MERCK KGaA v. MERCK SHARP & DOHME CORP AND OTHERS

HCIP 64/2019

[2023] HKCFI 2885

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 64 OF 2019

(Transferred from HCA 1087 of 2018 pursuant to the order

of the Honourable Mr Justice Lok dated 5 November 2019)

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DECISION AND REASONS FOR DECISION

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1.  I have to deal with the following remaining issues under the Amended Case Management Summons (“ACMS”):

(i)  the Plaintiff’s application (“the Amendment Application”) to amend the Amended Statement of Claim (“ASOC”) by adding the proposed §§47A and 49A under §1 of the ACMS; and

(ii)  the proper scope of discovery under §3A and Schedule 1 of the ACMS, with the remaining dispute relating to Categories 1, 2, 3 and 5 in Schedule 1 (“the Disputed Categories”).

2.  I dealt with these matters in the oral hearing on 8 March 2023. For the Amendment Application, I allowed the amendments contained in §§47(e)-(f) and 49A in the proposed draft but disallowed the amendments contained in §§47(a)-(d) therein. For the discovery relating to the Disputed Categories, I allowed the discovery under Categories 1 and 2 in the terms as amended and reserved the decision for Categories 3 and 5. I now give my reasons for the decision I made on 8 March 2023 and my reserved decision on Categories 3 and 5.

BACKGROUND AND THE DISPUTE BETWEEN THE PARTIES

3.  The background of this case has been succinctly summarised by Mr Lam, counsel for the Plaintiff, in §§8-14 of his written submissions. In fact, there were similar proceedings between the parties in other jurisdictions. The first of such litigations took place in England (“the English Proceedings”). Fuller accounts of the dispute between the parties can be found in the judgment on preliminary issues of Nugee J[1], the judgment of the first trial on liability before Norris J[2], the judgment of the English Court of Appeal[3] and the judgment of the second trial on the matters remitted back by the Court of Appeal[4].

4.  In essence, the Plaintiff is the senior company which started life in Germany in 1668 under the name “Merck”, and the 1^st Defendant was its associate company (also using the name “Merck”) operating as its selling agent in the United States of America (“USA”) in the late 1880s.

5.  During World War I, the ownership and businesses of the Plaintiff and 1^st Defendant became completely separate (as the USA was at war with Germany). At that time the 1^st Defendant operated only in the USA, Canada and related territories. After the two World Wars and with normalization of international trade, conflict arose between the Plaintiff and the 1^st Defendant as they both tried to market around the globe as “Merck”. As the Plaintiff was the senior company, it held prior registered marks all over the world except North America. In 1932, the Plaintiff and 1^st Defendant entered into an agreement which effectively divided up the world between them, with the 1^st Defendant trading in the USA and its territories and dependencies, and the Plaintiff trading in the rest of the world. However, the agreement was cancelled in 1945 for being an unlawful restraint of trade pursuant to the USA legislation. For some time, the 1^st Defendant was prohibited by the USA Sherman Anti-Trust Act from entering into any cooperation with the Plaintiff. This led to litigation worldwide between the Plaintiff and the 1^st Defendant over the use of their trade marks and trade names.

6.  Those disputes were eventually settled through agreement in 1955, which ultimately became an agreement in 1970 (“the 1970 Agreement”). The arrangement under the 1970 Agreement is broadly as follows:[5]

(i)  In USA and Canada, the 1^st Defendant and its subsidiaries (“MSD Group”) have exclusive right to use “Merck” as or as part of a mark. There is a carve-out for the Plaintiff that it can use “Merck” as its name provided it is accompanied by geographical identifiers (clause 2).

(ii)  In Germany, the Plaintiff has exclusive right to use “Merck” as or as part of a mark. There is a carve-out for the 1^st Defendant that it can use “Merck & Co, Inc” or “Merck & Co Limited” as its name provided they are accompanied by geographical identifiers with the USA/Canada, or “Merck Sharp & Dohme” as its name provided the name is accompanied by a geographical identifier with a country other than Germany (clause 3).

(iii)  In all other countries[6], (i) the Plaintiff has the right to use “Merck” as a mark or a name (clause 6); while (ii) the 1^st Defendant would cancel all its registrations and discontinue all uses of “Merck” mark (clause 7); and (iii) the 1^st Defendant would discontinue its use of “Merck” names (clauses 8-9). There are 2 carve-outs for the 1^st Defendant: (i) it can use “Merck Sharp & Dohme” as a mark or name (clause 4); and (ii) it can use “Merck & Co, Inc” and “Merck & Co Limited” as its name, provided they are accompanied by geographical identifier that identify it with the USA and Canada, respectively (clause 5).

7.  Thereafter the parties implemented the 1970 Agreement in a generally cooperative way, corresponding with each other to raise uses of “Merck” by the other party that were considered to breach the 1970 Agreement. However, after the 1^st Defendant’s merger in 2009, the Plaintiff complained that the MSD Group began to breach the 1970 Agreement and infringe the Plaintiff’s marks by using “Merck” outside USA and Canada (in particular through online uses) to aggressively market itself, pursuant to a policy of deliberately not adopting any means to impose territorial restrictions for these online uses even though such technologies are available.

8.  After failing to resolve the disputes amicably with the 1^st Defendant, the Plaintiff commenced litigations in various jurisdictions worldwide.

9.  As mentioned above[7], the first of such litigations took place in England (i.e. the English Proceedings), in which the Plaintiff sued, inter alias, the 1^st Defendant for activities in breach of the 1970 Agreement and infringement of the United Kingdom (“UK”) registered trade marks. The activities complained of included online uses through websites (global and domestic) and social media.

10.  The trial was heard by Norris J, who found in favour of the Plaintiff on both the breach of the 1970 Agreement and trade marks infringement. The matter went on appeal. The Court of Appeal upheld the decision on breach of contract, but allowed the appeal in relation to the trade mark infringement claim and the counterclaim for revocation of registration of trade marks, and remitted those matters back to the trial judge for determination. At the remitted hearing, the trial judge held in favour of the Plaintiff on trade marks infringement.

11.  The disputes between the parties were described in a nutshell in the judgment of the first trial in the English Proceedings:[8]

“At the heart of this action lies the question of how the 1970 Agreement operates in the Internet age. Merck US operates a number of websites, amongst them those having the domain names "merck.com", "merckformothers.com, "merckresponsibility.com" and "merckmanuals.com". These are accessible globally and employ numerous uses of the word "Merck" alone. Merck Global complains that this activity is a breach of the 1970 Agreement or is otherwise unlawful. Merck US says that these websites are targeted at US consumers, and matters of which Merck Global makes complaint are either inevitable accidental references or essentially "overspill" references to rightful use in the USA by Merck US in the course of its worldwide activities. What (if anything) does the 1970 Agreement say about such activity? If it does not provide a code which completely governs this activity, what (if anything) does English trade mark law provide by way of an answer to the dispute?”

12.  In the ASOC, the Plaintiff claims that, in Hong Kong:

(i)  the 1^st Defendant has breached the 1970 Agreement by using the name and mark “Merck” in Hong Kong, through websites targeted at users in Hong Kong; YouTube; and use of the “@merck.com” email;

(ii)  the 3^rd Defendant (the 1^st Defendant’s Hong Kong subsidiary) procured the 1^st Defendant to breach the 1970 Agreement;

(iii)  the 1^st and 3^rd Defendants infringed the trade marks owned by the Plaintiff in Hong Kong.

13.  The claim against the 2^nd Defendant has been dismissed. The 1^st and the 3^rd Defendants (“the Defendants”) dispute all the allegations mentioned in the preceding paragraph. Alternatively, the Defendants claim that: (i) any acts were unintentional and de minimis; and (ii) the Plaintiff is barred from complaining on the ground of waiver, acquiescence or estoppel. The Defendants also counterclaim for revocation of the registration of the Plaintiff’s various trade marks.

THE AMENDMENT APPLICATION

14.  I first deal with the Amendment Application.

15.  In the proposed §47A, the Plaintiff pleads a further breach of the Defendants in the form of the alleged wrongful use of “Merck” in events and promotional materials. The Defendants object the amendment on the ground that some of complaints are time-barred.

16.  In making the amendment, the Plaintiff makes it clear that the Plaintiff’s claim only covers complaints within 6 years before the application to amend and so it would not prejudice the Defendants’ right to rely on the limitation defence. The matters averred in the proposed §§47(a)-(d) certainly relate to facts and events which occurred before 10 August 2016, which was 6 years prior to the present Amendment Application. The Plaintiff confirms that they are not relying on these facts and events as part of its claim, but claims that they are still relevant in two ways:

(i)  References to the events can still be found online, and hence the Defendants are continuing to use “Merck” in violation of the 1970 Agreement. The Plaintiff is accordingly entitled to injunctive relief to restrain them from doing so, which is not barred by any limitation period.

(ii)  They are evidence that the Plaintiff will rely on to support the inference that the Defendants generally had within the limitation period or continue to have a practice of using “Merck” in events and promotional materials, and hence committed the breach pleaded in the main body of §47A.

17.  I do not accept these arguments for the following reasons.

18.  First, any cause of action that the Plaintiff might have, whether in breach of contract or trade mark infringement, arising out of the matters pleaded at §§47A(a), (b), or (c) accrued on the date when the materials were published. The running of time is not affected by the fact that the alleged infringing materials remained accessible online. Further, the evidence suggests that such materials remained online on third-party websites and not the ones operated by the Defendants. As there is no claim that the Defendants are responsible for the contents of those websites or are able to control them, there is no sustainable claim based on these past events.

19.  Second, evidence needs not be pleaded and so the Plaintiff is able to rely on these past events to draw the necessary inference even if the same are not pleaded. In order to avoid the risk that the Plaintiff may rely on the facts and events in §§47A(a)-(d) as part of the basis of its claim beyond mere evidence, I disallow the amendments contained in §§47(a)-(d).

20.  For the proposed amendments in §§47(e) and (f), the Defendants object them on the ground that the averments contained therein are frivolous. They relate to an event known as BIO International Convention 2022, and the issues are whether the Defendants are responsible for the related promotional materials and whether these materials are targeted at Hong Kong. In my judgment, there is no basis to say that the Plaintiff’s claim based on these materials is bound to fail, and so I allowed the amendments relating to the claim based on these materials.

21.  The proposed §49A relates to instances of confusion. According to the Plaintiff, these contain actual examples of members of both professionals (at (a) and (b)) and members of the public (at (c) to (h)) being confused as to whether particular goods or services originated from the Plaintiff or the Defendants.

22.  The Defendants object the amendment on the ground that there is no allegation that these purported instances of actual, likely, or likely contributory confusion were caused by any wrongful act by the Defendants. According to their case, the parties each operate globally and, in accordance with the 1970 Agreement, share the use of “Merck” throughout the world a corporate name and trademark. Proper observance of the 1970 Agreement by both parties does not eliminate the propensity for confusion to arise. Under such context, merely to point to instances of confusion does not advance the Plaintiff’s case.

23.  I do not accept such objection. It is the Plaintiff’s pleaded case that the use of “Merck” by the 1^st or 3^rd Defendant in websites is likely to cause confusion and hence amounts to trade mark infringement. However, the Defendants dispute the likelihood of confusion, and they expressly plead that “there is no material or actionable likelihood of confusion amongst members of the public that any goods or services of the Defendants are derived from or connected in the course of trade with the Plaintiff”. In particular, the Defendants aver that: (i) ordinary members of the public would not be confused because the Defendants’ products are not intended for direct sale to them; and (ii) doctors would not be confused because they have an in-depth knowledge of pharmaceuticals. Under such circumstances, the Plaintiff should be allowed to use actual instances where ordinary members of the public and professionals are confused to support its case and to undermine the Defendants’ case. The Defendants are entitled to argue at the trial that these examples are irrelevant, but it should be left to the trial judge to decide whether such instances of confusion do support the Plaintiff’s case on breach of contract or trade marks infringement.

24.  I therefore allowed the amendment contained in the proposed §49A.

DISCOVERY RELATING TO THE DISPUTED CATEGORIES

25.  I will deal with each of the Disputed Categories in turn.

(i)  Category 1

26.  Category 1 covers communications intended for the Plaintiff but wrongly sent to the Defendants (and vice versa) after the Backstop Date. There are also likely to be situations, whether as a matter of courtesy or customer service, the Plaintiff had redirected or forwarded misdirected communications to the Defendants (and vice versa), and those are the targets for discovery under Category 1(c). The Plaintiff claims that, as likelihood of confusion is a disputed issue, instances of confusion by persons in Hong Kong, such as misdirected communications, would be clear evidence of confusion.

27.  I agree that the documents in such category are relevant. Though the Defendants have repeated the argument that instances of confusion per se is not evidence of a breach of the 1970 Agreement or trade marks infringement[9], whether such misdirected communications can advance either party’s claim should be a matter left to be decided by the trial judge. The court should not disallow the discovery of these possible relevant documents.

28.  However, I agree with the Defendants’ submission that the scope of discovery requested by the Plaintiff is too wide. It covers discovery on a global scale. There is a qualification in Category 1(c) that communications must have been “sent to and/or pertaining to Hong Kong” but Categories 1(a) and (b) contain no such qualification. As I see it, any documents not “sent to and/or pertaining to Hong Kong” will not assist the Plaintiff in proving the pleaded infringements in Hong Kong. Hence, I agree with the Defendants that Categories 1(a) and (b) should contain similar qualification.

(ii)  Category 2

29.  Category 2 covers complaints made by the Plaintiff concerning the Defendants’ use of “Merck” (Category 2(a)) and steps taken by the Defendants in response (Category 2(b)), in particular in relation to the use of “Merck” online and in email addresses (Category 2(c)). The Schedule 1 Preamble ensures that the documents to be disclosed are only those relevant to these proceedings.

30.  I allowed the discovery under Categories 2(a) and 2(b). The Defendants argue that the Plaintiff permitted or tolerated the use of “Merck” and the Defendants have detrimentally relied thereon, and hence the Plaintiff has generally waived or acquiesced or estopped from complaining about any breach or infringement. In particular, it is alleged that the Plaintiff took no steps in relation to the Defendants’ websites or use of “@merck.com” email addresses. The Plaintiff denies these allegations, saying that it did make complaints and take adverse action. Under such circumstances, disclosure of documents under Categories 2(a) and 2(b) is necessary for the court to deal with such issue.

31.  On the other hand, I agree with the Defendants that Category 2(c) is exceptionally broad, which relates to unspecified “complaints” about the use of “Merck” in respect of Internet domain names, websites, Twitter, Facebook, YouTube or other social medial and e-mail addresses. There is no time window, and it is not confined or tied to Hong Kong in any way. In other words, it may embrace any complaint whether or not it has anything to do with the Plaintiff’s pleaded allegations.

32.  In reply to such complaint, the Plaintiff agrees that the discovery should be limited to “what was disclosed in the English proceedings plus Hong Kong specific documents”. In my judgment, the Plaintiff has to demonstrate why it has to obtain further documents in Category 2(c) after obtaining the documents in the English Proceedings and those in Categories 2(a) and (b) above. As I do not see the necessity at this stage, I decline to make any order under Category 2(c), but granted liberty to the Plaintiff to re-apply after obtaining the documents in Categories 2(a) and (b).

(iii)  Categories 3 and 5

33.  Category 3 relates to all documents created after 12 May 2012 containing the use of “Merck” (except with the permitted use by reference to their connections to the USA) by the Defendants in electronic and hard copy publications circulated in Hong Kong (Category 3(a)), materials made available at events held in Hong Kong (Category 3(b)) and promotional materials made available in Hong Kong (Category 3 (c)). Category 5 is a discovery directed to both the Plaintiff and the Defendants for screenshots and other images of the parties’ websites stored in hard copy files or retrieved from electronic storage.

34.  In the English Proceedings, Nugee J made a similar order for discovery relating to Categories 3 and 5 (“the UK Order”) following a contested hearing in February 2014. For Category 3, the UK Order contains a specific term to the effect that the Defendants’ documents are to be searched for by searching for the Defendants’ “Zinc” system for UK documents containing the term “Merck” that have been “Approved to Disseminate”.

35.  The Plaintiff submits that the disclosure of these documents is necessary for the Plaintiff to establish its case that the Defendants were in breach of the 1970 Agreement or infringed the Plaintiff’s trade marks. The Plaintiff should be allowed to select the instances of confusion which it wants, rather than be arbitrarily confined to the instances that it has incidentally been able to find on its own and any examples “cherry-picked” by the Defendants. Further, the English court made a similar order regarding these two categories (i.e. the UK Order) and so there should be no reason for the Hong Kong court not to do the same.

36.  On the other hand, the Defendants oppose the discovery on the following grounds:

(i)  Such kind of discovery exercise is really a “fishing expedition”. The Plaintiff is asking the Defendants to provide huge volumes of documents fitting a vague description in the hope that they may reveal infringements that are not pleaded.

(ii)  As mentioned above[10], not any document would infringe the Plaintiff’s rights if it uses the word “Merck”.

(iii)  The Defendants have significant concern about the width and proportionality of the discovery exercise. The Defendants are part of an enormous group of companies with some 70,000 employees worldwide, mainly based in the US. As Category 3 is currently defined, it appears to require an enormous search. Such an exercise would be wholly disproportionate. The evidence from the English Proceedings shows that the execution of an order similar to that sought here (although of course focused on the infringements alleged in England) resulted in the collection of some 1.3 million documents. Yet, such expensive and time-consuming disclosure exercise in the English Proceedings produced very few documents that were actually used at trial.

(iv)  Though a significant amount of the work has already been performed in the context of the English, Singaporean, and Australian actions, the present claim in Hong Kong deals with substantially different time periods (for example the English searches were conducted some 9 years ago in around 2014), and further, that the searches were carried out for documents relevant to the allegations of infringement in those jurisdictions, not Hong Kong.

(v)  In the English Proceedings, the UK Order provides for identified individual databases and the inboxes of particular users to be searched using specific sets of search protocols. Instead of attempting to obtain a wide order it now seeks, the Plaintiff should have adopted the same approach in the English Proceedings and be responsible for identifying realistic, proportionate, and focused search categories or protocols.

37.  Obviously, the scope of the subject discovery is a matter which has been troubling the courts in different jurisdictions. Despite the observation made by Nugee J in a hearing on 19 February 2014[11], the English court still made the discovery order as mentioned in §36(v) above. The Plaintiff is entitled to find out if there are further infringements which it is not aware of, and indeed it is not uncommon for a plaintiff in an intellectual property claim to plead that full particulars of the infringement would be supplied after the completion of discovery. The problem with this case lies on the scale of the work that is involved in the discovery exercise.

38.  Unlike the English Proceedings, this court does not know how the Defendants kept their documents relating to publications or promotional materials circulated in Hong Kong. In my judgment, if similar exercise has been conducted in other jurisdictions, there is no reason why such exercise should be refused simply on the ground of oppressiveness or non-proportionality. Only the Defendants know about how their documents are kept, and so the Defendants should take the initiative in proposing practical search protocols as to how they can comply with the Plaintiff’s request for these relevant documents. As the Defendants have made no such suggestion before me, I would allow the discovery under Category 3 without the similar search protocol in the UK Order.

39.  For Category 5, it is in identical terms as those made in the UK Order. Again these documents may be relevant in deciding whether there was confusion as to the use of the trade name or mark “Merck” in Hong Kong. As the Defendants have no difficulty in complying with such discovery in the English Proceedings, I do not accept that they can oppose the Plaintiff’s request on the ground of oppressiveness or non-proportionality. I therefore allow the discovery under Category 5.

40.  I make a costs order nisi that:

(i)  The costs of the Amendment Application under §1 of the ACMS be costs in the cause.

(ii)  The Plaintiff shall get 2/3 of the costs of the application relating to discovery concerning the Disputed Categories under §3A of the ACMS.

(iii)  Subject to the aforesaid, the costs of the ACMS be costs in the cause.

41.  The costs order nisi shall be made absolute 14 days after the date of the handing down of this Decision and Reasons for Decision.