OMEGA S.A. AND OTHERS v. NEW BOWLING WATCH CO LTD t/a NEW BOWLING WATCH & JEWELLERY CO

HCIP 16/2019

[2022] HKCFI 3145

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 16 OF 2019

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REASONS FOR JUDGMENT

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1.  In this Action, the Plaintiffs claim against the Defendant for passing-off, trade mark infringement and copyright infringement.

2.  The Defendant’s solicitors ceased to act for the Defendant, which is a limited company, since about 16 July 2021.  No leave has not been granted to the Defendant to proceed with this action “in person”.

3.  At the Pre-Trial Review held on 26 July 2021, in the light of the latest development and upon the request of the Plaintiffs, I fixed an earlier date for the trial of this action (i.e. 25 August 2021).  In the presence of Mr Leung Ho Kong, a director of the Defendant, I indicated to the parties that if the Defendant appeared on 25 August 2021 by legal representative, the case would be adjourned to the original trial dates scheduled in October 2021.  If not, the trial would proceed on 25 August 2021 in the absence of the Defendant.  In that case, the Plaintiffs’ witness statement would be admitted as evidence without calling the witness.

4.  On 25 August 2021, the Defendant did not appear by legal representative.  Only the same Mr Leung attended the trial without the leave of the court.  Under such circumstances, I proceeded with trial treating the Defendant as absent.  After a short hearing, I granted judgment in favour of the Plaintiffs and I now give my reasons.

Background

5.  As the Defendant was absent at the trial, the following evidence is not contested.

6.  The Plaintiffs are wholly-owned subsidiaries of The Swatch Group Limited (“the Swatch Group”).   The 1^st, 2^nd and 3^rd Plaintiffs are the owners of the well-known brands OMEGA, LONGINES and TISSOT respectively.  These brands (and their related marks)  (“the Plaintiffs’ Marks”)  have been registered in many jurisdictions around the world, including in Hong Kong.  The Plaintiffs are the registered proprietors of those registrations.

7.  In Hong Kong, the Plaintiffs’ products have been distributed to only designated boutiques and authorised dealers for their resale to retail customers.  Designated boutiques are managed and operated by The Swatch Group (Hong Kong)  Limited (“SG HK”), a subsidiary of Swatch Group, directly.   Authorised dealers are managed by third party companies.

8.  The Plaintiffs have been very selective and there have been stringent criteria in appointing authorised dealers in Hong Kong.  Generally, SG HK only selects retailers with sizeable operations, favourable financial position, positive financial and credit records, substantial reputation and experience, and shop locations in prime shopping areas.  All authorised dealers are required to enter into a retail agreement with SG HK (“Retail Agreement”)  with specific terms and conditions through which SG HK maintains tight control over them.  The authorised dealers would be provided specific and exclusive promotional and marketing materials which use would be governed by the terms of the Retail Agreement.  The authorised dealers would also be entitled to issue official warranty card for the Plaintiffs’ watches.  The product warranty is only valid if the official warranty card is dated and stamped by the authorised dealer upon sale.  The Plaintiffs also provide regular training to the staff of the authorised dealers.  Through such established system of sale, the Plaintiffs would be able to maintain the prestige image and high quality of their products and services, and when the average consumers desire to purchase any of the Plaintiffs’ products, they would naturally go to the designated boutiques or the authorised dealers to ensure the provenance and quality of the products and services (including after-sale services).

9.  As at November 2019, there were a total of 23 authorised dealers in Hong Kong appointed for the retail sale of the Plaintiffs’ products.  Each authorised dealer may operate one or more retail outlets.  Including the Plaintiffs’ 48 designated boutiques, there were a total of 145 points of sale across Hong Kong as at November 2019.

10.  The Defendant is a Hong Kong company operating a retail shop in Wanchai.  At all material times, the Defendant carried on business in the retail sale of a variety of brands of watches including those of the Plaintiffs.

11.  The Defendant is not an authorised dealer of the Plaintiffs’ products.  However, the Defendant had once applied for and was indeed an authorised dealer of the 1^st Plaintiff’s products about 20 years ago.  The dealership relationship was eventually terminated in or about 2002 or 2003 because the Defendant had violated the terms by selling OMEGA products not purchased from SG HK.

12.  In February 2017, the Defendant was found to have used the Plaintiffs’ promotional and marketing materials specifically and exclusively provided to and used by their authorised dealers in selling its products.  The Plaintiffs claimed that, in doing so, the Defendant passed off itself as the Plaintiffs’ authorised dealer.  A complaint letter was accordingly issued to the Defendant on 21 June 2017.  On 26 June 2017, the Defendant replied and agreed not to infringe the intellectual property rights of the Plaintiffs.  Subsequent visit to the Defendant’s shop confirmed that the Defendant had indeed removed the infringing materials.

13.  In or around August 2017, it was discovered that the Defendant had reinstated the promotional and marketing materials specifically provided to and used by the authorised dealers.  After the issue of a formal cease-and-desist letter, the Plaintiffs commenced the present proceedings against the Defendant on 20 December 2017.

The passing-off claim

14.  It might be the case that the products sold or offered to be sold by the Defendant were genuine products of the Plaintiffs, but the Defendant’s conduct may still amount to passing-off.

15.  It is passing-off to represent oneself as an agent of the claimant, in either the legal or popular sense, or as an authorised dealer in the claimant’s goods.  The latter misrepresentation may be implicit merely in selling the claimant’s goods without a disclaimer.  In fields of business where it is universal for goods to be supplied to the public exclusively through authorised dealers then selling the goods of a particular manufacturer without a disclaimer may amount to such a misrepresentation.[1]

16.  In Music Fidelity Ltd v Vickers[2], the claimant (and respondent in the appeal)  carried on business in the design, development, manufacture and supply of hi-fi equipment.  It operated in the higher-priced end of the market and sold through a network of authorised distributors and dealerships.  The defendant (appellant in the appeal)  was formerly one of the claimant’s authorised distributors.  After the termination of the relationship, he used a domain name and made a statement on the website (“Welcome to the website of one of Musical Fidelity’s oldest retailers”)  which suggested his relationship with the claimant.  The court below granted summary judgment on passing-off and the defendant appealed.  In dismissing the appeal, the Court of Appeal stated the following:[3]

“… Moreover, in any event, the expression ‘‘Welcome to the website of one of Musical Fidelity’s oldest retailers’’ to my mind entails a continuing representation of association between the two parties. I do not understand Dr Acland’s submission to dispute that. His main point was that there was a continuing association with the respondent’s products because Vickers Hi-Fi still had stock to supply and continued to service Musical Fidelity products. However, as Buxton L.J. pointed out in argument, the representation was of an association with Musical Fidelity itself. I agree with the judge that the prospect of there being findings on the evidence at trial which would permit some other interpretation of this website is fanciful. Moreover, in my judgment, a representation of this nature was material to prospective purchasers of hi-fi equipment.”[4]

“I agree that the appeal should be dismissed. I am in no doubt whatever that the judge was right in his central finding which came under attack today, which was that the words offering a welcome to the website ‘‘of one of Musical Fidelity’s oldest retailers’’ was anything but a representation of the truth. ‘‘Musical Fidelity’s’’ (with an apostrophe ‘‘s’’), using the possessive case, implies, as the judge found, a representation that Mr Vickers’ business was one of Musical Fidelity’s authorised (and oldest)  distributors, which it was not.”[5]

17.  In Sony v Saray Electronics Ltd[6], the defendants, who were not authorised Sony dealers, sold Sony goods and purported to give Sony guarantees to customers.  Some of the goods were “grey” imports and had been modified by the defendants to work in England.  The Court of Appeal in England accepted that the plaintiffs had raised an arguable case that the public expected sellers of Sony goods to be Sony authorised dealers and to be able to give Sony guarantees.  Interlocutory injunctions were granted ordering the defendants to mark all Sony goods with labels stating that Saray was not authorised Sony dealers and that the goods were not guaranteed by Sony.[7]

18.  This is not a case about misrepresentation as to the origin of the goods as the watches sold or offered to be sold by the Defendant were genuine products of the Plaintiffs, however it is clear from these authorities that the law of passing-off covers the kind of misrepresentation relied upon by the Plaintiffs in the present case, i.e. the Defendant misrepresented to be the authorised dealer of the Plaintiffs.  Of course, whether the Plaintiffs can succeed in such claim will be a matter of evidence. 

19.  The unchallenged evidence before the court proves the following:

(i)  The Plaintiffs enjoy substantial goodwill in Hong Kong in respect of the Plaintiffs’ Marks.

(ii)  The Plaintiffs’ watches are sold in Hong Kong through designated boutiques and authorised dealers.  Designated boutiques are managed and operated by SG HK directly while authorised dealers are managed and operated by third party companies.

(iii)  The Plaintiffs have been very selective and there have been stringent criteria in appointing authorised dealers in Hong Kong.  Generally, SG HK only selects retailers with sizeable operations, favourable financial position, positive financial and credit records, substantial reputation and experience, and shop locations in prime shopping areas.  All authorised dealers are required to enter into the Retail Agreement with specific terms and conditions through which SG HK maintains tight control over them.  The Plaintiffs would also provide regular training to the staff of the authorised dealers.

(iv)  The Plaintiffs’ authorised dealers would be provided specific and exclusive promotional and marketing materials to be displayed on the display windows and designated counters.  Upon seeing such display, the average consumers would recognise the shop as an authorised dealer of the Plaintiffs’ watches.

(v)  Only authorised dealers would be able to issue official warranty card for the Plaintiffs’ watches.  The product warranty is only valid if the official warranty card is dated and stamped by the authorised dealer upon sale.  Accordingly, the ability to provide product warranty constitutes a statement to the public that it is an authorised dealer of the Plaintiffs’ products.

(vi)  It is the practice of the watch industry, especially in relation to the luxury and high-end brands, to operate in the system of authorised dealers similar to the one operated by the Plaintiffs.

20.  Based on the evidence in this case, I am satisfied that the Defendant has passed off, or at least attempted to pass off, itself as an authorised dealer of the Plaintiffs by: (i)  using and displaying the promotional and marketing materials specifically and exclusively provided to the Plaintiffs’ authorised dealers; and (ii)  issuing product warranty in respect of Plaintiffs’ products.

21.  In fact, the Defendant did not dispute the use of such promotional and marketing materials in its Defence.[8] The Defendant’s purported defence is that these promotional and marketing materials could be purchased everywhere, including from the internet, and many other shops are using the same.  However, such defence is unsupported by evidence, and is in fact contradicted by the unchallenged evidence adduced by the Plaintiffs before the court.[9]  In any event, as the Defendant is precluded from relying on its witness statements due to its absence at the trial, this court can simply disregard the defence pleaded as it is not supported by evidence anyway.

22.  On the warranty point, the Defendant has earlier in this action produced some warranty cards in support of its case, but the warranty cards were not issued by the Plaintiffs’ authorised dealers and would accordingly be invalid.

23.  In my judgment, the use of such specific promotional and marketing materials by the Defendant on the display windows and counters, and the Defendant’s purported ability to issue warranty card to the purchaser, plainly convey a false message to the general public that the Defendant is an authorised licensee of the Plaintiffs.

24.  Further, the goods in question are luxurious watches and so the relevant public naturally cares very much about the authority and reputation of the shops.  The consumers would naturally prefer to go to authorised shops which can provide guarantee or confidence on the provenance of the products and quality of the services.  This also explains why the Defendant would want to present itself as authorised dealer of the Plaintiffs’ watches.

25.  I also agree with Mr Wong, counsel for the Plaintiffs, that the Defendant’s acts are more reprehensible given that it was previously an authorised dealer of the 1^st Plaintiff’s product and the dealership was terminated because of its breach of the terms of the dealership.  Under such circumstances, the Defendant should have been fully aware of the obligations and rights of an authorised dealer.  Further, the Plaintiffs had issued at least two rounds of complaint letters to the Defendant before the commencement of this action.

26.  The Plaintiffs would clearly suffer damage arising out of the Defendant’s misrepresentation.  In fact, the Defendant’s acts would damage the image of the brand built up over the years.  This is particularly so given that the Defendant was using the promotional and marketing materials without reference to the terms and guidelines imposed on the authorised dealers.  Further, the warranty card issued by the Defendant is invalid.  The relevant public not being aware of this would be misled, and if they found out the invalidity of the warranty, they might blame the brands for the lack of warranty or control over the sales.  Such damage to the image of the brands would be significant.  At least, such damage can be inferred from the evidence and circumstances of the case.

27.  For these reasons, the Plaintiffs have clearly established a case of passing-off against the Defendant.

The trade mark infringement claim

28.  The Plaintiffs’ case on trade mark infringement is straight-forward.

29.  The Plaintiffs are the registered proprietors of the Plaintiffs’ Marks in Hong Kong.  By using and displaying the promotional and marketing materials bearing the Plaintiffs’ Marks which were specifically designed for and exclusively used by the Plaintiffs’ authorised dealers without the authority of the Plaintiffs, the Defendant has infringed s 18(1)  of the Trade Marks Ordinance (Cap.559)  (“TMO”).  Further, such use would likely confuse the average consumer that the services provided by the Defendant originated from or were approved by the Plaintiffs.  As such, the Defendant has infringed ss 18(2)  and 18(3)  of the TMO.[10]

The copyright infringement claim

30.  The copyright claims are also straight-forward.

31.  The 1^st Plaintiff is the owner of the copyright subsisting in some official images created by the 1^st Plaintiff’s employees[11], whilst the 2^nd Plaintiff is the owner of the copyright subsisting in an image featuring Aaron Kwok[12].

32.  The Defendant had used the said images for display in its shop.  There is no evidence on the origin of those images.  Accordingly, such images should be regarded as infringing copies of the Plaintiffs’ images in which copyright subsists.  By reproducing, possessing and displaying such images, the Defendant infringed the copyright of the 1^st and 2^nd Plaintiff.  Further, the Defendant must or ought to have known that the images it used constitute infringing copies as the Defendant has not explained the origin of the images.[13]

33.  For these reasons, I granted judgment in favour of the Plaintiffs with costs.