FREY WILLE GmbH & Co, KG AND ANOTHER v. COMPLEX INDUSTRIAL CO LTD AND ANOTHER

HCA 378/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 378 OF 2011

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is a copyright action.  The Plaintiffs have taken out a summons under RHC, Order 14 by which they seek a final injunction to restrain the Defendants from infringing their copyright in respect of a series of artistic works relating to the 1st Defendant’s production of high quality bracelets.  The Defendants are also applying for what I can term the usual ancillary orders for delivery up of all materials in the Defendants’ possession that infringe their copyright and an order for affirmations to be made which verify compliance with the order of delivery and another, telling the Plaintiffs and the court what they have done by way of sale and/or supply of any infringing articles.  Finally, there is a claim for an enquiry as to damages and payment of damages to the Plaintiffs consequent to the enquiry.

The Parties

2.  The 1st Plaintiff was established in Vienna in 1951.  It produces artistic jewellery adorned with fine decorative art.  Its products are expensive and usually purchased by discerning individuals who can afford to pay HK$10,000 for one of their bracelets.  I should say that the 1st Plaintiff also designs and produces a wide variety of other pieces such as earrings, necklaces, rings and so forth.  Its extensive range of products appear in two glossy brochures which I have been shown.  Through local companies it has shops in exclusive locations around the world.  In Hong Kong, the 2nd Plaintiff has two retail outlets, one at Pacific Place and the other at The Heritage in Tsimshatsui. 

3.  The 1st Defendant is a long-established manufacturer and retailer of jewellery and fashion accessories.  It has been in business for nearly 40 years.  The 2nd Defendant is one of its directors and its principal shareholder.  The 1st Defendant, through a related company, has a large factory in Dongguan employing 1,500 people and has 200 distribution outlets around China.  It has never had to face an allegation of copyright infringement before and I am prepared to accept that it is a substantial and well-respected company.

The Allegations

4.  I now turn to the evidence contained in a number of affidavits that have been carefully prepared by the Plaintiffs and a single affirmation in reply from the 2nd Defendant on behalf of himself and of the 1st Defendant.

5.  In briefly setting out the relevant aspects of the facts, it is important to bear in mind, and this has only developed as the argument before me proceeded, that the Plaintiffs now accept that the Defendants are able to raise a triable issue as to the question of knowledge of the Plaintiffs’ copyright in the designs and other artistic works for the objects in question prior to 5 May 2010.  The significance of this date is that it is the date of the “cease and desist” letter sent by the Plaintiffs’ solicitors to the 1st Defendant.  It is the Defendants’ reaction to this letter and their failure to offer any undertaking to cease and desist which underpins the application for this injunction.  Mr Hughes, who appears for the Plaintiffs, submits that when one considers the whole history of the matter and the Defendants’ conduct, particularly after receipt the letter of 5 May 2010, that the Plaintiffs are amply justified in making this application.

6.  The action is brought on the basis of secondary infringement under sections 30 and 31 of the Copyright Ordinance (“the Ordinance”).  It is helpful to set out both of the sections at the outset:

“s 30 Secondary infringement: importing or exporting infringing copy

The copyright in a work is infringed by a person who, without the licence of the copyright owner, imports into Hong Kong or exports from Hong Kong, otherwise than for his private and domestic use, a copy of the work which is, and which he knows or has reason to believe to be, an infringing copy of the work.

s 31 Secondary infringement: possessing or dealing with infringing copy

(1) The copyright in a work is infringed by a person who, without the licence of the copyright owner:

(a) possesses for the purpose of or in the course of any trade or business;

(b) sells or lets for hire, or offers or exposes for sale or hire;

(c) exhibits in public or distributes for the purpose of or in the course of any trade or business…

a copy of a work which is, and which he knows or has reason to believe to be, an infringing copy of the work.

(2) It is immaterial for the purpose of subsection (1)(a) and (c) whether or not the trade or business consists of dealing in infringing copies of copyright works.”

7.  The artistic works relied on by the Plaintiffs relate to five bracelets manufactured by the Plaintiffs from the original designs prepared by the 1st Plaintiff’s employees.  These are “Heavenly Joy”, “Sphinx Fashion”, “Endless Love”, “Spiral of Life” and “Sarah Bernhard”.  Suffice it to say that both the design drawings and the final products from these designs, the bracelets themselves, photographs of which are exhibited to the affidavits in support of the application and examples of which had been produced in court for my assistance, are copyright works belonging to the Plaintiffs, in proof of which stands the affidavit of Christina Dengg.  She is the general manager of the 2nd Plaintiff which is the Hong Kong arm of the 1st Plaintiff, the Austrian company.  This affidavit is one purportedly made under section 121 of the Ordinance.  Given its importance in this matter I need to set out the section here:

“Section 121 of the Ordinance provides as follows:

(1) For the purpose of facilitating the proof of subsistence and ownership of copyright, and without prejudice to the operation of sections 11 to 16 (authorship and ownership of copyright) and sections 17 to 21 (duration of copyright), an affidavit which purposes to have been made by or on behalf of the copyright owner of a copyright work and which states:

(a) the date and place that the work was made or first published;

(b) the name of the author of the work;

(ba) where the author of the work is an individual:

(i) the place of domicile of the author;

(ii) the place of residence of the author; or

(iii) the place where the author has a right of abode…

(c) the name of the copyright owner;

(d) that copyright subsists in the work; and

(e) that a copy of the work exhibited to the affidavit is a true copy of the work,

shall be admitted without further proof in any proceedings under this Ordinance.”

8.  As Mr Hughes correctly submits, provided the affidavit is filed and contains the information required in section 121(1) then, unless the Defendant, within three days from the date of service of a copy of the affidavit, serves a notice under section 121(5) requiring the deponent to attend court presumably, to be cross-examined on his affidavit, then the Plaintiff is taken to have proved both the subsistence and the ownership of copyright in the relevant copyright works referred to and exhibited in the affidavit.  No such counter-notice has been served on behalf of the Defendants.

9.  Mr Clark, on behalf of both Defendants, has addressed submissions to the effect that the Plaintiffs’ evidence does not comply with the section, with the consequence that no reliance on section 121 can be established on their behalf.

10.  I am unable to uphold Mr Clark’s submissions in this regard.  In fact the Plaintiffs have filed two affidavits which contain all the information required under section 121(1).  I am content to hold, in such circumstances, that the Plaintiffs have proved copyright.  In this regard, in addition to the affidavit of Christine Dengg, the Plaintiffs have put in two affidavits of Dr Gertrunde Kopf who is the 1st Plaintiff’s General Counsel. Both are comprehensive documents which explain, in impressive detail, the process by which the bracelets in question have come into existence from the initial concept, the preparation of the designs by in-house designers and the production of the finished articles.

11.  The cumulative effect of her evidence with that of Christian Dengg is to produce a watertight case, if I may so describe it, on the existence of the Plaintiffs’ copyright in the artistic drawings.

12.  I now need to consider the evidence of Mr Sy Yee Miu [A/1084-1093] on behalf of himself and the 1st Defendant.  Much of the content of Mr Sy’s affirmation, which relates to the Defendants’ lack of knowledge of the 1st Plaintiff’s product, must now fall away since Mr Hughes is now only relying on the events after the cease and desist letter of 5 May 2010.

13.  He deals with the solicitation of the custom of the 1st Plaintiff’s undercover agent by his staff and of how it is that the 1st Defendant produced the bracelets which, and I have been able to inspect these in court, bear a very striking resemblance to the 1st Plaintiff’s bracelets.  In the course of the hearing, Mr Clark was candid enough to say that the 1st Defendant has used ideas which came from the 1st Plaintiff’s works.  If this matter goes to trial this, no doubt, is something that Mr Sy will be closely cross-examined about.

14.  In circumstances where the Plaintiffs’ evidence as to copyright, based on the effect of section 121(1), has been convincingly made out and where knowledge by the Defendants cannot be disputed after 5 May 2010, all that I need to decide is whether, as a matter of discretion, it is necessary to grant the Plaintiffs their injunction.

Discussion

15.  For a copyright holder like the Plaintiffs, who wish to protect the integrity of their concept and brand, the fact that a substantial company like the 1st Defendant, with its considerable manpower, production capacity, outlets and world-wide reach, has been able to produce bracelets so similar to their own is obviously a cause of great commercial concern.  These proceedings are brought with a view to shut down any threat of large scale production and sales.

16.  Mr Clark says that in the circumstances of this case where only 21 samples of seven bracelets have been produced, that is to say three complete sets of which one set was provided to the Plaintiffs’ investigators, proceedings such as these represent an over reaction and are completely unnecessary.  There has been no mass production of these bracelets and that should be sufficient for the Plaintiffs.  Mr Sy has said so on affirmation.

17.  Mr Hughes submits that his client’s fears are well-founded and the action is both proportionate and necessary.  Reliance is placed on the Defendants’ conduct since receipt of the cease and desist letter as evidenced in the correspondence.

18.  This correspondence can be found at A/1094-1105 and is exhibited to Mr Sy’s affirmation.  Both parties have the advantage of being advised by solicitors with specialist knowledge of practice in this area of the law.  Mr Hughes has referred to the fact that at no time have the Defendants offered any undertaking in terms, or approximately in the terms, of the injunction now sought by this summons.  But it is right to say that there has been some delay on the part of the Plaintiffs in seeking any relief.  It was not until March this year that the writ was issued and no application for an interlocutory injunction has been made, since when the Defendants do not appear to have threatened to mass produce.  The Order 14 summons was only issued in July this year and amended to its present for in September.

19.  It is right to say that it is only now that the Plaintiffs have restricted their case so as to rely on knowledge since the cease and desist letter in May last year.  Their case in the main action still is that knowledge goes back to 2009.  This has created a full scale contest on the pleadings including the Defendants’ plea that, in effect, they had never heard of the Plaintiffs or of their products and also to deny the existence and validity of the Plaintiffs’ copyright.

Conclusions

20.  Now that the case has been restricted to the period after 5 May 2010 and in circumstances where I am completely satisfied that the Plaintiffs have, by their affidavits which comply with section 121(1), proved the validity and subsistence of their copyright in the artistic works and drawings which have resulted in the production of the bracelets that are the subject of the amended summons, I am also satisfied that the Defendants have since then had the requisite knowledge of the Plaintiffs’ copyright.

21.  As to the Defendants’ bracelets, one only requires a cursory inspection of them, I have inspected them more carefully than that, to realise that these are a plain reproduction, save as to size, of the Plaintiffs’ bracelets, which can only have been based on the original drawings and artistic works of the 1st Plaintiff’s design staff.  There is simply no other interpretation that is reasonably open to me.  The notion that any original thought has gone into what the Defendants did in terms of their own designs prior to production of their bracelets cannot begin to get off the ground.

22.  This being my view, the Plaintiffs have an unanswerable case but, before I enter the judgment, I will give the Defendants an opportunity to offer suitable undertakings which, hopefully, will obviate the necessity of my making the orders sought by Mr Hughes.  I can understand Mr Clark’s concerns about his clients’ standing and reputation if judgment were to be entered.  And so, in a moment, I will adjourn for a short period to allow Mr Clark to discuss the position with his clients and with Mr Hughes and his solicitors and lay clients.

23.  Where the Plaintiffs have proved their case so compellingly they are entitled to the relief that they seek.  Whilst an injunction is a discretionary remedy, particularly at an interlocutory stage, it seems to me that once a Plaintiff has proved its case, on this occasion in summary proceedings, where I have found that the Defendants can have no conceivable defence to the claims, then the court is much more ready to exercise its discretion in favour of granting the Plaintiffs the primary relief that they have come to court for.

24.  Given what I have said, I very much hope that suitable undertakings can be given so that the whole action can be disposed of.  As to costs,  I will wish to hear argument before I decide on these. Provisionally, it strikes me that the Plaintiffs’ case on costs is not as clear cut as may be thought even though they have succeeded in the judgment.  Issues of delay and proportionality need to be considered which, include the fact that there has only been very limited production of the bracelets by the 1st Defendant and the only dissemination has been to the Plaintiffs’ investigators.  I hope these observations will be of assistance to counsel in arriving at an overall settlement.

25.  Subject to anything that anybody wishes to say to me, I now propose to rise in order to allow counsel to discuss these matters.

Post–judgment Submissions

26.  Having allowed the parties’ time to see if they could resolve matters between them, I am told by Mr Clark that the Defendants feel unable to give any undertakings because this might be seen to prejudice any appeal that they may be advised to bring.

27.  In such circumstances, I propose to enter judgment and make orders in terms of paras. 1, 2, 3 and 4 of the amended-summons. 

28.  From this I turn to costs.  The Plaintiffs, having obtaining judgment, submit that must be entitled to costs.  In this regard the Plaintiffs’ solicitors have prepared a separate bundle entitled “Chronology of Party to Party Correspondence (including Without Prejudice communication)” to which I now propose to make reference.

29.  The argument can conveniently be picked up from a letter from the Defendants’ solicitors dated 5 May 2011 (tab 7).  It represents the Defendants offer to dispose of the matter amicably.   I will set out the letter in its entirety:

“We refer to our without prejudice letter of 20 April 2011 and the without prejudice telephone conversation between your Mr William Law and our Alan Chiu on 28 April 2011.

The present action is regretted as it was never our clients’ intention to create a legal dispute. This matter would have been resolved amicably earlier if there had not been any misunderstanding by our clients about your clients’ claims and demands in your cease & desist letters. Our client wrongly took it that your clients asked for an outrageous amount of monetary compensation of RMB1 million in the very first letter. We have now properly explained the content of your cease & desist letters to our clients.

As mentioned previously, our clients have not put the bracelets in question (the ‘Bracelets’) into the market for sale and have only provided the samples to T-Empire Co. Ltd;, which we understand from your Mr Law is the trading front operated by your clients’ investigator. Putting aside the legal argument, our clients do not believe that your clients suffered any real damage.

Given that the stakes in issue will likely be disproportionate to the costs our respective clients may have to incur in this action, our clients wish to resolve this matter in a pragmatic and amicable manner. Our clients have no objection to include their Dogguan factory as a party to this overall settlement deal.

To show our clients’ sincerity to make peace with your clients, our clients are prepared to confirm that there has never been any mass production nor actual sales of the Bracelets (save and except for those samples sold to your clients’ investigator) and disclose the total number of samples produced and the profits made (if any) in respect of the Bracelets by way of a Statutory Declaration as requested. As indicated in our previous letter, our clients also agree to cease dealing in the Bracelets and have already withdrawn them from display at the HK office and the Dongguan factory’s sample room.

We trust that this would alleviate your clients’ key concerns and look forward to hearing your clients’ views regarding our proposed settlement terms.”

30.  The Plaintiffs’ solicitors responded by putting forward an order in Tomlin form [tab 10] which was enclosed in their letter of 24 May 2011.  The essential parts of what they proposed was contained in the body of the letter:

“1. Both parties execute a Tomlin Order to stay the proceedings. The format of the Tomlin Order is attached;

2. Payment of the out-of-pocket legal costs of approximately Euro 60,000 incurred to our clients up to this moment and any further legal costs incurred after 5pm, 31 May 2011;

3. Reasonable monetary compensation of Euro 10,000

4. A Deed of Undertakings executed by your clients’ PRC entities. The content of which will be similar to that attached in the C&D letter of May 5, 2010;

5. Your clients undertake to acknowledge our clients’ proprietary rights in the designs on the Infringing Bracelets.”

31.  The Defendants’ baulked at the prospect of paying costs of Euro 60,000 [approx. HK$600,000] and a further Euro 10,000 [HK$100,000] as compensation.

32.  Mr Clark says that this was entirely reasonable.  To require costs on this scale, when the litigation had barely got going, even if a certain amount would have had to be expended on investigating the breach of copyright, was exorbitant and completely out of line with costs in such matters which have concluded at an early stage.

33.  Mr Hughes says that the costs required were reasonable and the Defendants offer of a statutory declaration was insufficient and no substitute for an acknowledgement of the Plaintiffs’ proprietary rights in the infringing bracelets.

34.  Negotiations broke down and the litigation proceeded with the Defendants indicating to the Plaintiffs and to the court that they wished to try and resolve the parties’ differences through mediation.  The Plaintiffs were unwilling to mediate and decided to press on in the way that they have culminating in this judgment in their favour.

35.  Mr Clark says that the Plaintiffs have acted unreasonably and disproportionately as demonstrated by the matters to which I have just made reference.  The second limb to his argument is that whilst the Plaintiffs’ case had always been that the Defendants must and did have knowledge of the Plaintiffs’ copyright in the designs, at the hearing of the Order 14 summons they abandoned that stance, for Order 14 purposes, and only relied on knowledge by the Defendants gained from the contents of the cease and desist letter of 5 May 2010.

36.  Mr Hughes invites me to approach costs broadly and in an overall way, this being my description of his approach rather than the words used by him.  What it comes to is that the Plaintiffs were entitled to protect their rights and were met with a strong defence by the Defendants that they had never heard of the Plaintiffs nor of their products.  The requisite element of knowledge for proof of secondary infringement was being strongly disputed although it is right that the Defendants’ letter at tab 7 was a genuine attempt by them to settle.  This must be recognised and accepted.  The Plaintiffs considered that this did not go far enough and put forward a Tomlin order which the Defendants found too steep in its monetary demands.  As a result the litigation proceeded and has proceeded to a successful conclusion so far as the Plaintiffs are concerned.  Had they not gone as far as they have, which was to come to court and argue for what they have now obtained, they would have had to settle for less.  I do not think it matters that they abandoned pre-5 May 2010 knowledge.  The point is that they have succeeded and obtained the orders that they have sought.  It strikes me therefore that anything short of an order for costs in their favour, taxed on a party and party basis, would not do them justice.  In the event, they have done better in court than the Defendants were offering and they have not been shown to have acted unreasonably so as to disentitle them from receiving all of their costs.  The Plaintiffs will therefore have their costs of the action on a party and party basis.