GOLDEN BRIGHT MANUFACTURER LTD v. SUNLIGHT ELECTRONIC TOYS MANUFACTURING CO LTD AND ANOTHER

cacv 90/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 90 of 2007

(on appeal from hca NO. 927 of 2001)

______________________

______________________

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Gill given on 15 February 2007.  The matter before the judge was a claim for infringement of copyright in artistic works relating to a toy pinball machine.  The judge found in favour of the plaintiff and granted an injunction against the defendants from infringing what were said to be the plaintiff’s copyright works; he ordered the delivery up to the plaintiff for destruction of all moulds, toolings, goods and articles in the possession, power, custody and control of the defendants the continued use or sale of which would offend against the injunction granted and he also ordered that there should be an enquiry as to damages or an account of profits at the plaintiff’s election within 28 days of discovery being given on affidavit.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2.  As the judge recorded, both the plaintiff and the first defendant have a long and successful history of making and selling toys.  The second defendant is the son of one of the founders of the first defendant and he is principally engaged in marketing.  Both the plaintiff and the first defendant appear to have a range of toy products mostly, if not entirely, it would seem, made out of plastics material.

3.  In about March 1995 Mr Yuen, who was the founder and director of the plaintiff, decided that the plaintiff should make a toy pinball machine.  Such toys had been on the market for some time and the judge recorded in paragraph 18 of the judgment that the plaintiff did “not pretend to claim copyright in its version of the game for it could not claim originality of design”.  Quite what the judge was referring to is not entirely clear.  The task of developing the pinball toy was given to a Mr Bao Wei Gang, who was the manager of the plaintiff’s engineering department at their factory in Donguang in the Mainland.  Mr Yuen described in his first affirmation that:

“The initial design of the Plaintiff’s pinball game was created in the period of April to June 1995.  The product handsample in respect of the Plaintiff’s pinball game was then created by Mr Bao from around August to October 1995.”

4.  Mr Bao was then assisted by a Mr Pan Yuen Liang to make drawings for the manufacture of the final product.  It would appear that the product would not have been ready until at least the end of 1995 and it was advertised in Hong Kong Toys Magazine in the 1996 addition.

5.  In March 1998 Mr Yuen gave a number of samples of the plaintiff’s pinball game to representatives of MGA Entertainment (HK) Ltd who had approached the plaintiff on behalf of its parent company in the United States.  The parent and subsidiary will, for the purposes of this judgment, be referred to together as MGA.  The plaintiff did not secure any business from that but in early 2000 Mr Yuen discovered that MGA had been dealing with pinball games which were said to be copies of the plaintiff’s.  A letter before action was written by the plaintiff’s solicitors referring in general terms to “copyright subsisting in the designs and drawings of their (the plaintiff’s) Pinball Game Art. No. 1010.”  The letter refers to the MGA pinball game having “designs and functions” which were substantially similar to that of the plaintiff’s toy.  No satisfaction was obtained and on 26 May 2000 a writ was issued against MGA.  A defence was filed in July of that year and MGA submitted to judgment on an Order 14 application on 24 November 2000.

6.  As a result of discovery that was obtained following judgment in the action against MGA, the plaintiff learnt that the pinball games had been manufactured by the first defendant in the Mainland and that some of them had been shipped through Hong Kong.  It was in those circumstances that on 6 February 2001 the plaintiff’s solicitors sent a letter before action in similar terms to that that had been sent to MGA.  The writ in this action was issued in July 2001.  It was not until nearly 6 years later that this action came to trial.

7.  The first defendant is now primarily an OEM manufacturer, that is an “original equipment manufacturer”, which is understood to mean one that manufactures according to designs of others.  The first defendant does undertake some design work of its own, but apparently that aspect of its business has been reduced over the years.  It clearly has an impressive list of clients whose names are well-known, some of which are set out in paragraph 13 of the judgment in the court below.

8.  As the judge recorded, MGA had been one of the long-standing customers of the first defendant.  The judge said in paragraph 40 that there had been a long history of the first defendant doing business with MGA.  There had never been any problem about copyright infringement or any other difficulty.  In April 1998 MGA had asked for a quotation for the manufacture of a pinball game and handed over a mock up.  The judge described it as having a rectangular ground box which was spray-painted grey.  It had some pinballs and the usual plastic parts for manipulating them and a transparent cover but no electronic parts and no header board, that is the part which stands perpendicular to the body and incorporates the scoreboard.  The representatives explained that MGA had a license from a well-known company to use fictional characters on pinball toys.

9.  A quotation was prepared by a Mr Tang who was in charge of the manufacturing plant in the Mainland, which is conceded to be owned by the first defendant.  The quotation was dated 25 April 1998.  The evidence was that the handsample was returned to the client and a month or so later the first defendant was requested to manufacture the item for MGA.  On 10 June 1998, when the moulds were being prepared, MGA requested the first defendant to engrave the following on to the battery door:

“© 1998 Viacom International Inc.

TM and © 1998 MGA Entertainment Co. Inc.

Made in China”

10.  The first defendant then proceeded to manufacture the pinball games according to the design which had been approved.  These were shipped to various customers in both the United States of America and Australia.  Later versions incorporated characters other than those of Viacom.  Some of the shipments were made through Hong Kong and some of them were made directly from the Mainland to the overseas destinations without coming through Hong Kong.

11.  These proceedings have been brought against the first defendant and the second defendant as a director for infringement of copyright in 15 drawings and the alleged copyright in the plaintiff’s handsample which is alleged to be a work of artistic craftsmanship.  It is a feature of this case that the plaintiff has apparently brought no proceedings in any other jurisdictions either against the defendants in this action or MGA.  Although that matter was not explored in the course of argument, that is probably explicable on the basis that industrially produced articles are not protected by copyright in those other jurisdictions in the way they are in Hong Kong.  It was thus that the plaintiff’s case against the defendants is based solely on the ground that the goods produced at the factory in the Mainland have been shipped through Hong Kong to overseas destinations.  As the judge recorded there is no suggestion that any of those goods have found their way onto the Hong Kong market.  The plaintiff’s case against the defendants, as it survives on this appeal, is one of what is referred to as secondary infringement.  It consists of importing infringing copies and making and possessing articles for making those copies under sections 30 and 32 of the Copyright Ordinance Cap. 528 (“the Ordinance”).

12.  The defendants concede that the plaintiff owns the copyright in 15 drawings and that the relevant parts produced by the first defendant in the Mainland constitute copies thereof.  The defendants dispute that the plaintiff’s handsample is a work of artistic craftsmanship such as would enjoy copyright protection in Hong Kong.  The defendants further deny that they either knew or had reason to believe that the articles which they produced in the Mainland were infringing copies of the plaintiff’s copyright drawings.

The judgment below

13.  The judge reached the conclusion that he was bound by the plaintiff’s affirmation made under section 121 of the Ordinance to hold that the plaintiff’s handsample made by Mr Gao was a work of artistic craftsmanship.  In doing so he said that there was no evidence to rebut the presumption which would arise under that section.

14.  The judge then held that by simply shipping the pinball games through Hong Kong the defendant had not issued copies of the plaintiff’s work to the public or put them into circulation in Hong Kong.  Hence there was no primary infringement.

15.  The judge then considered the question of whether the defendants had constructive knowledge of the plaintiff’s copyright in the parts of the mock up at or about the time that MGA had approached the defendants.  As to that the judge said:

“97.   This is very much an issue of fact.

98.   I am not going to rehearse the competing evidence and arguments.  But having considered them, and applying the test propounded in Laddie (see para. 73) I find Golden Bright has fallen short of proving that Sunlight had constructive knowledge of Golden Bright’s copyright at this time.

99.   The answer to this question is ‘No’.”

16.  The judge therefore rejected the plaintiff’s case that the defendants should have been aware right from the beginning that they were being asked to make copies of copyright works in respect of which MGA had no rights.  However, the judge then went on in a series of steps, which will be referred to below, to conclude that the defendants had actual knowledge of the plaintiff’s copyright in the parts of the mockup as of May 2000. 

17.  The judge then considered whether an order should be made for the delivery of the moulds which were in the Mainland and not in Hong Kong.  He came to the conclusion that because section 109 of the Ordinance, which empowers the court to make such an order, is not, on its face, restricted to Hong Kong that he should make such an order.  As will be noted below it is questionable whether the order that was drawn up in fact covers the moulds in the Mainland.

This appeal

18.  On this appeal Mr Yan SC, who appeared on behalf of the defendants, argued first of all that the plaintiff’s handsample was not a work of artistic craftsmanship.  He pointed out that the judge’s reasoning that he was bound by the terms of section 121 of the Ordinance was flawed because the section only applied to things which were copyright works.  This he said was clear from the wording of the section itself which reads, in the form that was in force at the date of trial,:

“(1)      An affidavit which purports to have been made by or on behalf of the copyright owner of a copyright work and which states-

(a)    the date and place that the work was made or first published;

(b)    the name, domicile, residence or right of abode of the author of the work;

(c)    the name of the owner of the work;

(d)    that copyright subsists in the work; and

(e)    that a copy of the work exhibited to the affidavit is a true copy of the work,

shall, subject to the conditions contained in subsection (4), be admitted without further proof in any proceedings under this Ordinance.”

19.  In my view counsel’s argument must be correct.  The provision in subsection 121(3)(a) that the statements made in the affidavit shall be presumed to be true cannot avail the plaintiff in this regard.  Subsection 121(1) is predicated on the object being a copyright work, hence it must be something that is capable of protection under the provisions of the Ordinance.  If the thing or object simply is not a copyright work because it does not fall within any of the categories of copyright work, then the section cannot apply.  It was therefore necessary for the judge to consider whether the handsample, which was exhibited as exhibit P1 in the action, was indeed a work of artistic craftsmanship.

20.  Despite the judge’s reference to what is certainly the major authority dealing with the question namely George Hensher Limited v Restawile Upholstery (Lancs.) Ltd [1976] AC 64 the judge did not embark upon any analysis whatever.  Indeed, far from there being no evidence to rebut any presumption that might be thought to have arisen because it was affirmed that copyright subsisted in the handsample, there was evidence.  In the first place there was exhibit P1, the handsample itself.  In the second place Mr Peter Dean, who gave evidence as an expert on behalf of the plaintiff, and whom Mr Garland SC, who appeared on behalf of the plaintiff, described as being a “good” witness, said in his witness statement that handsamples were used to illustrate what the design will look like and might work like, they tend to be fragile, they are never an accurate representation of the way the final item will be and they are never as good physically and functionally as parts that come from an assembly line.

21.  In argument Mr Garland only sought to rely on the provisions of section 121 and the plaintiff’s affirmations as establishing that the plaintiff’s handsample was a work of artistic craftsmanship.  He made it clear in the course of argument that should this court consider that it was necessary for that section to be effective for it to be established that the work in question did fall within the one of the various categories of copyright work he was unable to establish that. 

22.  In my view, therefore, it is unnecessary to consider the full ramifications of what constitutes a work of artistic craftsmanship.  Nevertheless, it is right to say that I am firmly of the view that the plaintiff’s handsample does not and cannot constitute a work of artistic craftsmanship.  I consider that the most useful approach to the consideration of whether something can be considered a work of artistic craftsmanship can be gained from Lord Simon’s speech in the Hensher case.  He started by referring to the origin of the provision in the Copyright Act 1911, following, as it did, the advent of the Arts and Crafts movement which started in the 1800s.  Rather than burden this judgment with quotations, illuminating and useful though they may be, for the purposes of this case, given the lack of any evidence from the plaintiff and the concession of counsel, I would simply refer to Lord Simon’s speech.  Indeed, not disregarding the speeches of the other members of the House of Lords, in particular the passage from page 94D to page 95C is instructive.  When the handsample is considered in the light of that, it would be impossible to hold that it was a work of artistic craftsmanship.  One thing which emerges clearly from what was said in that case, is that it is necessary to have evidence of the artistic aspect of any work since whether a work is or is not a work of artistic craftsmanship is a matter of evidence. 

23.  I would also note that the considerations which arise on considering whether an article is a work of artistic craftsmanship are different from those which determine whether what has been made constitutes a design capable of registration.  It was on that aspect that both the Court of Appeal and the House of Lords held that Graham J., at first instance had erred.

24.  Finally on this aspect I would also refer to what was said by Lord Reid at page 77E to F that it would seem that an article which is only intended to be used as a step in a commercial operation and has no value in itself is unlikely to be considered to be a work of artistic craftsmanship because there has to be something which an owner of values because of its artistic character.  Those sentiments were expressly agreed to by Lord Morris and implicitly, at least, by the other judges.

25.  Finally on the aspect of section 121 I would note that what was exhibited to the plaintiff’s affirmation were photographs of the handsample not the handsample itself.  The question therefore arises as to whether those constitute a copy as required by the section itself.  I doubt that they do.  There is no particular difficulty in exhibiting an article such as the handsample as opposed to a photograph.  Bulky articles can be produced when the affidavit is filed and retained subject to undertakings to produce them when required.  Although a photograph would constitute a copy for purposes of infringement that arises from the provisions of section 23 of the Ordinance which relate to infringement.  In respect of works of artistic craftsmanship such as exist here I consider that photographs of the particular work are inadequate because it is not possible to gather the impression of the work itself from a photograph.

26.  The next matter which was the subject of this appeal was in relation to the judge’s finding of actual knowledge.  I propose to deal with this in conjunction with the plaintiff’s cross appeal that the judge should have found that the defendants did have reason to believe in May 1998 that the pinball games that they were about to commence making were infringing copies of the plaintiff’s copyright works.

27.  As already indicated, the judge rejected the plaintiff’s allegations in relation to the 1998 date.  He did so quite tersely.  In my view, however, having listened to the arguments presented by both counsel on behalf of the plaintiff I consider that he was correct to have done so.  The plaintiff’s argument amounts in summary to this.  When the defendants were given the handsample by MGA in about April 1998 they would have seen that the base of the article which they had been given, which is the only remaining part in existence, must have been a modified injection moulded product.  They would also have seen that it contained no copyright notice and no notice that the design belonged to any particular party.

28.  The starting point of the plaintiff’s argument as set out in the respondent’s notice was that all MGA products would carry copyright notices of MGA or one of its clients.  That was simply not made out in the evidence.  As was confirmed in the course of argument by counsel on both sides, the evidence was that sometimes the products of MGA would have a copyright notice and sometimes they would not.  The same was true of other manufacturers’ products.  The plaintiff’s argument narrowed down to the suggestion that if it were true that the defendants considered that the handsample which they were given by MGA was a renewed product, in other words in a modified form of a product which MGA had previously marketed, then when they were asked to put on a copyright notice in June 1998 they should have been alerted to the fact that the original product upon which the handsample was based could not have come from MGA itself.  That argument is based upon the premise that all MGA products have always had the copyright notice of MGA.  Since that premise was not made out, that argument remains simply an argument without foundation.

29.  In respect of this aspect of the case, Mr Garland also took the point very strongly that he suggested that the defendants’ evidence, primarily from Mr Tung, to the effect that the price quotation in April had been made very quickly almost entirely on his estimation based on weighing the handsample, was unbelievable.  Having seen the various passages in the transcript which have been drawn to attention by Mr Yan in a schedule that was before the judge below I, for my part, cannot see that Mr Tang’s evidence was unbelievable in this respect.

30.  The judge, however, came to the conclusion that the defendants had constructive knowledge of the plaintiff’s copyright in the parts of the handsample from May 2000.  The judge reached that conclusion by a series of steps which were based partly upon his own suppositions on a basis that had not been put to the defendants.  In further and better particulars which had been supplied in November 2001, the defendants had pleaded that they had learnt of the plaintiff’s complaint in May 2000.  The particulars then continued “The contents of such complaints were contained in the copy of the writ of summons issued under HCA 5287/2000”.  However, when the defendants prepared their evidence the second defendant’s witness statement, which was filed on 28 June 2002 to contained the following:

“40.      Sunlight and myself first came to know of Golden Bright’s complaint about the subject toy pinball machines in late 2000 when Mr Frankie Tsang telephoned me about the High Court action brought by Golden Bright against them.  My immediate reaction was to refuse any further order for any of the subject toy pinball machines to avoid future uncertainties.  In fact, Sunlight had not received or accepted any order for production nor had it produced or supplied any of the subject toy pinball machines after having received notice of Golden Bright’s complaint.”

31.  As already observed, it was a long time before the matter came to trial.  But Mr Yan informed the court that when preparations were made for trial he looked again at the further and better particulars and it saw the discrepancy.  It was in those circumstances that he applied at the beginning of the trial to amend the further and better particulars.  That amendment was permitted.  Despite that amendment the judge appears to have relied upon the previous pleading.

32.  There was some evidence about the letter before action that had been written by the plaintiff’s solicitors to MGA in March of 2000.  The defendants gave discovery of that letter in their first list of documents.  From what can be determined that letter had not been sent by fax to the defendants but the copy had simply been given to them.  Quite apart from the question as to whether the contents of that letter were such as to give the defendants sufficient information to give the defendants reason to believe that there might be infringement of copyright, the question arises as to when that letter was received.  It is also important to note that the defendants did not give discovery of either the writ or any other documents which were in a HCA 5287 of 2000.  No questions were put to them that their discovery was incomplete in that respect.  Indeed the presence of the letter before action in their first list of discovery would indicate that they had not had any other documents relating to the plaintiff’s claim against MGA.  What is clear from the file in HCA 5287 of 2000 is that it was not until 5 July 2000 that inspection was offered to MGA of the drawings upon the copyright of which the plaintiff relied.  On 24 July 2000 MGA filed a defence in that action.  Then on 26 July 2000 Mr Yuen filed an affirmation exhibiting copies of the relevant drawings.

33.  Mr Garland submitted that the judge was entitled to reach the conclusion which he did because he had disbelieved the defendants that they had only come to know of the plaintiff’s claim in November 2000.  It appears to me that two points arise on that.  In the first place even if the judge had not accepted that it was as late as November 2000 this does not mean that the judge should have held that the defendants were aware of the plaintiff’s copyright in May 2000.  Although there is reference to the plaintiff’s writ in the MGA action in the further and better particulars the explanation given was that was a document which the defendants’ solicitors had by that stage.  That is understandable.  Furthermore, the second defendants’ evidence referring, as it did, to Order 14 proceedings and discovery being required following the judgment that had been entered against MGA appears to me to be entirely understandable.

34.  In my view, there is no basis for the May 2000 date being the date upon which the defendants would have had reason to believe that the pinball machines which they were manufacturing were copies of any copyright works belonging to the plaintiff.  In paragraph 112 the judge said that the answer filed in November 2001 to the request for further and better particulars formed part of the pleadings.  As a matter of pleadings, that answer no longer existed.  The amended further and better particulars took effect from the date of the original document. 

35.  Secondly, the judge appears to have reached his conclusion on the basis of what he said was “commonsense”, specifically that MGA would have alerted the defendants immediately a writ was received.  That, with respect, is not a matter of commonsense.  It is a matter of conjecture.  There is no evidence that the defendants in this case were ever given a copy of the writ in the MGA action by MGA or even told about it at the time that writ was served.  The defendants’ evidence was that they were given a copy of the letter before action much later and were told in November 2001 of the Order 14 proceedings.  MGA had contested the action which had been brought against it by the plaintiff right up until then.  One matter which has to be borne in mind in respect of this is that the defendants could have avoided any allegation of infringement of copyright by shipping goods through ports other than through Hong Kong.  Instead, it was their evidence that as soon as they were aware of the allegations of infringement of copyright they refused to take any further orders.  I, for my part, cannot see that the expressions used, particularly for example in paragraph 40 of Mr Yung’s witness statement, that the first defendant had not received or accepted any order for production nor had it produced or supplied any of the subject toy pinball machines after having received notice of the plaintiff’s claim, is in any way an odd reaction or expression.  It is the sort of belt and braces expression that would be used once a party’s solicitor had ascertained that all eventualities had been covered.

36.  In my view, therefore, the judge’s finding that the defendants had reason to believe that the parts which it was producing for MGA were in infringement of copyright or that of the defendants had constructive knowledge of the plaintiff’s copyright falls to be set aside.  In those circumstances this appeal falls to be allowed and the judgment below should be set aside.

37.  Given the fact that the finding of infringement is set aside there would be no basis for an order for delivery up.  For completeness, however, I would add that I do not consider that an order should have been made in this case even if infringement by the transportation of the defendants’ pinball toy machines through Hong Kong had constituted an infringement of the plaintiff’s copyright.

38.  Although the judge considered that it was appropriate to grant an order for delivery up of the moulds that were in the Mainland, the wording of the order was:

“The Defendants do, within 14 days hereof, deliver up to the Plaintiff for destruction of all moulds, toolings, goods, articles, materials in the possession, power, custody or control of the Defendants the continued use, sale or distribution of or otherwise howsoever dealing in or with by the Defendants which would offend against any of the foregoing injunctions.”

39.  Since the mould were in the Mainland and an injunction had been granted to prevent the defendants from bringing any such articles or any articles made from those moulds into Hong Kong I find it difficult to see how the “continued use” of the moulds in the Mainland could be said to offend against an injunction which the judge had granted.  The “continued use” of the moulds in the Mainland would not, without more, offend against the injunction which was granted.

40.  The judge looked upon the decision as to whether an order for delivery up should be made as simply a matter of construction of section 109 of the Ordinance.  It is true that section 109 does not in its terms restrict orders for delivery up of articles to those which are in Hong Kong.  Nevertheless, great care must be taken by any court seeking to make an order which by its terms has to be carried out or affects items outside the jurisdiction.  In this respect it is pertinent to bear in mind that in this case more than six years had elapsed between the date of the final shipments and the date of the hearing of the action.  No action had been taken against either the defendants or MGA either in the Mainland, the United States of America, Australia or anywhere else.  Observations as to that have already been made.  It can only be assumed, therefore, that the defendants would be entitled to manufacture their pinball toy games in the Mainland and export them to other countries without infringing any rights of the plaintiff.  Hence, even if there had been infringement by transportation of some of the defendants’ products through Hong Kong, the justification for seizing moulds would be far from apparent.

41.  Importantly, section 111 of the Ordinance provides that:

“(1)   An application may be made to the court for an order that an infringing copy or other article delivered up in pursuance of an order under section 109 should be-

(a)  forfeited to the copyright owner; or

(b)  destroyed or otherwise dealt with as the court may think fit,

or for a decision that no such order should be made.

(2)   In considering what order (if any) should be made, the court shall consider whether other remedies available in an action for infringement of copyright would be adequate to compensate the copyright owner and to protect his interests.”

42.  Taking the two factors referred to in subclause (2) into consideration, there is no reason to suppose that the plaintiff’s remedy in damages and an account of profits would not be adequate.  The plaintiff had already recovered damages in its action against MGA.  That had been a matter of agreement between the two parties in that action.  In addition even if the plaintiff could not have recovered further damages against the defendants in the present action, it would, had it established its case, been entitled to an account of profits in addition to the damages which it had already recovered from MGA.  As to the protection of the plaintiff's interests, given the fact that an injunction would have been granted it is difficult to see how the plaintiff’s interests needed further protection.

43.  In those circumstances, had it otherwise been necessary to decide the matter, I would have held that an order for delivery up of the moulds in the Mainland should not have been made.

44.  I would therefore allow this appeal and set aside the judgment in the court below.  I would make an order nisi of costs in favour of the defendants both here and below.

Hon Hartmann J:

45.  I agree.

Hon Barma J:

46.  I agree with the judgment of Rogers VP, and with the orders he proposes.

Hon Rogers VP:

47.  The appeal will therefore be allowed and the judgment below set aside.  There will be an order nisi of costs in favour of the defendants both here and below.