OZEN CORPORATION v. TAKMAY INDUSTRIAL CO. LTD.

1992 No. A1077

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff, a Japanese Company, is the manufacturer of sound devices which are implanted in toy dolls which emulate the sound of laughter and crying. It is also not in dispute that they are the owners of the copyright in the designs for these devices.

2. The Plaintiff supplied these sound devices to the Defendant who is a manufacturer of toy dolls.

3. In July 1991 the Plaintiffs purchased some dolls in the United States of America which were packaged as the Defendant's dolls and these dolls had implanted in them sound devices which were very similar to the Plaintiff's devices but which were not ones which were manufactured by them.

4. It is necessary to make some clarification concerning these dolls. During the proceedings reference was made to three dolls:

(1) Laughing and Crying Anita;

(2) Crying and Laughing Doll and

(3) Bride Doll.

Although the dolls were packaged in this way, it appears to be common ground between the parties that "Laughing and Crying Anita" and "Crying and Laughing Doll" are, in reality, the same dolls for all practical purposes. In any event, the Defendants made available two dolls for examination and this was the way in which the matter proceeded.

5. The present action was brought by the Plaintiffs against the Defendants for the infringement of their copyright.

6. I think that it would accurate to state that the stance initially adopted by the Defendants was to put the Plaintiffs to formal proof of their claim. They also contended that as the Plaintiff is a Japanese corporation, they could not acquire copyright in Hong Kong. I was informed by Mr. Chau, who now represents the Defendant, that this contention is no longer being maintained.

7. The litigation has had a somewhat chequered history. The case was due to come on for trial in March 1993. At the last minute the Defendant sought leave to re-amend their defence. The effect of the amendment proposed was to plead that the allegedly infringing dolls had not been manufactured by the Defendants and indeed they knew nothing about them. They claimed that the dolls were counterfeits.

8. Deputy Judge Yam allowed the amendments proposed and consequently it was impossible for the hearing to proceed as planned.

9. As I had indicated at the beginning of this judgment the Defendants now admit that the Plaintiffs are the owners of the copyright in the sound devices. They also admit that as a result of the previous dealings between the parties, they have the requisite knowledge of the Plaintiff's interests.

10. It was also accepted by the Defendants that the dolls which had been acquired by the Plaintiffs in the United States of America constituted infringements of their copyright in the sound devices.

11. The only issue which remained outstanding was whether the said dolls had in fact been manufactured by the Defendants or whether they were the work of a counterfeiter.

12. The trial before me proceeded largely on the basis of the expert testimony which was called by the parties on this issue.

13. In this connection, the Plaintiffs called two expert witnesses as did the Defendants.

14. Initially the main thrust of the Plaintiff's expert testimony was directed towards the similarities between the dolls purchased in the United States of America and the Defendant's dolls. However, at the beginning of the trial the Defendants sought to introduce additional evidence which in general terms was designed to establish that the explanation for the similarities which had been referred to in the Plaintiff's evidence was that the counterfeiter whoever that may be, had resorted to reverse engineering to bring about the results which had been found.

15. The first expert witness called for the Plaintiffs was Mr. Robert Mendelow. He has extensive relevant experience in the toy industry which spans a long career. It was also readily apparent, both from his report and from his testimony, that he is extremely knowledgeable on the manufacture of dolls. His original report was supplemented by a further report which was necessitated as a consequence of the introduction of the defence evidence raising the possibility of reverse engineering.

16. It was clear that Mr. Mendelow had expended a considerable amount of time in making exact measurements of all the dolls.

17. The main conclusion he reached was to virtually eliminate the possibility of there having been reverse engineering. The reason for this was that if such a procedure was adopted one would expect that the doll produced as a result of such a procedure would be uniformly 5 - 6 per cent smaller than the doll the subject of the exercise. This was on account of the fact that if the person resorting to reverse engineering circumvented the initial sculpting work, there was a shrinkage factor of approximately 3 per cent on two of the procedures undertaken in moulding the dolls. The different parts of the dolls had been measured. In the case of the heads and the arms, it was clear that the dolls had come from a similar original source on account of a number of characteristics which were noted. However, Mr. Mendelow ruled out the possibility of reverse engineering as there was no uniform reduction in the measurements of 6 per cent or thereabouts.

18. Mr. Mendelow also gave evidence which effectively ruled out the possibility that any counterfeiter could by using a pantograph have built into the moulds the additional measurements to ensure that the dolls produced by the reverse engineering would be the same in size as the dolls being copied. It would be an extremely time-consuming exercise to attempt this and probably it would be much simpler to sculpt original moulds rather than undertaking reverse engineering.

19. Mr. Mendelow also questioned whether such an exercise would be worthwhile having regard to the fact that a variation of 6 per cent was unlikely to be immediately discernible to the naked eye unless the two dolls being compared were examined side by side.

20. It was also put to Mr. Mendelow in cross-examination that there was a further possibility. The counterfeiter may have taken the Defendant's dolls and when making up moulds added a further layer of material so as to increase the size by 6 per cent or so and then prepared production moulds with this modification. Mr. Mendelow rejected this as a feasible idea. It would be virtually impossible to gauge exactly how much additional material would need to be added. Also grave difficulties would be encountered in controlling the contours on the dolls and this would make it highly improbable that anyone could undertake this exercise.

21. Over and above this Mr. Mendelow was confident that if such a procedure had been undertaken he would have been able to detect this. He was able to state definitely from his examination of the exhibits that this had not been done.

22. This all led inescapably to a conclusion that the dolls which had been purchased by the Plaintiffs in the United States of America had been moulded from the same family of moulds as the dolls which had been produced by the Defendants as their dolls.

23. Mr. Mendelow was effectively ruling out any possibility that the US dolls had been the work of an independent counterfeiter.

24. He was subjected to quite a lengthy cross-examination and his evidence was never shaken or in any way called in question. I regarded him as a truthful and reliable witness and have no hesitation in accepting his evidence as being true and accurate.

25. The Plaintiffs called Mr. Chan Sai Man who is a printing and packaging expert to give evidence.

26. His evidence illuminated the contents of his report and his supplemental report.

27. He has wide and relevant experience relating to the preparation of packaging for products including toys. He presently works in this field for Mattel Toys. He has a diploma in the printing, binding and typesetting trades.

28. He explained the different steps which are taken to prepare a package such as the ones containing the Defendant's dolls and those which were purchased by the Plaintiffs in USA.

29. I think that for present purposes it could be stated that there are two-different ways of designing and printing packages containing dolls.

30. On the one hand, Mr. Chan described all the steps which have to be taken to produce the printing from scratch. The other procedure short circuited the preliminary steps. By using a scanner it is possible to copy someone else's package without having to resort to the original prints which have been prepared.

31. When this latter method is adopted the quality of the copies is less good than the original. Mr. Chan formed the opinion in the present case that some of the US dolls packaging was of better quality than the Defendant's. This made it virtually certain that the US packaging had not been produced by the scanning process.

32. Mr. Chan referred to a number of specific, minor flaws on the packages which were common to both the Defendant's and the US packages which almost certainly meant that they were derived from the same family of films.

33. Mr. Chan accepted that changes had occurred in the industry as a result of the introduction of computers. He gave evidence that these changes had occurred over the last 18 months. The new technology had not existed in 1990. In any event, even with the introduction of computers he still maintained the validity of the conclusions he had reached in his report namely that the packaging of the US dolls had come from the same source as the Defendant's packaging.

34. Mr. Chan also was not shaken in cross-examination. I have no doubt that he was reliable witness. I accept his expert evidence and the conclusions he reached.

35. Mr. Wong Wai Tai and Mr. Wong Hing Sang gave evidence for the Defendants. They are both directors of the company. It would seem that the duties of Mr. W.T. Wong are akin to those of a managing director whereas those of Mr. H.S. Wong were concerned more with the production of toys.

36. Both these gentlemen gave evidence to the effect that the dolls which had been purchased in the United States of America had not emanated from the Defendant company. They were of the opinion that the dolls were the work of counterfeiters.

37. Neither gentleman was in any way convincing as witnesses of the truth. They were cross-examined skilfully by Mr. Garland and I had no doubt that they were not giving truthful testimony.

38. One of the matters which impressed itself on my mind was the evidence they gave concerning the Defendant's conduct of this litigation. It is almost inconceivable they would have conducted themselves in the way they did, if indeed they were the innocent victims of counterfeiting.

39. Neither of them had manifested any interest in investigating the Plaintiff's complaints when the action was commenced and it was very much their approach to simply put the Plaintiffs to formal proof of their claim. No satisfactory explanation was forthcoming for this.

40. Mr.W.T. Wong attempted to give evidence that his knowledge of the matter was very limited, even after the Defendant had been served with the writ and Statement of Claim. It was difficult to reconcile this evidence with the contents of the affirmation he made last year when the trial was originally intended to proceed. It was also difficult to reconcile this absence of knowledge with his admission that he had been the person who had given instructions to the company's solicitors for the preparation of the defence which had been filed.

41. Mr.H.S. Wong was equally unsatisfactory as a witness. Initially he referred in his evidence to the existence of "several sets" of moulds for the dolls. However, after the luncheon break on the 16th March he resiled from this. In apparently trying to convince the court that the scope for using moulds was limited, particularly after manufacturing was transferred to the People's Republic of China, he gave evidence that there was only one mould for the Anita doll's head. He maintained this evidence even when accepting that if the mould was damaged or for some other reason it could not be used, it would take at least two weeks for a replacement to be made during which period the whole of the production would be halted.

42. I have no doubt that the original version of his evidence was the correct one. I regret that I formed a most unfavourable impression of both of these gentlemen as witnesses. I am reluctant to accept their testimony unless it could be verified by some independent means.

43. The expert witness called by the Defendants in relation to the production of the dolls was Mr. Wang Li Lung. Mr. Wang presently works in his family's business Radiance Toys Design Company. His training was in commercial art and design. It appears that his experience concerning the production of moulds was limited to giving instructions to mould manufacturers. In this connection he had sculpted models himself for moulding. He agreed though that he had no experience whatever himself of mass production from moulds.

44. I regret that in addition to his dearth of relevant experience, it was also apparent that the reports he had prepared had been very carelessly put together. He agreed that he had referred to the moulding of the bodies of the dolls when they were made of cloth. Initially he said that this error had been attributable to a typographical error. When his attention was drawn to the fact that he had made similar errors in respect of other dolls, he said that his assistant had typed the report up and he had not checked it carefully although he had realised that it would be used as evidence in court proceedings.

45. One of the main focuses of Mr. Garland's cross-examination centered around the reduction in size of dolls if they had been the subject of reverse engineering as contended for in Mr. Wang's report.

46. Mr. Wang went into great detail as to how it would be possible to add an additional layer of wax to achieve this objective. He even claimed to have undertaken such an exercise himself. What he failed to do was to provide any explanation as to how anyone undertaking such a task would be able to ascertain how much additional wax to add or how it would be possible to recapture all of the necessary details on an appropriate scale.

47. Also, Mr. Wang was unable to put forward any convincing explanation as to why any counterfeiter would undertake such a laborious exercise when dolls produced simply by reverse engineering would, to a normal purchaser, appear to be similar to the regular product.

48. However, all of this was rendered somewhat redundant as a consequence of Mr. Wang's admission that the measurements he had made and recorded in his report were not consistent with the US dolls having been the product of reverse engineering. When he was pressed by Mr. Garland he also accepted that the conclusions he had reached in his report on this were necessarily flawed.

49. Mr. Garland also demolished all of the other findings in Mr. Wang's report which were inconsistent with the conclusions which had been reached by Mr. Mendelow in his report.

50. I regret that I was driven to the conclusion that Mr. Wang's evidence was almost wholly unreliable and unsatisfactory. Certainly where there were any conflicts with the Plaintiff's expert evidence, there was no doubt in my mind that I should accept the Plaintiff's evidence and reject Mr. Wang's evidence.

51. The Defendants called Mr. C.K. Kwan to given expert evidence concerning the packaging of the dolls. Unfortunately, it emerged during his cross-examination that he had not even subjected the packaging to inspection by a loupe or magnifying glass. This was of critical importance having regard to the question as to whether the allegedly counterfeited packaging had been prepared using a four or five colour process. In the light of this and other unsatisfactory aspects of Mr. Kwan's evidence, Mr. Chau informed me of his wish to withdraw Mr. Kwan's expert report. I agreed to this. The consequence of this was that there was no expert evidence to contradict the expert evidence of Mr. Saiman Chan.

52. That concludes my short summary of all of the evidence which was before me.

53. As I have indicated in this judgment, I entirely reject the suggestion that the dolls which were obtained from the United States of America were the products of some counterfeiter. They were dolls which were manufactured by the Defendants. Having regard to the concessions made at the opening of this trial, this means that the Defendant's defence falls away and the Plaintiffs have proved the claim they are making.

54. They are entitled to the relief they are claiming in prayers 1 and 2 of the Statement of Claim. As to the third prayer, I order that damages are to be assessed by a Master. I have also come to the conclusion that the Defendant's conduct has been such as to justify me in making an award for additional damages pursuant to Section 17(3) of the Act. In coming to this conclusion, I have borne in mind the observations made by Templeman J., as he then was, in Nichols Advanced Vehicles Systems Inc. v. Rees and Others [1979] RPC 127.

55. The Defendant's conduct has been most reprehensible. They have done everything in their power to delay this case and frustrate the Plaintiff's legitimate claims. They have resorted to lies and deceptions. The infringement was a flagrant one and this, in my view, justifies and award of substantial additional damages. I propose adhering to the practice adopted by Templeman J. of leaving to the Master the assessment of the appropriate amount of the award under this head.

56. I will hear the parties on costs.