MEYER INTELLECTUAL PROPERTIES LTD v. LEE YUEN HOUSEWARES CO LTD

HCA 1978/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1978 OF 2006

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J U D G M E N T

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1.  This dispute is a contest about who is the owner of copyright in the design of a product known as the Hot Chocolate Maker; was it the customer and now its successor, or the designer responsible for the working drawings and the making?  If the former, should it be entitled to protection from prospective future infringement?

2.  The matter came to light when the successor Meyer found out that the designer Lee Yuen had registered the design of the product in Hong Kong and the PRC at about the time Meyer had decided to take its business away from Lee Yuen to another supplier.  By this action it sues for a declaration that it is the owner of the copyright, a quia timet injunction, an enquiry into damages and other related orders.

3.  The matter before me is an application for summary judgment for such relief, save for the enquiry into damages.  Meyer is content to rely on the assurance given on behalf of Lee Yuen that it has not dealt with anybody else concerning the Hot Chocolate Maker, so there is no actionable loss.

Background

4.  The original customer was a Californian based company called Bonjour Incorporated, with whom Lee Yuen had a relationship lasting for some 10 years up to mid-2005, when it, Bonjour, was sold lock, stock and barrel to Meyer.  Meyer deals worldwide in kitchenware utensils and as such is the owner of well-known brands including Prestige, Salad Chef, Circulon and now Bonjour.

5.  Lee Yuen, at all material times based in Hong Kong, as its main function designs, develops and markets various household products and kitchen utensils; some feature in a catalogue of original products.  Many of those which are its original designs it has registered in Hong Kong or elsewhere.  It will also pick up on a concept supplied by a customer and convert that into working drawings and then source a factory in China for the tooling and the manufacture of the product.

The Issues

6.  What is contended for by Meyer giving rise to this application is twofold.

7.  The first is that it has copyright in the artwork giving rise to the product because an employee of Bonjour was the artist.  Against this is the proposition that the first established artwork was a working drawing produced by designers employed by Lee Yuen.  So that means copyright vests in Lee Yuen.

8.  The second is that if it is established that Meyer owns the copyright, is it entitled to a quia timet injunction to restrain future infringement?  The counter is that there has been no past infringing, which Meyer now accepts (having dropped its claim in damages) and demonstrably no threat or risk that it will happen in the future.

9.  It is enough to defeat either or both of these applications if Lee Yuen is able to show it has an arguable defence and/or that there are triable issues.

The Deponents

10.  Those who have filed evidence include a director of Meyer called Mary Stutz and a director of Lee Yuen called Chung Kwok Biu.

The Hot Chocolate Maker

11.  Prior to the sale to Meyer Ms Stutz worked for Bonjour.  Her duties included the development of new products.

12.  She conceived the idea that this product might be marketable when she bought and studied a similar product developed by a competitor called Red Envelope.  This comprises a round porcelain pot, wider at the top than at the bottom, with a hole in the lid from which protrudes a wooden spoon or mixer.  Hot chocolate is made and poured into the pot, and then frothed up by the wooden spoon.

13.  At the next of regular strategy meetings conducted by Bonjour, she raised the idea.  The notes of that meeting, held on 6 December 2004 record:

Hot Chocolate Maker

Butter churner look

Size is too big, make smaller

Comes with 4 mugs (do it with 2 mugs)

Red Envelope sells it for $69.00

Gave project to Team Concepts 129

14.  The project was approved.

15.  Team Concepts 129 is a Hong Kong based design company sometimes used by Bonjour to assist in the design of new products.

16.  A co-worker of Ms Stutz, called Susie McCaffrey, towards the end of December 2004 faxed to Team Concepts 129 various sketches of the proposed porcelain pot, of varying shapes, with a wooden mixer protruding through the lid.  The look of some of these was similar to the Red Envelope pot, although one had a base significantly wider than the top.

17.  But shortly afterwards she and others decided that the wooden mixer should be substituted with a battery powered whisk, or frother.

18.  Susie then sketched what she, Ms Stutz, describes in her affidavit as “the original design drawing of the Hot Chocolate Maker using her own independent skill labour and judgment and it was decided that it would be the design of the Hot Chocolate Maker to be developed produced and marketed by Bonjour”.

19.  It is this sketch in which Meyer claims copyright.

20.  The sketch, I am told, was drawn on or about 6 January 2005.  I have seen it, and the finished product.  They are quite similar.  The shape of the pot that she decided upon was the one with the bigger base and smaller top.  The frother so-called, emerges through a snap-on lid.  There is written on the sketch “porcelain” (depicting the jug) “6 cup capacity because want room for mixing”, “clear snap on lid” and “frother”.

21.  They decided not to use Team Concepts 129 but instead Lee Yuen, because they knew Lee Yuen had already designed and produced a frother that might be adapted for this product.

22.  As it happened, a manager and designer of Lee Yuen called Timmy Hui was scheduled to meet Susie at Bonjour’s workplace on 12 January 2005 during a business trip he regularly undertook visiting US customers.

23.  Following Bonjour’s decision to go with Lee Yuen in the project, there followed a series of emails between Susie and Timmy beginning on 6 January and running through to about 2 March, during the course of which they shared information as the concept was developed and refined before finally emerging as a sample and then marketable product.

24.  These emails are important because they provide contemporaneous documentary clues as to who was entitled to lay claim to the artistic works from which the Hot Chocolate Maker emerged.

25.  They are particularly important because neither Susie nor Timmy are apparently available to give evidence.  It seems she did not go with Bonjour to Meyer after the sale, and he has left Lee Yuen under a cloud, following what it seems amounted to an unauthorized relationship with a competitor.

26.  Susie opens the correspondence with this email sent on 6 January:

“	…
	We want to make a hot chocolate mixer.  I have an idea and I will fax a sketch to you in the morning.
	What it is is a porcelain OR stoneware container with a handle and a clear top.  The capacity will be ‘about’ 5 cups.  I will market it to hold 4 cups but I want room for mixing.  What you do is heat up milk, add shaved chocolate.  THEN put on the clear lid THEN using one of your frothers — put it through the top to MIX up your hot chocolate mixture.  You will then pour the hot chocolate into a cup (that is one of 2 in a set) and enjoy!
	We will be able to discuss this project during our meeting too!  I just wanted to let you know that we want to do this project with you.”

The response from Timmy came the next day:

“	…
	Guest what?!  We also have same idea that may be similar to yours.  I will also have a picture ready for discussion next week.
	Look forward in receiving your sketch for review.
	…”

And then on10 January he sent photos of what was described as a hot chocolate set that was to be exhibited as a product of Lee Yuen at a forthcoming trade fair.

27.  I have seen the photographs.  There is in fact no comparison with Susie’s sketch.  The so-called set comprised a standard cylindrical coffee pot, including lid, a battery powered frother (not part of the pot) a cup, grater and spoon.

28.  There followed the meeting of 12 January.

29.  Ms Stutz deposes that amongst other prospective projects, the Hot Chocolate Maker was discussed in detail.  She says they provided Timmy with a copy of Susie’s sketch with the explanatory words written across it.

30.  Then, on 14 January from Susie:

“	…
	We have decided NOT to do the entire set (cup, mixer, grater and spoon) for mixing hot chocolate that you had presented.  Thank you for showing us!
	In regards to our Chocolate mixer items we will do the following:
	1 —	The Hot Chocolate pot.
		Porcelain vessel with a handle and clear top and a frother.
	…”

And a follow-up on 20 January:

“	…
	Have you been able to work with your designer on the designs for the:
	1 —	Hot Chocolate mixer
		The 32oz. porcelain pot w/ the clear top and the mixer.
	…”

31.  At some stage Susie drew another sketch, this time in colour.  On it she had written, “yellow button” (this at the top of the frother) “chocolate coloured mixer”, “clear top”, “white porcelain body” and “logo on body” (the word “chocolate” is depicted).

32.  It is not clear if this was sent or faxed to Timmy, but a clue that he did get it emerges from his email of 20 January, reference the yellow button:

“	…
	2)	Hot Chocolate mixer
		Our Tech. drawer is working on the new drawing of ceramic jug for hot chocolate at the moment.  Also the maker of the mixer is working on the new mixer with large yellow button sample for you review.  I hope the sample will be ready to send together with Salad chef prototype at once.”

Susie then called for a minor addition by this email of 25 January:

“	…
	Regarding the HOT CHOCOLATE MIXER:
	-	can I also get a top plug piece that can be put on after the mixer comes out?  Clear color?
	…”

33.  Then the working drawing emerged.  This from Timmy of 27 January:

“	…
	4)	Hot Chocolate mixer
		Please find attached drawing of ceramic chocolate jug for your consideration.  I will also arrange new mixer with large soft button for you next week.
	* The ceramic chocolate jug will come up with a clear plastic cover the top plug piece.  Sample will be sent together with new soft button mixer next week”

Susie commented:

“	The drawing of the mixing jug looks perfect.  This design is acceptable to make into an appearance model.”

34.  I have seen the design.  It is a working drawing whose dimensions are similar to the freehand version drawn by Susie in her original presentation.  Furthermore, it contains explanatory words “6 cup want room for mixing” which are almost identical to those which appear on Susie’s sketch.

35.  It is in respect of this drawing that Lee Yuen through its director Mr Chung claims to be the author and owner and thus in which it claims copyright.  Of this he said:

“

In the premises, it is clear from the above that it was the Defendant who was mostly responsible for the design of the subject Hot Chocolate Mixer.  Bonjour, as a customer of the said product, may have made some comments, and perhaps suggestions, to the concept of the product but all the relevant drawings were created by the employees of the Defendant and sent to Bonjour for their comments and consideration.  McCaffrey even commented in one of the emails that the drawing of the mixing jug looked perfect.  As for the remaining components of the Hot Chocolate Mixer, i.e. the mixer and the covering lid, the designs thereof simply came from some other existing products of the Defendant.”

Ms Stutz responded:

“

The email of Timmy to Susie McCaffrey of 20 January 2005 states ‘Our Tech. drawer is working on the new drawing of ceramic jug for hot chocolate at the moment’.  The email of Timmy to Susie of 27 January 2005 refers to and attaches a drawing of a ‘ceramic chocolate jug’.  This is a technical drawing of a ceramic jug …  The jug as appears in the technical drawing was prepared from and based upon [Susie’s sketch]. The technical drawing was submitted by the Defendant to Bonjour for approval and which approval was granted as evident from subsequent emails.  The copyright subsisting therein, if any, accordingly belongs to [Meyer].

In light of the foregoing, Mr Chung’s disingenuous assertion made in his affirmation that [Lee Yuen] somehow owns the copyright subsisting in the Hot Chocolate Maker is simply contrived and ignores the overwhelming weight of the evidence against him.”

36.  Further evidence points favourably towards Meyer’s case.  Bonjour designed the artwork on the box which along with the product Lee Yuen arranged to be made.  On it following the sale by Bonjour to Meyer, were printed the following words:

37.  But then in support of Lee Yuen’s case Mr Chung refers to the document evidencing the sale of Bonjour to Meyer, headed Asset Purchase Agreement.  This sets out in detail all the intellectual property rights included in the sale.  But there is no reference to a Hot Chocolate Mixer.

38.  The response to that, from Ms Stutz, is that the authors of the Asset Purchase Agreement anticipated that there might be errors and omissions because no due diligence was undertaken.  It provides for all of Bonjour’s assets to be included whether itemized or not.

39.  Ms Stutz has also filed what amounts to an affidavit made under section 121 of the Copyright Ordinance; the legal significance of this I shall come to shortly.

Threat of Infringement?

40.  Mr Chung, as can be read, asserts ownership in the copyright of the drawings from which came into being the Hot Chocolate Maker.

41.  But even if that proves not to be the case, there is no threat that Lee Yuen will act in breach of that copyright.  He deposed that the registration of the design in Hong Kong and the PRC, in late 2005, was to protect the interests of both Bonjour and Lee Yuen.  He said there was an understanding that Lee Yuen would not deal with any other customer in the product.  Lee Yuen has never done so, and has never formed the intention that it would.

42.  He deposed that the then president of Bonjour had through Timmy Hui,

“	reminded [Lee Yuen] to register the designs of the products sold to Bonjour in Hong Kong and in the Mainland (where the products were manufactured) so as to prevent others from copying the designs”.

43.  I should mention here that this is categorically denied by Meyer.

44.  Further, prior to the writ issuing, Lee Yuen applied to surrender the design registration in Hong Kong.  No such step has been taken in the PRC, but that is because the current registration will lapse in September, this month.

45.  Mr Chung deposed:

“	[Lee Yuen] has made it very clear its position that it does not and has no intention to deal with the Hot Chocolate Mixer (save and except with [Meyer] and its related companies).”

The Legal Principles

Order 14 RHC Applications for Summary Judgment

46.  In Konstar Industries Ltd & Anor v Wong Yan Kwong & Ors, unreported, HCA 4240/99, Sakhrani J conveniently sets out at page 5 the principles governing applications for summary judgment:

“	It is useful to bear in mind what Godfrey J (as he then was) said in Unic Co. v Centus Development Ltd [1988] HKC 643 at 647:
	‘	The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v Stone [1894] AC 122.
		As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend.  Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment.  Order 14 is not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the court, nor to make him liable in such a case to be put on terms of paying into court as a condition of leave to defend.’
	It has also been said that it is a not a proper course for the court to embark at this stage on a mini-trial of the action on affidavit evidence.  It is sufficient for the court to ask itself whether the Defendant’s assertions are believable (Ng Shou Chun v Hung Chun San [1994] 1 HKC 155).
	It was also helpfully pointed by Godfrey J.A. (as he then was) in the Court of Appeal in the case of Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 at 228:
	‘	Unless it is obvious that the defence put forward by the Defendant is ‘frivolous and practically moonshine, Order 14 ought not to be applied’: see Codd v Delap [1905] 92 LT 510, per Lord Lindley at 511.’”

Evidence of Ownership in Copyright

47.  Section 121 of the Copyright Ordinance reads in part:

“	121.	Affidavit evidence
		(1)	An affidavit which purports to have been made by or on behalf of the 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.
			…
		(3)	The court before whom an affidavit which complies with the conditions in subsection (4) is produced under subsection (1) or (2) shall presume, in the absence of evidence to the contrary —
			(a)	that the statements made in the affidavit are true; and
			(b)	that it was made and authenticated in accordance with subsection (4).
		(4)	An affidavit may be tendered in evidence under subsection (1) or (2) if —
			(a)	it is made on oath —
				(i)	before a solicitor or a commissioner as defined in the Oaths and Declarations Ordinance (Cap.11), if it is made in Hong Kong; or
				(ii)	before a notary public, if it is made outside Hong Kong;
			(b)	it is authenticated, so far as relates to the making thereof, by the signature of the solicitor, commissioner or notary public before whom it is made;
			(c)	it contains a declaration by the deponent to the effect that it is true to the best of his knowledge and belief; and
			(d)	subject to subsection (6), not less than 10 days before the commencement of the hearing at which the affidavit is tendered in evidence, a copy of the affidavit is served, by or on behalf of the prosecution or plaintiff, on each of the defendants.
		(5)	Notwithstanding that an affidavit is admissible as evidence by virtue of this section, a defendant or his solicitor may, with 3 days from the service of the copy of the affidavit, serve a notice requiring the attendance of the deponent to the affidavit in court.
		(6)	The parties may agree before the hearing that the requirements of subsection (4)(d) may be dispensed with.”

This does not amount to conclusive proof of who is the owner of a copyright work, but it does give rise to a rebutable presumption that what is deposed to is true.

Quia Timet Injunctions

48.  Quia timet injunctions may be applied for and granted before any act infringing the applicant’s rights has occurred, to prevent that happening.  They are commonly pursued to prevent breach of patent rights.

49.  However, there has to be established some prospect that there will be a breach; that there is a risk of a future injury justifying the immediate granting of an injunction.  If there has been no infringement in the past, that is a factor which may weigh against the need for one.

50.  As was said many years ago, in exercising its discretion, the court is required “to balance the magnitude of the evil against the chances of its occurrence”; see Earl of Ripon v Hobart (1834) 3 My & K 169 at p.176.  And it is said in another case standing also the test of time, Fletcher v Benley (1885) 28 Ch D 688 at p.698:

“	If no actual damage is established there must be proof of imminent danger, and there must also be proof that the apprehended damage will, if it comes, be very substantial.”

Discussion

51.  There are as I have earlier stated two issues.  The first concerns the question of ownership of the copyright.

52.  Mr Wong for Lee Yuen submits that in the absence of evidence from Susie McCaffrey, the alleged author of the sketches produced, in particular as to the timing of the sketches and just when (if at all) they were made available to Timmy Hui and Lee Yuen, there is an arguable defence that the concept emerged from Lee Yuen such that the drawing prepared and forwarded by Lee Yuen was the artistic work of which Lee Yuen is the owner.

53.  I do not with respect agree.  It seems quite clear to me from the history as it unfolded and is represented in the emails, and as well from Ms Stutz’s participation in events, that the idea came from Bonjour’s team and came into existence when Susie McCaffrey put pen to paper and drew her sketch.  It is not possible that that was not sent to Lee Yuen or handed to Timmy Hui, at the meeting of 12 January.  The working drawing that Lee Yuen holds out as original is not original at all.  It derives from Susie’s sketch.

54.  I conclude there is no arguable defence to the proposition that Susie’s employer, and then its successor in title, is the owner of the copyright.

55.  What about the prospect of Lee Yuen infringing?

56.  Mr Shipp for Meyer submitted that Lee Yuen’s applications to register the design in Hong Kong and the PRC were made without telling Bonjour.  That the president had “reminded Lee Yuen to do so” was a bare assertion not backed by anything concrete; at any rate it is denied.  Whilst Lee Yuen in pre-writ correspondence said it would revoke the Hong Kong registration, it has declined to do so in respect of the PRC registration.  This represents a sufficient threat; there is no arguable defence to the need for the protection afforded by the quia timet injunction asked for.

57.  I do not agree.  All steps taken and words pronounced indicate that Lee Yuen will not infringe Meyer’s copyright.

58.  It has revoked the Hong Kong registration, even as it asserted ownership of the copyright.  Mr Chung under oath said that the PRC registration will lapse shortly; I accept that is enough to demonstrate there will be no renewal applied for.  He has also said, under oath, that whilst Lee Yuen has received trade enquires from other customers about the Hot Chocolate Maker it has not entertained them.  Further, Lee Yuen has never dealt in the product with any other customer and, as Mr Chung swears, has never had the intention of doing so with any party save Bonjour or Meyer or related companies.

59.  I conclude that it has been amply demonstrated that there are triable issues on the granting of a quia timet injunction.

The Orders

60.  On the issue of ownership in the copyright there is to be judgment in favour of Meyer. 

61.  A number of orders were asked for in a draft order submitted.  Some of these relate to the quia timet application which has failed at this stage.  One concerns an affidavit asked for giving details of any other registration by Lee Yuen outside of Hong Kong.  There is nothing to suggest there has been any; this will not be ordered.  There is a further order requested being a transfer of the PRC registration.  In view of its imminent demise that will not be made either.

62.  What remains is the declaration of ownership in copyright that is asked for; that is granted.

63.  Lee Yuen has unconditional leave to defend the application for an injunction.

COSTS

64.  These are nisi.  The plaintiff has won its application for a declaration of ownership but the defendant has held off the remaining matters.

65.  In the circumstances the plaintiff shall have its costs associated with establishing ownership in the copyright both in the action and this application. 

66.  The defendant shall have its costs of and related to its defence of the summary judgment application for the injunction, in any event.