Technology Ltd.

2. As mentioned in p.1 there was no any dealings between Bontex and Integral.

3. Integral was unaware that anybody is going to pass to the company of Lee Handerson the title for the design of BT1227M.

4. Integral's title for the design of Bt1226M device is confirmed by the specifications for this device which were registered in the Republic of Belarus in 1996 (#TY P5 14553180.042-96).

5. The title for designs of all Ics which Integral ships to its customers in Hong Kong belongs to Integral.

6. The design of BT1227M device was designed and developed by the design-centre of Integral - Belmicrosystem Research and Design Co. located in the Republic of Belarus.

7. Integral has never before manufactured or is manufacturing its ICs for anybody in Hong Kong. Integral sells its goods in Hong Kong through its distributors.

8. Integral is aware of legal court proceeding in Hong Kong concerning the IC in question.

Yours faithfully,

D. Vecher (signed)

Vice-president"

Paragraphs 1 and 2 are clearly untrue. The name card of Mr Alexandra, Manager Marketing of Integral Semiconductor (SEA) Ltd., gave Units 2701-5, 27/F, Laws Commercial Plaza, 788 Cheung Sha Wan Road, Kowloon as its address. It is the same address as that of Bontex printed in the letterhead of Bontex's letter dated 30th March 1998 (a letter written after the meeting of Mr Alexandra, Mr Wilson To of Bontex and Mr Lee of the Plaintiff on 26th March 1998) to the Plaintiff, stating that :

"After the meeting of 26-March-98 and telephone conversation, we have already discussed with our Belarus manufacturer about your situation. ....

We hope you can understand our Belarus Manufacturer & us are now suffering losses due to the big investment of the development of the converter / calculator of BT1227M. Actually, your previous ordering cannot help us to cover the development cost. In order to maintain a good business relationship, we hope you can continuously place us more orders so that it can compensate part of our development cost. If your future order is less than 1.5KK, we can only offer to you is USD0.153 (10% reduction of price)"

This letter is stated to be copied to Mr D.V. Vecher, Mr Alexandra and Mr Patrick Hsu. Mr Hsu Yuon Cheong is a common director of Integral Semiconductor (SEA) Ltd. and Bontex.

13. Paragraph 4 of the letter is irrelevant as we are not concerned with the standard calculator BT1226M.

14. In the light of the Indenture and the other contemporaneous documents from Bontex referred to earlier in this judgment, the possibility of Integral designing without permission or employment by Bontex is fanciful. The Plaintiff as the ultimate commissioner is clearly the qualified owner under the Layout-Design (Topography) of Integrated Circuit Ordinance, Cap.445, and does not need anybody to "pass" any title to it. Paragraph 3 of the letter is thus neither here nor there. The letter is not sufficient to raise the factual issue of Integral being an owner of the Layout-Design (Topography). In any event, the allegations therein are irrelevant or unbelievable. There is thus no triable issue in respect of BT1227M.

Knowledge or reason to believe

15. The burden is on the Plaintiff to prove knowledge or reason to believe. The Plaintiff relies on :

a) advertisement in Hong Kong Enterprise by the Plaintiff;

b) invoices from the 1st Defendant referring to "1080E" which is the model number of the Plaintiff's card size currency converter; and

c) the Plaintiff's brochure found in the 1st Defendant's premises.

16. On knowledge or reason to believe, the 1st Defendant relies on the following statement in para.15 of Mr Lam's 4th Affirmation :

"... Even if copyright subsists in any of the Plaintiff's aforesaid drawings, the 1st Defendant did not know nor have reason to believe that any of the products sold by the 1st Defendant would constitute infringement thereof should they be made in Hong Kong."

This seems to be a rather convoluted denial in an affidavit which should be on facts. The 1st Defendant has not seen fit to condescend on particulars to state how it came to source and sell its Models 253 and 255.

The Plaintiff's advertisements in Hong Kong Enterpise

17. Mr Lee's evidence is that the Plaintiff advertised its currency converters in the following issues of the Hong Kong Enterprise :

a) Model No. 1052 : 12/97, 01/98, 03/98, 05/98, 06/98, 07/98, 09/98 and 10/98

b) Model No. 1076 : 05/98, 06/98. 07/98 09/98 and 10/98

c) Model No. 1080 : 05/98, 06/98. 07/98 09/98 and 10/98

Not only has Mr Lam not said that he had not, at the material times, seen any of the Plaintiff's advertisement, he said in paragraph 10 of his 4th Affirmation :

"10. I refer to paragraph 3 of the Affirmation of Homer Lee in which he said he devised the concept of one-touch currency convertor in or about December 1996. It was further stated in paragraph 8 of the same affirmation that the Plaintiff's one-touch currency convertor was first offered in market in or about October 1997. However, one-touch currency convertor definitely existed prior to December 1996. There are now produced and shown to me market 'LCKK-4' copies of 2 pages in the April 1996 issue of Hong Kong Enterprise containing advertisement of one-touch currency convertor Nos.B-37 and SE-1001.1. There are now further produced and shown to me marked 'LCKK-5' copies of pages in September and October 1997 issues of Hong Kong Enterprise containing advertisement of 3 one-touch currency convertors named Euro-Calculator, Nos.2006 and F8002. It is certainly untrue for the Plaintiff to claim in paragraph 9 of the said affirmation to be the first company to manufacture and sell one-touch currency convertor."

Unlike his paragraph 12, Mr Lam does not say in his paragraph 10 that he had only found the advertisements in Hong Kong Enterprise referred to by him since the beginning of these proceedings. If he had not seen any of the Plaintiff's advertisements at the material times, he would and should have said so, but he has not.

18. Exhibit TWOW-4 is a purchase order dated 28th July 1998 by the 1st Defendant to Watercore Ltd. The following is found in the box for model number and description :

19. "1080E" is the Plaintiff's model number for its card size currency coverter. The Plaintiff places heavy reliance on the words "Case design: same as 1082E" in seeking to prove knowledge or reason to believe. The 1st Defendant's answer in paragraph 17 of Mr Lam's 4th Affirmation is that :

"17. In paragraph 17(a)(ii) of Tong Wai Oi Wanda's 4th Affirmation, a copy of purchase order marked 'TWOW-4' was referred to which features the words 'case design: same as 1080E'. The said words were understood by the 1st Defendant to be the specification of the product Model No.225 told by 金城when the same was first ordered. The said specification by the 1st Defendant was put down in the purchase order to make sure that the manufacturer supplied the same parts and components of product in order to maintain the quality of goods."

To start with, the Model No.225 does not appear anywhere on this purchase order. More importantly, this purchase order was made out to Watercore Ltd., not金城. There is no allegation how Watercore would understand the words in the same way as what the 1st Defendant is said to understand to be "the specification of the product Model No.225 told by金城". Moreover, if the words were allegedly told by金城, then it should be in all the purchase orders to金城. However, 1280E does not appear anywhere on the purchase orders on pages 391 or 393 of the Exhibits Bundle. On the contrary, the words "同#38號單一樣", i.e. "same as No.38" are printed on purchase orders on pages 390 and 394, and the words in Chinese "same as No.37" are written on the purchase order on page 392.

20. For these reasons, the allegation that the words "Case design: same as 1080E" were told by金城 is in my judgment unbelievable. The irresistible inference is that these words were used by the 1st Defendant to tell Watercore that the case design should be the same as the Plaintiff's 1080E.

21. The 1st Defendant unarguably has knowledge or reason to believe.

22. Mr Chow seeks to confine such knowledge or reason to believe to the casing (and the keypad) for 1080. With knowledge or reason to believe that the outside is an infringing copy, it is idle to suggest that the 1st Defendant has not been shown to have knowledge or reason to believe that the inside, such as the PCB, is also an infringing copy.

23. Both 1080 and 1252 are currency converters in the same range of products. The 1st Defendant's 223 and 225 were supplied by the same two suppliers, and the 1st Defendant has not made any distinction anywhere in his draft Defence or the Affidavit evidence between 1080 and any other currency converters. With knowledge or reason to believe that 225 is an infringing copy of 1080, it is unarguable that the 1st Defendant does not have knowledge or reason to believe that its 223 is an infringing copy of the Plaintiff's 1052.

The packaging box for Model No.1052

24. Mr Chow contended that the drawings lack originality as the design is a reproduction or substantial reproduction of the European Union logo.

25. The Plaintiff is not claiming copyright in respect of the rings of stars on the drawing on page 469, but on the whole drawing. To that, Mr Chow's first contention is that it is simply positioning the European Union logo or flag and the law does not give copyright to the person who positioned it. No authority has been cited in support of Mr Chow's proposition and I reject it.

26. In respect of the contention that there is also the shape of the box. Mr Chow contends that the box is functional and there is no copyright. Again, no authority has been cited and I reject his submission.

27. It follows that the 1st Defendant has failed on all three points relied on by Mr Chow. There is no triable issue and the Plaintiff is entitled to summary judgment.

Orders

28. I will make the following orders :

1) Order in terms of the draft Order handed up by Counsel for the Plaintiff amended by deleting "also known as BT1117M or BT1237M".

2) Order in terms of paragraphs 4, 6, 8, 10 and 11 of the Summons issued on 23rd December 1998 with appropriate amendments to refer only to the 1st Defendant.

As to costs, I propose to order the costs of the action including all costs reserved to follow the event unless Mr Chow submits to the contrary.

3) The 1st Defendant do pay the Plaintiff the costs of the action including all costs previously reserved.