LA CHEMISE LACOSTE S.A. v. CROCODILE GARMENTS LTD.

CACV162/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 162 OF 2000

(ON APPEAL FROM HCA 2401 OF 1995)

_______________________

J U D G M E N T

_______________________

Hon Rogers VP:

1. This is an appeal from a judgment of Chung J. The order is dated 24 March 2000. It follows a judgment handed down on 29 December 1999 which dealt with the primary issues on liability and a further judgment handed down on 22 March 2000 which dealt with further matters including the scope of the injunction order, how the matter of costs of the action should be dealt with and a stay of execution pending appeal.

The history of the action

2. This action was commenced by writ on 15 March 1995 and is in respect of an alleged breach of a Settlement Agreement between the parties dated 1 May 1980. Contemporaneously with the Settlement Agreement the parties signed a Licence Agreement and a Distribution Agreement. As will be referred to later, the allegation of breach arises out of the applications for and registrations of trademarks in the People's Republic of China by the defendant.

The issue in this case

3. At the risk of over-simplification the issue to be decided in the case has been encapsulated as follows :-

"Is the defendant in breach of the Settlement Agreement dated 1.5.80 ("the settlement agreement") by applying for registration in the PRC of Marks ("the Subject Applications"), comprising a crocodile device, which are "confusingly similar" with the plaintiff's Emblem mark?"

4. The Emblem mark is a drawing of a crocodile with its body and its tail directed towards the right hand side of the page. It is a device which has been used by the plaintiff as a trademark in respect of its goods since the 1930's. The plaintiff has used its trademark for sports clothes and other sporting goods as well as cosmetics and other items and has used its name "Lacoste" and the name "Chemise Lacoste" in connection with the trademark and the goods.

5. The "Subject Applications" all comprised the prominent use of a depiction of a crocodile whose body and the majority of the tail point to the left of the page. This drawing of a crocodile has been used by the defendant in relation to its goods, which comprise in particular clothing and shirts and indeed sports shirts. This drawing is depicted in a number of trademarks and in particular trademark 19 of 1954.

Settlement Agreement

6. The question which arises in this case therefore turns on the proper construction of the Settlement Agreement. Apart from one matter it would seem that the parties are in agreement that there is no relevant or admissible evidence relating to the parties' intention which can be gleaned from statements of those responsible for the preparation or signing of the agreement and that the pre-agreement negotiations and post-agreement actions are irrelevant.

The recital clauses

7. The Settlement Agreement contains first of all a recital that the defendant is the owner of trademarks in Hong Kong which consist of the device of a crocodile, the English word "crocodile" and the characters "鱷魚". It goes on to recite the fact that the defendant has sought to register trademarks based thereon both in the United Kingdom and in Denmark.

8. The agreement then recites the fact that the plaintiff has registered what is referred to as the "Emblem" in many countries and that the plaintiff has developed a line of products which it markets using the Emblem and the words Lacoste and Chemise Lacoste.

9. Finally it is said that "unhappy differences" had arisen between the plaintiff and defendant which had resulted in litigation and trademark opposition proceedings in, amongst other countries, Hong Kong and the United Kingdom.

10. It is unnecessary for the purposes of construction of the agreement to consider the merits or demerits of the parties' cases in respect of the unhappy differences. The material matter is that the parties were in dispute as to the right to use in particular the respective devices of the other's crocodiles. The defendant based its case in Hong Kong on the footing that the sale of the plaintiff's goods marked with the plaintiff's Emblem constituted an infringement of the defendant's trademarks and passing off.

The agreement

11. Paragraph 6 of the agreement recites that the parties had negotiated to settle the disputes in Hong Kong, the United Kingdom and Denmark and that they had reached an agreement. In the first place the actions and counterclaims were to be withdrawn. In the second place the defendant was to abandon its opposition to the registration of the plaintiff's trademark "Lacoste". In the third place the parties were to cooperate to enable the defendant to register the trademark crocodile as a word in the United Kingdom and Denmark and to enable the plaintiff to become the owner of a registered trademark consisting of the Emblem in those two countries.

12. Importantly for the purposes of this case, it was agreed that whilst the plaintiff would apply for the registration of the trademark Lacoste and Chemise Lacoste in Hong Kong, the defendant would apply for registration of the Emblem mark in Hong Kong and the plaintiff would assist it in doing so. It was a specific point in the agreement that the defendant would be the owner of any registration resulting from such application.

13. It was then agreed in clause 6(2)(c), which was headed "Outside of Hong Kong", that the plaintiff and the defendant would consult together in order to achieve the objective of having the word "Crocodile" registered in the defendant's name in the United Kingdom and Denmark and the Emblem registered in the plaintiff's name in those countries. It was also provided that should the registrar in those two countries refuse to register the word "Crocodile" and the Emblem device in respect of two different owners, then the plaintiff would be the proprietors of the registered trademarks but would issue a royalty-free licence to the defendant for the word "Crocodile".

The Emblem in Hong Kong

14. Despite the fact that the defendant was to be the proprietor of the registered trademark of the Emblem in Hong Kong the agreement provided that in the first place the defendant would not manufacture or sell or cause or assist any other party to manufacture or sell goods in Hong Kong which bore the Emblem mark except with the plaintiff's consent in writing. Indeed, it was provided that when application was made by the defendant for registration of the Emblem mark, the defendant was to grant the plaintiff the exclusive right to use such mark on clothing and other goods which were to bear either the mark Chemise Lacoste or Lacoste. These were defined in the agreement as being "Lacoste Products" and "other Lacoste products". The use which was to be licensed was not to include manufacture in Hong Kong but only the importation into and sale in Hong Kong. If it were not otherwise clear from the definition of Lacoste products and other Lacoste products it was also specifically provided that the plaintiff would use its trademarks Lacoste or Chemise Lacoste both on the neck label and on the hang tag attached to its products.

15. Clause 6(4) of the Settlement Agreement required the plaintiff and defendant to enter a Distribution Agreement whereby the defendant would have the exclusive right to import into Hong Kong the plaintiff's goods which bore the Emblem and the Lacoste name. In respect of some of the plaintiff's goods such as perfumes, cosmetics and sunglasses the defendant would not be the importer but whoever would be the manufacturer or the importer of the goods into Hong Kong would enter a registered user agreement with the defendant in respect of the Emblem mark. There would also be a two percentage royalty paid by the plaintiff to the defendant in respect of such goods.

Clause 6(5)

16. This is the crucial clause in the Settlement Agreement upon which turns the plaintiff's claim to relief. I therefore set it out in full :

"(5) Relation between the Parties outside of Hong Kong

CG shall not apply for registration nor cause, enable or assist any third party to apply for registration of the Emblem Mark or any trade mark confusingly similar with the Emblem Mark in any part of the world outside of Hong Kong save and except assistance rendered to LCL at their prior request in writing, such prohibition applying to each and every kind of goods in any class."

It was faintly suggested in the course of argument that the words "the Emblem mark or" as appear after the words "registration of" were only inserted into the agreement shortly prior to signing. Whether or not that were so appears to me to be immaterial. The parties came to an agreement. That agreement was signed after lengthy negotiations. No doubt there was considerable legal advice. The parties and the court must take the agreement as they find it.

17. Whereas the recital of the agreement indeed indicated that the agreement arose out of negotiations which were initiated to settle the parties disputes in Hong Kong, the United Kingdom and Denmark, it appears to be quite clear from the words "in any part of the world" that this clause cannot be restricted to those countries. The words are plain. The clause relates to all countries of the world. Indeed, since the question of registration of trademarks in Hong Kong was specifically dealt with in the agreement and to a certain extent the question of registration trademarks in the United Kingdom and Denmark was also dealt with under clause 6(2)(c), the conclusion that the words "any part of the world" must be given their full meaning seems to me to be inescapable.

18. Neither do I see any justification for the argument that the question of confusing similarity had to be judged according to the laws of the different jurisdictions. The laws of different countries are no doubt different. It might be that some countries prohibit registration of trademarks which are confusingly similar. Other countries might not. What this agreement says is simply that the defendant would not apply for registration of a mark which was confusingly similar to the Emblem mark. The words "confusingly similar" are ordinary words in the English language. In my view their ordinary meaning should be adopted without any undue reference to trademark law, whether it be of Hong Kong or anywhere else.

19. Mr Kotewall S.C. who appeared on behalf of the defendant did not seek to argue that a device such as that in trademark no. 19 of 1954 was not confusingly similar to the plaintiff's Emblem mark. In my view it is plain that those two marks are confusingly similar. The idea of the marks is the same. The look of the marks is the same. What would be remembered of those marks by an ordinary person seeing them used in the ordinary way would be almost identical. In my view little importance can be attached to the fact that the plaintiff's crocodile looks to the right whilst the defendants looks to the left. Without a conscious effort to discern and remember the distinction between the two marks the ordinary, not to say imperfect recollection, would undoubtedly dictate a conclusion of confusing similarity.

Clause 6(9)

20. The defendant's primary defence in this case rests upon the wording of Clause 6(9). That reads :

"(9) Use of Trade Mark/Trade Name

CG undertakes not to use in Hong Kong any trade mark or trade name (including the Emblem Mark) in a manner likely to cause confusion between the products of or manufactured by CG (on the one hand) and products of or manufactured to the order of LCL (on the other hand) except as according to the terms of the Distribution Agreement. LCL agrees that per se the use by CG of a crocodile whether as a trade mark or as a trade name as it is represented in CG's registration no. 19/1954 does not cause such confusion."

21. This is reflected in Article 4 of the Distribution Agreement :

"Article 4 - Exclusivity and non-competition

(a) The Distributor agrees not to sell any or all of the Lacoste Products in or from any shop or counter bearing the Distributor's trade name being a representation of a crocodile and agrees not to sell any or all of the Other Lacoste Products from any shop or counter intermingled with any goods bearing a trademark consisting in whole or in part of the device of a crocodile (except the Emblem Mark), it being the intent of the parties to avoid any likehood of confusion in the mind of the public between the Lacoste Goods and goods manufactured by the Distributor bearing a trademark consisting in whole or in part of the device of a crocodile."

It must be borne in mind that, in accordance with the Settlement Agreement, the defendant would be at liberty to sell in Hong Kong its own goods and would also be the seller (to the exclusion of everybody else including the plaintiff) of the plaintiff's goods. The plaintiff's goods would be marked with its Emblem and its name Lacoste.

22. The purpose of Clause 6(9) is clearly to ensure that there would be no (or at least as little as possible) confusion between the plaintiff's goods and the defendant's goods. The final sentence in Clause 6(9) caters for the fact that the defendant would be selling its goods using its crocodile trademark and would otherwise be using its crocodile trademark. That sentence merely provides that that use, by itself, would not constitute the basis for a complaint by the plaintiff against the defendant of causing confusion between the products of the respective parties. That sentence however does not exclude a complaint being made by the plaintiff on the basis that confusion was caused by the use of a combination of things one of which might be the use by the defendant of its registered trademark in such a way that confusion was caused.

23. In summary Clause 6(5) relates to marks which are confusingly similar. What must be considered there is, on the one hand the mark applied for and on the other hand the Emblem. Clause 6(9) relates to confusion in the market in Hong Kong between products of the plaintiff and the defendant. The two concepts are quite different.

24. Mr Kotewall did not seek to argue that the defendant's crocodile as depicted in trademark of 19 of 1954 would not be confusingly similar with the Emblem mark as those words are understood in Hong Kong. What was argued was that the confusing similarity referred to in Clause 6(5) had to be considered in the light of the trademark laws of the particular country where an application was made. In my view that cannot be the correct construction of the agreement.

25. In the first place the agreement is to be construed in accordance with the laws of Hong Kong. Hence the interpretation of Clause 6(5) would on the face of it be according to the meaning in Hong Kong. In the second place the trademark laws of the various countries around the world no doubt differ. Not only do they differ but they are changed from time to time. Indeed, the Trade Marks Ordinance, has been amended quite considerably since the Settlement Agreement was signed. In my view, Clause 6(5) prevents the registration in any part of the world of a trademark which when objectively considered according to the reasonable understanding in Hong Kong would be confusingly similar to the Emblem mark.

26. Reference was made to two rulings in the Trademark Office in the State Administration for Industry, in the People's Republic of China. In the decision dated 5 September 1996 the plaintiff's opposition to the registration by the defendant of one of the marks of which complaint is made in this action was dismissed. It might be observed that the basis of the opposition was not simply the Emblem mark but the Emblem mark combined with the plaintiff's name. Whereas the decision refers to differences in the depiction of the crocodile of the plaintiff and the defendant, those differences, in my view, do not amount to anything of significance.

27. Mr Kotewall placed great reliance upon the fact that in various parts of the Settlement Agreement, and indeed Distribution Agreement, direct reference is made to the defendant's device of a crocodile. Whilst that is so, in my view, Clause 6(5) clearly relates to registration of marks which would be confusingly similar to the Emblem mark; that in my view would include the defendant's registration no. 19 of 1954.

28. It follows that in applying for and obtaining registration in the People's Republic of China of the marks of which complaint is made the defendant was in breach Clause 6(5).

Form of the order

29. On the footing that the appeal on liability is dismissed the defendant also appeals in respect of the form of the Order. The objection relates to the form of the injunction granted by the judge. The judge granted injunctions against the defendant which were both mandatory and prohibitory. They required the withdrawal of trademark applications. They also restrained the further application for registration of marks which were not only identical with the Emblem but were confusingly similar and not only in respect of applications in the People's Republic of China but elsewhere as well.

30. The objection by the defendant was based on the argument that the injunctions were wider than was required and appropriate in the circumstances. In particular the defendant relied upon the decision in Coflexip S.A. v. Stolt Comex Seaway MS Ltd [1999] FSR 473. That was a decision in a patent case. Laddie J had limited the form of injunction to the specific wrongful acts held to constitute infringement. However on appeal that form of the injunction did not find favour with the Court of Appeal. Whilst Aldous LJ did not demur from the general proposition that an injunction should set out with such clarity as the context admits what may not be done, the form of the injunction as devised in the Court of First Instance was held to be inappropriate for a number of reasons.

31. Reference was also made to the decision in Microsoft Corporation v. Plato Technology Ltd. That was a decision at first instance of Mr Alan Steinfeld QC reported at FSR [1999] 834. However in that case a defendant had sold software which he was unaware to be counterfeit. He offered an undertaking which was limited to the specific software which he had sold. It was held that any undertaking or injunction should not be limited simply to the Windows 95 software but should extend to all that plaintiff's software.

32. The form of the injunction is in many respects a matter of discretion of the judge. The judge below considered the arguments but took into consideration, in particular, the language of Clause 6(5) of the Settlement Agreement and the fact that he did not consider the words confusingly similar would cause difficulty. In my view the judge was correct. The words "confusingly similar with the Emblem mark" form the basis of the plaintiff's claim and were correctly included.

33. With regard to the extension of the injunctions to countries outside the People of Republic of China, in view of the nature of the case I do not consider that this was inappropriate. In any event this does not seem to have formed a major feature of the argument in the court below. Nor was any case of difficulty because of the inclusion of all countries, made out.

Trade Mark application no. 981996.

34. This court was asked to insert into the order a provision that there should be liberty to the defendant to apply to the Court of First Instance for an order that its trademark application no. 981996 in the People's Republic of China should be excluded from the ambit of the injunction.

35. That trademark application apparently corresponded to trademark no. 146 of 1910. That was a mark assigned to the defendant on the 23 February 1971. It was the subject of an application before the judge below when the Order was settled. The judge came to the conclusion that he would make no separate order in respect of that part of the defendant's application without prejudice to the defendant taking out an application in an appropriate manner.

36. It appears to me that if the defendant considers that some provision should have been made in the order which corresponded to that ruling that is a matter for the judge at first instance. At present however the judge below declined to make any exception in relation to that trademark application and there is no specific appeal in respect of that. In those circumstances it seems to me that it would be inappropriate for this court to alter the form of the order below.

Costs

37. The defendant was ordered to pay the costs of the trial below. Again submissions in this respect were made to the judge. The complaint made by the defendant is that part of the trial was taken up in relation to issues upon which the plaintiff lost. These were labelled the estoppel/variation issue. The judge referred to the decision of Elgindata Limited (No. 2) [1992] 1 WLR 1207 and in particular to the principles which are set out at page 1214. The first point is that the costs should generally follow the event. That rule does not cease to apply simply because a successful party has raised issues or made allegations which failed. However if he has caused a significant increase in the length of the trial and, thereby, increased the costs of the proceedings he may be deprived of some or all of his costs and indeed if he has acted improperly he may be compelled to compensate the other side in costs. The judge did not consider the issues had been raised improperly. He came to the conclusion that the issues which had been raised were in any event not so divorced from the other issues in the trial that there was a justifiable cause for complaint.

38. The questions relating to costs are very much matters of discretion in the hands of the judge making the order. This court should therefore not seek to interfere unless the judge has applied wrong principles or he has gone clearly wrong. In my view neither of those apply here. I would add however that in deciding questions of costs the judge who has heard a case for six and a half days has a very much better feel for how issues were raised, or why costs were incurred and which party was responsible or not responsible for any wastage which might have occurred and what significance that has in relation to the case as a whole. In matters such as this as to whether there should be apportionment I consider that an appellate court would be very slow to interfere with the exercise of discretion by the judge below.

Hon Stock JA:

39. I agree. I think that of particular significance in this case is the fact, context, and content of the Distribution Agreement signed on the same day as the Settlement Agreement. The Distribution Agreement recites the fact that under the Settlement Agreement and the Licence Agreement, the defendant has the right to register the Lacoste's emblem in Hong Kong; that the plaintiff was granted the exclusive licence to use that trade mark emblem here; and then gives to the defendant the exclusive right to distribute Lacoste's products in Hong Kong. The Distribution Agreement is peppered with references to the plaintiff's emblem and its trade mark name, and the reputation worldwide which it enjoyed; and there are a number of references to the care that is to be taken by the defendant to implement measures which would guard against damage to the prestige of the plaintiff's goods. There is then express reference to the care that had to be taken to ensure that the plaintiff's products sold under the Distributorship Agreement were not sold "from any shop or counter bearing the distributor's trade name being a representation of a crocodile ... it being the intent of the parties to avoid any likelihood of confusion in the mind of the public ...". That, in itself, demonstrates a recognition that the two crocodile motifs were liable to create confusion in the mind of the public, and that the parties were concerned to ensure that their products were not identified one with the other. This scheme ties in with clause 6(9) of the Settlement Agreement, whereby the defendant undertook not to use in Hong Kong any mark likely to cause confusion. But, that said, the Settlement Agreement had then to deal with the fact, expressly recognised in the Distribution Agreement, namely, that the defendant already owned a trade mark in Hong Kong which consisted of a representation of a crocodile. Therefore, for the avoidance of doubt, and to cater for that fact, provision had to be made in the Settlement Agreement to ensure that the mere fact that the defendant used in its own outlets items with a crocodile was not to be treated as causing the confusion to which article 4(a) of the Distribution Agreement referred. Unless that were stipulated, then the separation of the goods in Hong Kong to which considerable attention was paid in the Distribution Agreement became a nonsense. It would mean that the defendant could not sell its goods in Hong Kong with a crocodile label at all. So, quite clearly, clause 6(9) and its saving reference to the crocodile representation was designed to cater for the peculiar situation that had arisen in Hong Kong.

40. Further, it is, to me, inconceivable that had it been intended by the parties to permit use by the defendant of the crocodile device abroad, in countries in which the defendant's mark was not registered, those acting for the defendant would not have insisted on the insertion in clause 6(5) of the Settlement Agreement of a saving provision in the same terms as in clause 6(9); not least when clause 6(5) is headed : "Relation between the parties outside of Hong Kong".

41. I agree also with the judgment of the Vice-President as to the extent of the order made. It has been argued that since it is not suggested that the defendant is in any way disreputable, an order in wide terms is inappropriate. But the fact that that is not suggested is hardly conclusive in itself against an order in wide terms. The whole history of the matter and the evident commercial mindset of the defendant is to be taken into account. It is clearly the intention of the defendant to break into the Mainland market with products which identify themselves in some way with a crocodile motif, and very many applications have been made by the defendant there, with many rejected. It is unrealistic to suppose that the defendant intends anything other than to continue trying out motifs which, at each turn, will involve a change of one type or another to motifs or emblems or designs already rejected. So, if the injunction is limited to repetitions of marks identical to that of the subject application, no breach of the order is committed on any such attempt, and the plaintiff would then be left to begin litigation afresh. As was said by the Court of Appeal in Coflexip S.A., it is the person who is shown to have been in breach who should seek guidance from a court if he wishes to sail close to the wind. It seems to me that in the circumstances, the wide form of order was not only the usual form, but appropriate to the case.

42. I agree, too, for the reasons given by the Vice-President, that this court should not interfere with the order for costs. I, too, would dismiss this appeal.

Hon Le Pichon JA:

43. I agree with both Judgments.

Hon Rogers VP:

44. The appeal will accordingly be dismissed with an order nisi that the costs of the appeal be to the plaintiff.