SMART TRIKE MNF. PTE. LTD AND ANOTHER v. FUNG KWOK HOI AND ANOTHER

HCA 1989/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1989 OF 2014

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JUDGMENT

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1. This is an application for summary judgment.

Background

2. The 1^st Plaintiff carries on business in designing, developing, manufacturing, exporting, marketing and distributing, inter alia, children tricycles.  The 2^nd Plaintiff is the beneficial owner of the 1^st Plaintiff.

3. It is the Plaintiffs’ case that the 1^st Plaintiff is the owner of the copyright subsisting in the original artistic works (“the Copyright Works”) relating to the design of its successful children tricycle products called “Zoo” with model no ST 157 (“ST 157”), and marketed by reference to the trade mark “smarTrike” and the 1^st Plaintiff’s registered trade mark (Hong Kong Trade Mark Registration No 301498276) in Classes 12 and 28 (“the Registered Trade Mark”).  The 1^st Plaintiff is also the registered proprietor of Hong Kong Registered Design No 1000033.1 for the products ST 157 (“the Registered Design”).

4. The Plaintiffs claim that the Defendants had offered to sell and sold a children tricycle product which was identical or substantially similar to ST 157 bearing the Registered Trade Mark to the investigator engaged by the Plaintiffs in September 2014.  Further, the Defendants offered for sale similar infringing products on Facebook under the name “Wise Baby Community”. By reason of the alleged wrongful conducts, the Plaintiffs claim that the Defendants had infringed the 1^st Plaintiff’s copyright in the Copyright Works, the 1^st Plaintiff’s Registered Trade Mark and Registered Design.

5. The 1^st and 2^nd Defendants are employed mechanical technician and office clerk respectively and they are husband and wife.  They operate a business in Hong Kong under the name “Wise Baby”.

6. The 2^nd Defendant was an acquaintance of one Ms Chiu Sui Chun Susanna (“Ms Chiu”).  During one of their meetings in January 2013, the 2^nd Defendant mentioned to Ms Chiu that, in view of the imminent retirement of the 1^st Defendant, she wanted to earn some extra money by selling goods through the internet.  Ms Chiu replied that, as she was in the business of manufacturing children tricycle products, she could supply some tricycles to the 2^nd Defendant to trade online. She assured the 2^nd Defendant that those products were not counterfeit items.  The Defendants subsequently purchased 20 pieces of children tricycle products (“the “Subject Products”) from Ms Chiu, which were delivered by the latter in February 2013.

7. Thereafter in February or March 2013, Ms Chiu told the 2^nd Defendant about the source of the Subject Products supplied by her.  According to Ms Chiu, there was a contractual dispute with one of her clients in the manufacturing of tricycle products and the client refused to accept the finished products.  As the client failed to comply with the terms of the contract, Ms Chiu and the manufacturer could sell the rejected products according to the terms of the contract to mitigate the loss. Subsequently, Ms Chiu also supplied 2^nd Defendant with a test report showing that the Subject Products were up to safety standards.  The report also showed that the 1^st Plaintiff was using the business address of Ms Chiu’s company in Tsimshatsui.

8. The Plaintiffs admit that they were having active business relationship with Ms Chiu until March 2013.  Further, there is an ongoing high court action, HCA No 847 of 2013 (“the Related Action”), commenced by the Plaintiffs on 15 May 2013 against Ms Chiu and 5 other defendants who are believed to be the manufacturer and the Plaintiffs’ service providers in Hong Kong for: (i) breach of contract; (ii) infringement of intellectual property rights; (iii) breach of fiduciary duty and duty of confidentiality; and (iv) unlawful interference with the 1^st Plaintiff’s business, etc.  According to a decision on the application for security for costs in the Related Action (“the Security for Costs Decision”), the defendants therein are putting forward the defence of lack of copyright subsistence.  The defendants also challenge the originality of the Registered Design and the Copyright Works by relying on a large number of prior arts showing allegedly similar designs which existed before the making of the Copyright Works or the registration of the Registered Design.  The defendants also lodged a counterclaim against the Plaintiffs for arrears of payment in the sum of US$386,149.40 under the service agreements and US$42,000 as storage costs for the Plaintiffs’ uncollected moulds.

9. On 26 May 2015, the Plaintiffs made the present application for summary judgment against the Defendants.  According to the Plaintiffs, it is the burden on the Defendants to show triable issues in an O 14 application, and it is trite that the Defendants must condescend upon particulars.  In raising an arguable defence, the Defendants must specially deal with the Plaintiffs’ claim and evidence.[1] The Plaintiffs submit that, without supplying the court with the contract made between Ms Chiu and the Plaintiffs and further particulars about the alleged prior arts, the Defendants’ allegations are no more than bare assertions.  Further, as pointed out by Megarry V-C in Lady Anne Tennant v Associated Newspapers Group Ltd[2], “[a] desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiffs.  You do not get leave to defend by putting forward a case that is all surmise and Micawberism.”

10. Further, the Plaintiffs claim that, apart from the goods already delivered by the manufacturer to the Plaintiffs’ customers, they have not given any licence or consent to the manufacturer, Ms Chiu or any other parties to use the 1^st Plaintiff’s Copyright Works, Registered Trade Mark or Registered Design on other products.  Insofar as the manufacturer had used the Plaintiffs’ moulds to produce additional products, those were not authorised by the Plaintiffs.

11. According to the submissions of Mr Law, counsel for the Defendants, and their evidence as particularised in the opposing affirmations, the Defendants are not disputing the following:

(i) the 1^st Plaintiff is the registered proprietor of the Registered Trade Mark and the Registered Design;

(ii) the 1^st Plaintiff is the owner of the copyright allegedly subsisted in the Copyright Works;

(iii) they had sold or offered for sale the Subject Products to the public;

(iv) the Subject Products bore the Registered Trade Mark; and

(v) the design of the Subject Products was substantially similar if not identical to that of ST 157 as contained in the Copyright Works and the Registered Design.

12. In fact, it would be difficult for the Defendants to dispute these common grounds.  According to the information supplied by Ms Chiu, the Subject Products were originally manufactured for the Plaintiffs presumably according to the latter’s specifications.  By counterclaiming for the storage costs relating to the Plaintiffs’ moulds, the court has reason to believe that the Plaintiffs supplied or commissioned the making of the moulds for the production of the children tricycles including the Subject Products.  It was only when the Plaintiffs rejected the goods that Ms Chiu sold the Subject Products to the Defendants.  In such case, the Subject Products must bear the 1^st Plaintiff’s Trade Mark and the design must be identical.  Hence, the only defences available to the Defendants are that:

(i) the sale and the offer for sale of the Subject Products were made by the Defendants with the licence or the consent of the Plaintiffs;

(ii) due to the lack of originality, the Registered Design is not valid and there is no subsistence of copyright in the Copyright Works; and

(iii) the sale and offer for sale of the Subject Products did not amount to primary infringement, and due to the lack of knowledge that the Subject Products were infringing products, there was no secondary infringement of the copyright allegedly subsisted in the Copyright Work.

13. The Defendants claim that they are now in the process of obtaining further documents from Ms Chiu, and they may have to join in Ms Chiu as third party in the present proceedings.  In any event, as there are triable issues as to: (i) whether the Subject Products supplied by Ms Chiu were in fact infringing products or they were produced and issued pursuant to the licence of the Plaintiffs and the relevant contractual terms; (ii) whether the Defendants had committed primary infringement of the copyrights of the Plaintiffs by putting the Subject Products first into circulation; and (iii) the originality of the Copyright Works and the Registered Design, the court should not grant summary judgment in favour of the Plaintiffs.

14. I therefore proceed to determine the merits of these arguments by reference to each of the Plaintiffs’ claim.  I start with the claim for trade mark infringement which is the more straightforward one.

The claim for trade mark infringement

15. S 18 of the Trade Marks Ordinance (Cap 559) provides that a defendant infringes a registered trade mark by using a sign which is identical to the registered trade mark, and “using” has been defined in the section to include the sale or any offer for sale of the goods bearing the registered trade mark.

16. In respect of the claim for trade mark infringement, there is no issue about the originality of the design and the distinction between primary and secondary infringement.  The only defence available to the Defendants to oppose such claim is that their use of the Registered Trade Mark was authorised by the licence granted by the Plaintiffs or with their consent.

17. In my judgment, the Defendants are far from discharging their duty in establishing an arguable defence in this regard.  The only assertion made by the Defendants is that they were told by Ms Chiu that she was entitled to sell the Subject Products, because the contract she made with the Plaintiffs permitted her to do so in order to mitigate the loss. However, the Defendants have not supplied to the court with any information about the nature of the contractual dispute between the Plaintiffs and Ms Chiu.  Neither have they produced the relevant contract to support their case. Even if the Plaintiffs were in breach of the contract in rejecting the goods, in the absence of an express term to that effect in the contract, Ms Chiu or the manufacturer was not entitled to sell the rejected goods bearing the Registered Trade Mark of the Plaintiffs in order to mitigate their loss.  It is the burden on the Defendants to adduce some credible evidence about the giving of licence or consent for the use of the Plaintiffs’ Registered Trade Mark, and they have simply failed to discharge such burden.

18. The Defendants have not offered any explanation to the court as to why they could not obtain the contract from Ms Chiu.  Neither have they made any request to the court for the inspection of the file in the Related Action.  Further, there is nothing in the Security for Costs Decision to show that the giving of licence or consent is one of the issues in the Related Action.  In such circumstances, the Defendants’ allegation relating to licence and consent remains a bare assertion and they have not managed to establish any triable issue relating to the claim for trade mark infringement.

The claim for infringement of registered design

19. I then turn to the claim for infringement of registered design.  According to s 31 of the Registered Designs Ordinance (Cap 522), the registration of a design gives the registered owner the exclusive right to, inter alia, sell and expose for sale any article in respect of which the design is registered, and the doing of any act which falls within the exclusive rights of the registered proprietor would constitute infringement.

20. Due to the common grounds mentioned above, the only possible defences available to the Defendants in respect of such claim are: (i) the sale and offer for sale of the Subject Products were done with the licence or consent of the Plaintiffs; and (ii) the Registered Design is not valid due to the lack of originality.

21. I have already ruled there is no triable issue relating to any defence which is premised upon the giving of licence or consent and so there is no merit in the first ground of defence.

22. For the second ground of defence, it remains the duty on the Defendants to produce some credible evidence to support the allegation about the lack of originality.  The simple fact that an allegation is made in another action does not mean that there is substance in such allegation.  Unfortunately, the Defendants have not produced any evidence of the alleged prior arts to substantiate the allegation about lack of originality of the Registered Design.  The Defendants have not even invited me to look at the evidence filed in the Related Action, and so I should not inspect the file on my own volition in order to assess the credibility of such allegation. Neither have the Defendants supplied the court with any reason as to why they could not obtain the evidence about the alleged prior arts.  Hence, the defence about the lack of originality remains a bare assertion, and the Defendants have simply failed to discharge the burden of establishing an arguable defence to the Plaintiffs’ claim on registered design infringement.

The claim for copyright infringement

23. That remains the claim for copyright infringement. There are two types of infringement so far as copyright is concerned: primary and secondary infringement.

24. Primary infringement is the doing of any act which falls within the exclusive rights of the copyright owner which, according to s 22 of the Copyright Ordinance (Cap 528), include reproduction right, distribution right, rental and lending rights, public performance right, communication to the public right and adaption right.  For primary infringement, the claimant does not need to prove that the infringer was aware of the claimant’s copyright or that he was dealing with infringing copies.

25. Secondary infringement includes importing, possessing and dealing with infringing copies.[3] However, a defendant would only be liable for secondary infringement if he knows or has reason to believe that the copies he is dealing with are infringing copies.

26. Insofar as the Defendants are seeking to run any defences based on proper authorization by licence or consent or the lack of originality, I have already held that the Defendants have failed to discharge the burden of establishing any arguable defence based on these arguments, and likewise the Defendants cannot rely on these defences to oppose the Plaintiffs’ claim for copyright infringement.

27. The only additional defence possibly available to the Defendants is that the selling and the offering for sale of the Subject Products were at most acts of secondary infringement, and they did not know or had reason to believe that the Subject Products were infringing copies.

28. In determining whether the Defendants’ acts were primary or secondary infringement, the issue here is whether these acts fall within the exclusive distribution right of the Plaintiffs.

29. Distribution right has been defined in s 22(1) of the Copyright Ordinance to mean “to issue copies of the work to the public”.  S 24 goes on and provides further clarification about the meaning of distribution right:

“(1) The issue of copies of the work to the public is an act restricted by the copyright in every description of copyright work.

(2) References in this Part to the issue of copies of a work to the public are to the act of putting into circulation copies not previously put into circulation, in Hong Kong or elsewhere, by or with the consent of the copyright owner.

(3) References in this Part to the issue of copies of a work to the public do not include-

(a) any subsequent distribution, sale, hiring or loan of copies previously put into circulation (but see section 25: infringement by rental): or

(b) any subsequent importation of those copies into Hong Kong.

(4)  References in this Part to the issue of copies of a work include the issue of the original and the issues of copies in electronic form.”

30. In Fossil, Inc v Trimset Ltd & Anor[4], the 1^st defendant purchased the infringing watches from the manufacturer and then in turn sold the watches to others.  According to the late DHCJ Carlson, this would be enough to put the 1^st defendant at the head of the distribution chain.  As it was a case of primary infringement, it would not be necessary for the plaintiff to prove knowledge on the part of the 1^st defendant that it was aware of the plaintiff’s copyright.

31. The same happens here.  The Defendants admit that they purchased the Subject Products from Ms Chiu who operated a factory in the Mainland.[5] Under such circumstances, there is no reason for the court to believe that the Subject Products had been put into circulation prior to the sale of the same by the Defendants to the public including the investigator.  Furthermore, it is the burden on the Defendants in a summary judgment application to adduce some evidence to show that the Subject Products had been put into circulation before.  The Defendants have failed to adduce any evidence of this sort, and so there is no triable issue that the Defendants’ acts in selling and offering for the sale the Subject Products constitute primary infringement on the part of the Defendants.

32. Even if the present case is one involving secondary infringement, the Defendants have also failed to show lack of knowledge on their part.

33. It is trite that, for the purpose of secondary infringement, actual knowledge includes blind-eye or “Nelsonian” knowledge, namely the defendant deliberately refrains from inquiry and shuts his eyes to that which is obvious to him.[6] As regards “reason to believe”, the test is an objective one, and it is not necessary for the defendant to have seen a copy of the relevant copyright work before he can be said to have reason to believe that an article is an infringing copy.[7]

34. I agree with Mr Chang, counsel for the Plaintiffs, that the facts of the present case should have put the Defendants very much on alert as to whether the Subject Products were infringing copies and they should have made further inquiry as to whether the Plaintiffs had given licence or consent for Ms Chiu or the Defendants to sell the Subject Products.

35. First, the Defendants acknowledged in the Facebook page of “Wise Baby” that the Subject Products were “European Famous Brand Smart Trike Zoo 3 in 1 Tricycle appearing in Hong Kong for the first time”, and the Defendants should have known that the brand owner owned certain intellectual rights in respect of the Subject Products.  More importantly, the 2^nd Defendant had been informed by Ms Chiu that the Subject Products were sold to them as a result of a contractual dispute between the manufacturer and a client (presumably the Plaintiffs).  In other words, the manufacturer was producing the products for the brand owner for distribution in the market. Under such circumstances, it would be quite unimaginable that the brand owner would have granted licence or consent for others to distribute the goods.  Even if the brand owner were in breach of the supply agreement in rejecting the goods, that does not mean that Ms Chiu or the manufacturer could deal with the goods freely, in particular the brand owner still possessed the intellectual property rights of the design and the trade mark in respect of ST 157.  In order to discharge the duty of inquiry, the Defendants should asked for the licence or written consent, or at least a copy of the contract between the manufacturer of the Subject Products and the Plaintiffs, in order to ensure that Ms Chiu and the Defendants had the right to sell the Subject Products. The fact that the Defendants were inexperienced merchants cannot provide an excuse because the test for knowledge is an objective one.  Hence, the Defendants have no arguable defence even if their acts fell within the meaning of secondary infringement.

36. For the above reasons, there is also no arguable defence for the claim of copyright infringement.

Conclusion 

37. In his submission, Mr Law argues that since the Plaintiffs have acknowledged that they had a long term business relationship with Ms Chiu, the Defendants’ allegations are capable of being believed. Further, the court should properly investigate the underlying contractual arrangement between the Plaintiffs and Ms Chiu (or the manufacturer) so as to determine whether the Defendants are liable for the various causes of action pleaded by the Plaintiffs.

38. Despite Mr Law’s submission, this is not a case about the credibility of the Defendants’ version of events.  The present application turns on the question as to whether the Defendants have discharged the burden of producing some evidence or particulars in support of their allegations.  As they have hopelessly failed to do so, there is no triable issue in respect of the Plaintiffs’ claim.  As mentioned above, a mere desire to investigate the alleged obscurities is not a sufficient reason to deny an application for summary judgment by the Plaintiffs.

39. After the hearing, the Defendants’ solicitors had written a further letter to the court dated 18 December 2015, reinstating that the validity of the Registered Design and the originality of the Copyright Works will be common issues in both the Related Action and the present proceedings. Further, on 17 December 2015, the Defendants’ solicitors received a letter from Ms Chiu’s solicitors in the Related Action, mentioning that the court in the Related Action has directed the parties in the 2^nd case management conference to consider whether it is appropriate for both actions to be tried together.  The Defendants’ solicitors complain that the Plaintiffs’ solicitors have deliberately concealed this fact in this O 14 application, and the Plaintiffs have failed to supply the Statement of Claim in the Related Action to them.  Finally, the Defendants’ solicitors argue that it would be embarrassing if the court were to proceed to grant summary judgment in this case and the court in the Related Action subsequently makes different findings about the alleged common issues.

40. In my judgment, there is nothing new in these arguments.  The court is fully aware that there may be issues common to both actions.  But so long as both actions remain separate actions, that does not relieve the burden of the Defendants in this O 14 application to adduce some credible evidence to challenge the originality of the Registered Design and the Copyright Works.  Up to this stage, the Defendants have not made any application to consolidate the two actions, nor have they made any application for leave to inspect the file in the Related Action.  The Defendants have not offered any explanation as to why they could not obtain the evidence to oppose the O 14 application, and so they cannot rely on their own inaction as an excuse.  Finally, the alleged common issues relate to copyright subsistence and originality of the Registered Design.  These issues are not relevant and provide no defence to the Plaintiffs’ claim for trade mark infringement.  Hence, I do not find that these “new” arguments can assist the Defendants’ case in this summary judgment application.

41. According to the Statement of Claim, the 1^st Plaintiff is the owner of the copyright subsisted in the Copyright Works and the registered proprietor of the Registered Trade Mark and Registered Design, and so I only grant judgment in favour of the 1^st Plaintiff in terms of paragraph 1 of the summons, subject to the deletion of any reference to the 2^nd Plaintiff.

42. In the hearing, the parties have not dealt with the issue as to whether the 2^nd Plaintiff is also entitled to have judgment against the Defendants.  In the case that the 2^nd Plaintiff maintains his right to judgment, he should restore the summons for further argument on this particular issue. 

43. I also make a costs order nisi that the 1^st Plaintiff’s costs of the action incurred up to the date hereof, including the costs of this application, be paid by the Defendants, which shall be made absolute 14 days after the date of the handing down of this Judgment.