XCHRX SHIN CORPORATION v. PACIFIC STAR (FAR EAST) LTD. AND ANOTHER

HCA 16745/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16745 OF 1999

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R U L I N G

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1. The Defendants have taken out a summons dated 17 February 2000 to strike out the claims on behalf of the 2nd and 3rd Plaintiffs and to stay the claim of the 1st Plaintiff.

2. Mr Yue for the Defendants concedes that in view of the order made by consent this morning substituting China Star International Distribution Limited for China Star Hong Kong Distribution Limited as the 2nd Plaintiff, the Defendants no longer pursue their claim for the 2nd Plaintiff's claim to be struck out and for a stay of the proceedings against the 1st Plaintiff.

3. This leaves remaining the question of whether the 3rd Plaintiff has a cause of action.

4. The Plaintiff's case is that the 1st Plaintiff is the copyright owner of the film in question, the new 2nd Plaintiff is the exclusive licensee within the meaning of that term in the Copyright Ordinance, Cap 528 and the 3rd Plaintiff is the exclusive sub-licensee. I am satisfied that on the facts of this case, it is not possible to argue that any Plaintiff other than the 1st Plaintiff was the Copyright owner.

5. Section 107(1) of the Copyright Ordinance provides that an infringement of Copyright is actionable by the Copyright owner.

6. Section 112(1) of the Ordinance provides that "an exclusive licensee has except against the copyright owner, the same rights and remedies in respect of matters occurring after the grant of the licence as if the licence had been an assignment".

7. The question is whether the 3rd Plaintiff is an "exclusive licensee" for the purpose of the Copyright Ordinance. I am satisfied it is not.

8. Section 103(1) of the Ordinance defines an exclusive licence as meaning "a licence in writing signed by or on behalf of the copyright owner authorising the licensee to the exclusion of all other person including the person granting the licence to exercise a right which would otherwise be exercisable exclusively by the copyright owner".

9. In this case, this is no document directly signed by the 1st Plaintiff giving the 3rd Plaintiff such authority.

10. Mr Pirie argues that the Agreement of 28 July 1997 (the "Two party agreement") in granting an exclusive licence from the 1st Plaintiff to the licensee expressly gave the right to sub-licence the right. Accordingly the written sub-licence to the 3rd Plaintiff was made "on behalf of" the copyright owner making the 3rd Plaintiff an exclusive licensee.

11. I am satisfied that this argument is not sustainable. The entity granted the exclusive licence and right to sub-licence in the "Two party agreement" of 28 July 1997 was the 2nd Plaintiff. That agreement only gave the 2nd Plaintiff the right to sub-licence, not its subsidiaries (see clause 1.2). The sub-licence agreement of 21 January 1998 was not made by the 2nd Plaintiff but by its subsidiary China Star Hong Kong Distribution Limited. It cannot be argued in such circumstances that China Star Hong Kong Distribution Limited was exercising a power given to it by the 1st Plaintiff, the copyright owner, as the "Two party agreement" of 28 July gave it no such power.

12. In any event, the learned editors of Copinger and Skone James on "Copyright" 14th edition at page 316 say this:

"Two matters also follow from the requirement that the licence be signed "by or on behalf of the copyright owner". First, that a statutory exclusive licensee cannot himself grant a statutory exclusive licence by way of sub-licence. If such a grant is permitted by the terms of the head licence, it will of course create a valid contractual licence, giving the sub-licensee protection in an infringement action brought by the copyright owner and contractual rights against his own licensor."

13. Although the 3rd Plaintiff has a financial interest in the proceedings, it has no cause of action against the Defendants. It is inappropriate for it therefore to remain a Plaintiff at this stage seeking relief against the Defendants and I order that it be struck out.

14. This leaves the matter of the Order 14 summons and whether the Defendants have shown that they have a real and bona fide defence.

15. I find that the evidence adduced by the Plaintiffs by way of the agreements show that copyright of the film in question was at the time of the agreement of 25 June 1997 in the hands of New Wave Company and was by virtue of that agreement assigned to the 1st Plaintiff. No evidence has been adduced by the Defendant to gainsay that evidence. I am satisfied that that agreement precluded anyone manufacturing the film in Hong Kong (where the 1st Plaintiff had the copyright) in order to distribute the film in a place where the 1st Plaintiff did not have a copyright.

16. I do not find that the reference to Win's Entertainment Limited in the agreement with China Star Hong Kong Distribution Limited undermines the evidence that the 1st Plaintiff was the copyright owner. That agreement had two parts, one related to films produced by Win's Entertainment Limited, the other, which was unconnected, related to films which were to be manufactured by the 3rd Plaintiff including the film in question.

17. Clause 2 of the agreement of 28 July 1997 (the "Three party agreement") shows that the 2nd Plaintiff was given an exclusive licence in respect of the rights of the 1st Plaintiff including distribution rights, theatrical rights and videogram rights. Videogram rights gave it, inter alia, the exclusive right to manufacture VCDs in Hong Kong, Macau and Taiwan for 7 years.

18. In paragraph 5 of his latest affirmation of 23 May 2001, the 2nd Defendant admits producing 2,000 VCDs of the film at his factory. He said that he understood that those VCDs were for distribution and sale exclusively in Mainland China.

19. He has exhibited that purchase order, he allegedly received from a Hong Kong Company, Westwood Development Trading Company with another document in which that company stated that it had lawfully procured the copyright owner's legal authority. He produced documents purporting to show that Yuen Nan Province Cultural Audio Visual Publisher had authorised Westwood to produce the film and he also produced another untranslated document in Japanese, which not even Mr Yuen professed to understand, saying that Yuen Nan Province Cultural Audio Visual Publishers had obtained the licence from a company in Japan. The name of the company was in Japanese characters. There is no suggestion that company was New Win or the 1st Plaintiffs.

20. I am not satisfied that these documents produced at the very last moment show a real and bona fide defence. There is no information before this court that the Japanese company was the copyright owner or had the authority of the copyright owner. In any event even if these documents conferred some authority on Westwood, there is nothing to suggest that they authorised Westwood to manufacture or authorise manufacture of VCDs in Hong Kong.

21. The "Three party agreement" of 28 July 1997 to which I have referred made clear that the exclusive right to manufacture in Hong Kong was given to the 2nd Plaintiff.

22. Therefore I make an order in terms of the Plaintiffs' summons under Order 14.