ADAPTEC, INC. v. STANDARD LINK INTERNATIONAL LTD. AND OTHERS

HCA 911/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 911 OF 2001

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REASONS FOR JUDGMENT

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1. On 28 May 2002 I gave judgment to the plaintiff on its application for summary judgment under O.14 RHC by its amended summons dated 6 May 2002. I granted the plaintiff the injunctive relief sought under paras. 1 and 2 and the order for delivery up under para. 3. I also ordered that there be an enquiry as to what damages have been suffered by the plaintiff as a result of the 2nd defendant's acts of infringement of the plaintiff's trade marks or either of them and that the 2nd defendant do make payment of all sums found due to the plaintiff upon taking such enquiry together with interest and costs. I indicated at the time that I would give my reasons later in writing. This I now do.

2. The plaintiff is the registered proprietor of registered trade mark no. 05941 of 1997 for "ADAPTEC" ("the ADAPTEC mark") registered in Class 9 in respect of "integrated circuits, software contained on hard disks and/or floppy disks, printed circuit boards, all for interfacing between computers, operating systems and computer peripheral devices and all for sale in kit form". The plaintiff is also the registered proprietor of trade mark no. 01199 of 1993 of the "a" device mark as particularised in para. 16(b) of the amended statement of claim ("the device mark") registered in Class 9 in respect of "integrated circuits, printed circuit boards, computer control apparatus and software used for interfacing between computers and operating systems." Mr. Cheung, counsel for the 2nd defendant, confirmed that for the purpose of this application there was no dispute that the plaintiff's said trade marks are valid and subsisting.

3. The plaintiff is in the business of designing, manufacturing and selling products used for the storage and transfer of data on and between computers and networks. The plaintiff's evidence shows that the plaintiff has been in business for almost 20 years. It pioneered Small Computer System Interface ("SCSI"), a technology that enables end-users easily and affordably to connect their personal computers ("PCs"), servers and workstations to storage devices and peripherals. SCSI chips and board products remain the plaintiff's major source of revenue. The plaintiff's products are marketed to the world's leading PC and server manufacturers and to end-users through more than 150 distributors and thousands of value-added resellers worldwide. The plaintiff's products are designed and manufactured at the plaintiff's sites across U.S.A. and in Singapore and other third-party locations around the world. By reason of substantial sales, marketing and advertising worldwide as well as in Hong Kong of its products and packaging bearing the said trade marks the plaintiff has acquired a substantial reputation and goodwill in the said trade marks in Hong Kong, China, U.S.A. and the other markets where the plaintiff's products are sold. Mr. Cheung confirmed that for the purpose of this application there was no dispute that the plaintiff has acquired a substantial reputation and goodwill, inter alia, in the said trade marks in Hong Kong, China and U.S.A.

4. As disclosed in the plaintiff's evidence, SCSI, pronounced as "scuzzy", is the term used for a connection from a PC to a hard drive and to other peripherals. This connection is made using a SCSI card or board. The board fits inside the computer. SCSI boards deliver performance power that users want from their desktop or server by enabling fast and high capacity connection to hard drives and peripherals. SCSI eliminates input/output bottlenecks that occur in standard PCs. SCSI enables operation and application software programs (such as Windows NT, Photoshop and AutoCAD) and peripherals (such as disk drives, CD-ROM drives, zip drives, scanners and tape backup) to operate far more quickly and efficiently. Included in the range of SCSI cards and boards is the AHA range of host adapter boards. These boards were among the plaintiff's best selling products, although most of the products within this range were discontinued during the fiscal year 2000. The host adapter boards can be categorised into "families" of boards including the "AHA-2940" and "AHA-3940" families. The "AHA-2940" family of boards has been sold in different models including the "AU", "UW", "U2W" and "U" models.

5. The background to the proceedings in Hong Kong is that in March/April 2000 the plaintiff in the U.S.A. received a large number of complaints from customers with regard to Adaptec's SCSI host adapter boards. Following the return of faulty boards returned by customers, it was discovered that many were not genuine products of the plaintiff. This problem was investigated by the plaintiff's Director of Internal Audit who put together a task force to investigate the problem. The evidence collected by the task force led to proceedings being launched in California, U.S.A on 10 October 2000 against various defendants including Unisun Group Inc. ("Unisun") and Global Source Technology Inc. ("GST"). An order for seizure of counterfeit goods and evidence was granted against these defendants. I understand that the US proceedings are still continuing. As the plaintiff's evidence shows, in August 2000 the plaintiff's representatives purchased 2 batches of "Adeptec" SCSI boards from GST. These were examined by the plaintiff's engineers and found to be counterfeit. The plaintiff also traced a batch of 405 "adaptec" AHA-2940 UW boards that had originally been supplied by GST to Digital Memory, a company in Colorado, U.S.A. Samples of these boards were also found to be counterfeit.

6. The plaintiff's investigators obtained certain documents from GST's refuse which included an e-mail exchange between GST and Unisun. By this e-mail exchange GST stated as follows :

“ We have ordered 500 pieces of the Adaptec 2940-UW from you to-day ...............................................................................................................................................................

.................................................................................................................................................................. .

I am a little concerned that we are buying from a company that we don't know (Standard Link) and hope that you know them very well and will stand behind the deal, should problems arise.

We are happy to begin doing business together and know that there will be much more to come. "

The 'Standard Link' referred to there is the 1st defendant. The reply from Unisun to that e-mail stated as follows :

“ First of all, thanks for your business ................................................................

............................................................................................................................

We use Standard Link instead of UNISUN is purely for tax reason. All the goods exported from Asia are sold by Standlink. The longer you deal with our company, the better you understand our style. We stand by our words. No worries.

You understand that all our deals must go quietly ―― no noise in the channel. I trust you guys who have good customers. As you know, we only deal with three people in the world on the Adaptec cards ―― you are one of them now ".

7. On 15 October 2000 the U.S. Marshall accompanied by the plaintiff's US attorneys executed the order for seizure of counterfeit goods and evidence granted in the US proceedings at the premises of, inter alia, GST and Unisun in U.S.A. A large number of documents were seized together with counterfeit "Adaptec" SCSI boards.

8. The seized documents revealed, inter alia, that the 1st and 2nd defendants have engaged in transactions involving the shipment of "Adaptec" SCSI boards to or from U.S.A. Investigations were then conducted by Panoramic Consulting Limited in Hong Kong and China on behalf of the plaintiff and the evidence of such investigations is contained in the affidavit of Theodore Kavowras Jr. dated 26 February 2001.

9. An Anton Piller order was granted by Deputy Judge To on 26 February 2001 and was executed on the following day at the premises of the 2nd defendant at Unit 10, 12th floor, Grand City Plaza, 1-17, Sai Lau Kok Road, Tsuen Wan, New Territories, Hong Kong. It was discovered that the 1st defendant had no employees and conducts no operations in Hong Kong. The premises were used exclusively by the 2nd defendant. The 1st defendant used the premises as its registered office. A file of documents relating to business activities operated by the 1st defendant was found at the 2nd defendant's premises and has been exhibited as "RAA-7" to the 5th affidavit of Mr. Arnold.

10. Documents were also found at the said premises relating to the import to Hong Kong by the 2nd defendant of "Adaptec" boards from Unisun in U.S.A. These have been exhibited as "RAA-8" to the 5th affidavit of Mr. Arnold.

11. Mr. Cheung does not dispute that the documents exhibited as "RAA-7" and "RAA-8" were found at the premises of the 2nd defendant.

12. The plaintiff's evidence also shows that the investigations in Hong Kong and China uncovered a well-established operation in Shenzhen whereby Shenzhen Fu Da Industrial Co. Limited ("Fu Da") procured the manufacture of AHA boards bearing the device mark and the "ADAPTEC" mark and that the Unisun Group arranged their export to the U.S.A. via Hong Kong at prices significantly lower than the plaintiff's prices.

13. It is well settled that in O.14 proceedings the defendant has a threshold onus to satisfy the court that there is an issue or question in dispute which ought to be tried. The onus is on the defendant and he must condescend to particulars. A mere general denial will not suffice.

14. For the purpose of this application, Mr. Cheung, for the 2nd defendant, did not dispute that Unisun was supplying counterfeit "Adaptec" SCSI boards which bore the plaintiff's trade marks and which were exported to the U.S.A. He did not dispute that there were acts of infringements of the plaintiff's mark and acts of passing off. What he did dispute, however, was the involvement of the 2nd defendant in such acts.

15. Ms. Lam Man Yu, an operation officer of the 2nd defendant in her 1st affirmation admitted that she came to know Ms. Zhou Wei, a representative of Unisun stationed in Shenzhen. On Ms. Zhou's request the 2nd defendant set up the 1st defendant on her behalf through a firm of accountants. This shows that the 1st defendant was set up by the 2nd defendant on behalf of Unisun. Between 2000 and 2001 the 1st defendant changed its registered address from that of the accountant firm's address to the address of the 2nd defendant. There is also no dispute that the 2nd defendant acted as the 1st defendant's company secretary although Ms. Lam stated that the 2nd defendant had no idea about the 1st defendant business. Ms. Lam also admitted in her 1st affirmation that the 2nd defendant consented to Ms. Zhou's request for handling the processing of import and export documents for Unisun (PRC). She stated in para. 7 that :

“ Towards the end of 1998, Ms. Zhou often asked the 2nd defendant to deal with the import and export clearance for Unisun (PRC) and the 1st defendant's cargoes and to defray the requisite levies. There were times financial penalties were imposed because of her belated notice for filing those Customs declarations. "

She also stated in para. 8 as follows :

“ Ms Shum Wai Yuk of the 2nd defendant simply followed the packaging lists and invoices which were faxed over by Ms. Zhou for the purpose of Customs clearance. "

She went on to state that the 2nd defendant never came across any of the cargoes whether they were consigned to the 2nd defendant or "transhipped" by the 1st defendant. It is also plain from her 1st affirmation that the 2nd defendant was reimbursed by Ms. Zhou periodically for the import and export taxes and fines paid on behalf of Unisun (PRC) and the 1st defendant.

16. There can be no dispute that the 2nd defendant in Hong Kong assisted Unisun in Shenzhen which used the 1st defendant as shipper of the goods shipped to Unisun in U.S.A. The documents found in the 2nd defendant's premises at the execution of the Anton Piller order exhibited as "RAA-7" show that export declaration forms were signed by Ms. Shum Wai Yuk described as shipping clerk. The export declaration forms referred to specific airway bill numbers. Copies of airway bills as well as copies of packing lists and invoices were also found in the file of documents at the 2nd defendant's premises. The documents in the 2nd defendant's possession show what goods were being exported and the 2nd defendant must have known this. The assertion by Ms. Lam that the 2nd defendant never came across the cargoes provides no assistance to the 2nd defendant. The goods which were exported to Unisun in U.S.A. were counterfeit goods bearing the Plaintiff's said trade marks.

17. Further, the use of the "ADAPTEC" trade mark in the documents was use of the plaintiff's said mark in the course of trade. This was also an infringement of the plaintiff's trade mark (Cheetah Trade Mark [1993] FSR 263).

18. Mr. Cheung submitted that there was nothing to connect the 2nd defendant with the acts of Unisun and the 1st defendant save and except that the clerk employed by the 2nd defendant was lent to the 1st defendant for customs clearance. I am unable to accept this submission. There is no evidence that the clerk of the 2nd defendant was lent to the 1st defendant. The 1st affirmation of Ms. Lam of the 2nd defendant makes it plain that the 2nd defendant was asked by Unisun (through Ms. Zhou) to handle the processing of import and export documents for Unisun (PRC). The 2nd defendant agreed to do so. The documents found at the 2nd defendant's premises show that the export declaration forms were signed by Ms. Shum. Ms. Shum was the employee of the 2nd defendant. During the execution of the Anton Piller order Ms. Shum confirmed that she was a shipping clerk employed by the 2nd defendant and that she was responsible for arranging import and export of products for the 1st defendant and for Unisun. The 2nd defendant also paid the customs charges and penalties for the export from Hong Kong of the goods and the 2nd defendant was reimbursed by Ms. Zhou of Unisun for the same. It seems to me that the 2nd defendant was acting as the agent of the 1st defendant in arranging the export of the "Adaptec" SCSI boards from Hong Kong to U.S.A. There is no triable issue as to that. Every infringer is liable to be sued whether he acted on his own behalf or as agent for a principal. (paras. 15-16 Kerly's Law of Trade Marks and Trade Names 12th Edn.)

19. The plaintiff also relies on the imports to Hong Kong by the 2nd defendant of the returned goods from Unisun. The relevant documents have been exhibited as "RAA-8" and they clearly show that the 2nd defendant was the importer.

20. The invoices of Unisun show that the "sold to" party was the 2nd defendant and the "ADAPTEC" mark was used on some of the invoices. The airway bills also show that the goods were consigned to the 2nd defendant in Hong Kong. These were imported into Hong Kong. Ms. Lam asserted in para. 11 of her first affirmation that although named as the "sold to party" the 2nd defendant in fact never bought or sold any of the computer parts. However, it is clear on the documentary evidence that the 2nd defendant was the importer of such goods into Hong Kong.

21. The e-mail from Unisun in the Mainland to Unisun in U.S.A. that Mr. Beresford referred me to in Bundle B(2) at page 229 shows that replacements were received from Fu Da. The e-mail also referred to 3 airway bills whereby 76 Adaptec cards were returned from the Los Angeles office. The goods under these airway Bills were all consigned to the 2nd defendant as consignee. The documents found at the 2nd defendant's premises show clearly that the returned goods were imported into Hong Kong by the 2nd defendant. As the replacement goods were returned to Fu Da for replacement, the obvious inference to be drawn is that the returned goods also bore the plaintiff's said trade marks and such were infringements of the plaintiff's trade marks. There is no triable issue on this.

22. Although the plaintiff in its amended statement of claim pleaded in para. 17(h) that the acts of the 1st and 2nd defendants complained of were committed pursuant to a common and concerted design between the 1st and 2nd defendants, Mr. Beresford, did not pursue this on the application for summary judgment as it was not necessary for him to do so. The plaintiff was content to proceed on the application on the basis of innocent infringement.

23. It is well settled that innocence on the part of an infringer is no defence to a claim for damages for infringement of trade mark. (Gillette v. Edenwest [1994] R.P.C. 279)

24. Mr. Cheung further submitted that the goods were transhipped from the Mainland through Hong Kong and were not in fact exported from Hong Kong and hence there was no liability for infringement of trade mark and passing off. There is no merit in this submission. The assertion that the goods were transhipped through Hong Kong but were not in fact exported from Hong Kong is contradicted by the contemporaneous documentary evidence. The documents show clearly that the goods were in fact exported from Hong Kong. The airway bills show that the goods were shipped from Hong Kong. Ms. Shum, the employee of the 2nd defendant, signed the export declarations. The 2nd defendant is liable for her acts. The evidence is clear that the goods were exported from Hong Kong. There is no triable issue as to this.

25. No triable issue having been raised on the claim for infringement of trade marks and for passing off I accordingly gave judgment to the plaintiff and made the orders as stated in para. 1 above.