TEAMA TOYS LTD v. MANLY MANUFACTORY LTD AND OTHERS

HCA1998/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1998 OF 2004

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  DECISION

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Introduction

1. The plaintiff seeks summary judgment in these proceedings against the three defendants for infringing its copyright in various works relating to a toy truck and trailor known as the “flat bed hauler” model no. 10872 (“truck”).   The specific works in respect of which the plaintiff claims that it owns the copyright are as follows:

(i)      one sheet of design drawings made on or about 31 March 2003;

(ii)      one plastic prototype sculpture made in or about March or April 2003;

(iii)     various plastic prototypes sculptures made in or about March to April 2003 of which some have since been lost or destroyed over the course of time;

(iv)     various plastic injection moulds made in or about May to July 2003;

(v)     three design drawings made in or about March to August 2003 and three design drawings made in or about November 2003.  These contained the design of the packaging for the truck.

I shall refer to them collectively as the “copyright works”.

2. The first item is a rough conceptual sketch.  Plastic injection moulds (“moulds”) were created from the prototypes, which are generally described in the industry, according to Mr Wong who appeared on behalf of the plaintiff, as “hand shapes”, which is how I shall refer to them in the remainder of this judgment.  The hand shapes are thus the most commercially important of the works.

3. This action has dragged on for some considerable time.  The writ was issued on 30 August 2004.  On 3 September 2004 Burrell J granted an interlocutory injunction restraining the defendants until final judgment from, amongst other things, manufacturing, distributing and selling products which breached the plaintiff’s alleged copyright.  This injunction remains remains in place.

4. The statement of claim was not served until 17 October 2005 and on 16 November 2005, the plaintiff issued the present application for summary judgment.   The substantive application came on before Deputy Judge Gill on 1 February 2006.  The Deputy Judge adjourned the summons for argument apparently because the plaintiff’s solicitors had not provided translations of relevant Chinese language documents. 

5. The summary judgment application has finally come on before me some 2½ years after it was due to be heard.  I was told that the reason for this unsatisfactory state of affairs is that the parties have been attempting to settle the matter.  Presumably the defendants’ did not find their business activities critically affected by the injunction.

Background

6. The plaintiff is a Hong Kong company.  Its business is designing, manufacturing and trading toy vehicles.  It currently has two directors and shareholders, namely, Ma Chor Tak and his elder brother, Ma Chor Yam.  The 1^st defendant is also a Hong Kong company.  It operates under the business name “High-tech Mould Factory” and carries on a similar business to the plaintiff, namely, manufacturing and trading toy products.  The 2^nd and 3^rd defendants are the directors and the sole shareholders of the 1^st defendant.

7. It is broadly common grounds that sometime in 2001 or 2002 the Ma brothers and the Chan brothers decided to merge their particular business skills and know-how and establish a company to produce original toy vehicles.  During 2002 a design for the truck was produced in circumstances, which I explain in more detail later.  Sometime after the truck went into production the Ma brothers and the Chan brothers decided that their joint business venture was not working out satisfactorily and it was agreed that the Ma brothers should buy the Chan brothers shares in the plaintiff.  This is what happened and in October 2003 the Ma brothers obtained sole ownership of the plaintiff.

8. The plaintiff claims that at the material times it was the owner of the copyright works.  It says that in the case of copyright works (i) to (iii) the copyright arose and came to subsist in it as a consequence of the following matters :

(i)      A Mr Lee Lang who lived and worked in the People’s Republic of China and was a fulltime employee of Chuang Xin Industrial Model Design Company Limited (“Chuang Xin”) was the author of copyright works (i) to (iii) which he produced exercising his independent skill, labour and judgment and during the course of his employment with Chuang Xin. 

(ii)      Copyright works (i) to (iii) were created pursuant to the plaintiff’s paid commission to produce them pursuant to an agreement between the plaintiff and Chuang Xin.

(iii)     As a consequence copyright works (i) to (iii) did and continue to qualify for copyright protection pursuant to the Copyright Ordinance, Cap. 528.  

9. In the case of copyright item (iv) (the moulds), the plaintiff claims that it came to acquire the copyright in different circumstances.  It says that the defendant was the author of the design of the moulds which was derived from copyright works (ii) to (iii) (the hand shapes).  It says that copyright work (iv) was produced pursuant to a paid commission.  As a consequence it says copyright work (iv) did and also continues to qualify for copyright protection under the Copyright Ordinance.  Copyright works (i) to (iv) were first published by the plaintiff through the production of the truck in Hong Kong in or about August 2003.

10. The plaintiff also claims that at all material times it was the owner of the copyright subsisting in the six design drawings containing the design of the packaging for the truck (copyright work (v)).  All six design drawings were produced by Chan Cheung Lung using his own independent skill labour and judgment and during the course of his employment with the plaintiff.  There were no provision in his employment contract which provides that original works produced by him should not vest in the plaintiff.  The plaintiff therefore claims that the copyright vests in it and qualifies for protection under the Copyright Ordinance.  Copyright work (v) was first published at the same time as copyright works (i) to (iv).

11. The plaintiff alleges that the defendants have infringed the copyright works by producing toys from moulds identical to those used for producing the truck and have flagrantly copied the plaintiff’s packaging.  As I shall explain later there is no dispute that the 1^st defendant produced toys from moulds, which it produced from the engineering drawings it itself prepared when first producing moulds to be used in the production of the truck for the plaintiff.  Neither do the defendants dispute that the packaging of toys they have produced is materially the same as that used by the plaintiff.

12. The plaintiff seeks a permanent injunction to restrain the defendants from breaching or causing to be breached of its copyright in the Copyright Works.  It also claims damages for infringement of its alleged copyright including additional damages pursuant to section 108(2) of the Copyright Ordinance on the grounds that the defendants flagrant infringement for the copyright works was calculated to make a profit which might exceed any compensation payable to the plaintiff.

13. The plaintiff also seeks judgment against the 2^nd and 3^rd defendants on the grounds that they directed the 1^st defendant’s infringement of the plaintiff’s copyright.  Ms Rita K.Y. So, who appeared on behalf of all three defendants, accepted that if I were to conclude that the plaintiff is entitled to summary judgment against the 1^st defendant, the plaintiff would also be entitled to summary judgment against the 2^nd and 3^rd defendants.

The issue

14. The defence to the plaintiff’s claim is set out in the 6^th affirmation of Chan Hok Leung.  In short it is this.  The 1^st defendant is a producer of toy vehicles.  Shortly after the plaintiff was established, Mr Chan had the idea for a truck trailer.  The 1^st defendant commissioned a design by a person called Li Fay, who lived and worked in Shenzhen.  The design drawing and engineering drawings for the production of the truck are exhibited to his affirmation.  At this time Mr Chan says the plaintiff was just commencing business and it had few products.  He, therefore, thought that it would be helpful for the plaintiff to produce this new toy vehicle.  The Ma brothers agreed.  Li Lang was given Li Fay’s design and he produced hand samples from that design.  Li Lang did not thus produce the original design; he copied the design commissioned by the 1^st defendant.  As a consequence the 1^st defendant argues it rather than the plaintiff owns the copyright in the design of the truck.  It will be noted that the defendants do not dispute that Li Lang produced the drawing and hand samples relied on by the plaintiff.

15. Mr Chan also says that Li Fay designed the packaging and he also exhibited copies of the design drawings for it. 

16. Mr Chan acknowledges that when he and his brother sold their shares in the plaintiff to the Ma brothers they also sold the moulds that their company had produced, however, he says that they did not sell the copyright in the mould.  He suggests in his affirmation that the 1^st defendant was quite entitled to produce knew moulds from the designs for the moulds sold to the plaintiff and then use them.  During argument both counsel agreed that this was wrong.  There is no independent copyright in the moulds.  If the plaintiff owns copyright works (i) to (iii) the 1^st defendant infringed the copyright if it produced and used new moulds.

17. It follows from Mr Chan’s evidence that there is no dispute that the 1^st defendant produced copies of the trucks, which were in all material respects identical to those produced by the plaintiff and that it did so at the direction of the 2^nd and 3^rd defendants.  What is disputed is ownership of the copyright works.

18. To establish a copyright infringement a plaintiff must show[1] :

(i)      that copyright subsists in the works relied on;

(ii)      that the plaintiff owns the copyright;

(iii)     that the defendant’s product constitutes an infringing copy of the plaintiff’s copyright works; and

(iv)     that the defendant has committed infringing acts.

19. It follows that the issue, which determines this application, is whether or not the defendants have established that there is a triable issue in respect of subsistence and ownership of the copyright in the design of the truck.  If I find that there is no arguable defence to the plaintiff’s claim that it owns the copyright works, it follows that there has been an infringement of the plaintiff’s copyright as the defendants have conceded elements (iii) and (iv).  The 2^nd and 3^rd defendants have also conceded that they procured any such infringement.

Summary judgment : legal principles

20. The principles, which govern an application for summary judgment are well known and not in issue.  The parties’ respective counsel cited various authorities.  For the purposes of this application the most apposite summary of the principles is to be found in the judgment of Ma CJHC in Toy Major Trading Co. Ltd v. Hang Shum Plastic Toys Ltd [2007] 3 HKLRD 345 at paragraph 12 :

“… In my view, the Defendant’s evidence goes nowhere near the obligation on a defendant in summary judgment proceedings to condescend to particulars.  This obligation is to ensure that where a plaintiff raises a plausible and prima facie sustainable case, a defendant can convince the court there exists a triable issue so that leave to defend is given or the application for summary judgment is dismissed.  In other words, that the Defendant is expected to show a fair probability or reasonable grounds that a bona fide defence exists.”

21. The defendant must provide sufficient detail of his defence for the court to be able to assess whether or not a triable issue has been raised.  The court does not need to believe what the defendant says, but it must be satisfied that it is capable of belief in the sense that it is not implausible.  The court must also be satisfied that if the defendant’s evidence is believed at trial it will constitute a defence to the plaintiff’s cause of action.  The defendant cannot hide behind broad assertions the veracity of which cannot be tested by virtue of his own lack of particularization of the defence.

Consideration of the defence

22. Mr Wong submitted that the defence was not credible.  He pointed to what he argued were a number of obvious problems with it, which point to it being a concoction.

23. First, Mr Wong argued that the design drawing allegedly produced by Li Fay is obviously a drawing of the final product.  It is inherently unlikely, says Mr Wong, that the first and only design drawing produced by Li Fay would have required no alteration at all.  More importantly says Mr Wong if it is compared with the drawing and hand shapes produced by Li Lang (and as I have already noted the defendants do not dispute that he did produce them) one can see that Li Lang’s hand shapes are not simply a copy or reworking of the drawing allegedly produced by Li Fay, but show a gradual development of the design, which ended up with the final design, which is recorded in the Li Fay drawing.  In particular Li Lang’s hand shapes show a change in the design from a vertical connecting plate to a diagonal connecting plate.  The drawing produced by Li Fay only shows the final design, namely, a diagonal connecting plate.

24. I accept that when one compares the drawings and the final form of the truck it is a compelling inference that the drawing exhibited by Mr Chan is a drawing made by somebody after the final product had been produced and not an initial design from which Li Lang worked.

25. Secondly, says Mr Wong the engineering drawings produced by Mr Chan take the matter nowhere.  It is not in dispute that the 1^st defendant produced the moulds and it would have had to have produced engineering drawings to do so.  The engineering drawings exhibited by Mr Chan show the final product (which the defendants do not dispute) and they would have had them regardless of whether the plaintiff or the defendants’ versions of what occurred is correct.  Ms So accepted this.

26. More relevantly says Mr Wong it is inherently unlikely that the 1^st defendant would have produced engineering drawings prior to Li Lang becoming involved.  There would have been no reason to produce them before it had been decided to go ahead with production.  A decision to do so would only be made after prospective purchasers had indicated an interest in the new product.  Ms So response to this was that different companies do business in different ways and just because this is how the plaintiff might go about product development it does not follow that the 1^st defendant could not possibly do so differently.

27. Whilst common sense suggests that there is some weight in what Mr Wong says I do not think by itself this is a significant point.

28. Thirdly, says Mr Wong there is no evidence that the 1^st defendant designed toys.  Ms So submits that this is wrong and points to the 1^st defendant’s catalogues, which have been exhibited.  These show that the 1^st defendant produced products under its own name and somebody must have designed them.  Mr Wong points out that it need not have been the 1^st defendant and that the 1^st defendant has provided no evidence about its design work.  It would have been easy to do so if it had been in the business of procuring original designs for products that it produced.

29. I accept that the 1^st defendant has not, as it might easily have done if its story is true, have produced documentary evidence recording it regularly commissioning designs of new products.  However, I can see some force in the riposte that it assumed this to be axiomatic from the production of its catalogue.  Even accepting the possibility suggested by Mr Wong that it could have copied other products or taken a license I think it is reasonably to be assumed that it had some design input at some point in the development and production of the toys shown in its catalogue.

30. Fourthly, Mr Wong makes a related point: there is no evidence from Li Fay.  There is no agreement with him or evidence of payment.  If what the 1^st defendant is saying is true why, asks Mr Wong rhetorically, has it not produced more substantial evidence?  It should be simple.

31. I accept that the absence of supporting evidence does call into question the veracity of what Mr Chan says.  This is particularly true as Mr Chan says that Li Fay produced not only the initial design drawing, but also the engineering drawings.  Apart from the fact that I would have thought it likely that they are different disciplines if Li Fay did indeed produce all the drawings it makes it all the more likely that there would be some written record of him doing so in the form of a quote, or invoice or evidence of payment.

32. Fifthly, says Mr Wong the suggestion that Li Fay also created the packaging and that he did so in December 2002 is implausible, because at that time it would obviously have been premature and he would certainly not have included the name of a particular toy company “Teamster” on it.  Ms So argued, as she had in relation to the alleged early production of engineering drawings by the 1^st defendant, that precisely how companies go about developing their products will vary.  That may be so, but it does seem to me that the packaging, particularly that with the name “Teamster” on it was produced surprisingly early in the development of the product.  More importantly it can be seen in the design allegedly produced by Li Fay that the truck is called a “truck hauler” where as in the design initially produced by the plaintiff it was called a “truck haulier”.  The name was changed by the plaintiff at the instigation of Li & Fung.  Mr Wong says that this shows that the 1^st defendant simply copied the plaintiff’s packaging.  If as Mr Chan says the plaintiff copied the design produced by Li Fay, Li Fay’s design would have had “truck haulier” on it.  Ms So was unable to explain away this point.

Conclusion

33. Ms So’s general response to Mrs Wong’s submissions was that whilst she could not give a precise answer to all of them the fact remains that Mr Chan has demonstrated that the 1^st defendant produces toy vehicles under its own name and that there is nothing inherently implausible in it commissioning the design of a new vehicle and progressing its development quickly.  As a general observation this is not unreasonable, but it does seem to me that the difficulty in reconciling what the defendants say about the production of the design by Li Fay and the documentary evidence (which is not in issue) adduced by the plaintiff showing how the design developed for both the truck and its packaging calls seriously into question the veracity of the defendants’ defence.  This taken cumulatively with the absence of contemporaneous documents corroborating Li Fay’s involvement leads me to conclude that the defendants have failed to demonstrate with adequate particularity that they have a believable defence.

34. I will enter judgment in the form of the order sought in the summons as amended by adding “and 5” after “as defined in paragraph 4” in paragraph (1).

[1]    See Fossil Inc. v Trimset Ltd [2003] 3 HKLRD 11 at paragraphs 15-22.