XCHRX YOUNG ARTIST INTERNATIONAL LTD. v. MYKIDS TOY MANUFACTURING CO. LTD. AND OTHERS

No. A6557 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Plaintiff seeks interlocutory relief against the 1st, 2nd and 3rd Defendants as set out in the Plaintiff's summons dated 27th April 1998.

2. The Plaintiff is a relatively new company having been incorporated in November 1995. The Plaintiff is a subsidiary of a large Dutch toys company with offices across Europe and in Hong Kong, and the Plaintiff carries on business in the design, manufacture and sale of concept toys which are aimed at developing the creative and artistic skills of children. And on the evidence that appears to be the only type of toys that they are engaged in. Part of the series of their toys are sold under the name "Kids Dough", "Modelling Clay" and "Candle Art" series. These contain different sets of toys with plastic moulds and accessories which shape putty into animal like figures and some common objects like trees and animals. The "Candle Art" series is similar to the other two series but the difference is that candle wax is used instead of clay.

3. In early 1996, the Plaintiff commissioned Talent Design Company to create original design drawings for the moulds and accessories of the Plaintiff's "Kids Dough" and "Candle Art" series. The design drawings were completed in about June 1996 and by an assignment the rights were assigned to the Plaintiff.

4. After the design drawings were completed, original technical drawings for the moulds and accessories of the "Kids Dough" and "Candle Art" series were created by Tai Way (Sheng Kee) Mould Ltd. These were commissioned on behalf of the Plaintiff and the technical drawings were necessary for the making of working prototypes and production moulds. The technical drawings were created between July and September 1996 and subsequently an assignment of the copyright in those drawings was effected in favour of the Plaintiff.

5. The first offer for sale in Hong Kong of the Plaintiff's "Kids Dough" and "Candle Art" series took place in about December 1996, and they seem to have been quite successful items for the Plaintiff. Indeed, the "Kids Dough" and "Candle Art" series account for 65% of the Plaintiff's turnover.

6. In about December 1997, the Plaintiff was informed by its customers that the 1st Defendant was offering for sale, toys containing moulds and accessories identical to the Plaintiff's "Kids Dough" and "Candle Art" series. This led to solicitors being instructed and investigators being engaged to look into the matter. Needless to say, quotations and samples were later obtained from the 1st Defendant and a quotation was faxed on the letterhead of the 1st and 2nd Defendants. At the Toys Fair held in January 1998, the 3rd Defendant's booth put on display certain of the products in respect of which complaints have been made by the Plaintiff in the application before me. There the investigator met a Mr. Benny Shek who produced a card describing himself as the manager of the 1st and 3rd Defendants. And later on at a subsequent stage, the investigator engaged by the Plaintiff collected samples of the 1st Defendant's products at the premises of the 3rd Defendant.

7. At the outset I would like to say that in so far as the Defendants are concerned, the 1st Defendant accepts that it is the proper Defendant. There is no dispute that the 1st Defendant was responsible for the design, production and distribution of its products.

8. However, Mr. Chow has taken the point that there is simply no evidence against the 2nd Defendant save for the fax that I have mentioned. It may be that the Plaintiff was justified in proceeding against the 2nd Defendant initially but, in my judgment, the Plaintiff is not justified in pursuing the application against the 2nd Defendant in the absence of any evidence to show that the 2nd Defendant is involved in some way with the activities of the 1st Defendant in the manufacture and sale of the items that the Plaintiff complains about.

9. As regard the 3rd Defendant, the position is certainly a lot stronger from the Plaintiff's point of view. That Defendant, by displaying and offering for sale at its booth at the Toys Fair in January must have been acting as agent for the 1st Defendant. In the letter written to the 1st and 2nd Defendants in January 1998, the Plaintiff gave notice of their claim to copyright in, inter alia, these products. Mr. Shek was the manager of the 1st Defendant and who was also the manager of the 3rd Defendant. In my judgment, therefore, there is a serious question to be tried as to the involvement of the 3rd Defendant and as to whether or not the 3rd Defendant was a tortfeasor assisting the 1st Defendant.

10. The claim for copyright is in the drawings. First of all, the design drawings and then the technical drawings. These have been exhibited as "LYL-5" and "LYL-6" to the affirmation of Connie Lin Ya Ling filed on 27th April 1998.

11. The Plaintiff seeks an injunction in respect of the Defendants' components and accessories exhibited as "LYL-7" to "LYL-11" to the said affirmation. The Plaintiff's components and the Defendant's components have been placed along side each other on boards in those exhibits.

12. Dealing with "LYL-7", it seems to me that these are almost exact reproductions of the Plaintiff's drawings. I should add here that the Defendants have produced some drawings in the affirmation of Mr. Mason Yeung Kai Wah filed on 14th May 1998. There is, however, absolutely no information provided as to how these drawings came to be created, whether the author of the drawings looked at the Plaintiff's products when he was making those drawings or what he took into account when he designed the drawings. The Defendants have been silent on all these matters. And as the Plaintiff's products were first sold in December 1996 and were readily available in the market, and in the absence of any evidence from the Defendants, the inference that I can draw and do draw is that the Defendants have been copying the Plaintiff's products. And looking at exhibit "LYL-7" to begin with, as I have said the Defendants' components appear to me to be almost exact reproductions of the Plaintiff's components.

13. "LYL-8" also appears to me to be an almost exact reproduction of the Plaintiff's drawings. The only difference here is that the size of the Defendants' products is not the same as the Plaintiff's, the Defendants' being smaller but that in my judgment is not a defence. They have taken the Plaintiff's design which is almost exactly the same as theirs.

14. I now turn to "LYL-9". Again the Defendants' components appear to me to be almost exact reproductions of the Plaintiff's. As far as "LYL-10" is concerned, there are two sets of shooters and levers as they have been called. Mr. Chow for the Defendants says that the red one shown in this exhibit as emanating from the Defendants is in fact not the Defendants. Mr. Shipp says that one in fact was what had been supplied to the Plaintiff. I cannot resolve this issue at the interlocutory stage although I think there must be a serious question to be tried as to that. If in fact it did emanate from the Defendants then it is an almost exact reproduction of the Plaintiff's components shown in exhibit "LYL-10". As for the other one, the yellow shooter shown in the same exhibit this is not an almost exact reproduction as the Defendants do not have a fixed base. What they have is set out more clearly in exhibit "YKW-6" to the affirmation of Mason Yeung Kai Wah. The base is a hollow base with 6 different designs to be attached to the base unlike the Plaintiff's shooter which is fixed with a specific design. Notwithstanding this difference, however, I find that the Defendants' component is a substantial reproduction of the Plaintiff's drawings particularly for the handle which shows ridges which is almost exactly the same as the Plaintiff's component. As far as the shooter and the lever are concerned, I find that they are substantial reproductions of the Plaintiff's drawings.

15. Exhibit "LYL-11" is again, in my judgment, an almost exact reproduction of the Plaintiff's drawings. In the course of his submissions, Mr. Chow did not really dispute that as regards exhibits "LYL-7", "LYL-8", "LYL-9" and "LYL-11" there would be a serious question to be tried as to whether or not these were infringements. He did, however, say that his client, the 1st Defendant, has made modifications and because of the modifications the Plaintiff would not be entitled to injunctions in so far as the modifications were concerned. Before I turn to the modifications, I must say that of the items that I have already mentioned which are almost exact reproductions or substantial reproductions of the Plaintiff's drawings the Defendants have not offered an undertaking at any stage to the court. In the absence of an undertaking, the Plaintiff would, in my judgment, subject to the balance of convenience which I will come to later, be entitled to an injunction.

16. Dealing with the modifications which are first of all in respect of exhibit "LYL-7", the modifications are shown in exhibit "YKW-4". These are 8 components. Of these 8 components, I do not think items C, D, E and F in "YKW-4" are infringements and I do not think there is a serious question to be tried as to that. However, items A, B, G and H make only minor cosmetic changes to the Defendants' earlier product and, in my judgment, they are still substantial reproductions of the Plaintiff's drawings and on those four items there is a serious question to be tried.

17. Next, the group of modifications that I should consider is that shown in "YKW-5" to the affirmation of Mason Yeung Kai Wah. Of the 6 items shown here, the spoon E is not the subject matter of complaint and that cannot be an infringement because the Plaintiff claims no right in respect of that. Of the other 5 items, in my judgment, the axe that is item B and the spatula item D are not infringements and I do not think there is a serious question to be tried as to those two items. The other items are, in my judgment, arguably infringements and there is a serious question to be tried as to those.

18. There have been some modifications made in "YKW-7" which are modifications of the Defendants' components shown in "LYL-11". However, in my judgment, these are small changes. There is a serious question to be tried as to whether or not the items shown in "YKW-7" A and B are substantial reproductions of the Plaintiff's drawings.

19. I turn to the balance of convenience.

20. The Plaintiff's evidence is that its turnover from its date of incorporation in November 1995 to December 1996 was over HK$31million and for the financial year from January to December 1997, its turnover doubled to more than HK$72 million. The Plaintiff's market is principally in Europe at the moment which accounts for 70% of its turnover. But since the end of last year it has begun to promote and advertise its products in the U.S.A. which the Plaintiff considers as an important untapped market for its products. As I have said earlier, the "Kids Dough" and the "Candle Art" series account for 65% of the Plaintiff's turnover. The Plaintiff deals mainly in this one range of toys, namely concept toys. Although it has been in business since only 1995, the turnover figures of the Plaintiff as set out in the affirmation of Connie Lin Ya Ling are impressive. It is obviously a very successful item for the Plaintiff and it is important for the Plaintiff to continue to develop this range of toys. The Plaintiff says that because of the activities of the 1st Defendant its customers have cancelled a lot of orders.

21. Mr. Chow has rightly criticised the quality of the many pages of orders that have been produced in evidence. I must say that the orders that have been produced do not convince me that all of them had been cancelled if indeed such be the case, because of the activities of the Defendants. There are after all other toy companies dealing in similar toys. If, however, the Defendants are allowed to continue their activities, the impact of the Defendants having a market share in the U.S.A. will be considerable to the Plaintiff's further development of its range of toys. I do not think the Plaintiff could be adequately compensated for by way of damages, if an injunction is not granted in its favour.

22. The Defendant, and by this I mean the 1st Defendant, on the other hand, has only just begun to produce its line of toys covering this range. I have no information at all before me as to the extent of their orders. I accept that they must have spent some money in making moulds and getting their design drawings in. That is a loss which I think they can be compensated for by way of damages. The Defendant has failed to produce any evidence as to the extent of its orders, how far it has developed its marketing in these products or anything of that sort.

23. On the evidence, I am satisfied that the Plaintiff would be able to meet its undertaking in damages and on the balance of convenience, I think the Plaintiff would be entitled to an injunction.

24. The Plaintiff also claims other relief as set out in its inter partes summons, namely paragraph 2 for interlocutory discovery and paragraph 3 for delivery up for safekeeping all goods including moulds, tools and dies. These proceedings are interlocutory in nature and it is important that the court gives the Plaintiff the relief which it is entitled to for the protection of its rights. I am not satisfied that paragraphs 2 and 3 of the summons are necessary at this stage of the proceedings. There is no evidence which suggests that the Defendant would not obey the injunction granted against it and I am not prepared to grant the relief in paragraphs 2 and 3 of the summons. I would like to hear counsel on the exact terms of the injunction.

25. [After hearing submissions]

26. I make an order that an injunction be granted to restrain the Defendants in the case of the 1st Defendant whether acting by itself, its directors, officers, servants or agents or any of them or otherwise howsoever and in the case of the 3rd Defendant whether acting by its sole proprietor/partners, servants or agents or any of them or otherwise howsoever until after judgment or further order from

a) manufacturing or causing to be manufactured, ordering or purchasing, packing, importing or exporting, distributing or supplying, offering or exposing for sale or supply, selling or supplying, disposing or parting with possession, custody, power or control of or otherwise howsoever dealing in or with

i) plastic moulds components and accessories of the types exhibited as "LYL-7" to "LYL-11" to the Affirmation of Connie Lin Ya Ling filed on 27th April 1998 and "YKW-4 A, B, G and H", "YKW-5 A, C and F"; and "YKW-7 A and B" to the Affirmation of Mason Yeung Kai Wah filed on 14th May 1998; and

ii) tools, blocks, dies, casts, plates, moulds, and other articles for the making of the plastic moulds, components and accessories referred to in sub-paragraph (i);

(b) directing, procuring, instigating, causing, enabling or assisting any other person to do any of the acts referred to above.

27. I make an order that the costs be Plaintiff's costs in the cause against the 1st and 3rd Defendants.

(Arjan H. Sakhrani)

Judge of the Court of First Instance