XCHRX MAISON JOSEPH BATTAT LTD. AND ANOTHER v. POLYFECT TOYS CO. LTD.

HCA 1810/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1810 OF 2001

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J U D G M E N T

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1. This is the 1st plaintiff's application for an interlocutory injunction restraining the defendant, pending the trial of this matter, from trading in, manufacturing or causing to be manufactured the Plastic Drum Play Set, also known as the Drum and Rhythm Set, or any similar article. (Originally the 2nd plaintiff further sought to restrain the defendant from passing off the said toy, or any toy, as being the goods of the plaintiff, however this is no longer pursued, and the 2nd plaintiff is withdrawing from these proceedings.)

2. The 1st plaintiff, hereinafter referred to as "the plaintiff", is a Canadian company which has for over 100 years carried on the business of designing, manufacturing and selling globally a wide range of children's toys, with an annual turnover exceeding US$100 million.

3. The defendant is a Hong Kong company which has been doing business since 1986, mainly trading in children's toys. According to the affirmation of Mr Lau To Kin, a director of the defendant, the defendant has successfully established a business relationship with numerous retail chains internationally, inter alia in Canada, the United States of America and Australia.

4. These proceedings are concerned with a particular children's toy, namely the "Big Clear Drum", a toy aimed at children in the age group from 3 years and upwards, which has been manufactured and sold globally by the plaintiff since late 1998. The drum stands about 7 inches high, with a diameter of just over 12 inches, and its particular features are that the top, bottom, and sides of the drum are made from clear, transparent plastic; the six struts which join the top and the bottom together, and the rims are made from opaque plastic, which feature the primary colours of red, yellow and blue as well as green; and stored inside the drum, clearly visible through the transparent surfaces of the drum, are the drum sticks and also a collection of further musical instruments, consisting of at least one recorder, one tambourine, one maracas and a bell-bracelet.

5. As deposed to by Ms Suzanne Brownstein, a director of the erstwhile 2nd plaintiff, a Hong Kong company which is the exclusive agent of the plaintiff in Hong Kong ("Branford"), the Big Clear Drum was the conception and creation of Mr Joseph Battat, a founder of the plaintiff. The original design drawings for the Big Clear Drum were made, on Mr Battat's instructions, by Mr Patrick Franc, a product designer employed by the plaintiff, in February 1998. Since Mr Franc made the design drawings in the course of his employment with the plaintiff, the plaintiff is and was at all material times the owner of the copyright in the drawings and/or engravings which constituted the artwork for the Big Clear Drum, by virtue of the operation of section 14 of the Copyright Ordinance, Cap. 528.

6. Between March and September 1998 the plaintiff, working with a manufacturer called Wah Lung Toys Company Limited ("Wah Lung") progressively developed and perfected the design of the Big Clear Drum, a process which included making prototypes and machinery moulds.

7. As affirmed by Ms Brownstein, the unique features of the Big Clear Drum included:

(1) It combines a drum and a container in one functional toy;

(2) toys stored inside the drum can be seen without having to open the drum;

(3) the toys inside the drum are original designs;

(4) the plastic parts of the drum are in a distinctive blue, red and yellow colour scheme;

(5) it has a red shoulder/neck strap so that it can easily be carried around by children.

8. The drum is made from the highest quality materials, and is a very safe children's toy, complying with the relevant North American and European safety standards. Furthermore it has been recognised by the Toy Manufacturers of America Incorporated as a product that is especially suitable for children who are blind or visually impaired, as a "sturdy drum ... which promotes awareness of sound and creativity through music".

9. According to Ms Brownstein, who has annexed shipping reports to substantiate her claims, the Big Clear Drum has been an extremely successful product of the plaintiff's, approximately 379,072 pieces of the toy having been sold since its inception, bringing in revenue of HK$34,232,824.

10. In late November 2000 one of the plaintiff's salesman purchased the allegedly infringing product called the "Drum and Rhythm Set" from a retail chain store in North America called Shopko Stores Incorporated. The plaintiff was initially unable to identify the manufacturer of this product, since the manufacturer's name does not appear anywhere on the packaging. From the plaintiff's own enquiries, however, it suspected that a Hong Kong company called "Polyfect" was manufacturing the product. Plaintiff then on 4 December 2000 instructed solicitors in Hong Kong to conduct a company search of the name Polyfect; and on 3 January 2000 the solicitors instructed enquiry agents to attempt to purchase an infringing Drum and Rhythm Set from the defendant. They were not successful in their investigations: in response to the enquiry agents the defendant denied that it dealt in plastic toy drums.

11. In the meantime an employee of Branford's obtained, on request, a catalogue from the defendant which is a 2001 catalogue of Smarty Toys of Los Angeles, which on page 1 features the "Drum and Rhythm Set". Finally on 21 March 2000 the plaintiff obtained another "Drum and Rhythm Set" from another toy company in Hong Kong, the packaging on which clearly stated that it was distributed by the defendant. It was only at this stage, according to Ms Brownstein, that the plaintiffs had firm evidence that the defendant was the "manufacturer" (in reality the distributor) of the Drum and Rhythm Set.

12. Ms Brownstein states that from a comparison of the two products it is obvious that the Drum and Rhythm Set is a copy of the plaintiff's Big Clear Drum, the similarities including the following:

(i) The Drum and Rhythm Set is of approximately the same size, and similarly a drum made from clear, transparent plastic on the top, bottom and sides, with six solid plastic struts joining the top and bottom;

(ii) the solid plastic parts all feature the primary colours red, yellow and blue;

(iii) stored inside the drum and clearly visible through the transparent surfaces are the drumsticks, and a further collection of musical instruments namely, a recorder, two maracas, a whistle, a tambourine and a bell-bracelet;

(iv) the lid of the drum can similarly be detached in order to gain access to the toys stored inside;

(v) of the toys stored inside, the tambourine is similar and the bell-bracelet is almost identical;

(vi) it has an identical red shoulder/neck strap to enable it to be carried around.

13. Mr Lau Kin To in his affirmation flatly rejected the plaintiff's allegation that the Drum and Rhythm Set is a reproduction or copy of the plaintiff's Big Clear Drum and an infringement of the plaintiff's copyright. He asserted that the Drum and Rhythm Set was quite independently developed by the defendant, and in fact the defendant only became aware of the existence of the plaintiff's Big Clear Drum some two months after the defendant had first started to ship the Drum and Rhythm Set to overseas customers.

14. In March 1999 the defendant, in response to a request from Mr Mark Pang of Smarty Toys in Los Angeles, commissioned and designed a variety of musical toys, as shown in the Smarty Toys catalogue aforesaid. Mr Pang then requested the defendant to design a pre-school musical instruments item which incorporated a drum. The defendant got the idea of storing musical instruments within the drum from a product of FAO Schwarz (a major toy dealer in the United States of America), a much smaller drum which does not involve the use of any transparent materials in its construction, and which does have a detachable lid with several musical instruments stored inside it, including a maracas, tambourine and cymbals.

15. In order to ensure that the product would resemble a real drum as far as possible, the defendant then purchased a genuine drum from Tom Lee Music in about April 1999, the top and bottom surfaces of which I note are made from transparent material, and it also has six struts joining the top and the bottom; I note further that the Drum and Rhythm Set sits squarely within the circumference of the genuine drum, and its struts are precisely aligned with the struts of the latter.

16. The defendant decided to use transparent materials to make the Drum and Rhythm Set, both for visual appeal and in order to make it light enough for children to carry it around. The defendant had in fact used transparent materials to manufacture various toys in the past, some of which were exhibited in these proceedings.

17. Having formulated the design concept for the product, the defendant then commissioned its usual manufacturer, Yiu Fai Toys Factory Limited, which is situated in Mainland China, to design and manufacture the product. Exhibited to Mr Lau's affirmation are copies of the original design drawings which were produced by a Mr H C Lee, a designer employed by Yiu Fai Toys Factory, which are dated 16 May 1999.

The Law

18. The key principles to be applied have been derived mainly from the leading English authority of American Cyanamid Co. v Ethicon [1975] AC 396, and are conveniently set out in Hong Kong Civil Procedure 2001 at the notes under 29/1/8 as follows:

"(1) The grant of an interlocutory injunction is a remedy that is both temporary and discretionary;

(2) The evidence available to the Court at the hearing of the application ... is incomplete;

(3) It is no part of the Court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend;

(4) At the time the application is made both the existence of the plaintiff's right or the defendant's violation of it are uncertain and will remain so until final judgment is given in the action;

(5) It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction;

(6) An interlocutory injunction is made subject to the plaintiff's undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trail that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do;

(7) The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his being prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial;

(8) The court must weigh one need against another and determine where 'the balance of convenience' lies;

(9) There is no threshold requirement for the court to be satisfied on a balance of probabilities that the acts of the defendant would, if committed, violate the plaintiff's legal rights;

(10) The Court must be satisfied that ... there is a serious question to be tried."

19. Mr Pao on behalf of the defendant submitted inter alia that:

(a) The drawings in question have never been made public (which is not in dispute).

(b) Therefore if the defendant has infringed the copyright in these drawings, its Drum and Rhythm Set must be a copy of a product which was made from these drawings.

(c) The plaintiff's own evidence shows that the plaintiff's Big Clear Drum was not a product made from the drawings in question.

(d) So even if the defendant had copied the plaintiff's product, this would not constitute an infringement of the plaintiff's copyright in the drawings in question.

(e) It is not sufficient if the Big Clear Drum was based upon the concepts embodied in the drawings in question, or is loosely based upon such drawings. The drawings simply do not specify the measurements which the Big Clear Drum was eventually designed and made according to; the measurements are the most important element in any design drawing, and if the measurements are not accurate the parts which are made according to those measurements will not fit together properly.

(f) The plaintiff's Big Clear Drum was, on the plaintiff's own evidence, not made "in accordance with" the drawings in question, but from a prototype which itself was clearly not made "in accordance with" the drawings in question, but from other, later drawings (which did specify the precise measurements according to which it was eventually made), and in which somebody else - most probably somebody at Wah Lung - had invested their skill, judgment and labour. (By contrast, the design drawings of Mr H C Lee of Yiu Fai Toys Factory did specify the precise measurements necessary to enable the defendant's Drum and Rhythm Set to be made.)

(g) There is no evidence to show that the copyright in the prototype belongs to the plaintiff.

(h) Since the plaintiff has failed to demonstrate the causal connection between the Big Clear Drum and the drawings in question, there is a serious doubt whether the plaintiff does enjoy the protectable right claimed by it.

(i) Of the alleged similarities between the plaintiff's and defendant's products, the only one which has "copyright significance" is the structure of the drum, namely 2 rings joined by 6 struts spread evenly around the circumference, which is no more than a variation of a commonplace design.

(j) A case of infringement will be made out only if the defendant's Drum and Rhythm Set is an identical copy of the Big Clear Drum. It is necessary to examine the works closely to see whether there has been a substantial appropriation of the plaintiff's skill and labour. Similarities which resulted from copying the concepts of the plaintiff's product are not sufficient to establish an infringement, since "what is protected is the skill and labour devoted to making the artistic work, not the skill and labour devoted to developing the idea or invention communicated". (Copinger and Skone James on Copyright, 14th Edn., at 439)

(k) On the facts there is no serious question to be tried as to whether the plaintiff's copyright has been infringed.

20. Miss Tam submits that the existence and extent of the copyright protection enjoyed by the plaintiff must be judged not only on the drawings in question but on all the drawings, including the technical drawings which Wah Lung produced based upon the original drawings, which must be viewed as a dynamic whole. Whether the technical drawings are sufficiently similar to the original drawings will have to be investigated at trial.

21. The authorities make it clear that it is not for the court to attempt any resolution of these disputed questions of fact at this interlocutory stage, when the evidence is incomplete. Suffice to say that in my view that there is undeniably a substantial similarity between the products, which is prima facie evidence of copying, and gives rise to a shift in the evidential onus onto the defendant to refute the allegation of copying and establish that its product was independently created.

Designers Guild Ltd v Russell Williams (Textiles) Ltd, (Ch D), Fleet Street Reports [1998] 803, at 803-5.

The plaintiff has demonstrated that there is a serious question as to whether the defendant's Drum and Rhythm Set is an infringement of the plaintiff's copyright in its drawings, which can only be fully investigated at trial.

Would damages be an adequate remedy for the plaintiff?

22. Mr Lau exhibited evidence which establishes, at least prima facie, the safety of the defendant's product, and on the evidence as it presently stands, I am not persuaded that there is any substance in Ms Brownstein's claims that the defendant's product, while it is clearly not of the same high quality as the plaintiff's Big Clear Drum, poses any safety hazards to children using it and that the plaintiff's reputation will therefore be damaged, to the extent that the plaintiff will suffer irreparable loss if the defendant's product is allowed to remain on the market pending trial.

23. According to Mr Lau the defendant has been actively marketing the product in question since August 2000, and (through his counsel) that a total of 41,233 pieces have been shipped since that date.

24. Counsel are agreed that it will be 18 months to 2 years before this matter come to trial. Mr Pao submitted that if an injunction were now to be granted and remain in place until the trial commences, this would effectively eliminate the defendant's trade in the Drum and Rhythm Set, and there would be little point in the defendant's continuing to fight this case. The grant of an interlocutory injunction, in other words, would in effect dispose of the action finally in favour of the plaintiff, since there would be nothing left on which it would be in the defendant's interest to proceed to trial.

25. There appears to be considerable force in this contention, bearing in mind that there is no dispute that the months of April - August are the peak season for receiving orders from buyers in North America, in preparation for the Christmas season.

26. In these circumstances it is appropriate for the court to assess "the degree of likelihood" of the plaintiff succeeding at the trial

Hong Kong Civil Procedure 2001 29/1/20, 29/1/21

Series 5 Software Limited v Philip Clarke & Others, Fleet Street Reports [1996] 273, at 273-5, 286.

27. While the objective similarity between the plaintiff's and defendant's products does provide prima facie evidence of copying, Mr Lau's evidence that the Drum and Rhythm Set was not a copy but was independently created cannot in my view be said to be ex facie unworthy of credit, and deserves serious investigation. At this stage it cannot be said, in my view, that there is a clear likelihood that the plaintiff will succeed at trial.

28. Mr Lau has confirmed the defendant's ability to pay any damages which may be awarded if the plaintiff were to succeed at the trial, and has undertaken that the defendant will keep an accurate and proper account of the quantity of the allegedly infringing goods which it ships.

29. I note that the defendant's paid-up share capital is only $10,000, which is a matter of some concern to the plaintiff as to the defendant's ability to pay damages in the event that the plaintiff is successful at trial.

30. However, the defendant is an established company with a substantial annual turnover, which according to Mr Lau was as follows for the years 1998 to 2000:

1998	$280,369,306
1999	$289,893,579
2000	$256,569,013.

31. In all the circumstances, and bearing in mind the commercial realities of the present situation, in my view if the plaintiff succeeds at the trial it would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction, and there is no reason to believe that the defendant would not be in a financial position to pay such damages. It would not, in these circumstances, be appropriate to grant the interim injunction sought.

32. In the event the plaintiff's application is refused, and I grant an order nisi that the plaintiff is to pay the defendant's costs of these proceedings.