NANO WORLD (H.K.) LTD v. NANO BIOTECHNOLOGY HOLDINGS LTD

HCA2797/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2797 OF 2004

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REASONS  FOR  DECISION

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1. The plaintiff is seeking the continuation of an ex parte interlocutory injunction granted by Yam J on 11 December 2004 and confirmed on 14 December 2004 restraining the defendant from :

(a)	making threats of the types as referred to in paragraphs 27 to 33 of the Affidavit of Li Chi Hong; and
(b)	making threats of commencing proceedings for infringement of Hong Kong Short-Term Patent No. HK 1062782 to the plaintiff, the plaintiff’s actual or potential customers, or any other persons.

2. In relation to paragraph (a) of the injunction, Miss Lau for the defendant submitted that it is probably too wide as it may cover threats falling short of institution of infringement proceedings.  Mr. Yee for the plaintiff did not argue against the point.

3. In relation to paragraph (b), Mr. Yee indicated that as it is fait accompli thatthe defendant had counterclaimed for infringement against the plaintiff, the plaintiff shall only pursue the injunction for threats made against persons other than the plaintiff.

4. At the hearing, I continued the injunction in terms of threats whether expressly or by necessary implication of the institution of infringement proceedings against persons other than the plaintiff.  I now give my reasons. 

Background

5. Since 2002, Mr. Li Chi Hong and his wife Ms. Liu Kin Kwan carried on business under Ever Harvest International Business Limited, which changed its name to Nano World Limited in March 2003.  The business comprised of the selling of nano products including nano cups. 

6. A nano cup is a vacuum cup filled with nano size material in  the insulation layer.  The claimed function was to enhance the quality of the beverage in order to activate cells, improve micro-circulation, detox, delaying aging, improve digestive system, improve fatigue, etc.

7. In July 2003, Mr. Mei Jian Ping became a shareholder of Nano World Limited pursuant to an agreement of co-operation to develop and market nano products including the Nano Energy Cup (Version 1).  The agreement was silent as to any intellectual property rights in the products.  On 14 November 2003, Mei obtained a utility patent registration in the Mainland in respect of the Nano Energy Cup (Version 1).  The plaintiff alleged that it was unbeknown to Li and Liu.

8. In April 2004, the two camps split up.  There was no agreement as to the future dealing with the nano cups hitherto dealt with by Nano World Limited. 

9. Li and Liu founded the plaintiff and continued to trade in Nano Energy Cup – Version 2.  The plaintiff said that was an improvement on Version 1.   

10. Mei also founded the defendant.  On 5 November 2004, Mei obtained a short-term patent in Hong Kong in respect of Nano Energy Cup (Version 1) for 8 years from 28 May 2004.

11. On 25 November 2004, the defendant’s solicitors wrote to the plaintiff alleging infringement of the copyright and patent right of the Nano Energy Cup and that the defendant was entitled to take legal proceedings, and unless the plaintiff do immediately cease manufacturing and selling or otherwise dealing with the nano cups, deliver up, make discovery and give undertaking of no repeat of infringement and pay damages and costs within 14 days, they would have no alternative but to advise the defendant to take all necessary step which include the institution of legal proceedings without further notice.  On the same day, the defendant’s solicitors wrote a letter to Yue Hwa Chinese Products Emporium Limited, the plaintiff’s main customer, in similar terms except for the omission of the demand for damages and costs, and the intimation was that the defendant would take all necessary steps to protect its interest instead of expressly to institute legal proceedings.  On 9December 2004, the defendant’s solicitors wrote to the plaintiff’s solicitors repeating the allegation of infringement and indicating the report of the infringement to the Custom and Excise Department and the 39^th Hong Kong Brands and Products Expo Fair (“the Industries Expo”) held in December 2004.  The Industries Expo made it a condition for the plaintiff’s participation in not displaying of referring to any nano cups.  Hence, the plaintiff applied for the ex parte injunction.

12. Under section 89 of the Patents Ordinance, Cap. 514 :

“	(1)	Where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4), bring proceedings in the court against the person making the threats for any such relief as is mentioned in subsection (3).
	(2)	In any such proceedings the plaintiff shall, if he proves that the threats were so made and satisfies the court that he is a person aggrieved by them, be entitled to the relief claimed unless-
		(a)	the defendant proves that the acts in respect of which proceedings were threatened constitute or, if done, would constitute an infringement of a patent; and
		(b)	the patent alleged to be infringed is not shown by the plaintiff to be invalid in a relevant respect.
	(3)	The said relief is-
		(a)	a declaration to the effect that the threats are unjustifiable;
		(b)	an injunction against the continuance of the threats; and
		(c)	such damages, if any, as have been sustained by the plaintiff by reason of the threats.”

13. The plaintiff’s claim is based on two causes of action :

(1)	groundless threats of proceedings for infringement of patent under section 89 of the Patents Ordinance;
(2)	revocation of the patent on the ground of lack of novelty and lack of inventive step.

The main point is the non-patentability of Nano Energy Cup (Version 1).

14. The defendant averred that the Version 1 was an invention of Mei, and Mei had told Li and Liu not to deal in it after the split up.  The defendant counterclaimed for infringement.

Material non-disclosure

15. Miss Lau abandoned her argument on material non-disclosure.  The alleged non-disclosure related to matters taking place after the grant of the injunction, and matters within the knowledge of the defendant only.

Threat of proceedings

16. In Shanghai Reeferco Container Co Ltd v. Wagonbau Elze GMBH & Co Besitz KG [2005] 2 HKLRD 711, 718C para. 19, Deputy Judge Poon referred to Reynes-Cole v Elite Hosiery Co Ltd (No 2) [1965] RPC 102 and said that :

“	Whether or not the Letters constituted threats to the recipients must be decided in accordance with what would ordinarily be understood by an ordinary reader.”

17. In C & P Development Coy (London) v. Sisabro Novelty Coy Ltd (1953) 70 RPC 277 at 282 line 15, Jenkins LJ said that :

“	It is enough if the language used is such as would convey to reasonable man that the person using the language intended to bring proceedings for infringement against the person said to be threatened.”

18. Miss Lau referred to Unilever Plc v. Procter & Gamble Company [2000] FSR 344 where the English Court of Appeal held that threat of proceedings during a meeting admittedly held on a without prejudice basis did not amount to threat under the corresponding provision in section 71 of the Patents Act, 1971 (UK).

19. Miss Lau submitted that letters in question were the first step taken to invite the plaintiff to settlement negotiation on a without prejudice basis.

20. Miss Lau also referred to Earles Utilities Ld v. Harrison (1934) 52 RPC 77, where the plaintiff sought relief against the patent owner’s solicitor on the ground that the solicitor wrote a letter that unless he had the assurance from the plaintiff that he would at once cease manufacturing the impugned kettle, he would have no alternative but to advise his client to apply for an injunction.  Farwell J held that was a gratuitous advice by a solicitor and it had been known for a client to refuse to take his solicitor’s advice.  His Lordship held that could not be taken to be a threat.

21. Mr. Yee referred to Terrell on the Law of Patents (15^th Ed., 2000) at p.534, 16.06 that “a letter by a solicitor issuing proceedings, or in proposing a compromise, is a threat within the meaning of the subsection if it conveys an intimation that proceedings would be taken to restrain infringement.”

22. He also referred to Patrick John Brain v. Ingledew Brown Bennison & Garrett (a firm) & anor (No 3) [1997] FSR 511 where Laddie J said at p.521 :

“	… What is particularly important is the initial impression which the letters would have on a reasonable addressee. During court proceedings it is inevitable that the lawyers, parties and the judge will read and reread the offending passages with ever closer attention. Such meticulous analysis is not what would happen in the real world and the court must guard against being led down a path of forensic analysis to a meaning which is narrower or broader than would occur to the ordinary recipient reading the letter, circular or other document, in the normal course of business.
	…
	A document which is not threatening when taken in isolation may well be when read in the context of the rest of a sequence of correspondence. It is particularly appropriate to read the correspondence together here because it all took place within a very short period.”

23. I fail to see any without prejudice negotiation being on foot between the parties.  The letters to the plaintiff made demand in terms of the usual order in any infringement action, and set the time limit of 14 days for compliance.  Although the consequence was in terms of legal advice to the defendant, it was stated as “no alternative” but “to take all necessary step which include the institution of legal proceedings without further notice.”  Applying the standards of a reasonable reader of commercial legalese in Hong Kong, I fail to see how it is not, or at least not seriously an issue that the letters complained of are not threat of infringement proceedings.

Person Aggrieved

24. Miss Lau submitted that the defendant did not show any real loss of business from Yue Hwa or generally suffered.

25. Mr. Yee referred to Brain v. Ingledew op. cit. where Laddie J said at p.518 :

“	I think I think a useful starting point for analysis is the John Summers case in which Romer J. said :
	As I have come to the conclusion that Summers themselves were threatened different considerations arise. It is true that Summers called no evidence to prove the damage which they pleaded, but in my judgment it was not necessary for them to do so. I am clearly of the opinion that any person who is threatened with an action for infringement of patent, as I find that Summers were, is a “person aggrieved” for the purposes of Sec. 36 and need not prove actual damage at the trial in order to found a claim for relief.”

And further at p.519 :

“

It seems to me that the legislative intent behind the inclusion of “person aggrieved” in section 70(1) is to exclude frivolous applications or applications by busybodies who have no real personal interest in the threats… Mere hurt feelings are not enough, but if, for example, a trader’s chosen route to exploitation of his product or process is interfered with by the threat, that is damage in the broad sense and makes him a person aggrieved. It is not necessary to prove that the interference has achieved the threatener’s objective. The fact that the trader is able to assuage the fears of his potential customers or partners so that the threat has in fact produced no recoverable loss, does not mean he is not aggrieved by it and the prospect of similar threats in the future. He has a real, as opposed to fanciful, commercial interest which has been interfered with and, as a result, he has a grievance which the court will recognize.”

I am satisfied that plaintiff has made out a serious case to be tried on this point.

Ground of invalidy

26. Under the Patents Ordinance, the examination for short-term pattern differs from that for the standard patent.

27. Under section 113(1) of the Patents Ordinance :

“	(1)	Every application for a short-term patent shall be signed by the applicant and be filed with the Registrar in the prescribed manner and shall contain-
		(a)	a request for the grant of a short-term patent;
		(b)	a specification which provides on the face of it for-
			(i)	a description of the invention to which the application relates;
			(ii)	one or more claims but not exceeding one independent claim;
			(iii)	any drawings referred to in the description or the claim or claims;
		(c)	an abstract; and
		(d)	a search report in relation to the invention.”

And under section 117 of the Patents Ordinance, the Registrar of Patents shall only conduct formality examination and not as to the patentability of the invention :

“	Except as expressly provided to the contrary, nothing in this Part providing for the examination by the Registrar of an application for a short-term patent for an invention shall be construed as imposing any obligation upon the Registrar to consider or to have regard to, for the purpose of such examination, any question as to-
	(a)	the patentability of the invention;
	(b)	whether the applicant is entitled to any priority claimed in the application;
	(c)	whether the invention is properly disclosed in the application; or
	(d)	any matter specified in section 45, 77, 78, 79, 93, 94, 96, 97, 100, 109, 110, 111(2) to (6) or 120(2).”

28. Mr. Yee pointed out that there is no examination for a short-term patent as to novelty under section 93, or inventive step under section 96 of the Patents Ordinance.  Under section 113(1)(d), a search report in relation to the invention is a necessary requirement for the application.  But the examination of the search report is only as to formality as opposed to novelty and inventive step.

29. In support of the application, the defendant submitted to the Registrar the search report entitled Hong Kong Short-term Patent Application Search Report dated 6 August 2004 by the National Intellectual Property Bureau of the People’s Republic of China, a designated issuing authority.  The Report referred to at least 3 other patents for nano cups of a same or similar design granted before the priority date for the defendant of 14 November 2003 (the grant of the utility patent in the Mainland) as affecting inventive step.  Mr. Yee submitted that this would be relevant to the consideration of novelty and inventive step upon the challenge of patentability and validity of the defendant’s patent.

30. Mr. Yee also referred to the legal opinion that registration in the Mainland are also divided into “invention patent” and “utility patent”.  For a utility patent as in the case of the defendant, the grant is only subject to a preliminary examination.

31. Miss Lau tried to submit that the Version 1 cup has 3 holes in the lid which sets it apart from the other prior patents.  Mr. Yee pointed out that the defendant’s pleaded case was on the nano lining, not the 3 holes.  There is no evidence on the 3 holes from either side.  At this stage, I cannot take the point any further. 

32. In the premises, given that the defendant’s patent is a short-term one, and there are other prior patented products of same or similar specifications, I cannot agree with Miss Lau that the defendant has a high chance of success.  Hence, there must be a serious issue to be tried as to patentability as ground of making the threats.

Balance of convenience

33. Miss Lau made 2 main points on the balance of convenience :

(1)	dilution of the defendant’s market by the plaintiff;
(2)	inferiority of Version 2 as causing irreparable damage to Version 1.

34. Mei said the plaintiff had made $1 million during the 3 weeks of the 2004 Industries Expo.  And notwithstanding that, Version 2 was inferior to Version 1.  The defendant had received complaints from the plaintiff’s customers.  The customers for nano cups are usually less well informed senior citizens.  There would be risk of deterring the defendant’s potential customers away from nano cups generally.

35. Mr. Yee pointed out that the plaintiff and the defendant sell their nano cups under different brand names and there is little risk of confusion.  Both the plaintiff and the defendant are new in the market and no one could yet claim any substantial reputation. 

36. I consider that if the injunction continues and the defendant succeeds at trial, they will be entitled to damages for infringement in the interim period as presumably, the plaintiff’s gain will be the defendant’s loss.  On the other hand, if the injunction were lifted and the defendant’s short-term patent were invalidated, the plaintiff’s business could be destroyed, as shown in early reaction of the Industries Expo. 

37. As to the inferior quality point, I do not see that the defendant has acquired a reputation of superior quality in Version 1 and that the plaintiff’s dealing in Version 2 would cause it irreparable damage.  In any case, section 89 of the Patents Ordinance is in terms of threat of infringement proceedings.  Both Mr. Yee and Miss Lau agree that there is nothing to stop the defendant from announcing that it has a short-term patent, and Version 2 is not the same as Version 1.

38. Hence, I find that while any loss to the defendant can be compensated by damages, it may not be so for the plaintiff.  I find that the balance of convenience is in favour of the plaintiff.

Fortification of the undertaking

39. Miss Lau pointed out that the plaintiff’s claim of turnover of $300,000 to $500,000 per month is not supported by accounting evidence.  And the defendant is considering various other claims against the Li, Liu and Nano World Limited, which would have serious financial implications on the plaintiff.

40. Mr. Yee submitted that no other proceedings are on foot, and there is no draft statement of claim to show the basis of any claim.  As to proof of means, Mei’s own admission that the plaintiff contracted $1 million sales during the 3 weeks of the Industries Expo in 2004 is consistent with the plaintiff’s assertion of turnover.

41. The injunction has been on foot for 9 months, I do not see any evidence of servious change in position to question the undertaking of the plaintiff.  Hence, I do not see any occasion for fortification.

Conclusion

42. In the premises, I ordered the continuation of the injunction in terms of paragraph (b) of the Order of Yam J with such amendment :

(1)	the reference to infringement proceedings against the plaintiff be removed, so that the injunction is in such terms as against persons other than the plaintiff;
(2)	the threats to any infringement proceedings be put in such terms to mean whether expressly or by necessary implication.

Costs

43. Upon hearing counsel on the both sides, I ordered that the costs of the application be costs in the cause.