P.C. INTERNATIONAL MARKETING LTD v. BEST POWER ENTERPRISES LTD

HCA 159/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 159 OF 2002

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Dates of Hearing : 23 September 2003 & 11 October 2003

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J U D G M E N T

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The Plaintiff

1. The Plaintiff in this action, P.C. International Marketing Limited, is a member of the group of companies under EganaGoldPfeil Holdings Limited (“Egana”) which engage in the business of design, maufacture, sale and distribution of timepieces, jewellery and leather consumer products under various brand names including “PIERRE CARDIN”.

2. The Plaintiff’s function within the Egana group is to be registered worldwide as the proprietor of the “PIERRE CARDIN” trade marks in relation to jewellery and timepieces except for Argentina, Chile, Japan and Uruguay.  Among the “PIERRE CARDIN” trade marks owned by the Plaintiff are these marks (“the Marks”) which are registered in Hong Kong in respect of goods falling within Class 14:

(1)     Trade Mark Registration No.1072 of 1979:

for, inter alia, jewellery, precious stones, horological and other chronometric instruments; and

(2)     Trade Mark Registration No.1418 of 1989:

for jewellery and clocks.

The Plaintiff became the registered proprietor of the Marks by Assignments dated 12 May 1998 by the original owner, Monsieur Pierre Cardin (“Monsieur Cardin”).

This Action

3. By the Writ of Summons issued herein on 15 January 2002, the Plaintiff claims against the Defendant, Best Power Limited, inter alia, an injunction to restrain the Defendant from infringing the Marks and damages for the loss and damage that had been suffered by the Plaintiff by reason of the Defendant’s infringement of the Marks.

4. Liability was not contested.  By an Order made on 18 April 2002 upon the joint application of the parties, Deputy High Court Judge Lam (as he then was) restrained the Defendant as claimed and ordered it to, inter alia, pay the Plaintiff damages in such amount to be agreed, failing which to be assessed by the Court.

Facts and/or Findings Of Fact Relevant To Quantum

Nature Of The Plaintiff’s Business

5. The design, manufacture, sale and distribution of “PIERRE CARDIN” timepieces (or, more precisely, watches) accounted for the following portion of the Egana group’s turnover based on ex-factory prices (which were 30% to 40% lower than retail prices):

Year	Quantity (pieces)	Turnover (HK$)
1997	272,185	36,398,204
1998	258,442	38,229,610
1999	315,681	54,441,836
2000	334,278	57,441,836
1/2001 - 5/2002	440,943	69,376,993
	1,621,529	252,308,109

6. The Defendant does not dispute the assertion by Mr. Peter Lee Ka Yue (“Mr. Lee”), an Executive Director of Egana as well as a Director of the Plaintiff, in his evidence in chief that Monsieur Cardin is one of the best recognized fashion icons in the world and consequently, that the “PIERRE CARDIN” brand and trade marks one of the most recognised brand and trade marks.

7. The business of designing, manufacturing, selling and distributing watches bearing the “PIERRE CARDIN” trade marks (including the Marks) is not carried on by the Plaintiff itself but by one Egana of Switzerland (Far East) Limited.  Subject to the exceptions to be mentioned in the next 2 paragraphs, the Plaintiff’s business is to exploit the “PIERRE CARDIN” trade marks by granting to other companies within the Egana group worldwide licences to design, manufacture, sell and distribute watches and jewellery under the “PIERRE CARDIN” brand.  Insofar as watches are concerned, the licensee is the said Egana of Switzerland (Far East) Limited. 

8. The only licensee of the “PIERRE CARDIN” trade marks for watches which was not within the Egana group was one Chung Nam Watch Co. Ltd. (“Chung Nam”).  In this regard, the Plaintiff inherited an existing licensing agreement dated 17 September 1996 between Monsieur Cardin and Chung Nam whereby Monsieur Cardin granted Chung Nam a licence (“the Chung Nam Licence”) to manufacture and sell watches bearing the “PIERRE CARDIN” trade marks and to be designed by Monsieur Cardin in the P.R.C. including Hong Kong in return for a royalty

equivalent to 10% of Chung Nam’s turnover subject to these guaranteed minimum royalties: US$100,000 for the period from 1 July 1997 to 31 December 1998, US$150,000 for 1999 and US$200,000 for 2000.  The Chung Nam Licence was extended by the Plaintiff for one year ending 31 December 2001 under a supplemental agreement dated 25 August 1998 subject to Chung Nam’s payment of the following revised guaranteed minimum royalties: US$100,000 for 1999, US$125,000 for 2000 and US$150,000 for 2001.  With the exception of Chung Nam, the Plaintiff has not licensed the use of the ‘PIERRE CARDIN” trade marks on watches to any outsiders.

9. As for clocks,

(1)     In about 1999, the Plaintiff granted an associated company called “Piecemark” (in which Egana is said to hold only a minority share) a 3 year non-exclusive licence to design, manufacture and sell both watches and clocks bearing the “PIERRE CARDIN” trade marks.  Although this licence covers also clocks, “Piecemark” has in fact not designed, manufactured, sold or distributed any “PIERRE CARDIN” clocks.

(2)     By an agreement dated 24 February 1999 (which was not produced by the Plaintiff due to a confidentiality provision), the Plaintiff licensed one PC Time Limited, an unrelated company incorporated in the U.S.A. and a subsidiary of Omni Quartz Limited, to use the ‘PIERRE CARDIN” trade marks on clocks designed by the licencee (“the PC Time Licence”).  This licence expired in 2000.

(3)     Save as aforesaid, the Plaintiff has not granted any licence for the use of the “PIERRE CARDIN” trade marks on clocks to any companies, firms or individuals.

10. According to Mr. Lee, the Egana group (including the Plaintiff) would grant licences to unrelated third parties to exploit trade marks owned by it only in very limited circumstances.  Even if they are minded to grant such a licence, there is a stringent procedure for the selection of the licensee including the requirement of a detailed business and marketing plan that would have to be in line with the brand image and identity as promoted by Egana.  In the event that a licence is granted, it would invariably be for a number of years and in return for certain guaranteed minimum royalties.  With regard to the latter term, the Egana group has never granted any licences to outsiders for guaranteed minimum royalties less than those charged under the Chung Nam Licence.

11. When asked by the Court, Mr. Lee considered it mostly unlikely that the Defendant would have secured a licence to use the Marks from the Plaintiff, even if one had been applied for.  He criticized the promotional attempts made by the Defendant to be mentioned in paragraph 15 hereinbelow to be totally out of line with the “PIERRE CARDIN” brand positioning, image and reputation.

The Defendant’s Business

12. According to Mr. Tsai Chung Fu Daniel (“Mr. Tsai”), a Director and the General Manager of the Defendant, the Defendant has engaged in the business of designing and distributing clocks (and a small quantity of watches) for about 8 years.  The Defendant itself does not have any production line but uses various independent factories to which the Defendant provided the necessary parts sourced by it. 

13. Most of the Defendant’s clocks show on their faces the images of popular animated characters such as  “WINNIE THE POOH”, “MICKEY MOUSE” and “MIFFY”, etc.  The Defendant uses these brand names and images as an authorised licensee for Hong Kong & Macau.  For instance, its licences with Walt Disney date back to 1997 and have been renewed for a couple of times.

Infringing Activities Admitted By The Defendant

14. The specific acts of infringement which the Plaintiff particularizes in the Statement of Claim are that

(1)     The Defendant claimed to be the owner or authorised licensee of the Marks for Hong Kong since 2001.

(2)     In November 2001, the Defendant offered to sell to the Plaintiff and/or to appoint the Plaintiff its agent for the distribution of clocks bearing and making reference to the Marks, which were not of the Plaintiff’s authorised manufacture.

(3)     The Defendant manufactured, offered for sale, sold, imported and/or exported such clocks.

15. The Defendant admits that:

(1)     It had produced 9 desk clocks and 7 wall clocks bearing the Marks by way of samples (“the Samples”).  Although the Defendant has not produced any of the Samples (the same having been discarded by the Defendant sometime after October 2001), from the description given by Mr. Tsai, they appeared to have been crudely made.  They were certainly not specially designed and manufactured for the Defendant’s intended “PIERRE CARDIN” line but were made by superimposing onto the faces of clocks from the Defendant’s existing stock for other lines of product paper faces which had the hours and the Marks printed on them.  The intended market prices ranged from US$2 to US$9 per piece.

(2)     It had produced about 30 copies of a A4 coloured leaflet (“the Leaflet”) showing the Samples.  The Plaintiff has adduced in evidence one such leaflet (although how the Plaintiff came into possession of this document is in issue).  It was printed on one side only.  It was of a homemade quality, having been produced with the use of a digital camera and a colour printer in the Defendant’s office.  It contained a heading bearing the Marks with the word “PARIS” beside them and the words “CLOCK PRODUCT WORLDWIDE AGENT” in small print underneath them.  Beneath each of the Samples were their respective dimensions and gross and net weights.  No price was quoted.  The Leaflet was compiled for use at a trade fair.  When queried why the Defendant made so few copies of the Leaflet, Mr. Tsai explained that the Defendant participated at the event mainly to promote its established lines of product.  The Defendant had just obtained the licence to be mentioned in paragraph 16 hereinbelow and it had not yet had time to develop a “PIERRE CARDIN” product line to justify the costs of engaging a professional printer or printing a large quantity of promotional materials.  The Defendant just wanted to use the occasion of the trade fair to gauge the market’s reception of “PIERRE CARDIN” clocks.  

(3)     Between 22 and 25 October 2001, the Defendant participated in the 10^th Hong Kong International Toys & Gifts Show and the 9^th Asian Gifts, Premium & Household Products Show (“the Ken Fair”) organized by Kenfair International Limited at the Hong Kong Convention & Exhibition Centre.  The Ken Fair recorded a total of 55,541 international visitors.  The products on display were of a wide range including toys and game products, decoration/craft items, consumer electronics, household products, Christmas decorations, crystal and glassware, giveaways, costume jewellery and fashion accessories.  The Defendant, one of 2,954 exhibitors, occupied a 3 metre by 3 metre stand out of a total gross area of 40,850 m².  The Defendant’s stand was located towards the back of the exhibition hall.  It was enclosed on 3 sides.  The total number of clocks put on display by the Defendant were over 100.  The Samples were shown together on one of the side walls occupying an area of approximately 1 metre by 2 metre.  At the conclusion of this event, the Defendant had collected about 100 business cards.  It gave away about 80 to 90 copies of the catalogue of its established lines of product which it had specially prepared for distribution at the Ken Fair.  Where a visitor had shown interest in the Samples and upon request, the Defendant would also insert a copy of the Leaflet into the catalogue before giving it out.  There were about 20 odd such visitors so that the Defendant used only 20 odd copies of the Leaflet.  Mr. Tsai, however, accepted that there were visitors who had entered or even just walked past the Defendant’s stand and saw the Samples without leaving their business cards or obtaining the Defendant’s catalogue or the Leaflet.

(4)     After the Ken Fair, the Defendant telephoned about 6 to 7 of those visitors who had made inquiries about the Samples and asked for the Leaflet to see if they would be interested in buying “PIERRE CARDIN” clocks.  None of them showed any enthusiasm and such contacts did not result in any business for the Defendant.  In speaking to these potential buyers, the Defendant did assert authority to use the “PIERRE CARDIN” trade marks.

(5)     After the Ken Fair, Mr. Tsai also went up to Egana’s office at Block C, 11^th Floor, Hong Kong Industrial Centre, 489-491 Castle Peak Road, Cheung Sha Wan, Kowloon.  Mr. Tsai knew that Egana was very experienced in the sale and distribution of timepieces.  In particular, he knew that Egana dealt with “PIERRE CARDIN” watches.  He initiated this meeting to explore the possibility of co-operating with Egana for the sale and distribution of clocks under the “PIERRE CARDIN” brand.  He brought with him his business card, a copy of the Leaflet and one of the Samples (which was a wall clock).  He was received by a Chinese person whom he understood to be a manager of Egana’s marketing department.  The meeting lasted about half an hour.  Mr. Tsai mentioned that the Defendant had obtained a licence to use the “PIERRE CARDIN” trade marks on clocks from a Taiwanese company called P.C. Electronics Corporation (“Taiwan PC”) and offered to sell to Egana clocks bearing such trade marks.  Mr. Tsai was told to leave behind the Leaflet which he did.  He also left his business card because there was no contact information on the Leaflet.  He took the Sample back with him.  Mr. Tsai remembered that the manager who attended him did not at any time during the meeting take the Sample out of the conference room.  He was therefore sure that no one else in Egana had looked at it.  It was not pointed out to him at this meeting that Taiwan PC had no right to license the use of the “PIERRE CARDIN” trade marks on clocks.  Mr. Tsai simply thought that Egana was not interested in co-operating with the Defendant.

(6)     As the Defendant could not find any buyers or distributers for “PIERRE CARDIN” clocks, it did not start production.

16. In acting as aforesaid, the Defendant relied on an agreement dated 20 July 2001 with Taiwan PC who claimed to be the owner of the “PIERRE CARDIN” trade marks in respect of goods within Class 9 of the International Classification and Services of the World Intellectual Property Organization (“WIPO”).  This agreement purported to grant the Defendant a licence (“the Purported Licence”) to sell and manufacture hanging clocks and desk clocks (with no radio and stationery function) bearing the “PIERRE CARDIN” trade marks worldwide except Argentina and Uruguay for a period of 3 years from 1 August 2001 to 31 October 2004.  In consideration of the Purported Licence, the Defendant agreed to pay Taiwan PC royalties equivalent to 4% of the ex-factory prices of the goods it manufactured and sold under the Purported Licence subject to a guaranteed minimum royalty of US$45,000 per year to be paid as follows:

(1)     for the first year : by 3 instalments of US$15,000 each payable on 1 August 2001, 1 November 2001 and 1 March 2002;

(2)     for the second year : in a lump sum on 1 November 2002; 

(3)     for the third year : in a lump sum on 1 November 2003. 

The Defendant paid Taiwan PC the first and second instalments of the 1^st year guaranteed minimum royalty totalling US$30,000 in August and November 2001.

17. The Defendant had not dealt with Taiwan PC before.  It, however, accepted Taiwan PC’s claim of ownership of the “PIERRE CARDIN” trade marks in relation to clocks.  In this regard, Mr. Tsai explained that Taiwan PC was introduced to the Defendant by a friend who he had known for 7 to 8 years and trusted.  Secondly, Taiwan PC has engaged in the manufacture, sale and distribution of a wide range of products bearing the “PIERRE CARDIN” trade marks for a number of years.  Thirdly, the Defendant was also shown the following documents:

(1)     a “To Whom It May Concern” letter dated 25 April 1997 by one PCL S.A. of Barbengo, Switzerland who claimed to be the owner of the “PIERRE CARDIN” trade marks for, among others, WIPO Class 9 goods and who declared that by a contract signed on 14 February 1994, a Taiwanese corporation called Pro Eton Corp. (to which Taiwan PC appeared to be related) was duly appointed licensee of such marks for camera, radio, desk radio with clock, portable radio, CD player, tape recorder, walkman, television, video, audio/video cassettes, films, computer, telephone, pager, scales, compass, electronic wall clock, electronic travel clock, hair dryer, curling iron, travel iron, fruit and vegetable mixer, grinder, coffee machine, table vacuum cleaner, toaster, can opener, desk lamp, oven toaster, electrical air pot, electrical cooker, induction cooker, juice extractor, ice shaver, electrical boiler, electrical fan electrical heater, microwave oven, hot pan, dish dryer, dish washing machine, washing machine, vacuum cleaner, refrigerator and air conditioner for the entire world except U.S.A., Canada, Argentina and Uruguay;

(2)     another “To Whom It May Concern” letter dated 15 February 2000 by the said PCL S.A. certifying that all “PIERRE CARDIN” trade marks in Class 9 of WIPO including home appliances, electronic products, cameras and accessories, computer and accessories, communication products and accessories, with the exception of glasses, medical glasses and reading glasses worldwide except Argentina and Uruguay had been assigned to Taiwan PC; and

(3)     yet another “To Whom It May Concern” letter dated 20 July 2001 on Taiwan PC’s own letterhead claiming that it was the owner of the “PIERRE CARDIN” trade marks in Class 9 and confirming that the Defendant as its licensee could manufacture and sell “hanging clock and desk clock (no radio and stationery function affixed)” with such marks worldwide except Argentina and Uruguay.

The Defendant did not make any searches or take any other steps to verify the authenticity or veracity of any of these documents.  They were simply accepted as proof that the right the subject-matter of the Purported Licence belonged to Taiwan PC. 

18. The Defendant has submitted to judgment on liability and must, therefore, be taken to have accepted that Taiwan PC did not own the “PIERRE CARDIN” trade marks in relation to clocks. 

19. Mr. Tsai was, however, emphatic that the Defendant had not yet achieved any sales of  “PIERRE CARDIN” clocks before its infringing activities came to the attention of the Plaintiff and that the Defendant had stopped all such activities and payment for the Purported Licence sometime in about November or December 2001 after the Defendant had received the Plaintiff’s complaint and warning.  The first letter emanating from the Plaintiff to the Defendant was dated 29 November 2001.  Mr. Tsai also recalled a telephone call from the Plaintiff by an English speaking gentleman shortly before the letter.   

Dispute As To The Extent Of The Defendant”s Infringing Activities And How The Same Came To Light

20. The Plaintiff does not accept that the Defendant had been as restrained as it claims in exploiting the Purported Licence in the 4 months that it had obtained the same given the substantial costs thereof (a minimum of US$45,000 for the first year) to the Defendant. 

21. Mr. Kenny Lin, Counsel for the Plaintiff, placed reliance on the maxim omnia praesumuntur contra spoliatorem (Armory v. Delamirie (1722) 1 Str. 504; Seager v. Codydex [1969] 1 W.L.R. 809, per Winn L.J. at p.815A-B and Incorporated Owners of Million Fortune Industrial Centre v. Jikan Development Ltd. [2002] 4 H.K.C. 33, per Rogers V.-P. at pp.42F-43E). 

22. In this connection, the Defendant adduced in evidence only the Purported Licence, the said 3 “To Whom It May Concern” letters, documents pertaining to the Defendant’s payment of the 2 instalments of the first year royalties to Taiwan PC and a faxed letter dated 15 January 2002 whereby Taiwan PC reported to the Defendant that the dispute over Taiwan PC’s right to license the use of the “PIERRE CARDIN” trade marks on clocks arose as a result of a reclassification of goods in 1998.  These are all documents which tend to cast the Defendant in a more favourable light.  In particular, the last-mentioned document mentioned Taiwan PC’s understanding that the Defendant was still in the processing of designing and developing its “PIERRE CARDIN” product line and had not yet achieved any actual sales. 

23. Mr. Tsai was cross-examined at length as to why the Defendant had not produced any unfavourable documents or materials such as the remaining copies of the Leaflet, the Samples, name cards of potential customers whom the Defendant had contacted to solicit orders for “PIERRE CARDIN” clocks, production records, accounts, soft copies on computer, etc.  Mr. Tsai testified that the undistributed copies of the Leaflet and the Samples were discarded by the Defendant after the Ken Fair.  He could not say offhand if the Defendant had retained the name cards it had collected at the Ken Fair.  Other than the Samples which it made in house in its office in Hong Kong, the Defendant had not produced any “PIERRE CARDIN” clocks so there was no production or accounting record showing the costs of production or turnover of such goods.   

24. I believe the Defendant that it had not started to manufacture any “PIERRE CARDIN” clocks or achieved any sale of the same:

(1)     Although the Purported Licence took effect on 1 August 2001, the Defendant was only able to display the Samples, which were admittedly crudely made and unattractive, at the Ken Fair in late October 2001 and to show the Plaintiff one such clock in their meeting in the following month.  Had the Defendant then made any finished products which were ready for distribution, it would surely have used those instead of the Samples in promotion.

(2)     As said earlier, the Plaintiff’s first complaint and warning came shortly after the meeting between the Plaintiff and the Defendant.  By both accounts, nothing occurred at the meeting which would have encouraged the Defendant to start production of the infringing clocks right away.

(3)     Given the Defendant’s attempt to obtain a licence to use the “PIERRE CARDIN” trade marks at substantial costs, the Defendant had not wanted to infringe the Marks.  There is no evidence and it has not been suggested to the Defendant that it had continued to infringe the Marks after the Plaintiff’s said letter dated 29 November 2001.

25. Mr. Lin invited me to find, at the very least, that the infringing Samples and Leaflet were produced and displayed or distributed in quantities greater than those conceded by the Defendant. 

26. In support, Mr. Lee gave evidence in Court that the Defendant had distributed the Leaflet in a clandestine manner outside the 21^st Hong Kong Electronics Fair (“the Electronics Fair”) held by the Kong Kong Trade Development Council (“TDC”) between 15 and 18 October 2001.  Mr. Lee testified that he had been personally handed the Leaflet which the Plaintiff produced in the course of the assessment hearing while he was walking along the public corridor leading to the Hong Kong Convention and Exhibition Centre where the Electronics Fair was being held.  Mr. Lee felt insulted by the unprofessional way in which the Leaflet was prepared and handed out to the general public.  To protect the goodwill and reputation of the “PIERRE CARDIN” brand, the Egana group develops annual international marketing campaigns which contain lifestyle images, product shots, advertising outlays, etc. which are then provided for use by all “PIERRE CARDIN” distributors and licensees free of charge to ensure that advertising is done in the same style and taste wherever the brand is marketed.  There is also a brand guide which sets out, not only the “PIERRE CARDIN” brand positioning and strategy, but also technical details such as the font and size of logos, pantone colour number of the PC colours to be used, etc.  In the course of the Electronic Fair, Mr. Lee said he had also received 2 inquiries from fellow members of the watch manufacturing industry as to why the “PIERRE CARDIN” brand had stooped to the level of distributing promotional materials outside a fair.  The Plaintiff cannot say how many copies of the Leaflet were so distributed by the Defendant but it has drawn my attention to the popularity of the Electronics Fair.  According to the fair report for 2001, the Electronics Fair was the third largest of its kind in the world and the largest in Asia.  It brought together 1,632 exhibitors from 21 countries and regions and 42,617 trade visitors from 133 countries and regions. 

27. The Defendant did not participate at the Electronics Fair.  Mr. Tsai denied having distributed the Leaflet outside the same, stressing that it was a practice strictly prohibited by the TDC and which, if caught, would jeopardize the Defendant’s right to participate in future events organized by the TDC.

28. Mr. Lee also recalled that

(1)     He had passed the Leaflet to the licensing department with instruction to investigate. 

(2)     The meeting between the Plaintiff and the Defendant at Egana’s office was in fact initiated by his colleague in the licensing department as part of the Plaintiff’s inquiries into the Defendant’s infringing activities. 

(3)     He was shown an infringing clock made of plastic by the colleague who met the Defendant, one Silke Schulz, Licensing Manager. 

(4)     He was told by Mr. Schulz that the Defendant’s representative asked to be given the right to sell “PIERRE CARDIN” clocks once he learnt that such right vested in the Plaintiff.

29. I prefer Mr. Tsai’s evidence to that of Mr. Lee. 

30. First, Mr. Lee’s aforesaid experience outside the Electronics Fair and what followed thereafter was mentioned for the first time when Mr. Lee gave evidence in Court.  One would have thought that had the Defendant really distributed the Leaflet outside the Electronics Fair in the manner described by Mr. Lee, the Plaintiff would have complained at first opportunity.  And there have been numerous opportunities for the Plaintiff to do so: in the letters before action dated 29 November 2001 and 3 January 2002, in the Statement of Claim dated 15 January 2002, in a fax dated 10 May 2002 from the Plaintiff’s solicitors to the Defendant’s solicitors which cast doubt on the adequacy of the disclosure of the Defendant’s infringing activities made in Mr. Tsai’s 1^st Affirmation dated 6 May 2002 pursuant to Deputy High Court Judge Lam’s said Order and in Mr. Lee’s Witness Statement dated 6 January 2003 and Supplemental Witness Statement dated 11 September 2003.

31. In particular, paragraphs 4 and 5 of Mr. Lee’s Witness Statement are in the following terms:

“4.   In or around July or August 2001, Mr. Tsai Chung Fu, a director of the Defendant, brought a sample clock to the office of Egana in Hong Kong, offering distribution rights to sell clocks in Hong Kong.  At the same time, Mr, Tsai also presented colored pamphlets concerning the sale of clocks bearing the infringing trademarks.

5.    Further, in October 2001, I understand that the Defendant had printed and distributed further copies of the said colored information pamphlets at a fair in Convention Plaza, Hong Kong.  I refer to paragraph 2(b) of the 3^rd Affirmation of Tsai Chung Fu filed on 2 November 2002 in this regard.” 

32. Then, paragraph 10 of Mr. Lee’s Supplemental Witness Statement reads,

“10.   As admitted by the Defendant, it produced coloured pamphlets in respect of the sale of the clocks in question bearing the infringed trademarks and distributed the same to visitors in the Ken Fair at the Convention Plaza ...”

33. Other than correcting the date of the meeting between the Plaintiff and the Defendant and adding that the Defendant also asked for the right to distribute “PIERRE CARDIN” clocks at such meeting, Mr. Lee confirmed his Witness Statement and Supplemental Witness Statement and adopted them as part of his evidence in chief.  In paragraph 2(b) of his 3^rd Affirmation, Mr. Tsai volunteered that the Defendant handed out the Leaflet upon request at a counter at the Ken Fair.  That is to say, Mr. Lee was able to speak of the infringing act in paragraph 5 of his Witness Statement based on Mr. Tsai’s deposition, not from his own personal knowledge.   

34. Secondly, Mr. Lee was emphatic that he received the Leaflet without any attachment.  The Leaflet did not contain the Defendant’s name or any other contact details.  I wonder how the Plaintiff could have located the Defendant and invited it to attend Egana’s office with just the Leaflet.

35. Thirdly, the Defendant was accused of having approached the Plaintiff asking it to distribute the Defendant’s infringing products in the letters dated 3 January and 10 May 2002 from the Plaintiff’s solicitors to the Defendant’s solicitors.  The terms of these letters, written on instructions from the Plaintiff, were not consistent with the meeting between the Plaintiff and the Defendant having been initiated by the Plaintiff.

The Plaintiff’s Claim For Damages

36. The Plaintiff claims damages under 2 heads: loss of business profits and loss of business reputation and goodwill.

37. On the other hand, Ms. Barbara Wong, Counsel for the Defendant, invited me to award only nominal damages.  In support, she cited the following passage from Atkin’s Court Forms, Vol.38 (1995 Issue), §43:

“The plaintiff is entitled to nominal damages for innocent infringement or passing off.  The infringement of a registered trade mark is an infringement of a statutory monopoly and likewise attracts nominal damages.  If substantial damages are sought the quantum recovered will depend on the damage suffered as a result of the wrongful acts and not merely by reason of competition.”               

38. The basis which I think Ms. Wong is putting forward for an award of nominal damages is that the Plaintiff has not shown any loss or damage for which substantial damages should be granted.  In Procea Products Limited v. Evans & Sons Limited (1951) 68 R.P.C. 210, cited in support of the first sentence of the above quoted passage from Atkin’s Court Forms, the plaintiff had not proved any actual damage but was awarded 20s. damages.   

39. I do not understand Ms. Wong to be saying that an award of nominal damages is still appropriate notwithstanding that the Plaintiff had suffered loss and damage simply because the Defendant was or could be regarded as innocent in the sense that it held a genuine belief that it had acquired the right to manufacture, sell and distribute clocks bearing the Marks under the Purported Licence.  If she so submitted, I disagree.  It is settled law that innocence on the part of the infringer is no defence to a claim to damages for infringement of registered trade mark: Gillette UK Limited v. V. Edenwest Limited [1994] R.P.C. 279, per Blackburne J. at pp.290(28)-291(10).

Loss Of Business Profits

40. It is not and cannot be the Plaintiff’s case that its customers had been diverted to the Defendant as a result of the latter’s misrepresentation.

41. Rather, the Plaintiff claims loss of business profits in the form of the royalties which it would otherwise have received by granting to the Defendant a licence to manufacture, sell and distribute clocks bearing the Marks.  The figure suggested is US$100,000 being the amount payable by Chung Nam for the Chung Nam Licence for the period from 1 July 1997 to 31 December 1998 or for 1999.  Alternatively, it is said that the Plaintiff is entitled to US$45,000 which was the sum the Defendant was prepared to pay for the first year of the Purported Licence.

42. The assessment of damages upon the basis of a notional royalty or licence fee (being the sum which the claimant would have charged the defendant had the infringing use been licensed) is, of course, common for infringement of patent or copyright where the claimant exploits the patent or copyright by licensing his right. 

43. Mr. Lin submitted he could see no reason why damages assessed as a notional royalty or licence fee, if available to compensate an infringement of patent or copyright, should not be available to compensate a trade mark infringement.

44. The question whether damages can be assessed with reference to a notional royalty or licence fee to compensate a trade mark infringement or passing off was argued but not decided in Dormeuil Freres SA v. Feraglow [1990] R.P.C. 449.  The application before Knox J. was an application for interim payment under Order 29, rule 11.  At pp. 463(33)-464(47), his Lordship said,

“There are, it seems to me, difficulties in applying that basis to the present case.  That there is a difference between a patent action on the one hand and an infringement of trademark and passing off action on the other is, I think, clear on the authorities and the way in which the law regarding the recovery of damages has grown up.  Lord Kinnear said it amongst others, in the Watson Laidlaw case to which I have already referred, at page 111 of that report, when he said of the Inner House of the Court of Session:

“They considered rightly that every sale of a patented article in violation of a patent is a damage to the patentee.”

That is a reflection of the proprietary element in patent cases.  It was established before me that that proprietary element is well short of 100 per cent. in this sense: that where infringement of patent is established there is no question of the plaintiff being entitled to confiscate the article in question which infringes his patent.  His normal remedy is for it to be destroyed or, where it can be done, for it to be modified so that it is no longer to be an infringing article.

There is, nevertheless, a strong element of property in the patent line of cases, because the state confers a monopoly to the holder of the patent.  It is on that basis that every sale of an infringing article is damage to the patentee.  In the passing off and infringement of trademark type of case there is too an element of property in the sense that what Falconer J. described as the attractive force, which is the way in which goodwill is often defined, is something which is a proprietary interest of the plaintiff in a normal passing off action.  Just as the patentee is entitled to an order removing the offending infringement, so the owner of a registered trademark who successfully sues in respect of infringement is allowed to have the infringing mark removed where it can be removed.

I have come to the conclusion that the framework of an application under R.S.C. Order 29 Rule 11 is not a happy one for deciding whether there would be a royalty basis available to the plaintiffs should they succeed at the trial of the inquiry.  I say that for a variety of reasons.  First, there is no reported authority for this basis of relief being granted in such an action.  That by itself is, of course, not in any way conclusive.  Secondly, I detect a certain difficulty in reconciling on the one hand the rule that not every sale a defendant makes of infringing material can be attributed to the plaintiff when it comes to assessing damages on the basis of loss of sales with on the other hand, the proposition that a royalty on every transaction can properly be awarded by the law.  I appreciate that if what Lord Shaw said in the Laidlaw case is applicable to passing off and infringement of trademarks, that that would solve the problem.  But his Lordship was dealing with a patent case, and there is a strong element of begging the question if one applies that to a passing off or infringement of trademark case.

Thirdly, there is peculiar difficulty, as it seems to me, in relation to the present position where I am being asked to form a view as to probabilities at the hearing of an inquiry in relation to an alternative way in which the Plaintiff puts its case.  The first way historically, and as Mr. Burton submitted to me in financial terms, in which the case was put, was on the basis of loss of sales.  But logically it would only be if the loss of sales were a lower measure that the royalty basis at the hearing of the inquiry would be significant.  Obviously, if the loss of sale basis was the higher result the royalty would not be the subject of any inquiry.  The two are necessarily mutually exclusive.  There could not be any question of the plaintiff recovering both.  In those circumstances the situation which one is effectively postulating at this stage for present purposes is that the loss of sales figure would be the lower one of the two, because otherwise it is academic, and I am not satisfied in present circumstances that it would be safe for me to say that the royalty basis is probably correct in those circumstances where the loss of profit on sales is shown to be a smaller figure than the royalty.

For all those three reasons I do not feel that this is an appropriate case for me to approach the matter on a royalty basis.  I am, of course, neither saying that the loss of profit basis may not be a proper subject of an application before the inquiry is heard, nor am I saying that the royalty basis will fail at the inquiry.  All I am saying is that at this stage the royalty basis is not one which I am satisfied is, as a matter of principle, likely to succeed at the inquiry.  Further than that it is neither necessary nor desirable for me to go.”

45. I also doubt as a matter of principle whether damages assessed as a notional royalty or licence fee can be made generally available to trade mark cases.  In addition to the difference arising from the proprietary nature of a patent (and of copyright), the primary and paramount function of a trademark is to indicate the origin, or trade source, of goods and to distinguish products originating from a particular firm or group of firms from those of other firms: Aristoc Limited v. Rysta Limited (1945) 62 R.P.C. 65, H.L., per Viscount Maugham at p.74(31) and Lord Wright at p.82(36).  The exploitation of a trade mark by licensing should by definition be not prevalent.  In this regard, in Hong Kong, prior to the coming into operation of the new Trade Marks Ordinance, Cap.559 on 4 April 2003, under s.58 of the old Trade Marks Ordinance, Cap.43 (which was in force at all times material to this case), users of a trade mark were only registered where the Registrar of Trade Marks was satisfied that the proprietor was in a position properly to control the use of the mark by the user.  The application for registration of a person as a registered user of a trade mark must be supported by particulars of the relationship between the proprietor and the proposed registered user and the degree of control by the proprietor over the permitted use which their relationship would confer.  The Registrar of Trade Marks, before accepting the application, must be satisfied that use of the mark as proposed would not be contrary to the public interest; and he must refuse the application if he thought that accepting it “would tend to facilitate trafficking in a trade mark”: see ss.58(4) and (5).  Trafficking in a trade mark means dealing in a mark as a commodity in its own right and not primarily for the purpose of identifying or promoting merchandise in which the proprietor is interested: “Holly Hobbie” [1984] R.P.C. 329.

46. Further, on the facts of this case,

(1) With the exceptions of the Chung Nam Licence (which the Plaintiff inherited from Monsieur Cardin) and the PC Time Licence, the Plaintiff has not licensed the use of the ‘PIERRE CARDIN” trade marks on timepieces to any companies, firms or individuals not within or associated with the Egana group of companies.  The Plaintiff is not in the business of exploiting the “PIERRE CARDIN” trade marks by licensing outside the Egana group. 

(2) The Plaintiff would not have granted a licence to use the Marks to the Defendant, even if one had been applied for.

(3) The Defendant had not achieved any sale of “PIERRE CARDIN” clocks.

47. Mr. Lin argued that the fact the Plaintiff would never have granted a licence to the Defendant did not prevent damages from being assessed as a notional royalty or licence fee.  In support, he referred to Oriental Press Group Ltd. v. Apple Daily Ltd. [1998] 2 H.K.L.R.D. 976 (CFA).  In that case, the award appealed against was, inter alia, an award of HK$5,000 for damages for infringement of copyright in a photograph and the layout of the magazine cover on which the photograph appeared.  One of the bases upon which the plaintiff moved for a larger award was the evidence that it would have refused to give the defendant a licence to reproduce the photograph, the parties being business rivals.  Although the Court of Final Appeal did substitute an award of HK$30,000 as damages for copyright infringement, it held that under the willing licensor and willing licencee approach, the willingness of the parties to negotiate had to be presumed and the fair price notionally agreed could not be increased because in fact the notional licensor would never have granted a licence.  One must, however, not lose sight of the fact that it was common ground in Oriental Press Group that the fair licence fee approach should be adopted and that the basis of assessment was that of the willing licensor and licencee.  The Court of Final Appeal’s decision was therefore essentially premised upon the fair licence fee approach being the proper one to be adopted in the case before it.

48. The Oriental Press Group case does not, to my mind, assist Mr. Lin in answering the question whether the fair licence fee approach should be adopted in this case.

49. In addition to the above-mentioned conceptual difficulty in the general application of the notional licence fee or royalty basis of assessment to a trade mark infringement, I observe that even in copyright infringement cases in which the notional licence fee or royalty approach has often been applied, in situations where the owner of the copyright, acting reasonably, would not have licensed the tortfeasor at any or any realistic price, the notional licence fee or royalty basis of assessment would not be appropriate : see Oriental Press Group, per Litton P.J. at 980D-E and Bokhary P.J. at 983H-J.  Litton P.J. referred to the decision of the Federal Court of Australia in Autobesk Australia Pty. Ltd. v. Cheung [1990] 17 I.P.R. 69 which provided an example of the reverse situation.  In that case, the defendant supplied free pirated copies of a computer program called “AutoCAD” (which was created by the 2^nd plaintiff and distributed in Australia through the 1^st plaintiff) as an inducement to all purchasers who bought personal computers from the defendant.  The 2^nd plaintiff sought compensatory damages to be assessed on the notional licence fee basis.  Wilcox J. observed, at pp.75(14)-76(5), that where the court may infer that, presented with a choice between paying the licence fee and not using the work, the infringer would have paid the licence fee, the notional licence fee approach was a logical one because ex hypothesi the copyright owner had been deprived of a licence fee.  But, where this inference could not be drawn, it was much more difficult to say that the damage sustained by the copyright owner was equal to a licence fee.  On the evidence before Wilcox J., no assumption could be made that, if forced to obtain a licence, the defendant would have copied the work or copied it to the same extent.  Wilcox J. held that it was not logical to apply the notional licence fee approach but treated the damages as being “at large” and made an award of A$15,000 as if he were a jury.  Although the defendant refused to give evidence of the length of time he had been supplying illegal copies of the program, the numbers sold or any other relevant aspect of his business, it was probable that the defendant’s activities cost the plaintiffs some sales, because some customers he supplied with the AutoCAD program would otherwise have purchased programs from the plaintiffs.

50. Even if the notional licence fee or royalty approach is available to the assessment of damages in a trade mark infringement case, in this case, as said earlier, the Plaintiff would not have granted a licence to use the Marks to the Defendant, even if one had been applied for.  In my opinion, the Plaintiff’s refusal to license the Defendant would have been reasonable.  The Defendant’s use of the Marks fell far short of what the Plaintiff required of its licencees (few as there were) by way of maintaining the “PIERRE CARDIN’ brand positioning, image and reputation.

51. For these reasons, I do not consider it appropriate to assess damages in this case with reference to a notional royalty or licence fee.

Loss Of Business Reputation And Goodwill

52. The Plaintiff claims damages under this head to the tune of HK$1,500,000, citing Master Betty Kwan’s assessment in One Price Trading Co. Ltd. v. Leung Chui Mui trading as Jade Fountain Trading Co., unrep., HCA 2327/1997 (1 June 2000).

53. In considering the award for damage to reputation, the Court must consider all the circumstances of the case and try its best to arrive at a fair and temperate sum for the injury.  The relevant circumstances include the plaintiff’s reputation or goodwill; the conduct of the defendant, whether, for example, the infringement was fraudulent or deliberate; the circulation of the infringing items; the publicity given by the defendant to his goods; the fact that the defendant has made a gain out of the infringement and the effect on the plaintiff or loss to him.  See Draper v. Trist [1939] 3 All E.R. 513 and Tam Wing Lun Alan v. Tam Kwok Hung trading as Hang Mei Record Co. [1991] 2 H.K.C. 384, per Master Patrick Chan (as he then was) at p.391C-E.

54. Addressing each of these factors in the present case:

(1)     The reputation and goodwill attached to the Marks is not in question.

(2)     The Defendant did not fraudulently or deliberately infringed the Marks but had made an attempt to obtain a licence to use the Marks.  However, I do find the Defendant guilty of considerable carelessness in not finding out that Taiwan PC in fact had no right to grant the Purported Licence. 

(3)     The Defendant had not yet put in circulation any infringing goods or made any gain. 

(4)     It had, however, displayed the Samples and distributed about 20 odd copies of the Leaflet at the Ken Fair.

(5)     One would have to assume that at least some visitors to the Defendant’s stand at the Ken Fair, upon seeing the Samples or given the Leaflet, would associate the poorly produced Samples and Leaflet with the Marks and the Plaintiff.  In particular, the Defendant had, in the post-Ken Fair contacts with 6 to 7 recipients of the Leaflet, asserted a licence to use the Marks.  

55. On these facts, I do not consider One Price Trading Co. Ltd. to be comparable at all.  In that case, the defendant purchased HK$9,386,208.29 and HK$9,952,610.50 worth of trade marked leather goods from the plaintiff in 1993 and 1994 respectively.  The amount of sales from the plaintiff to the defendant dropped to HK$2,265,208 in 1995 and then to HK$44,103 in 1996.  In about June 1996, the defendant stopped buying from the plaintiff altogether.  At about the same time, the plaintiff’s sales to others also suffered a drop.  A considerable quantity of infringing goods bearing the plaintiff’s trade marks (a pony or pony head device) but of inferior materials and workmanship were found in the defendant’s premises in early 1997.  Master Kwan found by inference that having built up a market for genuine goods bearing the plaintiff’s trade mark, after June 1996, the defendant set up her own supply of shoddy counterfeit goods and passed them off as the plaintiff’s in competition with the plaintiff.  The figure of HK$1,500,000 represented 1%-2% of the plaintiff’s turnover at the time the defendant ceased buying from the plaintiff.

56. Likewise, I do not consider Alan Tam to be comparable.  In that case, the 1^st plaintiff was one of the top popular singers in Hong Kong in the 1980's.  Between 1984 and 1990, the 2^nd defendant had produced about 27,800 pieces of cassette tapes of popular songs selected from the repertoire of the 1^st plaintiff but sung by various unknown artists.  These tapes were packed with inlaid cards and labels bearing the name and image of the 1^st plaintiff.  They were put on the market as if they were sung by the 1^st plaintiff.  They were offered for sale at a very low price (around $10 per piece compared with the usual $30 odd) from hawker stalls.  About 7,173 pieces were actually sold.  A sum of HK$125,000 was awarded for the injury to the plaintiffs’ business reputation and goodwill.  Taking into account inflation since July 1991, I reckon that an award of about HK$250,000 would have been made nowadays on the same facts.

57. I have also referred to and considered Ideal General Supply Ltd. v. Louis Edelson [1957] R.P.C. 252 which represents the other end of the spectrum.  In that case, Diplock J. refused to award any damages because the plaintiff managed to put an end to the defendant’s passing-off by an injunction after 4 advertisements in a local evening newspaper and the plaintiff had suffered no damage at all.

58. Each case must, however, be decided on its own facts.  Doing the best I can, I assess damages for the Plaintiff’s loss of business reputation and goodwill in the sum of HK$50,000.

59. I also order the Defendant to pay interest on the said damages at judgment rate from 22 October 2001 (i.e. the first day of the Ken Fair) until payment.

60. I also make an order nisi that the Defendant pays the Plaintiff’s costs of the assessment, such costs to be taxed if not agreed.