P.C. INTERNATIONAL MARKETING LTD v. BEST POWER ENTERPRISES LTD

cacv 208/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 208 of 2004

(on appeal from HCA NO. 159 OF 2002)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal against the judgment of Temporary Deputy Registrar Lisa Wong given on 15 April 2004.  The matter before the Registrar was the assessment of damages for trademark infringement.  In a careful judgment the Registrar awarded damages of $50,000.  The plaintiff appealed against that assessment.  At the conclusion of the hearing of this appeal, this appeal was dismissed with reasons to be given in writing.

Background

2.  The writ in this action was issued on 15 January 2002 claiming infringement of 2 trademarks registered in Hong Kong the prominent parts of which were the words “Pierre Cardin”.  The marks were registered in Class 14 and the goods in respect of which the marks were registered included clocks.  Liability was not contested by the defendant and the defendant submitted to judgment dated 18 April 2002.

3.  The Registrar not only considered the written evidence but had oral evidence called before her.  Briefly the important findings of fact by the Registrar were that the defendant had taken a licence from a Samoan company carrying on business in Taiwan called P.C. Electronics Corporation.  That licence purported to grant the defendant the right to sell clocks bearing the trademark “Pierre Cardin” worldwide except Argentina and Uruguay.  The cost of the licence was to be 4% of the defendant’s sales price of the clocks with a minimum royalty of US$45,000 payable in the first year in three instalments.  The licence was to run from 1 August 2001 to 31 October 2004.  It is not entirely clear which countries the trademarks were said to be registered.  What does seem clear is that the trademarks were said to be registered in Class 9, which covers a range of goods which might be collectively categorised as electronic or electrical.  Although it would not be impossible that a registration might exist for electronic clocks in Class 9, it would generally be regarded as incorrect since clocks should be registered in Class 14, since that class covers “horological and chronometric instruments”.

4.  Relying upon that licence, the defendant had manufactured 9 desk clocks and 7 wall clocks which bore the marks “Pierre Cardin”.  It also made, in a rather rudimentary way, 30 leaflets showing these clocks.  The clocks were apparently put on display at a trade fair at the Convention Centre held on 22-25 October 2001.  Some 20 of the leaflets were handed out to various visitors to the defendant’s booth.

5.  Probably shortly thereafter, Mr Tsai, a director of the defendant, approached the parent company of the plaintiff because it was understood that that company was concerned in the sale of at least watches bearing the “Pierre Cardin” trademarks.  Mr Tsai informed the person to whom he spoke that the defendant had a licence from P.C. Electronics Corporation.  There was no interest shown in doing business with the defendant.  On the other hand there is no suggestion that Mr Tsai was told that any licence that P.C. Electronics Corporation could grant could not cover Hong Kong.  However, later, by letter dated 29 November 2001, the plaintiff wrote to the defendant informing the defendant that it was the owner of the “Pierre Cardin” trademark worldwide except in Argentina, Chile, Uruguay and Japan in respect of “all watch products”.  It demanded information in respect of the licence with the Taiwanese company and details of the items produced, the number of items produced and the quantities sold and the stock quantities and any royalties paid.  The letter ended:

“Please be advised that we will not hesitate to take legal action to enforce our rights and if you fail to report the above.

Any licence agreement of the products concerned can only be negotiated with us.

Please do not hesitate to contact us in case of any queries.  We look forward to hearing from you soonest.”

6.  It is interesting that that letter did not dispute the fact that P.C. Electronics Corporation could grant a licence for trademarks in respect of Class 9 products.  Whether there is some connection between the plaintiff and P.C. Electronics Corporation is not known.  It would appear from paragraph 8 of the witness statements of Peter Lee Ka Yue that the plaintiff was able to learn from P.C. Electronics Corporation the exact amount that had been paid by the defendant to that company.  Mr Lee does not indicate how it came about that he had a meeting in May 2002 with the managing director of P.C. Electronics Corporation.  In the light of such a meeting at which the information was communicated, it would be somewhat surprising if there were no connection, given the fact that P.C. Electronics Corporation trades in Taiwan.  Furthermore, although the Registrar was right to be critical that the defendant had not taken sufficient care in examining the alleged rights of P.C. Electronics Corporation, it seems to me that it may well be the case that that company did indeed have rights in respect of Class 9 goods; that is somewhat supported by the fact that neither the plaintiff nor P.C. Electronics Corporation claimed to have any rights in respect of Argentina and Uruguay, thus possibly the plaintiff having the Class 14 throughout the rest of the world and P.C. Electronics Corporation having the Class 9 rights.

7.  The Registrar accepted the defendant’s evidence that it destroyed the clocks which bore the offending trademarks and also destroyed the remaining 10 leaflets which had not been distributed at the trade fair.

8.  It may also be noted that the Registrar did not accept the evidence from the director of the plaintiff’s parent company that leaflets had been distributed by the defendant outside another fair organised by the Trade Development Council.  Neither did the Registrar accept the evidence from the same witness that the visit by the defendant’s director to the plaintiff’s parent company was at the instigation of that latter company.  The Registrar held that the defendant’s director had visited that company of his own accord and in the contemplation that the defendant was entitled to sell the products of which complaint was made. 

9.  In paragraph 40 of the judgment the Registrar observed that it was not and could not be the plaintiff’s case that its customers had been diverted to the defendant.  The Registrar then went on to consider the claim made by the plaintiff that the damages should be assessed on the basis of a notional royalty.  After citing from the judgment of Knox J in the case of Dormeuil Freres SA v Feraglow [1990] RPC 449 in which consideration was given as to whether damages should be based on a notional royalty, the Registrar expressed the view that there was a conceptual difficulty in the general application of a notional licence fee or royalty as the basis of assessment of trademark infringement.  The Registrar observed that the plaintiff would not have granted the defendant a licence in any event and importantly that there had been no sales of any offending clocks.  It was acknowledged that there was no proof that the plaintiff had suffered any loss of sales, indeed, the sales of “Pierre Cardin” watches had increased considerably even after the events complained of.  However, on the basis that it was right to make an award of damages, which in the circumstances could only be based on the notional loss of business reputation and goodwill, the registrar went on to award a global figure of $50,000 in respect of infringement. 

This appeal

10.  On this appeal Mr Lin, who appeared on behalf of the plaintiff, sought to argue three main points.  First, that the Registrar was wrong in determining the extent of the defendant’s infringement; second, that damages should have been based on a notional royalty or licence fee for the unauthorised use and third, that the figure of $50,000 was too low.

11.  In respect of the first point that Mr Lin’s major argument was that the defendant had failed to produce all the documents and items which it should have produced.  He sought to rely on the maxim “omnia praesumuntur contra spoliatorem”.  That is a maxim which was applied in the case of Armory v Delamarie (1722) 1 Str. 504.   It is a simple rule of thumb that a court is likely to draw adverse inferences against a party who fails to produce an item in circumstances where the item should have been produced and an adequate explanation for its non-production is not forthcoming.

12.  However given the terms of the letter of 29 November 2001 I can see no basis for alleging that the defendant was wrong in destroying the clocks and the remaining leaflets of which complaint was made.  The items which were destroyed did not belong to the plaintiff and although the plaintiff might, after a successful action, have obtained an order for delivery up, the time for discovery had not arrived by the time these items were destroyed.  Furthermore, there is nothing to which Mr Lin could point which would demonstrate that the Registrar was in error in holding that there had been no sales of any clocks and that the only offending clocks which had been manufactured had been those which the Registrar had referred to in her judgment. 

13.  Mr Lin sought to argue that the very payment of the advance royalties which the defendant had made demonstrated that there must have been sales.  Quite apart from the fact that I do not consider that the arguments put forward are in any way persuasive to show that the defendant had been manufacturing and selling clocks, these points were all well in the Registrar’s mind and indeed his arguments were referred to in the Registrar’s judgment.  In those circumstances I see no basis whatever for interfering with her finding of fact as to what the defendant had actually done in manufacturing clocks.  The theme of Mr Lin’s submission that the defendant had been engaged in manufacturing and selling clocks bearing the “Pierre Cardin” marks was not based on any evidence, but was simply speculation unsupported by any fact.

14.  At first Mr Lin attempted to argue that the damages to which the plaintiff should be entitled should be calculated on the basis of a licence fee such as that paid to P.C. Electronics Corporation.  He acknowledged in the course of argument, in answer to a question from the court, that the damage suffered by the plaintiff was no different whether the defendant had taken a licence from P.C. Electronics Corporation or whether it had simply made clocks and attempted to sell them in total disregard of anybody’s rights.  In the course of argument, Mr Lin shifted to the point that the licence fee paid to P.C. Electronics Corporation should be used as a yardstick for the value of the right which the defendant had usurped to itself.  However, it is quite clear that that cannot be so.  The licence fee paid to P.C. Electronics Corporation was the amount of minimum royalties for the right to sell clocks throughout the world, except in the two specified countries, at a royalty fee of 4%.  In contrast, what the defendant has done was to display a small number of clocks at the trade fair in the not very conspicuous booth together with a large number of its own clocks.  It has also distributed the 20 or so leaflets of which complaint is made.  That is a very different matter.  In reality there would never be a licence simply to display a few clocks and distribute 20 leaflets at one exhibition and nothing else.  In my view the reasons given by the Registrar for declining to grant damages based on a royalty basis were sound.

15.  Although it was a subject of appeal, but no doubt because an indication had been given by the court, Mr Lin did not pursue any strenuous argument that the award of $50,000 was too low.  That was a matter primarily in the discretion of the Registrar.  The sum awarded was in my view ample to compensate the plaintiff for any damage done as a result of the defendant’s acts and it should not be disturbed.

Hon Cheung JA:

16.  I agree.

Hon Tang JA:

17.  I agree that this appeal should be dismissed.  Mr LIN has argued that because the defendant had pay licence fees to PC Electronics Corporation, the defendant should be ordered to pay the plaintiff compensation based on a notional licence.  But even so, the notional licence fee would be based on the defendant’s actual infringement and not on what the defendant might have done under the licence granted by PC Electronics Corporation.

18.  Moreover, although I am inclined to the view that in a suitable case, compensation for infringement of trademark can be assessed on the basis of a notional licence that is not the only appropriate basis for compensation.  In this case the temporary Deputy registrar was entitled to refuse to assess the compensation on the basis of a notional licence.  Indeed, I believe that had she done otherwise, the damages awarded would have been lower.