NAGRAVISION SA v. ZHUHAI GOTECH INTELLIGENT TECHNOLOGY CO LTD AND OTHERS

HCIP 29/2019

[2020] HKCFI 1422

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 29 OF 2019

(Transferred from HCA 2297/2016 pursuant to the Order

of the Honourable Mr Justice Lok on 22 July 2019)

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REASONS FOR DECISION

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1.  These proceedings arise in respect of the production, promotion and sale of set top boxes and receivers allegedly designed to circumvent the Plaintiff’s technological protection measures, thereby enabling users to decrypt and view pay television broadcasts without paying for them.

2.  The 1^st and 2^nd Defendants took out the summons dated 3 July 2010 (the “Summons”) applying for: (i) summary disposal of the case on certain points of law under O14A of the RHC; and (ii) a trial of preliminary issue on locus to make one of the Plaintiff’s claims under O33 r3 of the RHC.  I refused the application in the hearing on 23 June 2020.  I now give my reasons.

BACKGROUND

3.  The Plaintiff is a company incorporated in Switzerland providing security technology to the pay-television (“Pay TV”) industry. The Plaintiff’s technology is used by its broadcaster clients to ensure that customers have paid for their subscriptions before being allowed to view Pay TV.  The Plaintiff’s technology consists of set top boxes installed with smart cards, comprising the Plaintiff’s security software, used to decrypt the encrypted Pay TV broadcasts.

4.  The Plaintiff’s technology involves the use of “control words” that are channel-specific and change automatically every 5 to 10 seconds for each channel.  The Plaintiff’s control words are transmitted to subscribers along with the encrypted audio and video streams of the Pay TV broadcaster.  The Plaintiff sets up a head-end at the broadcaster’s base station which the Plaintiff uses to send the control words in encrypted packets known as Entitlement Control Messages (“ECMs”).  These ECMs are then combined with the encrypted audio and video streams of the Pay TV broadcaster to be sent to the subscriber.  A smart card installed in a subscriber’s set top box will decrypt the ECMs using secret cryptographic keys stored inside the smart card memory.  The smart card will then confirm that the subscriber has purchased the right to watch the programme and decrypt the control words.  The set top box will then use the decrypted control words to unscramble the audio and video streams for the desired programme.

5.  The 1^st Defendant is a limited company incorporated in the Mainland carrying on the business of manufacturing and selling of digital set top boxes which are also known as “receivers”.  The 2^nd Defendant is limited company incorporated in Hong Kong.  It is a subsidiary of the 1^st Defendant carrying on the business of selling, distributing and marketing of set top boxes manufactured by the 1^st Defendant in the Mainland.  It is the Plaintiff’s case that the 3^rd and 4^th Defendants are involved in the same group of companies.

6.  The acts of the Defendants under complaint in these proceedings include providing an illicit “Internet Key Sharing Service” (named G-Share) which allows users of the set top boxes manufactured by the Defendants to circumvent the Plaintiff’s technology protection measures and watch Pay TV without paying for it, including via the Defendants’ G-Share Internet Key Sharing servers and online forums, set up using servers located in the United States.

7.  The Plaintiff made a civil claim against the 1^st to 3^rd Defendants (the “US Defendants”) in the United States District Court, Southern District Court of Texas (the “US District Court”).  On 18 August 2016, the US District Court handed down the Judgment with reasons against the US Defendants in default of appearance (the “US Judgment”).  The court found that the US Defendants had violated the United States Digital Millennium Copyright Act (the “DMCA”) and the Federal Communications Act (the “FCA”), and awarded statutory damages of US$101,851,800 based on the US Defendants’ 509,259 violations of s 1201(a)(2) of the DMCA at US$200 (being the minimum statutory damages for each infringement) per violation.

8.  The US Defendants applied to the US District Court on 18 October 2016 to set aside the US Judgment.  The application was dismissed in early December 2016.

9.  The US Defendants filed a further appeal with the United States Fifth Circuit Court of Appeals, and an oral hearing was held on 9 November 2017.  After full briefing and oral arguments by lawyers on both sides, the appeal was dismissed on 7 February 2018.  The US Defendants’ subsequent application to the United States Supreme Court for an order of certiorari was refused on 13 November 2018.

10.  In Hong Kong, the Plaintiff brought the present proceedings against the Defendants in 2016 which include the following causes of action:

(i)  a claim at common law to enforce damages of US$101,851,800 awarded against the US Defendants in the US Judgment (the “US Judgment Claim”);

(ii)  further or alternatively, if the US Judgment is not enforceable at common law, a claim for damages directly in Hong Kong under the provisions of United States law under the DMCA and the FCA (the “US Law Claim”);

(iii)  claim under s 275(2) of the Copyright Ordinance, Cap 528 (the “Ordinance”) for dealing in apparatus or devices designed or adapted to enable or assist the unauthorised reception of transmissions or publishing information which is calculated to enable or assist the unauthorised reception of transmissions (the “S 275 Claim”); and

(iv)  claim under ss 30 and 31 of the Ordinance for dealing in copies of the Plaintiff’s copyright works which are loaded onto the Defendants’ devices, in particular set top boxes (the “SS 30 and 31 Claim”).

11.  The Plaintiff successfully applied for Mareva injunction against the Defendants.

12.  The 4^th Defendant’s application to discharge the Mareva injunction was dismissed by Recorder Houghton SC in his decision dated 16 May 2017.

13.  The Defendants’ applications to discharge the Mareva injunction and to challenge jurisdiction were dismissed, following a 4-days’ hearing, by DHCJ Francis in his decision dated 14 June 2018 (the “Francis’ Decision”)[1].

14.  In the Summons, the 1^st and 2^nd Defendants ask the court to determine the following 6 issues under O14A procedure:

(1)  Whether the US Judgment made against the US Defendants by the US District Court on 18 August 2016:

(a)  is a judgment for multiple damages within the meaning of ss 7(1) and (3) of the Protection of Trading Interests Ordinance, Cap. 471 (“PTIO”) (the “PTIO Issue”); and/or

(b)  further or alternatively, is oppressive and grossly excessive in its amount and/or is penal in nature and/or offends substantial justice in that it is not computed on the basis of, and bears no relation to, damages based on compensatory, restitution or disgorgement principles (the “Penal Issue”); and

(c)  if yes in (a) or (b) above, whether the US Judgment is enforceable in Hong Kong and whether the court in Hong Kong has jurisdiction to award damages in lieu of the damages awarded under the US Judgment (the “Enforcement Issue”).

(2)  Whether the Plaintiff’s claims based on the DMCA and the FCA:

(a)  are justiciable in Hong Kong (the “Justiciability Issue”); or

(b)  fall foul of the rule against double actionability if the Plaintiff does not have the locus to bring the S 275 Claim as so found in the trial of preliminary issue as mentioned below (the “Double Actionability Issue”); or

(c)  are barred against enforcement in Hong Kong under s 5(1) of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, Cap. 46 (the “FJ(RRE)O”), and/or the Plaintiff is estopped at common law from claiming relief as its alleged causes of action have merged into the US Judgment (the “FJ(RRE)O Issue”).

15.  The 1^st and 2^nd Defendants also seek an order for trial on preliminary issue as to whether the Plaintiff has the standing and capacity to make the S 275 Claim (the “S 275 Locus Issue”).

DECISION ON THE O14A APPLICATION

16.  In my judgment, it is not appropriate for the court to invoke the O14A procedure to determine the issues or points of law framed by the 1^st and 2^nd Defendants for the following reasons:

(i)  the issues raised in these “points of law” involve disputes of mixed law and fact, making it inappropriate for the court to decide the various “points of law” by way of O14A procedure;

(ii)  given the history of the present litigation, the conduct of the O14A hearing at this stage would not result in the efficient disposal of the case.

(a)     The “points of law” involve disputes of mixed law and fact

17.  It is trite law that O14A procedure is not appropriate for determination of issues involving disputes of fact or mixed law and fact.  Further, such kind of application cannot be dealt with by the court on the basis of assumed or hypothetical facts.[2]

18.  The first two issues, i.e. the PTIO and Penal Issues, are relevant to the Plaintiff’s US Judgment Claim.  It the Defendants’ case that the award in the US Judgment, i.e. the sum of US$101,851,800 calculated by reference to the Defendants’ 509,259 violations of s 1201(a)(2) of the DMCA at US$200 per violation, involves “multiple damages” within the meaning of ss 7(1) and (3) of the PTIO or oppressive or grossly excessive penal damages, and as a result the Plaintiff cannot enforce the US Judgment in Hong Kong courts.

19.  According to the Plaintiff, the statutory damages calculated in the US Judgment were based upon the number of unique IP addresses accessing the G-Share service plus also the number of set top boxes distributed in the United States.  Further, documents obtained by the Plaintiff in the United States and Hong Kong proceedings demonstrate that the US Defendants have all been involved in the same infringing activities including, in particular, operating the G-Share platform.

20.  In my judgment, whether the statutory damages awarded in the US Judgment involve multiple damages or penal damages is not a simple question of law.   As rightly observed by DHCJ Francis in the Francis’ Decision, in order to decide this issue, it is necessary to lead evidence as to “the law of the United States as regards statutory damages under the DMCA beyond the statute itself...  In particular, the underlying rationale and whether such damages are considered purely compensatory or punitive and/or penal or a combination of the two”[3].  It is trite that issues as to foreign law are issues of fact and are not suitable for determination under O14A procedure.[4]

21.  If the court were to order an O14A hearing to determine the PTIO and Penal Issues, I would anticipate that the parties would file lengthy expert reports on United States law on these issues.  As these are treated as issues of fact, it is simply impossible for the court to determine these issues summarily.

22.  In support of the contention that the damages awarded in the US Judgment are penal in nature, the Defendants are relying on the published financial statements of the Plaintiff with a view to show that the quantum of the US Judgement is out of proportion to the revenue of the Plaintiff as listed in these statements.  Again these are all fact-sensitive matters, and the parties may have to file lengthy evidence on the interpretation of the financial statements.  As the PTIO and Penal Issues possibly involve substantial disputes of mixed law and fact, the court should not adopt the O14A procedure to determine these issues.

23.  The Enforcement Issue is dependent on the rulings in the PTIO and Penal Issues.  Given that there is no basis for invoking the O14A procedure to determine the PTIO or Penal Issues, there is also no ground to do so in respect of the Enforcement Issue.

24.  The Justiciability and Double Actionability Issues are relevant to the US Law Claim, which is made on the basis of a novel legal proposition apparently established by the United Kingdom Supreme Court in Lucasfilm Ltd v Ainsworth[5]. According to the Plaintiff, the Supreme Court held that: (i) the common law rule that an English court has no jurisdiction to entertain an action for infringement of property rights in a foreign jurisdiction does not apply to claims for infringement of foreign copyright; and (ii) accordingly, the English court has jurisdiction in respect of a claim for infringement of United States copyright provided that there is basis for in personam jurisdiction over the defendant.

25.  The principles in Lucasfilm Ltd v Ainsworth have not been considered by the local courts, and so it remains unsettled as to whether they are good laws in Hong Kong.  In particular, Mr Deng, counsel for the 1^st and 2^nd Defendants, has pointed out that the double actionability rule has been abolished in England by s 10 of the Private International Law (Miscellaneous Provisions) Act 1995.  Whilst the double actionability rule is still good law in Hong Kong, the result of the case may be different here.

26.  Even if the Hong Kong court were to apply the principles in Lucasfilm, one has to be cautious about the factual matrix under which the Supreme Court applied the principles.  In that case, there was no issue about the subsistence of copyright, and it was upon that basis that the plaintiff was able to rely on its United States copyright to claim against the defendant in England.[6]  The present case is very different.  As the pleading now stands, there may be dispute about what is the exact subject matter of the copyright material and whether copyright indeed subsists in such material.  Under such circumstances, the court cannot just apply the principles in Lucasfilm in vacuum in the O14A procedure and ignore the factual disputes between the parties about the subsistence of copyright.

27.  Further, as the US Law Claim is one made on the basis of the copyright law in the United States, expert evidence on United States law is probably required to determine the matters involved in the Justiciability and Double Actionability Issues.  Another possible factual dispute that may arise was highlighted by DHCJ Francis in §§108 and 109 of the Francis’ Decision, where the judge mentioned that the “consideration and determination of the relevant issues will involve detailed both factual and legal analysis, including technical aspects of broadcasting technology and the related rights.”

28.  At this stage, it is still uncertain as to how parties would develop their arguments on the novel US Law Claim.  It would be embarrassed if, later in the course of the O14A procedure, it is found out that the court would have to listen to oral evidence to determine questions of fact or foreign law.  In my judgment, the court cannot ignore such potential risk and it would be safer for the court to conduct the trial in the conventional manner.

29.  As there should not be an O14A hearing to determine the Justiciability and Double Actionability Issues, there is no point to adopt such procedure just to determine the FJ(RRE) Issue.

30.  In any event, s 5(1) of the FJ(RRE)O provides:

“No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong.”

31.  The statute does not bar re-litigation in Hong Kong where the foreign judgment is not recognisable in Hong Kong.  In the premises, the Defendants are precluded from relying on this provision unless and until they abandon their ground of defence that the US Judgment is not enforceable in Hong Kong.

(b)     The conduct of the O14A hearing would not result in efficient disposal of the case

32.  I also take the view that the conduct of the O14A hearing at this stage would not facilitate the progress of the case.

33.  The whole purpose of adopting the O14A procedure is to try to resolve some points of law earlier with a view to achieve a more efficient disposal of the whole claim.  It may be appropriate in cases, for example, where the main dispute turns on construction of a particular term of a contract.  If the determination of the legal issues would finally resolve the whole action or facilitate the progress of the case, it may be beneficial for such points of law to be determined first. 

34.  The present case is different.  The points raised in the 6 framed issues involve both mixed questions of fact and law, and those issues may overlap with the other remaining issues of the case.  For example, in determining these issues, the court may have to understand the technical matters as to how the Plaintiff’s technology works.  The court would also have to know how the Defendants have infringed the rights of the Plaintiff. Under such circumstances, the O14A hearing will probably be a lengthy one, and there may be duplication of efforts if these matters will have to be revisited in the main trial itself.  It would actually complicate the whole case by trying to frame some issues for earlier determination.

35.  Furthermore, the Summons was taken out 3 years after the commencement of the proceedings.  At this stage, the parties are focusing their efforts on the preparation of the trial, and the O14A hearing will only be an unwelcome distraction to the preparation works.

36.  Novelty of the legal issues and possibility of appeals after the O14 hearing are also serious concerns.  The “points of law” framed by the 1^st and 2^nd Defendants involve novel issues which remain unsettled in Hong Kong.  There is real possibility of appeals at two further levels, which will certainly result in more delay and expense to the parties.  In Rockwin Enterprises Ltd v Shui Yee Ltd[7] and Jade’s Realm Ltd v Director of Lands[8], both Recorder G Ma, SC (as he then was) and Ng J respectively recognised the possibility of further appeals as a factor negating the O14A procedure.  Comparing the issues that have to be resolved in the said two cases with those in the present one, even stronger reasons exist here for not adopting the O14A procedure.

37.  For these reasons, I refused the application to conduct an O14A hearing to determine the 6 “points of law” framed by the 1^st and 2^nd Defendants.

DECISION ON THE APPLICATION FOR TRIAL ON PRELIMINARY ISSUE

38.  There is no dispute about the general rule that all the issues in the case are to be tried at the same time.  There is power to order that different issues in the case be tried at different times, but the departure from the general rule is ordered only if it is just and convenient.[9]

39.  I take the view that it is not appropriate for the court to order a trial of the S 275 Locus Issue as a preliminary issue, as it is not just or convenient to do so.

40.  The S 275 Locus Issue is mainly relevant to only one of the Plaintiff’s claims, i.e. the S 275 Claim, though it may also affect the Double Actionability Issue which is a matter to be considered in the US Law Claim.

41.  I do not propose to go into the legal arguments for the S 275 Claim in great details here.  In short, s 275 of the Ordinance provides that a person, who: (i) makes charges for the reception of programmes included in a broadcasting or cable programme service provided from a place in Hong Kong or elsewhere; or (ii) sends encrypted transmissions of any other description from a place in Hong Kong or elsewhere, to have certain rights against others who are responsible for dealing with apparatus for unauthorised reception of the transmissions, as if the former is the copyright owner.  Although such right is not a copyright in the strict sense, it is closely related thereto.  On the other hand, the Defendants argue that the Plaintiff does not fall within either of these two categories of person, and so it is not entitled to make a claim under s 275.

42.  There is also a related argument that the Plaintiff does not fall within one of the categories of person specified in ss 273A(2) or 273B(3) of the Ordinance.  However, since the Plaintiff’s claim is one based on s 275, it is not necessary for me to consider ss 273A and 273B at this stage.  However, the relationship between these statutory provisions may have to be further argued in the later stage of the proceedings.

43.  In my judgment, the main reason for denying the preliminary trial application is that it would not facilitate the efficient disposal of the case.  The determination of the S 275 Locus Issue is only directly relevant to one of the Plaintiff’s claims, i.e. the S 275 Claim. There are three other outstanding claims.  Given the enormous quantum of the US Judgment Claim, it is quite likely that the Plaintiff will continue to pursue the other three claims irrespective of the ruling on the S 275 Locus Issue.  It is different from other cases such as Beijing Hantong Yuzhi Convention Centre Ltd v Lao Yuan Yi[10] and Re Tai Ping yeung Motors Ltd[11], in which the locus standi point was separate and distinct issue involving uncomplicated and limited factual disputes, and depending on the result of the trial on preliminary issue, the ruling might finally dispose of the case.

44.  In the present case, it is unlikely that the trial on preliminary issue will shorten the proceedings.  The other claims will probably have to proceed no matter what is the ruling in the trial on preliminary issue.  Under such circumstances, the early disposal of the 275 Locus Issue, or indeed the whole S 275 Claim, offers no assistance at all.  The trial of preliminary issue would distract the parties in the preparation of the other claims thereby affecting the overall progress of the case.  Further, the possibility of further appeals after the trial on preliminary issue would result in further delay and costs to the parties which is highly undesirable.

45.  In addition, I am not sure, at least at this stage, whether the issues involved in the proposed trial on preliminary issue would overlap with the issues involved in the other claims.  In determining whether the Plaintiff falls within the categories of person in s 275, the court may have to investigate: (i) the technology involved in the Plaintiff’s services provided to the Pay TV broadcasters; (ii) how the Defendants had involved in the unauthorised reception of the transmissions; and (iii) the relationship between the Plaintiff and its clients regarding the broadcasting and transmission arrangements.  These issues will probably have to be revisited in the main trial itself.

46.  Furthermore, the right under s 275 is not a copyright in the strict sense.  In addition to such right, the Plaintiff claims that copyright subsisted in its smart codes and the Defendants had copied those codes in their set top boxes.  The relationship between these two kinds of right and the technology involved are certainly not distinct or uncomplicated issues.  It may also mean that the determination of the S 275 Locus Issue, even in the Defendants’ favour, would not affect the Plaintiff’s US Law Claim as copyright infringement (as opposed to infringement of right under s 275) may be actionable in both the United States and Hong Kong. Instead of disposing the case in an efficient manner, I take the view that the holding of a trial on preliminary issue would actually complicate the whole matter.

47.  For the above reasons, I made the case-management decision dismissing the Summons.  Despite such decision, I do not rule out the possibility that, after looking at the evidence to be adduced at the trial including the expert reports, I may consider different options as to how the trial should be best conducted from a case-management perspective.  One of the options is for the trial on the US Judgment Claim to be tried earlier than the other claims.  However, it would be too early for me to make such decision.  I would invite the parties to consider such option if, for example, the trial on such particular claim would not involve all the technical evidence which may be relevant for the determination of the other claims.

48.  Costs should follow the event and I therefore ordered that the costs of the Summons be paid by the 1^st and 2^nd Defendants to the Plaintiff.