KOKKIA, INC v. MICROGEAR TECHNOLOGY LTD AND ANOTHER

HCA 2669/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2669 OF 2015

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JUDGMENT

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1. This is an application for summary judgment by the plaintiff (“P”) against the 1^st and 2^nd defendants (“D1” and “D2”) by summons dated 4 May 2016 (“the Summons”).

2. The action concerns an audio amplifier product sold by P as the “iAmplifier”, and in particular whether P commissioned D1 to design and produce the iAmplifier on P’s behalf, or whether D1 simply contracted to manufacture and sell to P the iAmplifier, based on a design owned by D1 with slight modifications as to size and logo.

3. P is a company incorporated in California in the business of, at least, selling mobile electronic accessories.  Its chief executive officer at all material times was Mr Kokkia Chew (“Mr Chew”).  D1 is a company incorporated in Hong Kong, carrying on the business of designing, manufacturing and selling audio products.  At all material times, the sole director and shareholder of D1 was Mr Murray Kun (“Mr Kun”, “D2”).

The business relationship

4. It is undisputed that Mr Chew and Mr Kun first met in about 2006, when Mr Kun was employed by a different company, and that they kept in touch thereafter.

5. Although the parties are agreed that there was an oral agreement between P and D1 in about April or May 2013, they advance different cases as to how the agreement came about, and as to the content of the agreement.

6. As to what led to the making of an oral agreement in April or May 2013 between Mr Chew on behalf of P and Mr Kun on behalf of D1:

(1)  Mr Chew’s evidence is that in about April 2013 he started exploring D1’s capability to design and produce a helmet earphone product, and that after the signing of a mutual non‑disclosure agreement on 28 April 2013 (“the NDA”), P began exploring the possibility of D1 designing and producing other products on behalf of P including the iAmplifier (Chew 1, paras 15, 19 – 20).

(2)  Mr Kun’s evidence is that Mr Chew attended the exhibition HK Electronics Fair (Spring) Edition on 13 April 2013 at which Mr Kun had displayed a prototype audio amplifier which was originally designed by him in May 2009 and that the similar design had existed since 2003.  Mr Kun claims that Mr Chew had stated he could sell at least 30,000 units of the displayed amplifier in the USA per year (Kun, paras 8 – 9). 

(3)  Mr Kun’s evidence is that in April or May 2013, Mr Chew asked Mr Kun whether D1 could manufacture and supply some amplifiers for P.  Mr Kun refers to an email dated 2 May 2013 as being where Mr Chew set out his requirements of his desired products.  Mr Kun asserts that he then recommended one of the amplifier products which D1 used to make, in which Mr Chew expressed interest subject to a slight reduction in the size of the housing of the product and application of P’s logo.

7. Whilst P and D1 are agreed that they (by Mr Chew and Mr Kun) entered into an oral agreement on or about 2 May 2013, they advance different cases as to the content of the agreement.

8. P’s case as pleaded in the Amended Statement of Claim (“SOC”) para 4, is to the effect that P and D1 agreed that D1 would design the iAmplifier for P, produce original artistic works in relation to the iAmplifier on commission for P (“the Design Drawings”), produce prototypes and/or samples (“the Prototypes”); produce moulds and/or tooling for the manufacture of the iAmplifier (“Tooling”), and manufacture and supply iAmplifier products to P.

9. P’s case as pleaded in the Amended Statement of Claim (“SOC”) paras 5 and 6 is that there were express, alternatively implied, terms of the oral agreement that P was the sole owner of the copyright subsisting in the Design Drawings; P was the sole owner of the Prototypes, Tooling and all materials produced by D1 in the course of developing and producing the iAmplifier; D1 was prohibited from using any of the foregoing other than for the purpose of producing the iAmplifier products for P; D1 was prohibited from manufacturing, supplying or selling iAmplifier products or products with identical or confusingly similar designs; and that D1 was to return all documents and materials in relation to the design, production and manufacture of the iAmplifier upon P’s request or upon termination of the agreement.

10. I note that whilst Mr Chew’s 1^st affirmation para 23 set out that the above terms were express material conditions and/or terms, there was no evidence that either Mr Chew or Mr Kun on any occasion verbalised such conditions and/or orally agreed to them.  In oral submissions, Mr Pun for P accepted that, but submitted that such terms followed from the fact of commission of the designs.  Mr Chew’s 1^st affirmation para 24 states that such terms were absolutely necessary to protect P’s rights in the iAmplifier.  I agree that they would be implied terms if P is right as to the nature of the oral agreement ie that P commissioned D1 to design the iAmplifier for P, because they are all necessary consequences of P owning the design (see Hawkings v Clayton (1988) 164 CLR 539 paras 18 – 20).  Mr Chung for Ds did not specifically address the question of implied terms.  In fact it seems to me that the inclusion of such terms is also evidenced by the 2 May 2013 email addressed at para 16 below.

11. Ds’ pleaded defence is that the oral agreement made on about 2 May 2013 was for P as buyer and D1 as seller to buy and sell an amplifier device product previously designed and made by D1, but modified to have a smaller housing and to have P’s logo imprinted.  Ds plead an agreement that P would become the owner of the tooling required for P’s logo to be imprinted, but no agreement for P to acquire any intellectual property rights of the design drawings and prototypes, which remained with D1.

12. The Defence also pleads that the design of the iAmplifier is not original as the same or substantially the same designs had been on the market for a long time. However, that is inconsistent with Ds’ assertion in the Defence and D2’s affirmation evidence that D1 is the owner of the design.

13. At first blush, a dispute both on the pleadings and in the evidence as to the nature and scope of an oral agreement would suggest the matter might not be suitable for summary judgment.  However, it is necessary to ask whether the defendant’s assertions are believable in the context of so much of the background as is either undisputed or beyond reasonable dispute: Re Safe Rich Industries Ltd (unreported), CACV 81/1994, 3 November 1994 at p 5; Manciple Ltd v Char On Man [1995] 3 HKC 459 at 466E–G.

14. P relied heavily on contemporaneous emails between the parties from 2 May 2013.  Mr Chung for Ds orally submitted that these emails were not pleaded.  However, P’s ASOC pleads that the oral agreement is evidenced by emails between 2 May 2013 and 1 November 2013.  Mr Chung then complained orally that this was not adequately particularised, but I reject that complaint given that particulars were not sought, and the emails were between P and Ds.

15. P’s evidence (Kun 1, paras 25 – 29) itemises all the correspondence and conduct on which P relies as evidence of the existence of the agreement for D1 to design and produce the iAmplifier.  This contemporaneous evidence is significant and I set out my own summary of the relevant contemporaneous correspondence below.

Correspondence in respect of production of the iAmplifier

16. By an email dated 2 May 2013 with an attachment, P sent Ds their requirements for the “iAmplifier” including a cylindrical rechargeable lithium battery to support over 10 hours playtime, specific requirements for buttons and LED display, charging and audio input to share the same socket, specific requirements for amplifier performance, and accessory requirements.  P requested feedback.  Significantly the email contained in bold underlined capital letters a warning that the requirements for the iAmplifier were only to be used for and sold by P, should never be shown nor sold to anyone else, and ideas/concepts should not be used anywhere else.

17. By reply email dated 2 May 2103, D2 asked Mr Chew a few questions about his requirements, including asking whether P had the actual design completed or wanted D1 to make the “ID” and drawing for P.  (I understand “ID” to mean industrial design, and Mr Pun stated, without Mr Chung disagreeing, that it meant in particular the CAD drawings.)

18. Mr Chew replied by email dated 3 May 2013 stating that he had the casing as in the picture he had sent to D2 on 2 May, and if D1 could use the same casing then there would be no need to make a new casing, and they could go to market faster; otherwise D1 would have to make a “new ID/ME”.  (Although counsel were unable to assist me with the meaning of “ME”, I understand it to mean mechanical engineering.)

19. By reply email dated 5 May 2013, D2 requested the desired dimension of the plastic housing, the specifications and brand of the lithium battery, commented on the proposed jack size and suggested a smaller one; stated that the amplifier requirements were not a problem but D1 needed an idea on the target cost and retail price and would use that as a guideline for their design.

20. On 6 May 2013, Mr Chew replied, attaching drawings showing the casing size (which attachment bore a reference to “iAdapter”, a product already developed by P), and specifications for a possible lithium battery to be used for reference, with comments about the circuitry in order to maintain the desired casing size.

21. On 6 June 2013, D2 informed Mr Chew that he did not feel able to make a low cost iAmplifier with good sound, and requested feedback.

22. On 13 June 2013, D2 informed Mr Chew that D1 was working on a new solution for the iAmplifier, and would need P to pay the NRE (non‑recurring engineering fee) for it, and D2 would provide a quote in advance for this.  (I here note Mr Pun’s submission that a NRE fee would not generally be borne by a mere purchaser of a product, as opposed to the owner of the design.)

23. On 17 June 2013, Mr Chew replied to ask for clarification as to what the new solution was first, although there was no problem in principle with P paying the NRE.

24. On 19 June 2013, D2 informed Mr Chew that D1 had completed the design of the iAmplifier and were making samples now, stating that he would send the invoice for 50% of the NRE and sample cost, and once P had checked and it was fine, P could pay the balance of the NRE.

25. On 20 June 2013, Mr Chew responded to repeat that he had no problem with the NRE but he needed to know what design D1 was working on first, stating that they could not have an overly costly product as they needed to compete with Fiio.

26. On 20 June 2013, D1 invoiced P for 50% of the NRE and one prototype iAmplifier sample.  P paid the same or the next day.

27. On 21 June 2013, D2 responded that he had previously provided P with a solution for a high quality product but P wanted a cheaper product and that was what D1 was doing now, and P would have to check the sample as it was not possible to describe in detail how it sounded.  D2 stated that D1 had the responsibility to make the product but P had to consider the budget and performance.  (I note that this indicates that the interior components of the iAmplifier were being considered and adjusted by D1 in order to meet P’s requirements.)

28. On 25 June 2013, D2 informed Mr Chew that he had tested the iAmplifier which worked well, and that the size was small, similar to P’s plastic housing, but D1 would need to make a new tool for this and would make the housing within the next two days.

29. By email dated 27 June 2013, D2 informed Mr Chew that the last iAmplifier design was complicated so D1 had to make a new one, and it would be completed the next day.  (I note this makes it clear that D1 was working on the design of the iAmplifier, although it is not clear whether this is design of the housing or of some other component.)

30. By email dated 4 July 2013 to Mr Chew, D2 attached a file for reference on the iAmplifier.  The attached file shows photographs of the sample, marked with key features, and containing notes. These notes include notes about the design, namely that once P saw the sample, it could provide D1 with the design or location of the jacks and D1 would make the modification; and also stated that if P approved the sample, then D1 “can finalise the specs and design to proceed with the tooling”, adding that P would have to pay for the tooling and NRE cost.

31. On 8 July 2013, D2 emailed Mr Chew setting out the specifications for the iAmplifier sample which P would receive the next day, noting that the battery was rectangular shape, stating that the size could be reduced a little, for example, if D1 changed the battery shape.

32. On 11 July 2013 at 4:27 pm (although there may be some discrepancy in the times of emails as Mr Chew was in the United States whereas D2 was in Hong Kong), Mr Chew provided D2 with feedback on the iAmplifier.  In summary, Mr Chew’s feedback related to both functionality as well as the appearance of the product.

33. D2 commented on the feedback by inserting comments into Mr Chew’s email of 11 July.  It is not clear to me when exactly this was done, but in the context of later emails it must have been within one or two days.  However, I note in particular that D2 raised the question “Who will make the final ID?”  D2 continued to say that if P could make the ID it should be sent to D1 for review and D1 could give feedback before the next sample.

34. Mr Chew apparently replied by inserting his comments in the body of the email (again, I do not know the exact date of this reply, but it must have been within one or two days) that the ID should be similar to the sample Mr Chew sent to D1, with the corners rounded.  (I understand this to indicate that the sample mentioned is of a casing.)

35. Also by an email dated 11 July 2013 (stated to be at 11:09 am but the relative timing is unclear), D2 told Mr Chew that the iAmplifier feedback was all clear and D1 could do it, stating D1 was making the final design now, stating the tooling cost, and requesting the balance of the NRE and a deposit for the tooling, stating the unit price to be about US$11 and the minimum order quantity to be 3,000 per shipment.

36. Mr Chew replied to D2 on 12 July 2013 asking for some more information as to the charging function and the dimensions of the PCBA (which I understand to mean printed circuit board assembly) before proceeding to layout.  Mr Chew agreed to the tooling cost and provided two logos to be made in the tooling; and he agreed to the unit price and minimum order quantity.

37. By email dated 12 July 2013, D2 informed Mr Chew that D1 would proceed to make the CAD drawing for the final design, and send it to P for approval, after which they would proceed with tooling.

38. Very soon afterwards on 12 July 2013, D2 emailed Mr Chew again, attaching two invoices from D1 to P: one for 50% of the iAmplifier tooling, one for NRE and a prototype based on final design.  The covering e‑mail stated that D1 would make one more prototype based on “the final design and specs” before the actual tooling, and that was “for design verification as well as final approval for functions”.  P paid the invoices on 16 July 2013.

39. By email dated 13 July 2013, D2 provided Mr Chew with a drawing for the final design based on what P had requested, asking if there was any problem with the drawings.  The attachments were CAD drawings of the external appearance of the iAmplifier.

40. By email dated 14 July 2013, Mr Chew told D2 that the CAD drawings looked great but requested more information and suggested further changes in respect of the location of the jacks, the location of the battery on the PCBA, and the battery charging design and functions.  Mr Chew asked for the DXF file.

41. By email dated 15 July 2013, D2 provided Mr Chew with the DXF file for his review, and said he could deal with the battery charging issue and moving the jack location.

42. By email dated 16 July 2013, Mr Chew requested changes to the location of the logo, the design of the switch, and asking for the 3D rather than 2D version of the DXF file.

43. Further emails dated 16, 18 and 19 July 2013 ensued between D2 and Mr Chew in respect of photographs of the latest sample of the iAmplifier, and Mr Chew’s comments thereon.

44. By emails dated 24 and 25 July 2013, Mr Chew commented on the electrical issues with the 2^nd sample iAmplifier and his desire to reduce the size of the iAmplifier by using a different battery, and D2 responded as to how these concerns were being addressed, stating that further CAD drawings would be updated.

45. By email dated 25 July 2013, Mr Chew insisted on the use of a cylindrical battery; stated that the battery protection circuit could be placed on the PCBA to make the size smaller; and insisted that D1 not proceed until P’s full review and agreement, for which Mr Chew required the PCB size and parts placement, and the 3D DXF file, to allow Mr Chew to see the components placed inside the casing.

46. By email dated 26 July 2013, D2 stated that D1 could resolve the issues, and provided a picture of the battery that D1 had recently developed, and provided D1’s design drawing of the PCB for P’s information.  D2 asked for some time.

47. By email dated 4 August 2013, D2 informed Mr Chew that the size of the iAmplifier housing had been reduced, and D1 was now testing all the functions, including battery life.

48. By email dated 7 August 2013, D2 provided Mr Chew with information as to the updated sample including notes as to how P’s requests had been addressed, and stated that the sample would be sent to P shortly.

49. On 10 August 2013, D1 invoiced P for a 30% deposit on 3000 units of the iAmplifier including charging cable.  On 13 August 2013, P paid that amount plus an additional deposit, the balance of the iAmplifier tooling cost, and shipping costs for the 2^nd and 3^rd prototypes.

50. By email dated 17 August 2013, D2 provided Mr Chew with photographs of the samples P had on hand, stating this was the 3^rd prototype.

51. By emails dated 20, 21 and 23 August 2013, D2 and Mr Chew exchanged further views on the design of the iAmplifier.

52. By emails dated 24 August 2013, D2 and Mr Chew finalised the design of the iAmplifier.

53. By email dated 4 September 2013, D2 sent Mr Chew the photos of the final sample of the iAmplifier to allow P to design their artwork and manual; stating that P would receive the sample shortly.

54. On 24 September 2013, D1 invoiced P for the tooling cost for the iAmplifier charging cable.

55. By email dated 25 September 2013, D2 informed Mr Chew that due to the change on the charging cable from a 3.5 jack (which would be a common tooling which D1 already had) to a cable with a safety pin and inner mould, there was an extra tooling cost.

56. By email dated 2 October 2013, Mr Chew issued a reminder to D2, asking him to remember as per their NDA not to show or discuss the iAmplifier products / designs / architecture with others, in particular at the upcoming Asia Expo and Hong Kong show; also asking D2 to remind the factory and engineers working on the iAmplifier product/project about keeping confidentiality.

57. D2 replied by email the same day to assure Mr Chew he need not worry and that the iAmplifier would not be shown at the show.

58. On 29 October 2013, D1 invoiced P for the balance payment for manufacturing 3000 units of the iAmplifier and charges for shipping further prototypes to P.

59. P made payment in respect of the outstanding invoices on 31 October 2013.

60. What is evident from the emails described above is that the design of both the functionality, build, size and cosmetic appearance of the iAmplifier in order to meet P’s requirements was a matter entrusted by P to D1, and was a matter which D1 undertook with detailed guidance and feedback from P, from about 2 May 2013.

61. Mr Chew’s evidence is that it was always P’s intention to (1) design and produce a unique audio amplifier product incorporating features different from similar products on the market (in particular: direct attachment to an audio player, use of a cylindrical lithium battery to significantly reduce the size of the amplifier from existing products, use of a single output for audio output and battery charging, and multiple audio outputs; and (2) to base the design on P’s existing product, the iAdapter (Chew 1, paras 5 – 9, 21). ‌I find this to be supported by the contemporaneous documents reviewed above.

62. On the other hand, I find the following aspects of Mr Kun’s affirmation to be incredible:

(1)  His assertion that P had not made any input or suggestions to the design and/or internal engineering of the iAmplifier    (para 16). 

(2)  His assertion (at para 21) that Mr Chew was on 2 May 2013 giving D2 the underlying idea as to the functional requirements for the iAmplifier, not its form of expression.  (Such evidence is apparently inconsistent with Mr Kun’s own earlier assertion (para 17) that P had never provided any drawings, designs or schematics in relation to the iAmplifier except the photograph of a general physical outlook of a finished amplifier product provided on 2 May 2013).

(3)  His assertion (para 17) that on P’s request he sent the CAD drawings devised by D1 to Mr Chew on 13 July 2013 because Mr Chew had expressed the need to use them for designing the packaging of the iAmplifier.  It is clear from the emails of 12 and 13 July 2013 that D1 had prepared the CAD drawings for a design based on P’s request, and that the drawings were being sent to P for review, comment and approval.

63. It is also evident that at no time does any of the copious correspondence between P and D1, at any material time when the iAmplifier was being planned and produced, refer in any way to a pre‑existing mini‑amplifier product designed or owned by D1, or (as Ds claim in the Defence) that P was to purchase a pre‑designed mini‑amplifier with only two modifications, namely housing size and logo.  Rather, the correspondence shows that P was providing its desired specifications, and D2 was asking whether P had the actual design completed or wanted D1 to make the ID and drawing for P.  That is in my view evidence that there was no pre‑existing design on which their discussions were based.

64. I do not find that Mr Kun has provided any contemporaneous evidence to support his claim that there was, in 2013, a pre‑existing mini‑amplifier identical or substantially the same as the iAmplifier save for the size and logo:

(1)  He does not exhibit any documents (such as design drawings or specifications).  This is notwithstanding that Mr Kun claims (at para 15 of his affirmation) that D1 is the operator and controller of the Dongguan factory which allegedly holds the sketches, 3D diagrams or prototypes of the product but refused to allow D2 direct access to them.  (I find that incredible.)

(2)  He refers to a website print‑out at exhibit “KMS‒6”. That website print‑out does list an audio amplifier, but it is on its face very different from the iAmplifier in terms of size and shape at least.  Mr Kun’s evidence is there is no significant difference between the two save for ‘the dimension of the casing and the plug‑ins and other minor adjustments such as the thickness of the cable and volume control’ (Kun, para 12).  This is itself inconsistent with Ds’ pleaded case that D2’s pre‑existing product was only to be modified for P in two respects, namely casing size and logo.

65. Mr Kun’s affirmation evidence as to the original design of the pre‑2013 iAmplifier product is inconsistent:

(1)  At paras 8 – 9, he states that the prototype he exhibited at a fair attended by Mr Chew in 2013 was D1’s design based on an amplifier design of which Mr Kun had bought samples from a Mr Liang Yiu Man of a factory in Dongguan called Ssheng Technology Limited, and D1 had modified the design and devised the original design of the iAmplifier product (without the iAmplifier logo) in May 2009.

(2)  At para 15, Mr Kun asserts that the Dongguan factory claims ownership of the design drawings of the iAmplifier product (without the iAmplifier logo), although Mr Kun believes D1 owns the intellectual property rights because D1 operates and controls the factory.

(3)  Also at para 15, Mr Kun asserts that he and Mr Liang devised the original design of the iAmplifier product (without the iAmplifier logo) in May 2005 or 2006.

66. Mr Kun’s affirmation at para 26 asserts that electrical engineers at the factory operated by D1 confirmed that the factory had been manufacturing and selling “similar” micro‑amplifiers for over 10 years.  That is of little evidential value because it is hearsay evidence and it is entirely unclear what information the electrical engineers were given to enable them to compare products and conclude they were “similar”, which is in itself too vague to be of assistance.

67. Mr Kun’s affirmation para 18 itself points out that batteries and jacks had been customised for the iAmplifier, which is evidence that the iAmplifier was not identical to any earlier product save only for housing size and logo.

Correspondence relating to the Bitstream and Wiss competing products

68. By email dated 26 June 2015, Mr Chew informed D2 that P had found people selling exactly the same product as the iAmplifier on the market.  Mr Chew referred to the NDA; P’s emphasis to Ds that the iAmplifier was not to be shown or sold to anyone else, anywhere in the world; that the NRE and tooling fees that P paid for iAmplifier were for use only by P; and that the toolings for iAmplifier’s casings, charging cable andPCB were not to be used for anyone else.  Mr Chew asserted an infringement of the agreement between P and D1, and demanded information as to sales of iAmplifier type products and an immediate stop of such sales.

69. By email dated 25 June 2016 (which is clearly a reply to Mr Chew’s email and the date discrepancy being due to different time zones), D2 effectively acknowledge the breach.  He stated:

“I am aware of this. I do not have any … good answer for you. I know I had signed the agreement with you …”

D2 then went on to suggest that P had not placed the level of orders which P had “forecast”, that there had been minimum order quantities due to customisation like the 3.5mm jacks and battery, that D2 had sent Mr Chew emails about this to which he had received no reply, so Ds had had to reduce their exposure and use up the excess material.  D2 asserted that D1 had been doing mini amplifiers since 2011 with a different footprint.  D2 asserted that D1 did not use P’s tooling at all, they made their own tooling for it and the material finishing was different.  D2 stated D1 was not selling the product in the US to avoid confusion and conflict, and to protect P.  Significantly D2 states:

“There are some similar products in the market now, since your product is been in the market for such a long time already, there may be other factories buy some sample from you and try to make as well. This we have no control over. This happens all the time, even my own products now are been copied by other factories even not sold in China.” (emphases added)

70. It is significant that this reply email in my view expressly acknowledges the iAmplifier to be P’s product not D1’s product, and most certainly does not assert that D1 has the right to sell the iAmplifier or use its design because it is D1’s design or product (contrary to Ds’ pleaded case).

71. By email dated 30 June 2015, Mr Chew told D2 there was no excuse to infringe their agreement and that legal action against D1 and D2 would be taken unless identified action was taken.

72. By email dated 29 June 2015, D2 replied that he wanted to get the facts straight.  He made complaints about P committing to a larger order quantity.  He stated “I did told the factory they can not make this product as I had signed an agreement with you.” D2 relied on having excess material and the battery’s limited shelf life if not used; and asserted that only 4000 units were made.  D2 then offered to stop selling the item to new customers, and to sell out current stock only but not to US customers.  D2 asserts that the agreement is valid in the US only and D1 was not shipping the product to the US.

73. It is clear that Ds recognised that they were prohibited from making the product copying the iAmplifier, but that they knowingly made 4000 units which they were in the process of selling, and they intended to keep selling.  It appears that D2 was referring to the NDA when he referred to a written agreement.  The NDA has a California governing law clause, and a California exclusive jurisdiction clause; but the mutual confidentiality obligations therein between D1 and P were not territorially limited.  In any event, I note that P does not sue D1 for breach of the NDA, but for breach of the oral agreement and breach of copyright.

74. By email dated 2 July 2015, Mr Chew referred to quality issues with the 3000 pieces delivered.

75. In reply, by email of 1 July 2015, D2 asked for information about the defects and stated “You may also have some suggestions to further improve your product and design”.  D2 stated that D1 had only made the iAmplifier type of product for Ultralink and Wiss brands.  Again D2 asked to be allowed to sell the current stock, and said D1 would not make any more.

76. Ds’ reaction was to accept that the iAmplifier was P’s product, to accept Ds were in the wrong, to apologise for the infringement and to seek indulgence from P. There was no suggestion by Ds that the iAmplifier was D1’s product, rather than P’s product.  So far as I am aware, that was not suggested until Ds filed their defence in January 2016.

77. In light of the contemporaneous documents, predominantly correspondence, summarised above, I find Ds’ defence that it did not agree to design the iAmplifier for P, and only agreed to sell a modified version of its own design, to be incredible.

Breach of agreement

78. Ds did not suggest any defence other than that the oral agreement was not as P claimed a commission agreement, but was rather a sale and purchase agreement.

79. They did not plead in their Defence that the production of the Bitstream/Ultralink and Wiss products was not a breach of the agreement if it was a commission agreement.

80. It is clear from the evidence that Ds admit their involvement in the production of the Bitstream/Ultralink and Wiss products, but claim their entitlement to do so on the basis of D1’s asserted ownership of the product.

81. There is no arguable or credible defence to P’s claim of breach of the agreement by D1.

82. Nor did Ds deny that D1 was operated and controlled by D2, so that any acts by D1 were procured by D2, including breaches of the oral agreement with P.

Copyright

83. In addition to the argument as to the scope of the agreement as set out and analysed above, Ds have pleaded that:

(1)  the iAmplifier was no more than a method of construction or configuration of an article;

(2)  the design of the iAmpifier was not original; and

(3)  Ds did not know or have reason to believe that copyright subsisted in the Design Drawings.

84. It is clear from the contemporaneous correspondence that the iAmplifier contained a custom‑made jack and battery, so could not just have been a method of construction or configuration of an article (assuming the same is capable of being a defence to copyright infringement, which I do not need to decide).

85. Ds’ own evidence asserts that the design of the iAmplifier was based on an original design owned by D1, such that they accept there to have been an original design but challenge the timing and ownership thereof.  I have already found there to be no evidence of a pre‑existing design by D1, and that the contemporaneous evidence shows the iAmplifier was produced working from P’s specifications and not as a mere minor modification of a pre‑existing design.  Ds have certainly not provided evidence that the iAmplifier was a slavish copy of another work.

86. I am satisfied that it was a term of the oral agreement that P solely owned the copyright subsisting in the design drawings for the iAmplifier, as evidenced by the 2 May 2013 email stating that the ideas and concepts relating to the iAmplifier were only to be used for P and were not to be shown nor sold to anyone else.

87. The Defence asserts at para 13(b) that D2 had clear and actual knowledge that D1 was the true and beneficial owner of copyright in the Design Drawings and Samples which did not have the logo of P.  Although that contains a challenge as to the identity of the owner of the copyright, it is a clear acceptance that copyright subsisted in the Design Drawings and Samples. In any event, it is clear from the correspondence in June to July 2015 that Ds recognised, prior to manufacture, that they should not have been making and selling the Bitstream and Wiss products by virtue of their agreement with P and it being P’s product.  The assertion of a lack of knowledge is incredible.

88. By dealing with the Bitstream and Wiss products, D1 infringed the copyright, and D2 directed, authorised and procured the same and is therefore jointly and severally liable for the infringing acts of D1.

89. Having regard to all the circumstances, and the fact that the Ds deliberately and flagrantly proceeded to make the infringing products, P may pursuant to s 108 of the Copyright Ordinance have such additional damages as are considered just at the time of assessment of damages when it becomes known how much compensation will be payable to P, and what benefits have accrued to Ds by reason of the infringement.

Conclusion

90. P’s Summons attaches a draft minute of order. Mr Chung on behalf of Ds had no submissions to make on the form of order sought.  I will accordingly make an order in the terms of the draft minute.