GOLD TYPHOON ENTERTAINMENT LTD v. LEGEND WORLD ASIA GROUP LTD

HCA 1931/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1931 OF 2012

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J U D G M E N T

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BACKGROUND

1.  This is the Plaintiff’s application for summary judgment against the Defendant.

2.  The Plaintiff is the owner of the copyrights of karaoke music videos (“KMVs”) of local popular songs in Hong Kong.  The Defendant is operating a karaoke pub known as Vegas Club in which karaoke music videos are performed.

3.  It is the Plaintiff’s case that the Defendant had without proper licence playing some of the Plaintiff’s KMVs in its premises through a computer system, and thereby infringing the Plaintiff’s copyrights.  On 31 July 2012, investigators were sent by the Plaintiff to Vegas Club, posing as customers, to gather evidence of suspected infringements of the Plaintiff’s copyrights in the KMVs.  The investigators found that 13 KMVs of the Plaintiff were provided for karaoke entertainment to customers there.  They played the said KMVs using the karaoke system and captured some screen shots of the KMVs with a camera.

4.  In this case, it is important that the karaoke music videos are said to be played through a computer system as the Plaintiff is asserting that a licensee is authorized to play its KMVs through a computer system only if he has obtained a particular type of licence known as karaoke server licence (“K-Server licence”) from the Plaintiff or its agents.  A licensee who has obtained only a so called public performance licence (“PP licence”) is allowed only to play the KMVs in its premises but not to reproduce the KMVs through a computer or server system.

5.  This mode of granting licence in KMVs has been commonly used by the music industry in Hong Kong for some years.  The so called “K-Server licensing scheme” was introduced in 2005 by a company named Phonographic Performance (South East Asia) Limited (“PPSEAL”), a leading licensing body in Hong Kong.  At that time, karaoke establishments in Hong Kong started to change their manual based karaoke systems into automated ones.  Before the introduction of this K-Server licence, only the PP licence was needed to play KMVs in karaoke establishments as no computer system would be involved in playing the VCDs or DVDs of the KMVs.

6.  From 2005 and until January 2008, the Plaintiff authorized PPSEAL to grant on its behalf both the K-Server licence and PP licence of its KMVs to karaoke establishments.  Since January 2008, the Plaintiff ceased to authorize PPSEAL to grant K-Server licence but continued authorizing PPSEAL to grant PP licence.  Thereafter, the Plaintiff authorized other licensing bodies, namely Music Link Limited (“Music Link”) and Music and Video Copyright Management (HK) Limited (“MVCM”), to grant out its K-Server licence.  At present, the Plaintiff does not authorize any licensing bodies for granting out its K-Server licence.

7.  The Defendant started operating Vegas Club in 2007.  In or about September 2009, the Defendant obtained the K-Server licence of the Plaintiff’s KMVs through Music Link[1]. After payment of the necessary licence fees to Music Link, the Defendant installed the Plaintiff’s KMVs, from the VCDs or DVDs provided by Music Link, into its computer system.  The Defendant paid quarterly to Music Link a licence fee of $3,500 per month for the K-Server licence.  Since 1 January 2010, as MVCM has replaced Music Link as the licensing body, the Defendant obtained the K-Server licence from MVCM but the licence fee has been increased to $5,100 per month.  The K-Server licence granted by MVCM expired in January 2011 and there has been no renewal of the K-Server licence of the Plaintiff’s KMVs to the Defendant.

8.  Looking at together the Defence and affirmations filed by the Defendant, the Defendant raised the following defences:

(1) The K-Server licence granted to the Defendant in respect of the Plaintiff’s KMVs is a permanent licence;

(2) The right to play the Plaintiff’s KMVs by the Defendant is covered by the licence obtained from PPSEAL;

(3) The Plaintiff is put to strict proof of its ownership and subsistence of the copyrights of the relevant KMVs; and

(4) The Plaintiff’s KMVs do not constitute “work” within the meaning of the Copyright Ordinance, Cap 528 (“CO”).

9.  In his skeleton submission, Mr Hughes, counsel for the Defendant, intimated that the Defendant no longer relies on Defence (4).  On the other hand, Mr Hughes seeks to put forward 2 other defences which have not been pleaded in the Defence or raised anywhere in the Defendant’s affirmations, namely (i) the defence (making of transient or incidental copies) under section 65 of the CO and (ii) estoppels or acquiescence by the Plaintiff.

10.  The Defendant also pleaded, as an alternative to its above defences, that it was granted by PPSEAL licences to perform, show or play the Plaintiff’s KMVs under the misrepresentation and/or mistake of PPSEAL and/or its employee. The Defendant sought indemnity for the alleged infringements of the Plaintiff’s copyrights against PPSEAL by way of Third Party Proceedings.

PRINCIPLES ON SUMMARY JUDGMENT APPLICATIONS

11.  Where a plaintiff raises a plausible and prima facie sustainable case, the burden lies on the defendant to satisfy the court that it has a fair or reasonable probability of showing a real or bona fide defence.  Toy Major Trading Co. Ltd v Hang Shun Plastic Toys Ltd[2].

THE DEFENCES

Permanent licence

12.  The chief executive officer of the Defendant, Mr Simon Lee, stated in his affirmation the followings[3]:

“My understanding is that the Defendant had already paid for the KS Licence to install, duplicate and/or copy the KMVs into the computer servers, just as if we pay for music and download them from Apple Store or as if we install an Microsoft Office software into our computer which allows us to have a permanent copy in our computer hardware for self-use. I am not aware of any practice in the world which permits Apple Inc. or Microsoft Inc. from taking back the copies or stopping the use by any consumer.”

13.  Regarding the licence fee, Mr Lee said[4]:

“The quarterly licence fee charged by Music Link was to ensure that Music Link, representing the Plaintiff and a dozen other major local record companies at the time, will update the KMVs or song pool regularly.”

14.  So basically the Defendant is saying that it has purchased the soft copies of the Plaintiff’s KMVs through its licensing agents by payment of a licence fee.  And by such purchase, the Defendant can retain the soft copies permanently in its computer system and use them for providing karaoke services without further payment of any other fees for an indefinite period of time.

15.  The parties do not put before me any written licence granted to or agreement made between Music Link or MVCM and the Defendant.  The Defendant only exhibited the invoice issued by Music Link and a copy of the application form for K-Server licence from MVCM to prove the granting of the K-Server licences from the two licensing bodies.  The Plaintiff has requested Music Link for a copy of the K-Server licence granted to the Defendant but was informed that the document has been misplaced or lost.  The Plaintiff also made enquiries with MVCM but has not been able to obtain a copy of the terms and conditions attached to the application form as stipulated therein.  Therefore, I do not have the benefit of the actual terms of the K-Server licence granted to the Defendant to assist me to consider the ambit of the rights granted to the Defendant under the licence.

16.  Notwithstanding the above limitation, in my judgment, the existing materials before me are sufficient to illustrate that the Defendant’s contention is nothing but a fanciful proposition. 

17.  There is no dispute that the K-Server licence would expire and it is undisputable that the Defendant has had, upon the expiry of the K-Server licence previously granted to it, applied for and secured another term of the same licence.  On the face of it, this is contrary to the suggestion that the K-Server licence is of a permanent nature. 

18.  The Defendant, however, alleges that under the licence agreement, the licensors are obliged to update the Defendant’s song pool regularly upon the payment of the monthly fees.  In other words, the Defendant is suggesting that further fees were paid, upon the expiry of the K-Server licence, not for the continuous use of the existing songs downloaded, but for the downloading of new songs into their computer systems.

19.  As I mentioned earlier, I do not have the benefit of seeing the actual terms of the licence agreement. For unknown reasons, the Defendant did not produce the licence agreement to verify its understanding of it.  In response to the Plaintiff’s “cease and desist” letter alleging copyright infringements, the Defendant did not seek to uphold its rights under the permanent licence it has, but to immediately delete all works of the Plaintiff from its computer system.  This conduct of the Defendant is totally contradictory to what he suggested as the terms of the licence agreement.

20.  The suggestion that the licence fees were paid for the continuous provision of new songs for installation is commercially unattractive.  It is inconceivable that unlimited number of new musical works can be obtained for commercial use for the modest sum involved.  Besides, there is no mention of the obligation to provide new songs anywhere in the standard licence agreements used by different licensing agents produced in the evidence.  In UMG v Profit Chart[5], the Court of Appeal considered the commonly used K-server licence in the Karaoke industry in Hong Kong and it was never suggested by any parties that it is a permanent licence.

21.  Moreover, Mr Lee said in his affirmation[6] that the Defendant would have deleted the KMVs stored in the computer if the Plaintiff requested them to do so upon the expiry of the K-Server licence.  This is also inconsistent with what the Defendant alleged to be its understanding of the terms of the licence agreement.

22.  In my view, the Defendant’s allegation that the K-Server licence is a permanent licence is unsustainable and thus not an arguable defence.

PPSEAL licence

23.  The Defendant pleaded as its defence that it was and is licensed to perform the Plaintiff’s KMVs.  It is pleaded that PPSEAL granted, on behalf of its members, to the Defendant various licences, including the licence to perform, show or play KMVs to the public covering the period between 1 September 2010 and 31 August 2011 and such licences were extended by subsequent agreements up to present. 

24.  It is also pleaded that the Defendant will rely on the fact that the Plaintiff was and is still a member of PPSEAL and that PPSEAL was and is at all material times authorized by the Plaintiff to grant licences on behalf of the Plaintiff or acting under the authorisation of the Plaintiff in granting the Defendant licences to perform, show or play Plaintiff’s KMVs and other KMVs from time to time released by the Plaintiff to the public in Vegas Club.

25.  However, it is not the Defendant’s case that the licence granted by PPSEAL was a K-Server licence.  It is also admitted by Mr Lee, in his affirmation, that the Plaintiff had terminated PPSEAL’s authority to grant K-Server licence on its behalf in early 2008. 

26.  Whatever licence granted by PPSEAL to the Defendant after 2008 should not cover the same rights as conferred under a K-Server licence.  The fact that the Defendant was granted licences from PPSEAL, be it PP licence or otherwise, do not constitute any valid defence against the Plaintiff’s claim.

Ownership and subsistence of the copyrights

27.  At the hearing, Mr Hughes submitted that the Plaintiff has failed to adduce sufficient evidence to prove its ownership and the subsistence of the copyrights of the KMVs.  He put much emphasis on certain “fatal defects”[7] as appeared in the statutory declaration[8] of Mr Tong Po Fong (“Mr Tong”), general manager of the Plaintiff, seeking to prove the ownership and subsistence of the copyrights of the KMVs pursuant to section 121 of the CO.

28.  Although the Plaintiff put in a last minute affirmation[9] of Mr Tong trying to remedy the defects, Mr Hughes was able to identify similar defects in the supplemental statutory declaration exhibited therein.  Mr Hughes submitted that as the statutory declarations do not comply with the requirements under section 121, the Plaintiff cannot have the benefit in the section for proving ownership and subsistence of the copyrights and hence, there is insufficient evidence proving the same.

29.  I agree with Mr Hughes that the statutory declarations exhibited by the Plaintiff are defective for the purpose of section 121 and the Plaintiff is therefore not entitled to rely on that section to prove ownership and subsistence of the copyrights.  However, I do not share his view that it means necessarily that the Plaintiff must then fail in proving its ownership and the subsistence of the copyrights in the KMVs.

30.  The effect of section 121 is to render affidavit evidence for proof of copyright ownership and subsistence admissible without calling the deponents provided that certain requirements specified in the section on the form and contents of the affidavit are met.  The rationale behind the section is to save costs and resources to require witnesses (in many cases from overseas) to come testify in court, while the ownership and subsistence of copyrights can in most of the cases hardly be disputed.  This is particularly important for criminal prosecutions where hearsay evidence is generally inadmissible in Hong Kong.

31.  Section 121 is obviously a very convenient way to prove ownership and subsistence of copyrights particularly when a case comes to trial.  In this case, although the statutory declarations filed do not comply with section 121, there is nonetheless nothing to stop this court from admitting the evidence for consideration in this Order 14 application.  

32.  There is no dispute that the Defendant had been holding licences (both K-Server and PP) granted by the Plaintiff’s licensing agents of the subject 13 KMVs at least from September 2009 to January 2011.  It is also the case of the Defendant that it is still licensed by the Plaintiff, through PPSEAL, to perform the subject KMVs.  In other words, the Defendant has been recognising the Plaintiff’s intellectual property rights in the subject KMVs for some years. 

33.  Although Mr Hughes is able to spot quite a number of technical defects in the Plaintiff’s statutory declaration rendering it insufficient to invoke section 121, such defects are in my view not fatal for proof of the Plaintiff’s ownership of the copyrights and their subsistence.  Without any other basis put forward by the Defendant to raise any substantive queries against the Plaintiff’s evidence, and given that the Defendant has been recognising the Plaintiff’s rights for some years, I am satisfied that the Plaintiff has adduced sufficient proof on its ownership of the copyrights of the subject 13 KMVs and their subsistence.

Defence under section 65 of the CO

34.  Section 65 of the CO provides that :

“Notwithstanding section 23, copyright in a work is not infringed by the making of a transient and incidental copy which is technically required for the reviewing or listening of the work by a member of the public to whom a copy of the work is made available.”

35.  Mr Hughes submitted that there are triable issues of law as to whether any copies of the films and sound recordings that may have been made at the pertinent time amounted to:

(1) Transient or incidental copies that were technically required for the viewing or listening of the works made available to the Defendant and copied onto its karaoke server; and/or

(2) Transient or incidental copies that were technically required for the playing of the works made available to the Defendant under the PPSEAL public performance licence.

36.  With respect, the defence under section 65 is inapplicable to the present situation.  It is only relevant to the particular situation where “the making of a transient and incidental copy which is technically required for the reviewing or listening of the work by a member of the public to whom a copy of the work is made available.”

37.  To understand and put the description “a member of the public to whom a copy of the work is made available” into proper context, we must refer to section 26 of the CO, which says:

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

(2) References in this Part to the making available of copies of a work to the public are to the making available of copies of the work, by wire or wireless means, in such a way that members of the public in Hong Kong or elsewhere may access the work from a place and at a time individually chosen by them (such as the making available of copies of works through the service commonly known as the INTERNET).

(3) …”

38.  Mr Hughes was right in submitting that the rationale for section 65 is to prevent persons who have lawfully obtained copies of copyright works from being held liable for infringement for making copies transient or incidental to the authorised use of the relevant work.  However, such protection is aimed for people who obtained copies of the work through the internet, or other similar electronic means, if such means exists. 

39.  In his written submission, Mr Hughes submitted that the defence under section 65 is specifically designed to cater for “precisely the sort of technological advancements that have taken place in recent years in relation to karaoke establishments.”  And he cited Butterworths Hong Kong Copyright Handbook (3^rd Edition) §65.02 in support.  With respect, the learned annotator did not say what Mr Hughes said.  In that particular paragraph the learned annotator said “this section is drafted in such a way that the technological advances in communication may be catered for.” (emphasis added)  

40.  In my view, the Defendant could not be a member of the public to whom a copy of the work is made available within the meaning of section 65.

41.  In any case, I also agree with Mr Au, solicitor for the Plaintiff, that the act of infringement complained about in this case is the storage of the works in the system and not the making of a transient or incidental copy required for reviewing or listening.

42.  Section 65 is not a valid defence available to the Defendant.

Estoppels or acquiescence

43.  The Defendant has not pleaded estoppels or acquiescence as a defence.  There is also no mention of estoppels or acquiescence or anything to this effect in Mr Lee’s affirmations.

44.  This defence was only raised first in Mr Hughes’ written submission:

“[The Defendant] has strong grounds for raising a defence of estoppels/acquiescence. It is submitted there is cogent evidence to suggest that it is common practice in the industry for copyright owners and their licensed collecting societies (a) to grant perpetual licences in respect of back catalogues of old KMV titles (California Red Ltd v Newway Karaoke Box Ltd); (b) not to ask licensees to delete copies of old back catalogue KMVs from their servers; and (c) not to ask licensees to return old back catalogue KMV discs to the collecting societies or to the copyright owners directly.”

45.  First of all, I do not agree that there is “cogent evidence” to suggest the so called “common practice” in the industry.  In California Red Ltd v Newway Karaoke Box Ltd[10], Hon A Cheung J (now Hon A Cheung CJHC) mentioned in passing, when describing the licences granted by record companies to the parties, that “[i]nvariably, the licences are exclusive for an initial period and thereafter they become non-exclusive and, very often, perpetual at no extra cost.”  In saying this, His Lordship was referring to the particular licensing arrangement between record companies and a joint venture company (the 2^nd Defendant therein) formed by the then two largest karaoke companies (the Plaintiff and the Defendant therein) in Hong Kong.  His Lordship was not making a statement that that was the common practice in the karaoke industry.

46.  Even if there is evidence to suggest the existence of such common practice, Mr Hughes did not explain how it can create any estoppels or acquiescence in law.  In particular, I can see no detriment on the part of the Defendant resulting from the Plaintiff’s alleged inaction in not asking the Defendant to delete the KMVs from their computer system. In any event, the Defendant has adduced no evidence to prove any detriment.

Whether a permanent injunction should be granted?

47.  Mr Hughes submitted that, as the Defendant has immediately upon receipt of the “cease and desist” letter deleted all the Plaintiff’s KMVs from its computer and the Defendant had no intention to use the KMVs in future, there is no grounds for the Plaintiff to seek any permanent injunctive relief.

48.  In the pre-action correspondences between the parties, the Plaintiff requested the Defendant to give an undertaking not to infringe the Plaintiff’s copyrights in the KMVs.  However, the Defendant did not accede to the request. Moreover,  the Defendant maintained the position that it is entitled to continue utilize the Plaintiff’s KMVs installed into its karaoke system notwithstanding it’s clear knowledge of the relevant K-Server licence being already expired.

49.  I am of the view that the threat of future infringement is clearly there and a permanent injunction to restrain infringing acts is necessary. 

50.  Although the present claims of the Plaintiff are only limited to 13 KMVs, given that the Defendant has now PP licences of some of the Plaintiff’s KMVs and it would be very easy for the Defendant to similarly infringe the copyrights of the Plaintiff’s other KMVs, the ambit of the injunction should be extended to cover all the Plaintiff’s KMVs.

Additional damages

51.  The Plaintiff prayed for additional damages under section 108(2) of the CO.

52.  I agree with Mr Hughes that the conduct of the Defendant does not amount to flagrant misconduct in that it has been consistently paying various licence fees to licensing bodies in running its karaoke business.  This is not the kind of situation where additional damages ought to be awarded.

Order

53.  In the circumstance, I am not satisfied that the Defendant is able to show any triable issues or bona fide defence.  Judgment is therefore entered against the Defendant in favour of the Plaintiff.

54.  Accordingly, I make orders in terms of the Plaintiff’s Order 14 summons except paragraph 5[11] therein.

55.  I make also costs order nisi that costs of the Plaintiff’s claims, including the present application, be to the Plaintiff, to be taxed if not agreed.  The costs order nisi will be absolute upon the expiry of 14 days from the date of this judgment unless application is made to vary the same within such period of time.