UNIVERSAL MUSIC LTD v. NEWAY MUSIC LTD AND OTHERS

HCIP 36/2019

[2021] HKCFI 2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 36 OF 2019

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REASONS FOR DECISION

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1.  This is the summons taken out by the Defendants, Neway Group of companies (“Neway Groups”), dated 24 July 2020 to amend their Points of Defence. In the hearing on 16 June 2021, I disallowed certain proposed amendments and granted general leave to Neway Group to amend the Points of Defence in accordance with the ruling of the court. I now give my reasons.

2.  This is a case of copyright infringement, under which Neway Group were alleged to have used 5,530 karaoke music videos (“KMVs”) of the Plaintiff, Universal Music Limited (“Universal”), delivered by Hong Kong Karaoke Licensing Alliance Limited (“HKKLA”) to Neway Group pursuant to the court’s interim measures in HCCT 45 of 2012 (“the Interim Measures”).

3.  Universal has obtained summary judgment against Neway Group on 30 October 2018 (“the Summary Judgment”), and so the remaining proceedings in this action relate to assessment of damages.

4.  On 24 July 2020, Neway Group applied to amend their Points of Defence relating to assessment of damages.  I am given to understand that Universal only objects to the following amendments:

(i)  any averments by Neway Group to the effect that they had only used 724 KMVs instead of 5,530 KMVs alleged by Universal (“the Reduced Number Amendments”);

(ii)  any averments by Neway Group to the effect that the notional royalty payable to Universal would have to be reduced in proportion with the number of karaoke outlets (“the Outlets”) closed by Neway Group during the notional licensing periods (“the Reduced Outlets Amendments”).

The Reduced Number Amendments

5.  I first deal with the Reduced Number Amendments.

6.  Each of these 5,530 KMVs are the Plaintiff’s copyright works.  The 5,530 KMVs have been defined as “the Plaintiff’s Copyright Works” in §26 of the Statement of Claim.  Individual title of each of the Plaintiff’s Copyright Works is more particularly set out in Schedule B to the Statement of Claim.

7.  Universal’s claim against Neway is based on the latter’s unauthorised use and copying of these 5,530 KMVs and “the Plaintiff’s Copyright Works” since 1 July 2015 (viz. date of cessation of the HKKLA Scheme and the date since which the Neway Group could not benefit from the Interim Measures) without a proper licence.

8.  Throughout the proceedings, Neway Group have never disputed usage(in terms of copying)of any part of the 5,530 KMVs.

9.  This is explainable by the fact that Neway Group’s defence against liability has never been “lack of usage” of any, some, or all of the 5,530 KMVs and “the Plaintiff’s Copyright Works”.  Their defence has always been confined to and purely premised on their legal case that if the Copyright Tribunal in the CT 2 of 2010 Proceedings (“the CT2 Proceedings”) makes an order relating to the HKKLA Licensing Scheme (under which the 5,530 KMVs were licensed prior to 1 July 2015) to be in force beyond 30 June 2015, and provided that Neway Group comply with the terms of the order (i.e. to pay the licence fees for the exploitation of, inter alia, the 5,530 KMVs), they would be in the same position as regards infringement of copyright of these KMVs as if they had been the holder of a licence granted by Universal.

10.  On 16 March 2018, Universal applied for summary judgment on liability for infringement of the Plaintiff’s Copyright Works, which was granted by L Chan J on 30 October 2018 after hearing arguments from both sides.

11.  Neway Group’s defence has always been that they would be absolved from liability upon the order to be granted in the CT 2 Proceedings.

12.  Whilst defending the application and seeking a stay of proceedings pending the CT2 Proceedings, Neway Group had again admitted usage and further claimed to have ceased to so use the 5,530 KMVs on 3 October 2018 and returned all of them to HKKLA on 12 October 2018.[1]

13.  As stated in no clear terms in §12 of the written decision for the Summary Judgment (“the Written Decision”):

“Universal claims in this action that Neway Group has since 1 July 2015 been infringing its copyright in its KMVs or “the Plaintiff’s Copyright Works” as defined in §§25 and 26 of the statement of claim. Neway Group has admitted in this action that it had been using Universal’s KMVs from 1 July 2015 to 2 October 2018 and stopped the usage on 3 October 2018.”

14.  After hearing the parties, L Chan J held that Neway Group had “no arguable defence in law to this action”.  The court ordered, inter alia:

(1)  removal of “all original and infringing copies of the Plaintiff’s Copyright Works as defined in paragraphs 25 and 26 of the statement of claim dated 1 September 2017 (“the SOC”) from the Defendants’ karaoke server and system…”;[2]

(2)  a declaration that Neway Group “have infringed the Plaintiff’s copyright in the Plaintiff’s Copyright Works”;[3] and

(3)  that there be an inquiry as to damages (including additional statutory damages), or at Universal’s option, an account of profits in respect of the Neway Group’s infringement of “the Plaintiff’s Copyright Works”.[4]

15.  A finding of infringement of all5,530 KMVs and the Plaintiff’s Copyright Works has clearly been made by the court in the Written Decision.

16.  It is for this reason that Universal opposes Neway Group’s attempt at this stage of proceedings, i.e. the inquiry as to damages stage, to argue for the first time that there was only usage and infringement of at most 724 out of the 5,530 KMVs (mere 13% of the subject matter of these proceedings).

17.  It is clear that the Reduced Number Amendments are raised for the sole purpose of reducing the quantum of damages (represented by the notional licence fee which would have been negotiated by the parties) payable to Universal.

18.  The proposed terms of §89 in the draft Amended Points of Defence read as follows:

“In fact, the Defendants did not infringe 5,530 Old KMVs owned and/or controlled by the Plaintiff. The Defendants had used 2,555 Old MVs, some of which were provided by the Plaintiff through Twin Success Development Ltd whilst others were sourced from the market, all of which had no watermarks. The Defendant had only used (and at most infringed) 724 Old Water-marked KMVs provided by HKKLA and owned and/or controlled by the Plaintiff.”

19.  The Neway Group’s proposed new case is certainly inconsistent with the development of this case:

(1)   These proceedings were necessitated by the Neway Group’s retention of all5,530 KMVs since 1 July 2015 despite Universal’s repeated demands for their removal from their karaoke server and for their return in 2015.

(2)   Those KMVs were finally delivered up only on 12 October 2018 shortly before the hearing of the Summary Judgment application.

(3)   Summary Judgment including a declaration of infringement of all KMVs was handed down on 30 October 2018.

(4)   The excuse of no usage at all of 87% of the KMVs and no damages would be paid as such came some 5 years later on 24 July 2020, counting from the commencement date of infringement.

20.  Mr Wong, counsel for Neway Group, argues that Neway Group are entitled to run the “Reduced Number” defence, as L Chan J only dealt with the question of whether there was infringement in the liability stage.

21.  However, by reference to the order for Summary Judgment made by L Chan J, the court had already determined that there were copyright infringements of the subject matters of the claim, i.e. all 5,530 KMVs and “the Plaintiff’s Copyright Works”.

22.  This formed the basis upon which the order for injunction and the declaration of infringement of these subject matters were made upon the granting of the Summary Judgment.  It also formed the basis for the inquiry as to damages, i.e. to determine the damages which Neway Group should pay for the unauthorised use of all 5,530 KMVs and the Plaintiff’s Copyright Works.

23.  I agree with Ms Law, counsel for Universal, that the Reduced Number Amendments have the effect of changing the subject matters of infringement for which the court has already determined at the liability stage.  It is a denial of infringement of more than 87% of the Plaintiff’s Copyright Works and denial of liability to pay damages for infringement of these KMVs.  This goes beyond raising a permissible issue of “extent” of infringement.  The Neway Group’s new case cannot be run without setting aside the Summary Judgment.

24.  Once the court decided on the existence of the cause of action of infringement of the 5,530 KMVs and the Plaintiff’s Copyright Works, such infringement cannot be denied by Neway Group at the inquiry of damages stage.[5]

25.  This offends the principles of issue estoppel and res judicata.  Whether L Chan J had made the finding after trial is neither here or there.  What matters is that the learned judge did make such finding which was expressly contained in the order for Summary Judgment and the Written Decision.

26.  In fact, it was the way in which Neway Group conducted the defence that led to the court in making such finding.

27.  In the Summary Judgment proceedings, Neway Group tried to apply to stay the application pending the result in the related CT2 Proceedings. Neway Group by then argued that they had applied before the Copyright Tribunal for a licence covering the use of all 5,530 KMVs belonging to Universal from 1 July 2010 to 6 months after the handing down of the decision by the Copyright Tribunal.  They asserted that if the Tribunal grants the order sought, and provided they comply with such order (in terms of payment of fees), they would be absolved from liability for infringement.[6]

28.  Neway Group have never disputed usage of 5,530 KMVs in their Defence or Points of Defence.  Furthermore, Neway Group were positively suggesting that they were requesting the Copyright Tribunal to determine the amount of fees they should pay for usage of all 5,530 KMVs of Universal since 1 July 2015.  Their argument for stay of proceedings is therefore inconsistent with the now denial of usage of all the 5,530 KMVs save and except 724 of them.

29.  In the skeleton submissions for the stay application[7], Neway Group further confirmed that their use of Universal’s KMVs had ceased as from 3 October 2018.

30.  Further, Neway Group argued at the Summary Judgment hearing that a stay of this action would not cause any prejudice to Universal because they had already returned the KMVs to HKKLA and insofar as Universal is seeking monetary remedies, “they will be getting the same amount of money” whether it is by way of judgment against them in these proceedings or by way of royalties to be determined in the CT 2 Proceedings.  The royalties would be based on the HKKLA Licensing Scheme tariff (which is a blanket fee for all back catalogue KMV depending on the size of operation of the karaoke establishment).  These submissions show that Neway Group have admitted the liability to pay for usage of all 5,530 KMVs, not only 724 of them.

31.  More importantly, senior counsel acting for both parties had an exchange with L Chan J on the terms of relief if the court were to grant judgment on liability.  Specifically, Neway Group confirmed that if the court were to refuse their stay application and reject their legal argument on construction, they had no objection to, inter alia, a declaration of infringement of all 5,530 KMVs, i.e. §1(ii)(a) of the summons for the Summary Judgment.

32.  This was against such background that L Chan J made a declaration of infringement of all 5,530 KMVs.

33.  The Reduced Number Amendments have the effect of changing the subject matters of infringement for which the court has already determined at the liability stage.  It is a denial of infringement of more than 87% of the Plaintiff’s Copyright Works and denial of liability to pay damages for infringement of these KMVs.  This goes beyond raising a permissible issue of “extent” of infringement.  I agree with Ms Law that Neway Group should not be allowed to run this defence in light of the express terms in the order for the Summary Judgment and the reasons given in the Written Decision.

THE REDUCED OUTLETS AMENDMENTS

34.  Insofar as the Neway Group now admit that they made a clerical mistake in the “Number of Outlets” operating at the beginning of each notional licensing period (i.e. each 12-month term) and wish to amend accordingly, these related amendments are not opposed.  The objectionable amendments relate to the new allegation that, by reason of the closure of certain Outlets in the middle of each notional licensing period (i.e. within a 12-month term), the damages or notional licence fees, calculated by reference to the number of Outlets eventually operated by Neway Group, should be reduced proportionally.

35.  In assessing the notional licensing fee for each relevant licensing period, the court would have to take into account all relevant market conditions at the time of the notional negotiation.  What actually happened afterwards is quite irrelevant.  If Neway Group, at the time of the notional negotiation, intended to close down certain Outlets, that may be a factor to be taken into account in assessing the notional licensing fee.

36.  What Neway Group are not permissible to argue is that the notional fee should be automatically reduced as a result of the closure of certain Outlets during the relevant licensing period.  According to the existing proposed amendments, the notional licensing fee should be automatically reduced in proportion to the number of Outlets closed during the relevant licensing period.  This formula, by itself, is not arguable.  However, if Neway Group can put forward matters and facts which they say would have come to the notice of the parties at the time of the notional negotiation but not after that, Neway Group may be allowed to make the appropriate amendments to put forward these matters and facts and how they would affect the assessment of the notional licence fees.

37.  I am given to understand that Neway Group will submit a revised proposed Points of Defence to be drafted in accordance with my ruling.  If case of any disagreement, the parties are at liberty to restore the summons for further arguments.

38.  The party applying for the amendment of pleading should normally be asked to pay for the costs of and occasioned by the amendments.  Coupled with the fact that Universal succeeds in most if not all of the objections, I ordered Neway Group to pay for the costs of and occasioned by the amendment summons.