WONG TO YICK WOOD LOCK OINTMENT LTD v. YUE FUNG DISPENSARY CO LTD t/a YUE FUNG DISPENSARY

DCCJ 5287/2017

[2018] HKDC 782

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.5287 OF 2017

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DECISION

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1.  The hearing before me is for taking of an account of profits pursuant to para 3 of the Order of Master J. Wong of the High Court dated 1 Nov 2017 (the Order of Master J. Wong) made in High Court Action No.3382 of 2016 (the HC Action).

2.  The plaintiff commenced the HC Action against the defendant by writ of summons issued on 22 Dec 2016 for infringement of its registered trademarks and for passing off.

3.  On 17 May 2017, Madam Justice Lisa Wong entered judgment in the HC Action against the defendant (the Judgment). By para 6 thereof, the plaintiff was given the option to elect between inquiry as to damages or accounts of profits after defendant’s full compliance of discovery order in para 5 thereof. By para 7 thereof, the defendant was ordered to pay all sums found due to plaintiff upon making such inquiries and/or accounts together with interest thereon.

4.  Pursuant to para 5 of the Judgment, an affirmation of Tang Kin Fung (Mr Tang)[1] was filed on behalf of the defendant on 10 July 2017 exhibiting: -

a) sales invoices of the Offending Items[2] issued to the defendant by 1) Singapore Headway Medicine Co. (Singapore Headway) and by 2) Wai Fat Pharmaceutical Co., Ltd. (Wai Fat)[3]; and

b) summary of defendant’s sales of the Offending Items to retail customers prepared by the defendant[4].

5.  By a statutory declaration also made by Mr Tang on behalf of the defendant on 21 Aug 2017, over 3,000 pages of copies of sales receipts in respect of the Offending Items issued by the defendant were further exhibited[5].

6.  By the Order of Master J. Wong, upon plaintiff’s application by way of summons[6] in the HC Action filed on 12 Oct 2017 and upon plaintiff’s election to proceed with an account of profits pursuant to para 6 of the Judgment, the taking of the said account was transferred to the District Court. The said account is in the following terms:

“to take account of the profits made by the Defendant in the sale of or dealing in or with or otherwise howsoever of the medicated oils or balms “金牌道益活絡油”, “金牌道益摩擦膏” and “黃道老人活絡油” and/or by using the get-ups identified in Annex B, Annex C and Annex D of the Statement of Claim filed herein on 23 December 2016 (”the Infringing Products”) down to the date when the Defendant ceased to deal in or with the Infringing Products, the costs of which account are reserved to the taking thereof and that the Defendant do cause to be paid to the Plaintiff the said profits together with such interest thereon as the Master shall think fit”.

7.  By the Order of Master J. Wong, the parties were also directed to file and serve their respective affirmations for the purpose of the said account.

8.  For plaintiff’s part, an affirmation of Wong Kei Kin Cathy[7] (Ms Wong) was filed on 19 Dec 2017. Exhibited thereto are, inter alia, extract of discovery made by Wai Fat and Wah Sing Pharmaceutical Limited (Wah Sing) by way of the 4^th affirmation of Hui Chung Sum (Mr Hui) filed on 5 Feb 2016 (the 4^th affirmation) in the Consolidated High Court Action No.1605 of 2011 also brought by the plaintiff for infringement of its registered trademarks and for passing off  (the 2011 HC Action)[8].

9.  According to Mr Hui in the 4^th affirmation[9], Wah Sing is a manufacturer that had sold or supplied, among others, “金牌道益活絡油” and “金牌道益活絡摩擦膏” products to Wai Fat and no others.

10.  Wai Fat is, said Mr Hui in the 4^th affirmation, a distributor that had sold or supplied the said 2 products to various pharmacies including the defendant in Hong Kong. Extract of copies sale invoices issued from Wai Fat for the said 2 products it had sold or supplied to the defendant disclosed in the 4^th affirmation[10] is included in the hearing bundle before me.

11.  And, according to para 11 of Ms Wong’s affirmation, the manufacturer and distributor of the product by name of “黃道老人活絡油” is Singapore Headway[11].

12.  For defendant’s part, despite an unless order made by Registrar Ho of District Court on 1 Mar 2018, the defendant had not seen fit to file and serve its affirmation in compliance with the Order of Master J. Wong and was thus debarred from filing and serving the same. By another order of Registrar Ho dated 2 May 2018, the said account was set down for taking on 19 June 2018.

13.  Mr Colin Shipp of counsel (Mr Shipp) appeared for the plaintiff on the hearing of the said account before me. The defendant was unrepresented and absent. However, I was satisfied on reading the 3^rd affirmation of Wu Chun Ting filed on 31 May 2018 that the defendant had been properly notified of the hearing before me and I therefore proceeded with the said hearing in the absence of the defendant as requested by Mr Shipp.

14.  As the defendant had not filed any affirmation for the said account nor applied to cross-examine Ms Wong on her affirmation, I agree with Mr Shipp that this court should proceed with the taking of the said account solely on the basis of the evidence as presented in Ms Wong’s affirmation.

15.  I have fully and carefully considered all the documents in the hearing bundle, the written skeleton and oral submissions made by Mr Shipp and all the authorities he had drawn to my attention. I am grateful for the assistance provided by Mr Shipp.

Discussion

Applicable legal principles

16.  I accept the following propositions of law well supported by English authorities as submitted by Mr Shipp.

17.  The purpose of an account of profits is very different from an inquiry as to damages. It is an equitable remedy of long standing and well established remedy for infringement of all kinds of intellectual property rights. It does not compensate the trade mark owner for the losses he has suffered. It is to deprive the infringer of the profits he has made by the infringement. The infringer is treated as if he has conducted the infringing business on behalf of the claimant. It ensures that the infringer does not benefit from his wrong, but it contains no element of punishment: Hollister Inc v Medik Ostomy Supplies Ltd [2013] FSR 502, CA, 520, 524-5, para 55 & 69.

18.  An account must be of the net profits made by the infringer. He is entitled to deduct any direct costs associated with the infringement and also any overheads to the extent they have been increased by the infringement or, put another way, any overheads that would not have been incurred but for the infringement. It is not permissible for a defendant simply to allocate a proportion of its general overheads to an infringing activity. The defendant must show that the relevant overheads are properly attributable to that activity: Hollister v Medik, supra, 526, para 74, 529, para 85.

19.  The bottom line is whether (a) the overheads would have been incurred anyway even if the infringement had not occurred and (b) the sale of infringing products would not have been replaced by sale of non-infringing products. It is in those circumstances that an allowance of overheads will not be permitted. In any case where a defendant seeks to deduct an element of general overheads it will be for it to prove its business was running to capacity or that but for the infringement it would have sold other products or that its overheads would have been lower if it had not infringed: OOO Abbott v Design & Display Ltd [2016] FSR 765, CA, 780-3, para 42, 49 & 51.

20.  As the defendant had elected not to file any affirmation for the said account, I further agree with Mr Shipp that the defendant is not entitled to any deduction for its general overheads. In assessing below the net profits made by the defendant, the defendant is only entitled, I agree with Mr Shipp, to deduct its direct costs associated with its infringement i.e. its costs of the Infringing Products from Singapore Headway and Wai Fat and not otherwise.

Evidence before this court

21.  Ms Wong at para 14 of her affirmation estimated the profits made by the defendant as per the account of profit in the Order of Master J. Wong at no less than $333,524.

22.  By way of breakdown, Ms Wong at para 9 of her affirmation estimated the defendant to have made profit no less than $319,553 from dealing in 15,012 bottles of the Infringing Product by name of “金牌道益活絡油” by reference to defendant’s disclosure pursuant to para 5 of the Judgment and disclosure of Wai Fat in the 2011 HC Action.

23.  Secondly, Ms Wong at para 10 of her affirmation estimated the defendant to have made profit no less than $912 from dealing in 24 bottles[12] of the Infringing Product by name of “金牌道益活絡摩擦膏” by reference to defendant’s disclosure pursuant to para 5 of the Judgment and disclosure of Wai Fat in the 2011 HC Action.

24.  Thirdly, Ms Wong at para 13 of her affirmation estimated the defendant to have made profit no less than $13,059 from dealing in 1,181 bottles of the Infringing Product by name of “黃道老人活絡油” by reference to defendant’s disclosure pursuant to para 5 of the Judgment.

25.  Ms Wong arrived at her 3 estimates of profit above by deducting from defendant’s revenue (no. of bottles x retail price) the costs of goods sold (no. of bottles x average costs per bottle) and she gave in her affirmation the no. of bottles, the range of distribution prices (if at all)[13], and the retail price or the range of retail prices the plaintiff had adopted in its calculations.

26.  While this court does notice from the disclosures referred to by Ms Wong in her affirmation that some individual documents show a) distribution prices of the Infringing Products by the 2 names of “金牌道益活絡油” and “黃道老人活絡油” different from those adopted in plaintiff’s calculations and b) retail prices of the said 2 products different from those adopted in plaintiff’s calculations, I accept Mr Shipp’s submission that there is no contrary evidence from the defendant that such discrepancies materially affect the 2 estimates concerned made by Ms Wong in her affirmation.

27.  In any event, I am further prepared to accept Mr Shipp’s submission that, adopting a broad brush approach, a discount of no more than 10% from the total estimate of $333,524 made by Ms Wong in her affirmation should properly cater for such discrepancies if it is necessary to do so in the circumstances of this case.

28.  Save and except for the aforesaid 10% discount, considering that the estimates in Ms Wong’s affirmation went unopposed and were based on defendant’s own disclosure and also disclosure from defendant’s supplier i.e. Wai Fat, I accept Ms Wong’s evidence in her affirmation and her estimates therein.

Result of account

29.  I certify that the amount of profits made by the defendant as per my taking of the said account at para 3 of the Order of Master J. Wong is $300,172 i.e. $333,524 x 90%.

Interest

30.  Mr Shipp sought pre-judgment interest at commercial rate of 1% over HSBC prime rate as from the date of the writ of the HC Action. I agree.

Disposition

31.  Accordingly, I order that the defendant do pay to the plaintiff the said profits in the sum of $300,172 together with interest thereon at 6% p.a. from 22 Dec 2016 to 17 May 2017, and thereafter at judgment rate until full payment.

Costs

32.  In view of the result of my taking of the said account, I make an order nisi that the costs of and occasioned by this taking of account of profits, including all costs reserved (if any) and the costs of the hearing before me (together with certificate of counsel for the said hearing), be to the plaintiff, to be taxed on High Court scale before transfer and on District Court scale thereafter if the parties cannot agree on the amount of such costs payable by the defendant.

33.  The above costs order nisi shall become absolute if none applies in writing within 14 days of this decision to vary the same.