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HCA 2214/2014
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2214 OF 2014
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BETWEEN
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CHOON’S DESIGN INC |
Plaintiff |
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and
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HONGKONG HAOGUAN PLASTIC HARDWARE CO LIMITED |
1st Defendant |
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MEASYTECH INTERNATIONAL LIMITED |
2nd Defendant |
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LIU XIAO ZHENG |
3rd Defendant |
| _______________ |
| Before: Deputy High Court Judge Suffiad in Chambers |
| Date of Hearing: 24 March 2015 |
| Date of Decision: 17 April 2015 |
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DECISION
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1. The plaintiff by summons seeks judgment in default against the 1st, 2nd, and 3rd defendants herein.
2. The 1st and 3rd defendants are no longer represented in these proceedings and no extension of time has been sought by them for the filing of a defence.
3. The 2nd defendant has issued a summons on 15 December 2014, the very day its defence was due seeking for an extension of time to file its defence. That application was adjourned for argument along with the plaintiff’s application for default judgment.
The plaintiff’s claim
4. The plaintiff is a company incorporated in the United States of America and carries on the business of designing, manufacturing, marketing and distributing craft kits and accessories under the names and marks of “Rainbow Loom”, “Mini Rainbow Loom”, “Monster Tail” and “Monster Tail & device”.
5. The plaintiff’s artistic copyright works and the plaintiff’s literary copyright works which the plaintiff relies on are fully particularized in paragraphs 7 and 8 of the Statement of Claim.
6. Particulars of subsistence and particulars of ownership of the plaintiff’s copyright works are also pleaded in paragraphs 9 – 13 of the Statement of Claim.
7. The plaintiff enjoys a worldwide market for its products and has acquired a substantial reputation and goodwill in Hong Kong, China and all over the world.
8. Copyright infringement of the plaintiff’s copyright works by the 1st and 2nd defendant are pleaded and particularized in paragraphs 15 – 18 of the Statement of Claim, while infringement by the 3rd defendant is pleaded and particularized in paragraphs 22 – 25 of the Statement of Claim.
9. In paragraph 23 of the Statement of Claim, the plaintiff specifically gives particulars of the plaintiff being involved in enforcement proceedings in the PRC against an entity named Shenzhen Zhongyi Nengda Technology Development Company Ltd (“Zhongyi”), and that the registered Chinese name of the 2nd defendant is Zhongyi Nengda Technology Development Ltd, the only difference between the two entities being the Chinese characters for Shenzhen City.
10. Passing off is pleaded and particularized by the plaintiff in paragraphs 26 to 30 of the Statement of Claim.
11. The plaintiff claims against the 1st to 3rd defendant for infringement of its copyrights and artistic works as well as passing off the defendants goods as those of the plaintiff’s by offering for sale products which consist of reproductions of the plaintiff’s copyrights and artistic works.
Service of the Writ and acknowledgment of service
12. The Writ was served on the 1st and 2nd defendant on 4 November 2014.
13. In the case of the 3rd defendant, who is a resident of China, leave was granted to serve the Writ out of jurisdiction on the 3rd defendant. On 7 November DHCJ Mayo granted leave to serve the Amended Writ on the 3rd defendant after the address of the 3rd defendant was amended thereto. The Amended Writ was then served on the 3rd defendant in China through the usual channels.
14. The 2nd defendant acknowledged service on 18 November 2014.
15. The 3rd defendant acknowledged service on 26 November 2014.
16. It would also appear that the 1st defendant had acknowledged service on 18 November 2014. However, at a hearing before Chan J, the solicitors now acting for the 2nd defendant, Hau, Lau, Li & Yeung (“HLLY”) indicated to the judge that they had filed the Acknowledgment of Service by mistake for the 1st defendant.
17. A notice of intention to enter default judgment was given by the plaintiff to HLLY in respect of the 1st, 2nd, and 3rd defendant on 3 December 2014.
18. The deadline for the 1st and 2nd defendant to serve its defence fell due on 15 December 2014.
19. On 15 December 2014, the 2nd defendant issued a summons seeking an extension of time to file its defence.
20. The plaintiff further served a separate notice to the 1st defendant giving notice of intention to enter default judgment on 15 December 2014, no doubt due to HLLY’s earlier indication to the court that they had mistakenly acknowledged service for the 1st defendant.
21. On 16 December 2014, the plaintiff issued a summons seeking default judgment against the 1st and 2nd defendant herein.
22. On 18 December 2014, a draft defence was provided and served by the 2nd defendant on the plaintiff. That draft defence was not filed since no order had been made on the 2nd defendant’s application for extension of time.
23. 24 December 2014 was the deadline for the 3rd defendant to file and serve her defence. On 31 December 2014, the plaintiff issued a summons for default judgment against the 3rd defendant.
Decision
24. In the case of the 1st and 3rd defendant, they have failed to file or serve any defence to the claim of the plaintiff, nor have they asked for or sought any extension of time to do so.
25. In the circumstances there can be little doubt that the plaintiff is entitled to default judgment against the 1st and 3rd defendant.
26. The argument and dispute at this hearing concerns only the 2nd defendant.
27. It is said by counsel for the 2nd defendant that they have timeously taken out a summons seeking an extension of time, being the first extension sought in these proceedings, and their request for extension should readily be granted by the court since there can be no prejudice to the plaintiff.
28. On the other hand, the plaintiff says that since the 2nd defendant has failed to file its defence within the time stipulated by the rules of practice and that the plaintiff has issued its summons for default judgment, judgment ought to be entered in favour of the defendant.
29. In so saying the plaintiff also says that looking at the draft defence served by the 2nd defendant, there can be no bona fide defence to its claim.
30. The dispute being what it is between the plaintiff and the 2nd defendant, with the plaintiff seeking judgment on default and the 2nd defendant asking for extension of time to file its defence, the court is enjoined by the rules of practice to look into the merits of the defence (even where only a draft defence as yet not filed has been put before the court) when deciding on this matter whether to grant an extension of time or whether to give judgment in default.
31. Looking at the draft defence of the 2nd defendant, it is correct to say that a large portion of the draft defence are either non‑admissions or denials of what has been pleaded by the plaintiff.
32. The one admission to the plaintiff’s pleading is that paragraph 5 of the Statement of Claim which pleads that the 2nd defendant is a company incorporated in Hong Kong is admitted by the 2nd defendant.
33. Nevertheless, apart from the denials and non‑admissions, there are certain facts pleaded by the 2nd defendant, namely:
(a) The 3rd defendant has resigned as a director of the 2nd defendant on or about 18 November 2014.
(b) One Chen Han Tong (陳漢通) (referred to as “Chen”) of a Mainland Chinese company called Dongguan Shun Zhan Plastic Products Company Ltd (東莞市順展塑膠制品有限公司) (referred to as “Shun Zhan”) represented to Zhongyi in November 2013 that he was the holder of a patent relating to external design loom toys, hooks and was also the owner of the trademark of “Loom Rainbow” and “Cool Rainbow Loom” and “炫酷彩虹” (called collectively “Chen’s Patent and Trademark”) and had procured Shun Zhan to manufacture the products relating thereto (called “the Products”).
(c) Zhongyi was authorized by Chen in January 2014 to sell the Products.
(d) Zhongyi further authorized the 2nd defendant to sell the Products in August 2014.
(e) The 2nd defendant created a website called www.measytech.com in August 2014 and the same was ceased in mid‑October 2014.
(f) Save as stated above, the 2nd defendant has never received any order for the Products from any customer or did any business relating thereto or at all.
34. It was also pleaded by the 2nd defendant in the draft defence that:
(a) The plaintiff has instituted a civil action in the People’s Law Court of Longgan District, Shenzhen City, Mainland China in September 2014 (“the Chinese Civil Action”) against Zhongyi, making substantially the same claim as herein against Zhongyi.
(b) Zhongyi enquired from Chen about the claim made by the plaintiff in the Chinese Civil Action and Chen insisted that he was the true owner of Chan’s Patent and Trademark in Mainland China.
(c) In the defence filed by Zhongyi in the Chinese Civil Action, Zhongyi pleaded that all the alleged patent and/or trademark and/or copyright claimed by the plaintiff belonged to Chen and not to the plaintiff.
(d) Chinese lawyers of Zhongyi have advised that Zhongyi has a good defence against the plaintiff’s claim in the Chinese Civil Action.
35. In pleading such positive case on the matters stated above, it would appear that the 2nd defendant is attempting to put forward the defence that because of the representation by Chen to be the owner of trademarks of Loom Rainbow and Cool Rainbow Loom and 炫酷彩虹, what was done by the 2nd defendant (and complained of by the plaintiff) was done with the authority of Chen, being the owner of those trademarks.
36. However, it has to be recognized that the rights given to the owner of a trademark is territorial.
37. Chen, on behalf of a Chinese company made those representations relating to Chen’s Patents and Trademarks to Zhongyi, being another Chinese company and authorizing Zhongyi to sell the Products.
38. In the draft Defence of the 2nd defendant, it was not pleaded whether Chen’s Patents and Trademarks refer to patents and trademarks in the PRC or in Hong Kong.
39. If Chen’s Patents and Trademarks refer to patents and trademarks in the PRC, it is difficult to see how they can afford a defence to the 2nd defendant against the claim of the plaintiff for infringement of copyrights and passing off in Hong Kong. No authority has been cited to this court by counsel for the 2nd defendant to say that in those circumstances, the 2nd defendant can still be afforded a defence against the claim of the plaintiff.
40. If Chen’s Patents and Trademarks refer to patents and trademarks in Hong Kong, that has simply not been pleaded by the 2nd defendant in its draft defence.
41. It is also trite law that for primary infringement of copyright, the state of mind of the offender is irrelevant since it does not matter whether the act of infringement is intentional or not (Polydor Ltd v Woodhouse [2005] All ER (D) 375).
42. Insofar as secondary infringement is concerned, sections 30 and 31 of the Copyright Ordinance require three elements: (a) an infringing copy; (b) an act of secondary infringement; and (c) knowledge or reasons to believe that [the 2nd defendant’s] goods were infringing copies.
43. As to the first two elements, the 2nd defendant has admitted that Chan authorized Zhongyi, who in turn authorized the 2nd defendant to sell the Products whereby the 2nd defendant set up the website which is the very website pleaded by the plaintiff in paragraph 19 (d), (iii), and (iv) of the Statement of Claim used by the 2nd defendant to advertise their manufacturing and marketing Official Rainbow Loom, Monster Tail, Metal Hook and rubber band, as well as offering an OEM service for customers of the Rainbow Loom series implying that the 2nd defendant is authorized to license the manufacture of goods.
44. As for the third element, ie, knowledge or reasons to believe that the 2nd defendant’s goods were infringing copies, the plaintiff has pleaded particulars of such knowledge or belief in paragraph 19 of the Statement of Claim. It is also the case of the plaintiff that the defendants have made identical copies of the plaintiff’s copyright works including the packaging and instructions manual.
45. There is also evidence before me (see Exhibit “JFC‑1”) at the “Blog” section of the 2nd defendant’s website (Bundle B1, Tab 30, page 176) it is stated “We product (sic) the logo for cool rainbow loom on account of this is to avoid potential legal/patent issue”, and at the “Press” section of the same website (Bundle B1, Tab 30, page 202) there is a statement acknowledging a complaint filed by the plaintiff against the 1st defendant in the USA.
46. Given the above, there can be no doubt that the 2nd defendant well knew that their goods were infringing copies.
47. Quite apart from the fact that the positive case pleaded by the 2nd defendant does not afford the 2nd defendant any defence, the matters put forward by the 2nd defendant in its attempted defence are wholly unbelievable.
48. Firstly, the representation made by Chen and relied on by the 2nd defendant is quite unbelievable in that trademarks and patents are matters which are provable by documents. Yet what has been pleaded by the 2nd defendant seems to be only the oral representation made by Chen. Even in the light of the Chinese Civil Action, when Zhongyi enquired from Chen as to the plaintiff’s claim therein, apart from Chen’s oral insistence that he held Chen’s Patents and Trademarks, there does not appear to be the remotest indication that Chen was able to demonstrate his saying so by documentary proof of such patents and trademarks, nor would it appear that he was ever asked of it by either Zhongyi or the 2nd defendant.
49. Secondly, contrary to what has been pleaded by the 2nd defendant as to Chen’s representation to owning Chen’s Patents and Trademarks, the plaintiff has discovered and has put on affidavit (see Exhibit “JFC‑7”) that it was the 1st defendant who had applied to register the trademarks “Loom Rainbow” and “炫酷彩虹” in China.
50. Thirdly, the 2nd defendant asserts in paragraph 8(v) of its draft Defence that it has never received an order for the infringing goods, yet there is evidence before me that a purchase of the infringing goods was made by an employee of the plaintiff’s solicitors on 18 September 2014 following an email enquiry through the website coolrainbow.cn with an invoice issued containing the bank detail of the 2nd defendant (Exhibit “JFC‑12”, Bundle B1, Tab 41 page 338). Moreover, the named account holder of the PayPal account used for the purchase of the infringing goods was the 3rd defendant, the then director of the 2nd defendant herein.
51. A point of practice was taken by counsel for the 2nd defendant who contended that the court should not be looking at the evidence contained in the affidavits filed by the plaintiff in an application for default judgment and she referred the court to the statement in the Hong Kong White Book at marginal note 19 July 2011 which stated that the court cannot receive any evidence in cases hereunder but must give judgment according to the pleadings alone.
52. Counsel for the 2nd defendant is correct where the application is only for default judgment and what is stated in the marginal note cited by her is applicable where it concerns the reliefs to be given on a judgment in default. In those circumstances, the court looks only to what has been pleaded in the plaintiff’s claim to decide what the plaintiff is entitled to.
53. However, in the present case, it is not simply an application for judgment in default. There is also the 2nd defendant’s application for extension of time. Both these applications have been set down to be heard together. The two applications are diametrically opposed in that if an extension of time is granted to the 2nd defendant there will be no question of granting judgment in default and vice versa.
54. In such a situation, the court is enjoined to look into the merits of the case. Where the merits have to be looked at by the court in deciding the matter, the classic statement of the law in that respect comes from Bokhary JA (as he then was) in the case of Re Safe Rich Industries Ltd [1994] HKLY 183 where he said:
“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized – because failure to recognize it would create a debt‑dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”
55. From what is said in the cited passage, the court has to look at the assertions against the background. Such background can only be properly before the court by way of evidence, such as exhibits of documentary evidence.
56. In this respect, it is therefore not surprising that when DHCJ Wilson Chan adjourned both parties’ summonses for argument, he gave directions at the same time, inter alia, for leave to the plaintiff to file affidavit evidence in support of the default judgment application and also leave to the 2nd defendant to file affidavit evidence in reply.
57. With such directions given for the filing of affidavit evidence by both parties, and nothing has been done by the 2nd defendant to appeal against such direction from DHCJ Chan, it would be quite wrong for counsel for the 2nd defendant to now say that the court should not be looking at the evidence put before it when considering the issues in dispute.
58. For the reasons stated above, the factual matters put forward or denied by the 2nd defendant I find to be wholly unbelievable. The positive case put forward by the 2nd defendant even if believable (which it is not) cannot constitute any defence to the plaintiff’s claim. I therefore take a very dim view of the bare denials and non‑admissions by the 2nd defendant in its pleadings.
59. In the circumstances, I find that there is no defence by the 2nd defendant to the claim of the plaintiff.
60. Accordingly, it follows that there will be judgment in default against all of the 1st, 2nd, and 3rd defendant as claimed by the plaintiff.
61. The 2nd defendant’s summons for extension of time to file its defence is dismissed.
62. I should also add that had the 2nd defendant been able to show an arguable defence in its draft defence, I would have had no difficulty granting an extension of time for it to file its defence out of time since there was no delay nor any fault on the 2nd defendant’s part in applying for such extension and it was the first application by the 2nd defendant for extension of time. However, in view of the decision arrived at above, that the 2nd defendant had not shown any arguable defence to the plaintiff’s claim, it follows that with the granting of the default judgment against the 2nd defendant, and its application for extension must be dismissed.
Order
63. There will be judgment in terms of the reliefs claimed in the Statement of Claim against all of the 1st, 2nd and 3rd defendant.
64. The Prohibitive Injunction Order of DHCJ Mayo made herein on 7 November 2014 be made permanent against the 1st, 2nd and 3rd defendant.
65. There be an assessment of damages.
Costs (order nisi)
66. Costs of the plaintiff’s summonses as well as the 2nd defendant’s summons be to the plaintiff, to be taxed if not agreed.
67. Costs of the plaintiff’s action be to the plaintiff against all of the 1st, 2nd, and 3rd defendant, to be taxed if not agreed.
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(A R Suffiad)
Deputy Judge of the Court of First Instance
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High Court |
Ms Jezamine Fewins of Stephenson Harwood, for the plaintiff
1st defendant in person, absent
Ms Margaret Chan, instructed by Hau, Lau, Li & Yeung, for the 2nd defendant
3rd defendant in person, absent
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