LIN HEUNG TEA HOUSE & BAKERY v. GUANGZHOU CATERING SERVICES ENTERPRISES GROUP CO LTD

CACV 196/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 196 OF 2013

(ON APPEAL FROM HCMP NO. 133 OF 2008)

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J U D G M E N T

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Hon Cheung JA :

I. Background

1.1  「蓮香樓」(Lin Heung Lou),  「蓮香茶樓」(Lin Heung Tea House) is a famous restaurant in Hong Kong serving traditional Cantonese cuisine.  「蓮香」(Lin Heung) literally means lotus flagrance. The restaurant has been in operation by the applicants since 1926.  The applicants also operate a bakery business selling cakes and pastries such as「月餅」(mooncakes),  「老婆餅」(wives’ cakes) and「嫁女餅」(wedding cakes) under the marks of「蓮香」(Lin Heung),「蓮香月餅」(Lin Heung Mooncake),「蓮香老餅家」(Lin Heung Old Cake Shop) and「香港蓮香老餅家」 (Hong Kong Lin Heung Old Cake Shop).  Of the applicants’ bakery products, the best known items are the different types of mooncakes.  Every year before the Mid-Autumn Festival, the applicants advertise their mooncakes by outdoor advertisements and circulars to the public under the mark and device of「蓮香月餅」(Lin Heung Mooncake). On the face of each mooncake are also embossed the Chinese characters「蓮香月餅」.  This has been the practice for the last 80 years.  The applicants’ name is often shortened to「蓮香」(Lin Heung). 

1.2  The applicants also export mooncakes to its distributors in the USA and Canada every year before the Mid-Autumn Festival.  They have registered the mark and device「蓮香月餅」(Lin Heung Mooncake) in Canada and the USA on 20 December 1991 and 12 July 1994 respectively. 

1.3  The applicants also sell other kinds of cakes and pastry under these marks at their premises.  Over the years they have acquired and maintained a high reputation for their products among the public in Hong Kong. 

1.4.  In 2006 the applicants applied for registration of 「蓮香樓」and 「蓮香」for class 30 goods/services.  The mark of「蓮香樓」was also sought to be registered in other classes appropriate for the tea house and restaurant business.  The two marks are as follow :

1.5  However, the Registrar of Trade Marks rejected the application because the Chinese characters「蓮香」have already been registered as a trade mark by the respondent, a Mainland company in Guangzhou (廣州) (‘the suit mark’).  The registration was first obtained by「廣州蓮香樓」(Guangzhou Lianxiang Lou) (‘GZ Lianxiang’) in 1996.  The name ‘Lin Heung’ and ‘Lianxiang’ are the same transliteration of  「蓮香」under Cantonese and Putonghua respectively.

1.6  The respondent’s suit mark is as follows :

1.7  The respondent was assigned the suit mark in 2006.

1.8  The applicants commenced the present action in 2008 seeking a declaration that the suit mark is invalid and also its revocation. Louis Chan J rejected the revocation application but gave judgment for the applicants declaring the registration of the suit mark is invalid under sections 53(5)(b) and 12(5) of the Trade Marks Ordinance(­Cap. 559) (‘TMO’).  The respondent now appeals against the decision.

II.  History of the Lin Heung Tea House

2.1  Although the applicants set up the Lin Heung Tea House in Hong Kong in 1926, its history went back earlier in Guangzhou in the Mainland.  GZ Lianxiang was founded in 1910 in Guangzhou.  Ngan Yee Chi was one of its founders. 

2.2  Ngan Yee Chi together with 70 other shareholders of GZ Lianxiang founded the applicants’ tea house business in Hong Kong under the trade name of「蓮香茶樓」(Lin Heung Tea House).  According to the Business Registration application, Lin Heung Tea House formally commenced business on 27 October 1928.  C F Ngan is one of the grandsons of Ngan Yee Chi and is now the manager of the applicants.

2.3  GZ Lianxiang was founded to take over a bakery business originally called「連香樓」, the name of which was changed to「蓮香樓」due to the excellence of its cakes and pastries made of lotus seed paste.  It was and still is also dubbed [蓮蓉第一家] (the first and foremost house of lotus paste).

2.4  GZ Lianxiang marketed in Guangzhou its mooncakes with lotus seed paste filling in a square packaging box.  It was a paper box at its inception instead of a metal container.  The box has a distinct presentation of the suit mark and the Guangzhou addresses of GZ Lianxiang on the cover.  There are also descriptions on two of the sides of the box indicating that the mooncakes are of GZ Lianxiang.

2.5  GZ Lianxiang was nationalized in 1957 and became a state-owned company. Since then, GZ Lianxiang and the applicants have no common partner, connection or interflow.

2.6  The applicants have sold their mooncakes in Hong Kong under and by reference to the trade name of「蓮香」and a mark which is the same as the suit mark.  Throughout the years the applicants use a packaging to sell their mooncakes which is almost identical to the packaging used by GZ Lianxiang.  The difference is that the applicants’ box cover clearly states its Hong Kong address.  The sides of the applicants’ box are also very similar to the GZ Lianxiang box except that they state the applicants as the maker of the mooncakes.  The applicants also promote its mooncakes by reference to [蓮蓉第一家] (the first and foremost house of lotus paste).

2.7  On 18 September 1995, GZ Lianxiang applied for registration of the suit mark in the United States and the application was granted on 14 July 1998.

2.8  On 12 June 1996, GZ Lianxiang applied for registration of the suit mark in Hong Kong and the application was subsequently granted.

2.9  On 20 January 1998, GZ Lianxiang obtained registration of the word mark「蓮香樓」 for the United Kingdom, France and Germany under the Madrid Agreement and Protocol.

2.10  Guangzhou Lianxiang Lou Company Limited (‘GZ Lianxiang Ltd’) was incorporated on 20 July 2005 to take over the business of GZ Lianxiang.  GZ Lianxiang Ltd was privatized in 2006 and a private entity「廣州市西關世家園林酒家有限公司」acquired 99% of its shares.

2.11  The registration of the suit mark was assigned to the respondent on 9 October 2006.

III.  Sale of GZ Lianxiang mooncakes in Hong Kong

3.1  The respondent claimed that they had been exporting GZ Lianxiang mooncakes to Hong Kong through an importer Cheung Hop Ltd and its predecessor (‘Cheung Hop’).  The mooncakes were initially sold under the Pearl River Bridge (‘PRB’) brand.  The significance of the PRB brand is discussed in Guangdong Foodstuffs Import & Export (Group) Corp & Another v Tung Fook Chinese Wine (1982) Co Ltd & Another [1999] 3 HKLRD 545, namely, from its establishment in 1949 and until the introduction of the open door policy in the 1980s, Mainland China vigorously adopted a centralized planned economy. The export of foodstuffs was vested in a central corporation with branches in the provinces which handled the import and export of foodstuffs of the provinces.  The food products of the Guangdong province were sold with a common ‘Pearl River Bridge’ (「珠江橋牌」) trade mark during this period of time.

3.2  Since 1984, GZ Lianxiang broke away from the PRB brand and exported its own brand of mooncakes to Hong Kong.  The GZ Lianxiang mooncakes were sold at various Chinese emporiums and supermarkets.  Most of them were not upmarket outlets.

3.3  Although the applicants claimed that GZ Lianxiang had only sold their mooncakes in Hong Kong under the PRB brand, the Judge when dealing with the applicants’ revocation application based on non genuine use of the suit mark for three years (which he ruled against the applicants) found at paragraph 64 that the GZ Lianxiang mooncakes were sold under the suit mark since 1999 at the latest until October 2006.  However, when dealing with the issue of honest concurrent use, the Judge found at paragraph 73 that the GZ Lianxiang mooncakes had been sold in Hong Kong under the suit mark since 1984.  In the Court below, the respondent accepted that there were no GZ Lianxiang mooncakes for sale in Hong Kong since 2007.

IV.  The statutory framework

4.1  Mr Yan SC, counsel for the respondent, has very helpfully outlined the statutory framework for the refusal of registration of a trade mark and its subsequent removal after registration.

1)  Refusal of registration

4.1.1  The grounds upon which an application to register a trade mark may be refused are set out in sections 11 and 12 of the TMO.  The ‘absolute grounds for refusal’ are set out in section 11, such as the mark does not satisfy the requirement of a trade mark or the registration was made in bad faith (section 11(5)(b)).  The ‘relative grounds for refusal’ are set out in section 12, such as the trade mark being identical to an earlier mark (section 12(4)) or any earlier unregistered mark is protected by the law of passing off (section 12(5)).

4.1.2  However, section 13 of the TMO provides that :

‘ 13. (1) Nothing in section 12 (relative grounds for refusal of registration) prevents the registration of a trade mark where the Registrar or the court is satisfied–

(a) that there has been an honest concurrent use of the trade mark and the earlier trade mark or other earlier right;….

……

(3) Nothing in this section prevents the Registrar from refusing to register a trade mark on any of the grounds mentioned in section 11 (absolute grounds for refusal of registration).’

4.2  The statutory regime is thus that even if any of the relative grounds for refusal of registration provided for under section 12 are made out as against any application for registration of a trade mark, if the Registrar or the Court is satisfied that there has been honest concurrent use of the mark sought to be registered and the earlier trade mark giving rise to the relative ground(s) for refusal of registration, the trade mark for which registration is applied for may nevertheless be registered.  However, if any of the absolute grounds for refusal of registration are made out as against an application for registration of a trade mark, the provisions of section 13(1) cannot avail the applicants for registration.

2)  Post-Registration

4.3.1  After a trade mark has been registered, the TMO provides for various grounds upon which the registration may be attacked.  In the context of the present case, the relevant provisions are sections 52(2)(a) (revocation based on non-use), section 52(1)(c) (revocation on the ground that in consequence of the use made of it by the owner or with his consent, the registered trade mark is liable to mislead the public), section 53(3) (declaration of invalidity on the ground that the trade mark was registered in contravention of section  11 (absolute grounds for refusal of registration)) and section 53(5)(b) (declaration of invalidity on the ground that there is an earlier right in relation to which the condition set out in section 12(5) (relative grounds for refusal of registration) is satisfied).

4.3.2  Further, in the same way in which section 13 of the TMO provides that the relative grounds for refusal of registration provided for under section 12 may be overcome by proof of honest concurrent use, section 53(7) provides that an application for declaration of invalidity based on a relative ground for refusal of registration may be defeated by proof of honest concurrent use :

‘ 53(7) Where a trade mark has been registered on the ground that there has been an honest concurrent use of the trade mark and the earlier trade mark or other earlier right, as provided for by section 13 (honest concurrent use, etc.), the registration of a trade mark may not be declared invalid under subsection (5) unless the Registrar or the court is satisfied that in fact there had been no honest concurrent use of the trade mark and the earlier trade mark or other earlier right.’

V.  Honest concurrent use

1)  The proceedings below

5.1  In the Court below, the applicants relied on many grounds to attack the suit mark but only succeeded on one ground, namely, the use of the suit mark, as at the deemed date of registration of 12 June 1996, was liable to be prevented by the law of passing off under section 12(5)(a) and should be declared invalid under section 53(5)(b) (‘passing off ground’).  The relevant provision are :

‘ 12. (5) Subject to subsection (6), a trade mark shall not be registered if, or to the extent that, its use in Hong Kong is liable to be prevented.

(a) by virtue of any rule of law protecting an unregistered trade mark or other sign used in the course of trade or business (in particular by virtue of the law of passing off); or

…

and a person thus entitled to prevent the use of a trade mark is referred to in this Ordinance as the owner of an “earlier right” in relation to the trade mark.

53. (5) Subject to subsections (6) and (7), the registration of a trade mark may also be declared invalid on the ground–

(b) that there is an earlier right in relation to which the condition set out in section 12(4) or (5) (relative grounds for refusal of registration) is satisfied.’

5.2  The respondent relied on the defence of honest concurrent use in the Court below.  To that defence, the Judge accepted the applicants’ submission that if GZ Lianxiang had built up a reputation, it is not a reputation in the suit mark simpliciter, but in the suit mark in conjunction with the geographical designation of「廣州」(Guangzhou) or the name of「廣州蓮香樓」(Guangzhou Lianxiang Lou).  He rejected the respondent’s defence of honest concurrent use by holding that the mere use by GZ Lianxiang on 12 June 1996 of the suit mark simpliciter for sale of mooncakes in Hong Kong would have led to confusion of whether such mooncakes were of the applicants. 

2)  Concessions by the respondent

5.3  In the Court below the respondent accepted that for the purpose of the law of passing off, the applicants have goodwill in their trade marks.  It also accepted that the trade marks of the applicants are well-known trade marks in Hong Kong within the meaning of section 4 of the TMO.  The respondent was prepared to consent to the applicants’ applications to register their trade marks as concurrent trade marks.

5.4  Mr Yan SC renewed the respondent’s concession on concurrent registration even if the respondent is successful in its appeal.

3)  The respondent’s appeal

5.5  Initially the respondent’s notice of appeal also challenged the Judge’s finding on the passing off ground but Mr Yan has now focused the appeal solely on the Judge’s rejection of their defence of honest concurrent use.  Mr Yan submitted that the Judge was wrong for two reasons :

5.5.1  He was wrong to hold that the mere use by GZ Lianxiang of the suit mark simpliciter would have led to confusion and relied on it in support of his holding that there had not been honest concurrent use.

5.5.2  He was wrong to hold that the use of the suit mark by GZ Lianxiang was not a use of the suit mark simpliciter.

4)  The tests in Re CSS Jewellery Co. Ltd.

5.6  The case of Re CSS Jewellery Co. Ltd. [2010] 2 HKLRD 890 is relied upon by Mr Yan in support of his case.  The facts of the case are adequately set out in the head note of the judgment which I will adopt.  For ease of reading, I will set out the facts in separate paragraphs :

5.6.1  X [CSS Jewellery Co Ltd] applied to register the trade mark ‘CHOW SANG SANG’ (‘the Subject Mark’) for jewellery goods and services under classes 14 and 35.

5.6.2  The Registrar [of Trade Marks] refused under section 12(3) of the TMO on the basis of the prior registration by Y [Chow Sang Sang Jewellery Co Ltd] in class 14 of the mark ‘A CORPORATE GIFT IDEA BY CHOW SANG SANG’ arranged in an oval, with the word ‘GOLD’ and the Chinese character「金」in bigger fonts in the centre.

5.6.3  X and Y were owned or controlled by two branches of the same family, respectively comprising or originating from: (a) the sons of F and his wife (‘the Brothers’); and (b) the sons of F and his concubine (‘the Half-Brothers’).

5.6.4  The Brothers had set up a jewellers and goldsmiths company in 1934 with capital provided by F, which used the trade name ‘Chow Sang Sang’ and its equivalent in Chinese「周生生」.

5.6.5  In 1943, F made an inter vivos settlement of his assets amongst the two branches, with the Brothers taking up the Zhanjiang and Hong Kong shops and the Half-Brothers taking over the Macau shop.

5.6.6  F’s will provide that all his descendants could use the name「周生生」.

5.6.7  Since then, both branches had set up further shops in Hong Kong using the names「周生生」and ‘Chow Sang Sang’ as integral and distinctive parts of their business names.

5.6.8  Both businesses were extremely successful.

5.6.9  The Registrar further refused to allow registration of the Subject Mark on the ground of honest concurrent use under Section 13(1)(a), under which a trade mark could be registered notwithstanding a refusal under section 12.  X appealed.

5.7  Andrew Cheung J (as he then was) allowed X’s appeal and ordered the application for registration be accepted by the Registrar.  He held section 13(1)(a) entails a two-stage determination :

5.7.1  whether there has been an honest concurrent use of the Subject Mark and the earlier trade mark;

5.7.2  if the answer is in the affirmative, whether after considering all relevant circumstances, including public interest, the Registrar’s discretion should be exercised to accept the application for registration of the mark, despite the fact that the use of the mark in relation to the goods or services in question ‘is likely to cause confusion on the part of the public’ (paragraph 35). 

5.8  He then elaborated on the requirements of each of the two stages :

‘ 36. In relation to stage (a), it is important to note that it is essentially a factual question. The focus of the inquiry is on three matters, namely, use, concurrent use, and honesty of the concurrent use. Moreover, the use must be use of the Subject Mark as a trade mark. Thus, for instance, if the use of the Subject Mark is not as a trade mark, but simply as an element in a composite mark comprising other distinctive elements as well, the use of the Subject Mark will not be considered as a relevant use under s.13(1)(a). …….

 37. It is important to note that at this first stage, discretionary considerations, such as, public interest and likelihood of confusion, do not come into the equation.  They are matters to be considered in stage (b).

 38. In stage (b), by definition, the applicant for registration has already satisfied the Registrar of an honest concurrent use of his mark and the earlier trade mark.  The Registrar’s focus of attention is on all relevant considerations that may bear on the exercise of his discretion to register or to refuse registration.  Public interest is an important matter to bear in mind.  In this regard, the new law differs from the old law in that now, under s.12(8), consent by the proprietor of the earlier trade mark/cited mark will enable the Subject Mark to be registered, even though registration of the Subject Mark may give rise to confusion or an increased risk of confusion, thereby prejudicing public interest.  Mr Liao therefore submits that under the new law, although public interest remains a relevant consideration, its importance has decreased when compared with the position under the old law.

 39.  Subject to that qualification, the parties are agreed that the discretionary considerations set out in Pirie’s Application, remain highly relevant.  They are:

(a) The extent of use in time and quantity and the area of the trade;

(b) The degree of confusion likely to ensue from the resemblance of the marks which is to a large extent indicative of the measure of public inconvenience;

(c) The honesty of the concurrent use;

(d) Whether any incidents of confusion have in fact been proved;

(e) The relative inconvenience which would be caused if the mark were registered.’

5)  Evidence of honest concurrent use

5.9  Mr Yan submitted that if the Judge had properly considered Re CSS Jewellery Co. Ltd. and the evidence of the use of the suit mark by the respondent, he should have found and held that there had been honest concurrent use of the suit mark by GZ Lianxiang for the following reasons :

5.9.1  The Judge himself held that the GZ Lianxiang mooncakes had been sold in Hong Kong under the suit mark since 1984.  These mooncakes were packaged in the packaging boxes.  There had accordingly been 12 years’ use of the suit mark by the date of application for the registration of the suit mark.  This was a sufficiently lengthy period of concurrent use for the purposes of satisfying section 13.  As noted in the Trade Marks Registry Work Manual, Consent, honest concurrent use and other special circumstances, at page 7, five years’ concurrent use is generally sufficient.  This has also been confirmed in numerous decisions of the Registrar of Trade Marks.

5.9.2  Just as the Court held in Re CSS Jewellery Co. Ltd., in the light of the historical background in the present case, the honesty of the concurrent use cannot be questioned.  Indeed, the historical background in the present case is even more favourable and compellingly in favour of a finding of honesty as GZ Lianxiang was clearly the originator and earlier user of the suit mark and the applicants were only subsequently set up by a group of shareholders of GZ Lianxiang.  

5.10  Mr Yan submitted that the Judge should have found that there had been use by the respondent of the suit mark simpliciter and as a trade mark :

5.10.1  The most prominent and extensive use of the suit mark was on the cover of the packaging box of GZ Lianxiang’s mooncakes.  There, the suit mark was printed and embossed alongside the words「月餅」(mooncake). This was clearly use of the suit mark simpliciter and as a trade mark because the words「月餅 」(mooncake) are non-distinctive but merely descriptive of the contents of the box.

5.10.2  This is also true of the use of the suit mark in the tagline「蓮香餅好月團圓」(Lianxiang Good Cake, Mid Autumn Moon) on one side of the box.  The only distinctive element of that tagline is the suit mark.

5.10.3  On another side of the box, the suit mark was used as part of the trading name「廣州蓮香老餅家」(Guangzhou Lianxiang Old Cake Shop).  This also constituted use of the suit mark simpliciter and as a trade mark as the words「廣州」 (Guangzhou) and「老餅家」(Old Cake Shop) are purely descriptive.

5.10.4  On yet another side of the box, it appears that the suit mark was used as part of the trading name「廣州蓮香樓」 (Guangzhou Lianxiang Lou).  This also constituted use of the suit mark simpliciter and as a trade mark as the words「廣州」(Guangzhou) and「樓」(Lou) are purely descriptive.

5.10.5  On the cover of the packaging box, there is the name「蓮香樓」(Lianxiang Lou).  This too constituted use of the suit mark simpliciter and as a trade mark as the word「樓」(Lou) is purely descriptive.

6)  Stage 1 Honest concurrent use

(6.1)  The prerequisite requirement

5.11  Mr Anson Wong SC for the applicants does not dispute the two-stage approach in Re CSS Jewellery Co. Ltd.  However, he pointed out that as the first stage inquiry is focused on three matters, namely, use, concurrent use and honesty of the concurrent use, the last matter is in fact a prerequisite to the Court exercising its discretion under the second stage of allowing a mark to be registered on the ground of honest concurrent use.  Fox J in Bali Trade Mark (No. 2) [1978] FSR 193 at 220 stated that :

‘ The honesty of the use is, in the present case, a pre-requisite to the application of section 12(2) rather than merely a factor relevant to the exercise of the court’s discretion.’

5.12  This approach was followed in Hong Kong in Lam Soon Marketing Services v. Lam Mei Hing [1994] 3 HKC 414.

5.13  In determining the honesty of the concurrent use, it is ‘commercial honesty, which differs not from common honesty, that is the criterion’ : Re Parkington & Co Ltd’s Application (1946) 63 RPC 171 per Romer J at 182-183.

5.14  Mr Wong pointed out in considering the issue of commercial honesty, the knowledge of the party seeking to rely on the ‘honest concurrent use’ defence of (1) the existence of an earlier mark, (2) the likelihood of confusion with such an earlier mark, and (3) the need to use some safeguards to avoid confusion are clearly matters which are relevant to the issue regarding honesty of the concurrent use under stage  (a) of the determination : Re Parkington & Co Ltd’s Application at 183; Bali Trade Mark (No. 2) at 220-221.

5.15  Mr Wong submitted that the Judge has made the following important findings :

5.15.1  GZ Lianxiang was fully aware of the applicants’ presence and use of the trade mark in Hong Kong;

5.15.2  When GZ Lianxiang’s mooncakes were sold in Hong Kong, the price lists and packaging all stated prominently that such mooncakes were of GZ Lianxiang from Guangzhou, but not those of the applicants from Hong Kong;

5.15.3  The suit mark was used in conjunction with「廣州」(Guangzhou) or「廣州蓮香樓」(Guangzhou Lianxiang Lou), or the GZ Lianxiang’s Guangzhou address to avoid confusion and to distinguish the respondent’s mooncakes from those of the applicants.

5.16  Accordingly, Mr Wong submitted that that the knowledge of GZ Lianxiang to 1) such likelihood of confusion and 2) the attempt to avoid such confusion by using the suit mark in conjunction with other indicia are clearly relevant to the question of honesty of concurrent use of the suit mark at the first stage inquiry.

(6.2)  Relevance of knowledge

5.17  In my view, Mr Wong’s submission on the prerequisite requirement of ‘honest concurrent use’ at the first stage of the inquiry is well founded.  In order to determine whether the concurrent use is honest or not, the state of knowledge of the user is clearly relevant.  However, it has to be stressed that not every knowledge of the existence of an earlier mark or the likelihood of confusion with such an earlier mark or the need to use some safeguards to avoid confusion will render the use dishonest.  Analogy may be made of the relevance of knowledge in the bad faith context.  Arnold J in Hotel Cipriani Srl and others v Cipriani (Grosvenor Street) Ltd and others [2009] Bus LR Digest D81 at D90 was of the view that merely because a party knows that third parties are using the same mark in relation to identical goods or services does not constitute bad faith, let alone where the third parties are using similar marks and/or are using them in relation to similar goods or services. More recently in Chocoladefabriken Lindt & Sprüngli AG v Franz Hauswirth Gmbh [2009] E.T.M.R. 56 the Court of First Instance of the European Communities (First Chamber) repeated the same view :

‘ 40 However, the fact that the applicant knows or must know that a third party has long been using, in at least one Member State, an identical or similar sign for an identical or similar product capable of being confused with the sign for which registration is sought is not sufficient, in itself, to permit the conclusion that the applicant was acting in bad faith.

……

46 Equally, the fact a third party has long used a sign for an identical or similar product capable of being confused with the mark applied for and that that sign enjoys some degree of legal protection is one of the factors relevant to the determination of whether the applicant was acting in bad faith.’

5.18  In this case it would really turn what the respondent had done in respect of its packages in order to avoid confusion with the applicants’ trade mark on its head if they are to be treated as evidence of dishonesty.

5.19  Mr Wong further supports the Judge’s view on dishonesty by submitting that while the respondent had in their packages used geographical and other descriptions to distinguish their goods from that of the applicants, it had only registered the「蓮香」 suit mark without such other descriptions.  In my view this submission does not carry the matter further because the issue is of the honesty of the concurrent use and not honesty of the registration which has never been in issue.

5.20  In this connection it is of note that in Re CSS Jewellery Co. Ltd., that the concurrent use of the mark was an honest one was not an issue in that case.  The discussion there on the first stage inquiry is whether the ‘Chow Sang Sang’ mark was used by the applicant when very often it was used together with「粵港澳湛周生生」.  The Judge there held that ‘such use does not detract from the fact that during that period the applicant has used ‘Chow Sang Sang’ as a mark, a badge of origin of its goods.’

(6.3)  Use of suit mark simpliciter

5.21  As to the Judge’s holding in the present case that the respondent’s use of the suit mark since 1984 was in conjunction with the words「廣州」(Guangzhou) or「廣州蓮香樓」(Guangzhou Lianxiang Lou) and was not a use of the suit mark as a trade mark simpliciter and therefore there was no honest concurrent use, I have to say the Judge was wrong on his view.  The term trade mark simpliciter is not a legal term.  All that it means is that the trade mark is not used on its own but in connection with other marks or descriptions. But it does not mean that the suit mark had not been used as a trade mark.  The use of trade mark in combination with other descriptions, the purpose of which is to avoid confusion, cannot be regarded as evidence of dishonesty.

(6.4)  Conclusion on honest concurrent use in Stage 1

5.22  For the reasons I have given, in my view, what the respondent did in fact points to honest concurrent use of the suit mark in the first stage consideration.

7.  Stage 2 Discretion

(7.1)  Point not addressed below

5.23  Because the Judge found against the respondent on honest concurrent use, he did not deal with the second stage inquiry of whether there should be registration despite the fact that likelihood of confusion will be caused if there is use of the mark in relation to the goods in question.  This Court has to consider the exercise of discretion afresh.

(7.2)  Discretionary considerations

5.24  I have already set out the discretionary considerations identified by Andrew Cheung J in Re CSS Jewellery Co. Ltd.  He further held that :

‘ 40. The above considerations are not exhaustive and all relevant circumstances ought to be considered. The discretion of the Registrar and the Court is unfettered. Budweiser Trade Marks [2000] RPC 906. Depending on the facts of an individual case, a particular consideration may assume greater significance than others, and this must be borne in mind when understanding the sometimes apparently conflicting judicial statements found in the law reports. Thus, for instance, in Buler [1975] RPC 275, 289, Graham J said that the degree of likely confusion is relatively unimportant provided the honesty of the applicant is established and it is otherwise just in all the circumstances that his mark should be registered. On the other hand, in the local case of Re Borsalini Trade Mark [1993] 1 HKC 587, 593B–C, Godfrey J (as he then was) expressed the view that the degree of confusion likely to ensue from the resemblance of the marks, that is to say, the likelihood of inconvenience to the public, was “the most important consideration” in the case before the Court.’

(7.3)  The respondent’s case

5.25  Mr Yan submitted that the Judge should have exercised his discretion against declaring the registration of the suit mark invalid by reason of the honest concurrent use thereof by GZ Lianxiang :

5.25.1  There had been lengthy and extensive honest concurrent use of the suit mark. Before the market in mooncakes became fiercely competitive and a number of the Chinese emporiums which had been the retail outlets through which GZ Lianxiang’s mooncakes were sold had ceased business, the sales of the GZ Lianxiang mooncakes under and by reference to the suit mark had been substantial.  

5.25.2  On the issue of likelihood of confusion, as the facts of the present case are closely analogous to those in Re CSS Jewellery Co. Ltd., an approach similar to that adopted by the Court in that case should be adopted in the present case.  Thus, the likelihood of confusion must be considered against the background of the reduced significance of this factor under the new law. Further, given the historical background, the risk of confusion has always existed and what is more pertinent is whether there had been an increase in the risk of confusion after and by reason of the registration of the suit mark. This question must be answered in the negative because the Judge had himself found that consumers who bought the GZ Lianxiang mooncakes knew that they were buying mooncakes made by GZ Lianxiang and not those made by the applicants.

5.25.3  There is no evidence of any incidents of confusion having occurred.

5.25.4  Save and except the citation of the suit mark against the applicants’ trade mark applications, no inconvenience or prejudice had been caused to the applicants throughout the lengthy period during which the suit mark had been registered.  GZ Lianxiang had never sought to enforce its rights under the registration of the suit mark against the applicants.  With regard to the citation of the suit mark against the applicants’ trade mark applications, this is an inconvenience which can easily be overcome by the respondent consenting to the applicants’ application.

5.25.5  Conversely, in view of the clearly hostile attitude of the applicants, if the registration of the suit mark is declared invalid, the applicants’ trade mark applications may proceed to registration and, upon securing such registration, the applicants may institute trade mark infringement proceedings against GZ Lianxiang which would no longer be able to rely on the defence under section 19(2) of the TMO which would otherwise have been available to it.  The effect of the loss of the defence under section 19(2) would not simply mean that GZ Lianxiang would need to change its packaging.  It would potentially mean that GZ Lianxiang would most unfairly lose its right to use the name and mark「蓮香」in Hong Kong when it, rather than the applicants, was the originator of this name and mark.

5.25.6  As in Re CSS Jewellery Co. Ltd., the historical background is highly pertinent and is a very important factor which weighs against the exercise of the discretion to invalidate the registration of the suit mark.

5.25.7  The parties had reached an agreement in 2000.  This agreement was not that GZ Lianxiang would cease to make use of the name and mark「蓮香」in the USA but rather GZ Lianxiang would cease to use a particular packaging design.　 　However, GZ Lianxiang was free to continue to use the name and mark「蓮香」.  This was confirmed by C F Ngan in his oral testimony. Accordingly, the effect of the agreement is that both the applicants and GZ Lianxiang are free to market and sell their products under and by reference to the name and mark「蓮香」in the USA.  Further, both the applicants and GZ Lianxiang have trade mark registrations comprising the mark「蓮香」in the USA.  One of those registrations is for a mark identical to the suit mark.  The applicants have never explained why it is prepared to accept coexistence on the USA market and concurrent registrations in the USA Trade Marks Registry but not in Hong Kong.

(7.4)  The present case

5.26  In my view, however, having considered the following factors, the discretion should be exercised in favour of the applicants and against the respondent in order to protect the distinctive character and repute of the applicants’ mark from unwarranted confusion or dilution.

5.26.1  The Judge has found that the applicants are the owner of a well-known trade mark「蓮香」in Hong Kong.  For over 80 years the「蓮香」brand has been a well-known local brand associated with the applicants’ restaurant and mooncakes. This is clearly a significant fact to be taken into account in favour of the applicants.  By contrast GZ Lianxiang’s products bearing the suit mark only entered the market in 1984 and remained here only up to 2006.  This by itself is not a short period but not so when compared with that of the applicants in the balancing exercise.

5.26.2  The mere fact that GZ Lianxiang was the originator of the suit mark or that it has been using the suit mark for decades in the Mainland or other jurisdictions bears little weight.  Goodwill is territory-specific.  There was no interflow between the parties since 1957.  There is a huge gap of time between at least from 1957 (if not earlier) and 1984 when the respondent’s products reappeared in the Hong Kong market.  In this period, the applicants have built up its distinct reputation on the「蓮香」(Lin Heung) trade mark in the local market.  The 「蓮香」(Lin Heung) products are associated with that of the applicants rather than a cake shop in Guangzhou.  This factor must be properly recognized despite the fact that the mark originated first in Guangzhou.

5.26.3  Although once honest concurrent use has been shown, the respondent’s knowledge of the applicants’ trade mark loses much of its significance, nonetheless it remains a matter not to be wholly overlooked in the balancing exercise.  Fox J in Bali Trade Mark (No. 2) in his discussion on the honesty of the user applied the view of Lord Tomlin in Pirie’s Application (1933) 50 R.P.C. 147 and held at 159 :

‘ Knowledge of the registration of the opponent’s mark may be an important factor where the honesty of the user of the mark sought to be registered is impugned, but when once the honesty of the user has been established the fact of knowledge loses much of its significance, though it may be a matter not to be wholly overlooked in balancing the considerations for and against registration.’

5.26.4  The respondent’s use of the suit mark in terms of time and quantity is clearly a relevant consideration by reference to Re Pirie’s Application and adopted in Re CSS Jewellery Co. Ltd.  In my view a significant factor against the respondent in the balancing exercise is that the suit mark was only used in the local market in the relatively short period between 1984 and 2006 (as compared to that of the applicants’ use) and has not been used in Hong Kong since 2007.  By the time of the trial before the Judge, five years had lapsed since the respondent’s last use of the suit mark.  Even before that, the sale of the respondent’s mooncakes in Hong Kong had been dwindling to a very low figure.  This is what the Judge had summarized from the respondent’s evidence at paragraph 39 of the judgment :

‘ 39. The sale of GZ Lianxiang mooncakes in Hong Kong in the 1980s and 1990s was successful with yearly turnover reaching HK$600,000. However, a number of Chinese emporiums had ceased business since then and the competition of the mooncake market had become fierce so that the latest annual turnover of GZ Lianxiang moonakes was less than HK$100,000.’

5.26.5  Mr Yan’s submission that the respondent had not stopped the use in 2006 must be rejected.  This issue had been ruled upon by the Judge at the trial.  In the meantime, the applicants continue with the use of their trade mark by the sale of their mooncakes locally.  Even according to Mr Yan’s calculation, based on a local sale of 30,000 mooncakes per year, the annual sales figure is a significant $3.6 million.

5.26.6  The significance of the lack of use by the respondent of the suit mark is that, in terms of the factor of relative inconvenience if the discretion is exercised against the respondent, it will suffer relatively little inconvenience.  No real prejudice will be caused to the respondent.

5.26.7  I agree with Mr Wong that the absence of evidence of actual confusion carries no or very little weight.  This is because such confusion was avoided in the past by the respondent deliberately using the suit mark in conjunction with the words such as 「廣州」 or 「廣州蓮香樓」.  Such confusion, however, would arise if the respondent is permitted to use the suit mark simpliciter based on the present registration.  The respondent has given an undertaking that it will continue to use the geographical and other descriptions with the suit mark in order to avoid confusion.  This is, of course, a relevant factor to be considered but not enough to have the discretion exercised in its favour.

5.26.8  As to the threat of infringement proceedings by the applicants if their trade mark is registered and the loss by the respondent of their section 19(2) defence, namely,‘a registered trade mark is not infringed by the use of another registered trade mark in relation to goods or services for which the latter is registered….’, this is more apparent than real because the respondent has not exported mooncakes to Hong Kong since 2007. Mr Wong is correct when he submitted that practically speaking there is little risk of any infringement proceedings by the applicants.  There is no serious prejudice caused to the respondent if it is required to change the packaging as a result of the suit mark being declared invalid.  This has happened in the North American market pursuant to the parties’ settlement agreement in 2000.  There is no suggestion of any real prejudice caused to the respondent as a result of such change of packaging.  Mr Wong submitted that even after the suit mark is declared invalid, the respondent may be able to obtain new registration of the marks「廣州蓮香」or「廣州蓮香樓」or some other composite marks which the respondent has honestly used in Hong Kong.  In any event that the respondent has to stop using the suit mark is a natural consequence of the Court declaring the registration invalid.

5.26.9  What the parties had agreed upon in respect of the respective use of their trade mark in USA is not a reason for exercising the discretion in favour of the respondent.  Whatever may be the position for the USA market, the important feature in this case is that since 1926 the applicants have built up the goodwill of the「蓮香」mark in Hong Kong and this is what they seek to protect by applying for the registration of that mark.

5.27  As the respondent has failed to have the Stage 2 discretion exercised in its favour, it fails to satisfy the defence of honest concurrent use to the applicants’ challenge.

VI.  Bad faith

6.  Although Mr Wong initially in his written submission contended that the declaration of invalidity of the suit mark is also justified on the ground that the registration was made in bad faith, he decided not to pursue this point on appeal.

VII.  Conclusion

7.  The appeal is dismissed with costs nisi to the applicants.

Hon Yuen JA :

8.  I agree.

Hon Chu JA :

9.  I agree with the judgment of Cheung JA.