XCELOM LTD v. BGI-HONGKONG CO LTD AND ANOTHER

HCA 3089/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3089 OF 2015

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DECISION

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Introduction

1.  The writ in this Action was issued on 28 December 2015.  On the same date, the plaintiffs issued a summons for an injunction that:

“The defendants, whether acting by their directors, officers, employees, servants or agents or otherwise howsoever, be restrained until judgment in this action or further order from infringing the plaintiffs’ Patent No. HK1144024 by using or offering for use in Hong Kong:

(a)  The non‑invasive prenatal test (NIPT) for screening for chromosomal aneuploidies marketed by the defendants under the name NIFTY; or

(b)  The patented process covered by the plaintiffs’ Patent No. HK1144024.”

In response to the defendants’ criticism of the wording of the injunction sought, the plaintiffs amended the terms on the fourth day of hearing to read as follows:

“The defendants, whether acting by their directors, officers, employees, servants or agents or otherwise howsoever, be restrained until judgment in this action or further order from infringing the plaintiffs’ Patent No. HK1144024 by using or offering for use in Hong Kong:

(a) The non‑invasive prenatal test (NIPT) for screening for chromosomal aneuploidies marketed by the defendants under the name NIFTY; or

(b) The patented process covered by the plaintiffs’ Patent No. HK1144024.

PROVIDED that the defendants are not enjoined from doing any of the aforesaid acts in relation to samples originating from anywhere outside Hong Kong.”

2.  The relevant background facts may briefly be stated as follows.

3.  The 1^st plaintiff is a company incorporated in Hong Kong on 10 December 2013, initially with a paid‑up capital of HK$4,900, which was increased by HK$34 million by 31 December 2014.  Its immediate holding company is Hong Kong Berry Genomics Co Ltd and its ultimate holding company is北京具瑞和康生物技術有限公司.

4.  The 2^nd plaintiff is a body corporate incorporated on 17 October 1963 by The Chinese University of Hong Kong Ordinance, Cap 1109.

5.  The 1^st defendant is a company incorporated in Hong Kong on 2 October 2008.  Its paid‑up capital is HK$1 million.  Its holding company is BGI Shenzhen (深圳華大基因科技有限公司).

6.  The 2^nd defendant is a company incorporated in Hong Kong on 27 March 2013.  Its paid‑up capital is US$10 million.  Its holding company is BGI Genomics Co Limited (深圳華大基因股份有限公司), formerly known as BGI Diagnosis Co Limited (深圳華大基因醫學有限公司), the controlling shareholder of which is BGI Shenzhen.

7.  In 1997, Professor Dennis Lo, a professor of Chemical Pathology of the 2^nd plaintiff and a director of the 1^st plaintiff, was the first author of a paper reporting for the first time that during pregnancy, a fetus would release cell‑free DNA into the blood plasma of its pregnant mother.

8.  On 9 May 2014, NIPT Patent entitled “Diagnosing Fetal Chromosomal Aneuploidy using Genomic Sequencing” was granted in Hong Kong.  The NIPT Patent was based on the European Patent granted on 1 January 2014 by the European Patent Office, No. EP2 183 693 B1.

9.  Both Patents claimed priority date of 23 July 2007.  However,the European Patent Office ruled on 8 June 2016 that the priority date of 23 July 2007 was not considered valid.

10.  The 2^nd plaintiff is the registered proprietor of the NIPT Patent.

11.  By a written agreement dated 15 July 2014, the 2^nd plaintiff granted to the 1^st plaintiff an exclusive licence to exploit the NIPT Patent and related technology in Hong Kong.  The 1^st plaintiff agreed to pay Licence Issue Fee and fixed sums of minimum annual royalties.  The plaintiffs chose to redact both amounts in the copy agreement exhibited.  It appears from the audited accounts of the 1^st plaintiff from incorporation to 31 December 2014 that the amount of Licence Issue Fee was HK$3,000,000.  The plaintiffs chose not to disclose the amount of annual royalties.

12.  In the plaintiffs’ Particulars of Infringement dated 30 March 2016, the plaintiffs alleged that:

(1)  On 27 March 2013, BGI Genomics Co Ltd founded the 2^nd defendant in Hong Kong to provide non‑invasive prenatal testing service in Hong Kong under the name “NIFTY” which could achieve results that were identical to the plaintiffs’ NIPT technology.  The NIFTY test used technology which was described in the 2012 BGI Article.

(2)  On 17 and 18 January 2015, the defendants offered the process by advertising the NIFTY test run in their “BGI‑HK Clinical Laboratories” in a promotional flyer distributed at the “Third University of Hong Kong Symposium — Update on Clinical Genetics”, a conference attended by many doctors in the field of obstetrics and gynaecology.

(3)  In or around January 2015 and February 2015, the defendants offered the process to numerous private doctors and hospitals.

(4)  On or around 3 March 2015, the defendants advertised the NIFTY tests conducted by their laboratories in Hong Kong in a promotional flyer published on www.babykingdom.com, a popular website among mothers and mothers‑to‑be.

(5)  In or around April 2015, the defendants advertised the NIFTY test by widely distributing leaflets and sending salesmen to make personal visits to private doctors and clinics in Hong Kong.

(6)  The defendants continued their advertising activities and tests in May, August, November and December 2015.

(7)  On 23 June 2015, Messrs Jones Day, solicitors for the 1^st plaintiff, issued cease and desist letters to BGI Shenzhen and the 1^st defendant.

(8)  “Even though the Plaintiffs were the pioneers in the NIPT technology, due to the unlawful presence of the Defendants’ NIFTY service, which is offered at progressively reduced prices, the Plaintiffs have been restricted to a market share of roughly 50%, with the remaining 50% going to the Defendants”, §3(13) of the Particulars of Infringement.

American Cyanamid

13.  The principles governing the grant or refusal of an interlocutory injunction were authoritatively stated by the House of Lords in American Cyanamid Co v Ethicon Ltd [1975] AC 396.  The leading judgment was given by Lord Diplock with whose judgment the other law lords agreed.  The relevant principles laid down in that leading authority are:

(a)  he grant of an interlocutory injunction is a remedy that is both temporary and discretionary (at p 405).

(b)  The grant of interlocutory injunctions in actions for infringement of patents is governed by the same principles as in other actions (at p 406).

(c)  When an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff’s legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action.  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; but since the middle of the 19^th century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do.  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 having been prevented from exercising his own legal rights for which he could not be adequately compensatedunder the plaintiff’s undertaking in damages if the uncertaintywere resolved in the defendant’s favour at the trial.  The court must weigh one need against another and determine where “the balance of convenience” lies (at p 406).

(d)  Their Lordships declared that there is no rule that the court is not entitled to take any account of the balance of convenience unless it has first been satisfied that if the case went to trial upon no other evidence than is before the court at the hearing of the application the plaintiff would be entitled to judgment for a permanent injunction in the same terms as the interlocutory injunction sought.  The use of such expressions as“a probability”, “a prima facie case”, or “a strong prima facie case” in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief.  The court no doubt must be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried (at p 407).

(e)  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 nor to decide difficult questions of law which call for detailed argument and mature considerations.  These are matters to bedealt with at the trial.  One of the reasons for the introduction of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction was that “it aided the court in doing that which was its great object, viz abstaining from expressing any opinion upon the merits of the case until the hearing” Wakefield v Duke of Buccleugh (1865) 12 LT 628, 629.  So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought (at pp 407 – 408).

(f)  As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial.  If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage (at p 408).

(g)  If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial.  If damagesin the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction (at p 408).

(h)  It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises.  It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them.  These will vary from case to case (at p 408).

(i)  Where other factors appear to be evenly balanced it is a counselof prudence to take such measures as are calculated to preserve the status quo.  If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; whereas to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial (at p 408).

(j)  Save in the simplest cases, the decision to grant or to refuse an interlocutory injunction will cause to whichever party is unsuccessful on the application some disadvantages which his ultimate success at the trial may show he ought to have been spared and the disadvantages may be such that the recovery of damages to which he would then be entitled either in the action or under the plaintiff’s undertaking would not be sufficient to compensate him fully for all of them.  The extent to which the disadvantages to each party would be incapable of being compensated in damages in the event of his succeeding at the trial is always a significant factor in assessing where the balance of convenience lies, and if the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on the hearing of the application.  This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party.  The court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party’s case (at pp 408 – 409).

Relative strength of the parties’ case

14.  The defendants challenged the validity of the NIPT Patent.  But, they conceded that, for present purposes, there is a serious issue to be tried.  Despite that concession, Mr John Yan SC, leading counsel for theplaintiffs, sought to impress on me on the strength of the plaintiffs’ case.  At the conclusion of his submission, I told Ms Winnie Tam SC, leading counsel for the defendants, that I need not trouble her on the issue of relative strength.

15.  I rejected the approach of Mr John Yan SC, for the following reasons.

16.  The principles propounded in American Cyanamid make it clear that the strength of the plaintiff’s case is not relevant beyond whether there is a serious issue to be tried.  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 nor to decide difficult questions of law which call for detailed argument and mature considerations.  These are matters to be dealt with at the trial.  The great object is to abstain from expressing any opinion upon the merits of the case until the hearing, see §13(e) above.

17.  If the plaintiffs wish to contend that the defendants have no defence, the plaintiffs ought to have applied for summary judgment.

18.  If they do not so apply, they should go to what should be the first issue, i.e. the issue quoted in §13(f) above.  One must not lose sight of the correct sequence in applying the relevant principles propounded in American Cyanamid.  If the plaintiffs should fail on the §13(f) issue, they are normally out of court and they do not begin to get to the relative strength issue.  Indeed, “if damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage”.

19.  Relative strength is a residual issue or an issue of last resort, see §13(j) above.  If the extent of the uncompensatable disadvantage to each party would not differ widely, then it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on the hearing of the application.  This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party.  The court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party’s case, see §13(j) above.  One does not start off by plunging into relative strength.

20.  Mr John Yan SC relied on Series 5 Software Ltd v Philip Clarke & Others [1996] FSR 273 where Laddie J said at p 286:

“ It follows that it appears to me that in deciding whether to grant interlocutory relief, the court should bear the following matters in mind:

1.  The grant of an interlocutory injunction is a matter of discretion and depends on all the facts of the case.

2.  There are no fixed rules as to when an injunction should or should not be granted. The relief must be kept flexible.

3.  Because of the practice adopted on the hearing of applications for interlocutory relief, the court should rarely attempt to resolve complex issues of disputed fact or law.

4.  Major factors the court can bear in mind are (a) the extent to which damages are likely to be an adequate remedy for each party and the ability of the other party to pay, (b) the balance of convenience, (c) the maintenance of the status quo, (d) any clear view the court may reach as to the relative strength of the parties’ case.”

21.  I do not think Series 5 is authority against my conclusion above.  Relative strength is a factor which the court may bear in mind if the court may reach a clear view on the relative strength.

22.  More importantly, if there is any conflict between American Cyanamid and Series 5, the former prevails over the latter.  American Cyanamid is a House of Lords decision and a House of Lords decision “has the same practical effect as if it was strictly binding”:

“Before 1 July 1997, decisions of the House of Lords stood in a similar position to decisions of the Privy Council on non‑Hong Kong appeals. Although they were only persuasive, their authority was very great unless the decision was in a field where local circumstances made it appropriate for Hong Kong to develop along different lines. The House of Lords and the Privy Councilessentially share a common membership. Unless local circumstances were material, the Privy Council on an appeal from Hong Kong was unlikely to diverge from a decision its members had reached in a different capacity in the House of Lords. See de Lasala at p.558A–C and Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank & Others [1986] 1 AC 80 at p.108B–G. Indeed, where the House of Lords decision concerned the interpretation of recent English legislation which had been adopted in Hong Kong, the Privy Council stated in de Lasala that although the House of Lordsdecision was persuasive as a matter of juristic theory, it has the same practical effect as if it was strictly binding (at p.558 C–F).” (A Solicitor v The Law Society of Hong Kong (2008) 11 HKCFAR 117 §15)

23.  Series 5 is not binding on me.

Delay and irreparable damage

24.  On the plaintiffs’ pleaded case, they knew about the defendants’ alleged infringement from about 17 and 18 January 2015 at the latest when the defendants advertised the NIFTY test run at the Third University of Hong Kong Symposium attended by many doctors in the field of obstetrics and gynaecology.  Yet they did not commence legal proceedings against the defendants until more than 11 months later on 28 December 2015 when they also issued the inter partes summons for an interlocutory injunction.

25.  It is plain from the plaintiffs’ pleaded case that the plaintiffs knew that the defendants stepped up their marketing activities throughout 2015.

26.  The delay of more than 11 months is substantial.  The significance of delay was explained by Rogers VP who had been an experienced IP silk and the summons judge, in King Fung Vacuum Limited and another v Toto Toys Limited and another [2006] 2 HKLRD 785, CACV 305/2005, 29 March 2006.  In that case, Rogers VP explained the effect of delay on the allegation of irreparable damage:

“ 20.  There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction. Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount. If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown. This is important because of the approach that the courts take to interlocutory injunctions. They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place. It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.

21.  The defendants have come along a year or so after they had become aware of the facts of which they now complain, and say, ‘Oh, well, there is likely to be irreparable damage’. But that is not established simply by so saying. ...

...

23.  The Judge in his judgment appears to have totally overlooked the fact of the delay and its effect on the allegation of irreparable damage. ...”

27.  The plaintiffs in this case have come along a year or so after they had become aware of the facts of which they now complain.  It took another 7 months for their application for interlocutory injunction to be heard.  The trial of this action could have taken place by mid‑July 2016 had the plaintiffs proceeded with due diligence in immediately issuing proceedings in January or February 2015 and promptly brought their action to trial.  The parties’ respective rights could have been determined at trial.  In the event, the plaintiffs took their time in applying for an interlocutory injunction, the hearing of which took 4 days, with 19 lever arch files having been placed before the court at the hearing.  I question whether the court’s time could have been better utilised, the plaintiffs having taken their time in the first place.

28.  Mr John Yan SC relied on the following and argued that there was no undue delay:

(1)  the plaintiffs warned people in March;

(2)  the plaintiffs sent cease‑and‑desist letters in June;

(3)  the plaintiffs received Messrs Allen & Overy’s email of 29 July;

(4)  the defendants approached Professor Lo between mid‑August to 3 October;

(5)  the plaintiffs considered costs of litigation;

(6)  the 1^st plaintiff’s board reached a decision on 13 November;

(7)  the Writ was issued on 28 December; and

(8)  the plaintiffs’ experts prepared and presented an analysis to the plaintiffs.

29.  I am not impressed by the matters put forward by Mr John Yan SC:

(1)  The plaintiffs knew that their “warning of people” in March did not work.  The defendants’ marketing activities continued unabated.

(2)  The plaintiffs also knew that their cease‑and‑desist letters had no effect on the defendants which persisted in their marketing activities.

(3)  Messrs Allen & Overy were representing the defendants.  Their denial of liability should not have been surprising.  The plaintiffs should have already formed their own view before “warning people” and writing cease‑and‑desist letters.

(4)  Professor Lo and the defendants had a fundamental difference right from the start — Professor Lo insisted that the Hong Kong market was out of bounds to the defendants but the defendants wanted a share of the Hong Kong market — there had never been any hope of reaching a compromise.

(5)  There was no evidence on the estimated amount of costs and how that affected the plaintiffs in deciding whether to protect themselves from alleged infringement.  The 1^st plaintiff was part of the Berry Genomics group.  When asked by the court at the hearing whether the 1^st plaintiff was offering any amount to fortify its undertaking to pay damages, it almost immediately came up with an offer of HK$30 million.  The plaintiffs were represented by solicitors, leading and junior counsel in the hearing before me.  Costs of litigation should not have been a matter of concern to the plaintiffs in a dispute of this nature between two large groups.

(6)  It took the 1^st plaintiff’s board a long time to decide.  After their decision on 13 November, the plaintiffs dragged their feet before they issued the writ on 28 December 2015.

(7)  There was no evidence on when the plaintiffs’ experts were instructed to prepare the analysis and when that analysis was presented to the plaintiffs.  There was no evidence on what the analysis looked like.  It had not been exhibited.

30.  As I said, I am not impressed by the matters put forward by Mr John Yan SC.  They do not explain the delay which in my judgment was inordinate.  Instead of moving with due diligence to seek an injunction forthwith, they took almost a year to issue proceedings which is not characteristic of persons suffering irreparable damage.  This is clear evidence of lack of irreparable damage.  Absent irreparable damage, that is normally fatal against the plaintiffs’ application.

The plaintiffs’ case of irreparable damage

31.  Mr John Yan SC put “Irreparable damage to Ps if Injunction is Not Granted” towards the end of his “Skeleton Submission for the 1^st and 2^nd Plaintiffs” in §74 thus:

“74. If the injunction sought by Ps is not granted, P1 would suffer serious and irreparable damage for four main reasons:

74.1 Inability to compete with BGI and survive in the absence of injunction;

74.2 Long‑term effect of BGI’s cut‑throat pricing on the market;

74.3 Loss of reputation and ability to maintain and attract investment;

74.4 Unreliability of BGI’s accounting records.”

32.  So far as Reason 1 is concerned, the plaintiffs have competed with the defendants since January 2015 at the latest and according to §3(13) of the Particulars of Infringement, the plaintiffs enjoyed a market share of roughly 50%.  There is no pleaded allegation and no evidence of inability to compete.

33.  So far as Reason 2 is concerned, the plaintiffs enjoyed a market share of roughly 50% despite the defendants’ alleged cut‑throat pricing strategy on the market since “January to March 2015”.

34.  There is no evidence that the plaintiffs could not compete for another 2 years (assuming that it takes 2 years for this action to be tried) in the absence of an injunction.  The objective fact is that they have been surviving between January 2015 and July 2016 without an injunction.

35.  Reason 3 has no factual foundation in that there is no evidence in support.

36.  As for Reason 4, there is no allegation of false accounting.  Tests are conducted for doctors and hospitals and reports are submitted to them.  It is simply difficult and risky for the defendants to understate the volume of their business and there is no evidence that they have.  In any event, the defendants, through their leading counsel, Ms Winnie Tam SC, have volunteered the following undertakings:

“D1 and D2 undertake that they shall, from the date hereof until judgment in this action or further order:

(a) Maintain all existing records of the quantity and price charged for each of the NIFTY test conducted by D1 and/or D2 in Hong Kong to date; and

(b)   Keep full and proper records of the quantity and price charged for each of the NIFTY test to be conducted by D1 and/or D2 in Hong Kong from the date hereof until judgment in this action or further order.”

37.  I am not satisfied that the plaintiffs have made out any case of irreparable damage.

Conclusion

38.  There is no suggestion that the defendants would not be in a position to satisfy any damages which may be awarded against them at trial.

39.  In my judgment, damages in the measure recoverable at common law would be adequate remedy and the defendants would be in a financial position to pay them, and there is no other reason to depart from the normal rule that no interlocutory injunction should be granted.

40.  Having reached this conclusion, I dismiss the summons issued by the plaintiffs on 28 December 2015, as amended by them at the hearing.

41.  I make an order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that the defendants’ costs be taxed (if not agreed) and paid by the plaintiffs to the defendants, with certificate for 2 counsel.