H&M HENNES & MAURITZ GBC AB v. ZOETOP BUSINESS CO LTD AND OTHERS

HCIP 31/2021

[2023] HKCFI 1175

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 31 OF 2021

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J U D G M E N T

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1.  This is the Plaintiff’s application for summary judgment against the Defendants for copyright infringement in respect of the sale of certain clothing items by the Defendants. For the claim on primary infringement, the Plaintiff alleges that the Defendants issued the alleged infringing goods to the public in Hong Kong and made available the same on the internet clothing items or pictures of clothing items in Hong Kong and elsewhere contrary to ss 24 and 26 of the Copyright Ordinance, Cap 528 (“CO”)  respectively. For the claim on secondary infringement, the Plaintiff alleges that the Defendants imported or exported the alleged infringing goods to or from Hong Kong and possessed or dealt with them contrary to ss 30 and 31 of the CO respectively.

Background

2.  The Plaintiff is a member of the H&M Group.  Its parent company H&M Hennes & Mauritz AB has, since 1974, been listed on the NASDAQ Stockholm stock exchange. The H&M Group carries on business as a designer, manufacturer, marketer and distributor of clothing. H&M Group markets its products through retail outlets and on the internet.

3.  H&M Group has an in-house design team and also sources some designs externally.  According to the Plaintiff, each item of H&M clothing the subject of this action was designed by the Plaintiff’s in-house design team situated at the head office in Stockholm, Sweden.  Over the years, hundreds of collections of clothing items have been designed by the Plaintiff’s in-house design team.

4.  The Defendants operate an online fast fashion business under the trade mark and trade name "Shein".  The Shein brand was founded in 2012 and its business covers more than 150 countries in the world.

5.  The 1^st Defendant was incorporated in Hong Kong in 2015.  It is the operator of the websites under complaint.  The 2^nd Defendant is stated by the Defendants to be the registrant of the websites.  There are other companies of the Shein group based in the Mainland and other countries.  However, this action has been brought against the Defendants on the basis they are the principal sales companies of the Shein Group.  The Defendants confirm that this is the case, at least in relation to the 1^st Defendant.

6.  The claim against the 3^rd Defendant has been settled and so there is no live issue about its liability.  For the reference to the Defendants in the following part of this Judgment, I mean only the 1^st and 2^nd Defendants.

7.  The alleged infringing goods dealt with by the Defendants are listed out in Appendixes 1 and 2 of the Amended Statement of Claim.  Appendix 1 includes the products relating to the Unicorn design whilst Appendix 2 contains the products other than the Unicorn design.  The comparison with the Plaintiff’s products is also shown in these Appendixes, and I agree with Mr Clark, solicitor advocate for the Plaintiff, that the similarities are striking.

8.  The following facts are not disputed:

(i)  The 1^st Defendant is the operator of the websites and the Apps under complaint.

(ii)  The 2^nd Defendant was the registrant of the websites and the Apps under complaint.

(iii)  The 1^st Defendant sources products from the Mainland for sale online.

(iv)  The 1^st Defendant arranged the production of all the alleged infringing items.

(v)  The 1^st Defendant was the contracting party for the production of the alleged infringing items.

(vi)  The 1^st Defendant arranged the uploading of alleged infringing images onto the Defendants’ webpages.

(vii)  For products sold to Hong Kong, the products were sent from Mainland warehouses to Hong Kong warehouses and were delivered to customers by logistics companies.

(viii)  The Defendants are aware that clothing products may infringe copyright and for this reason they have a copyright notice on their websites.

(ix)  The 1^st Defendant did deal with the alleged infringing products that were on sale in September 2021.

9.  Ms Ma, counsel for the Defendants, submits that the summary judgment application should be refused for the following reasons:

(i)  The Plaintiff has failed to establish a prima facie case in respect of the Plaintiff’s alleged copyright ownership and subsistence and the alleged infringing acts, including whether the infringing items in question were “copies” of the alleged copyright works.

(ii)  There are triable issues as to the Plaintiff’s alleged copyright ownership and subsistence and the alleged infringing acts.

(iii)  There are other reasons for trial.

10.  The present application therefore turns on the following three issues: (i)  whether the Plaintiff owns the alleged copyright works and whether copyright subsists in those works; (ii)  whether the alleged infringing goods were copies of the alleged Plaintiff’s copyright works; and (iii)  whether there was primary or secondary infringement of the Plaintiff’s copyright works. There is also an additional issue as to whether the 2^nd Defendant is liable as joint tortfeasor for being only the registrant of the websites or the developer of the Apps.

Triable issues as to primary and secondary infringement

11.  In my judgment, leave should be granted to the Defendants to defend the claim simply on the ground that there are triable issues as to whether the Defendants’ conduct in dealing with the alleged infringing goods amounts to primary or secondary infringement of the Plaintiff’s copyright works.

12.  For primary infringement, the Plaintiff is relying on ss 24 and 26 of the CO.

13.  S 24 of the CO reads:

“(1) The issue of copies of the work to the public is an act restricted by the copyright in every description of copyright work.

(2)  References in this Part to the issue of copies of a work to the public are to the act of putting into circulation copies not previously put into circulation, in Hong Kong or elsewhere, by or with the consent of the copyright owner.

(3)  References in this Part to the issue of copies of a work to the public do not include—

(a)  any subsequent distribution, sale, hiring or loan of copies previously put into circulation (but see section 25: infringement by rental); or

(b)  any subsequent importation of those copies into Hong Kong.

… … …”

14.  Mr Li Jun (“Li”), the Manager of the 1^st Defendant, has provided an account in §§9 to 11 of his affirmation as to how the 1^st Defendants had sourced the alleged infringing products from its suppliers.  As the previous acts of putting into circulation of copies cover acts both in Hong Kong and elsewhere, there is certainly a triable issue that it was the Defendants’ suppliers who first put the alleged infringing goods into circulation and not the Defendants.  Indeed, s 24(3)  makes it clear that the “issue of copies of the work to the public” does not, for the purpose of s 24, cover any subsequent distribution or sale of those copies or importation of those copies into Hong Kong.

15.  It may be right for Mr Clark to say that it was the Defendants who first put into circulation the alleged infringing goods in Hong Kong, but since the previous acts of putting into circulation could occur in places outside Hong Kong, the first putting of the alleged infringing goods into circulation in Hong Kong does not assist the Plaintiff’s case.  Hence, there is a triable issue as to whether there was primary infringement contrary to s 24.

16.  The Plaintiff also relies on s 26 which reads:

(1)  The making available of copies of the work to the public is an act restricted by copyright in every description of copyright work.

(2)  References in this Part to the making available of copies of a work to the public are to the making available of copies of the work, by wire or wireless means, in such a way that members of the public in Hong Kong or elsewhere may access the work from a place and at a time individually chosen by them (such as the making available of copies of works through the service commonly known as the INTERNET).

… … …”

17.  It is quite clear that s 26 is targeting activities such as uploading a piece of infringing music in the internet for downloading by internet users at any time.  This section does not cover the distribution or sale of the infringing goods in the present case, as the buyers could not access or obtain the alleged infringing clothing items at a time individually chosen by them.  After all, they had to place an order through the websites or the Apps and obtain the clothing items later.

18.  The Plaintiff also relies on the display of the photographs of the alleged infringing clothing items in the Defendants’ websites and Apps for the purpose of primary infringement under s 26.  I agree that there may be an infringment contrary to s 26 because the buyers might have access to the photographs through the internet from a place and at a time individually chosen by them.  However, the damage caused by the access to the photographs itself may be limited.  It is the distribution and the sale of the alleged infringing clothing items which are causing the Plaintiff damages.

19.  As I will demonstrate further in the following part of this Judgment, it is necessary to hold a trial to determine whether the distribution and sale of the alleged infringing clothing items amount to infringement.  If the judgement to be obtained is partial only and a trial is to take place in any event, the court may not grant summary judgment in appropriate cases.[1] Here, as there will be a trial on the main infringing act of distribution and sale of the alleged infringing clothing items and the Defendants have now removed all the alleged infringing photographs in their websites and Apps, I do not see it fit to grant partial judgment based on the display of the photographs only.  Indeed, it may cause embarrassment if the court in the later trial finds that there are some defects in the Plaintiff’s case on ownership and subsistence of copyright.

20.  Based on the aforesaid analysis, I do not need to consider the other arguments advanced by Ms Ma, such as: (i)  the alleged infringing photographs were uploaded in the Mainland; (ii)  the servers of “shein.com” and those websites under complaint which targeted overseas customers were not located in Hong Kong; and (iii)  most of the websites and the Apps were not targeting the public in Hong Kong.

21.  I then turn to secondary infringement.

22.  First, there is no serious issue about the import of the alleged infringing goods into Hong Kong and the offering and exposing for sale of such goods in Hong Kong, the acts of which fall within ss 30 and 31 of the CO respectively.  The only dispute is whether the Defendants knew, or had reason to believe, that the infringing goods with which they were dealing were indeed infringing goods.  Knowledge is an essential requirement for a claim on secondary infringement.

23.  Mr Clark submits that objective knowledge is sufficient for a claim on secondary infringement.  Where a claim of infringement made against a person who know that his article is similar to and has probably been copied from the claimant’s corresponding article, and a reasonable man would know the claimant’s article was made from drawings in which copyright subsisted, he will have “reason to believe” for this purpose.[2]

24.  In this case, the Plaintiff relies on 6 matters pleaded in §25 of the Amended Statement of Claim to establish objective knowledge:

(i)  the striking resemblance between the products showing they must have been copied;

(ii)  the Defendants as manufacturers will be aware of copyright;

(iii)  that the Defendants include on their webpages a “Copyright Notice”;

(iv)  the fact that the Defendants on their webpages and App store pages include copyright notices indicating an awareness of intellectual property rights and that copyright works are protected by copyright laws;

(v)  the sheer scale of the Defendants’ unauthorised substantial reproduction of the copyright works and making available to the public internet images of the infringing products to customers worldwide (including Hong Kong and the other countries); and

(vi)  the fact that the Defendants have continued to make available, offer or expose for sale some or all of the infringing products for sale on the SHEIN Websites after commencement of these proceedings and after the filing of the Statement of Claim.

25.  In reply, Ms Ma submits that there is triable issue as to whether the Defendants knew or had reason to believe that the alleged infringing products or infringing images are infringing copies of the alleged copyright works.  As stated in the opposing affirmation of Li, the 1^st Defendant sourced products from the Mainland for sale online and more than 100,000 clothing products were offered for sale by the 1^st Defendant.  All the alleged infringing products and the alleged infirming images were supplied to the 1^st Defendant by the respective suppliers, who had warranted that the products supplied do not infringe any intellectual property rights of any third party.  There is also nothing for the Defendants to even start to suspect, let alone to have reason to believe, that the goods and images so supplied were infringing goods, which involves a concept of knowledge of facts from which a reasonable person would arrive at the relevant belief and facts from which a reasonable person might suspect the relevant conclusion are not enough.  In particular, there is nothing to show that the Plaintiff’s alleged copyright works were published prior to the supply of the products to the 1^st Defendant by its respective suppliers of the goods and images in question, let alone the 1^st Defendant’s suppliers or the Defendants’ knowledge of the Plaintiff’s alleged copyright works or products.  In any event, the Defendants had stopped selling the alleged products and removed all the alleged infringing images on the websites under complaint after being served the Statement of Claim.  Considering the size of the 1^st Defendant’s business, it can be expected that it would take time for the Defendants to remove the materials in question.

26.  Whether someone has subjective or objective knowledge is certainly a fact-sensitive issue.  The Defendants deny both.  In my judgment, based on the Defendants’ denial and the particular circumstances of the present case including the nature of business carried on by the Defendants, the Defendants have discharged the burden of raising a trial issue about the lack of knowledge.  The inclusion of the copyright notices in their websites and Apps may support the allegation that the Defendants were aware of the risk of copyright infringement, but whether the Defendants had done sufficient to verify the ownership and subsistence of copyright relating to the alleged infringing clothing items is a fact-sensitive matter which deserves further investigation by the court.  The court cannot simply ignore the Defendants’ allegations at this stage.

27.  For these reasons, there is a triable issue relating to knowledge which is essential for a claim on secondary infringement.

Other arguments raised by the Defendants

28.  Based on such analysis, I do not need to address the other arguments put forward by the parties.  But since both counsel have made considerable submissions on those issues, I would deal with them briefly here.

29.  First, Ms Ma submits that there are certain doubts in the Plaintiff’s case and the 2^nd affirmation of Ms Maria Herlitz Sundelius (“Sundelius”)  made pursuant to s 121 of the CO to prove, inter alia, copyright ownership and subsistence.  For examples, there are some mismatches between the numbers of designers shown in the design drawings and those stated in Schedule A of the s 121 affirmation, and there is some doubt as to whether the copyright belongs to the Plaintiff as opposed to other affiliated companies in the H&M Group or the relevant designers concerned.   Further, Sundelius, who is the Plaintiff’s Legal Counsel, did not state the source of her information about the ownership and subsistence of copyright.

30.  Second, there is doubt as to whether the alleged infringing goods were copies of the Plaintiff’s copyright works.  As the Plaintiff has not provided any information about the dates of publication of its works, the Plaintiff has not proved that the Defendants or their suppliers had access to the Plaintiff’s works thereby providing the opportunity of copying.

31.  Since there will be a trial on the Plaintiff’s claim, it is not appropriate for me to express any views on these matters.  In particular, I can dispose of the summary judgment application on some other ground.  It may be said that these “queries” may not be sufficient to rebut the presumption of ownership and subsistence of copyright under s 121 of the CO, but I would prefer to leave these matters for further argument, either in this case or other similar cases, in the future.   

32.  There is also an issue as to whether the 2^nd Defendant, being only the registrant of the websites or the developer of the Apps, is also liable for copyright infringement as joint tortfeasor.

33.  The leading authority on joint tortfeasorship is the United Kingdom Supreme Court case of Sea Shepherd UK v Fish & Fish Ltd^[3],in which Lord Neuberger held that there are three criteria for establishing joint liability, namely:[4]

(i)  the defendant must have assisted the commission of an act by the primary tortfeasor;

(ii)  the assistance must have been pursuant to a common design on the part of the defendant and the primary tortfeasor that the act be committed; and

(iii)  the act must constitute a tort as against the claimant.

34.  Given these requirements, there may be a triable issue as to whether there was a common design involving the 2^nd Defendant.  As pointed out by Lord Neuberger in Sea Shepherd[5], if the activity could have been “perfectly well” carried out in a way which was not tortious then the assistance would not render the defendant liable, unless the defendant knew a tort would be committed.  The websites registered and developed by the 2^nd Defendant might be used to carry out perfectly lawful sales.  As there is no evidence to show that the 2^nd Defendant was involved in the “B2C” business, there is certainly a triable issue as to whether the 2^nd Defendant was involved in the common design so as to make it liable for the sales of the infringing goods through the websites registered under its name.  Indeed, there are a lot of companies helping small enterprises to set out websites to market their products, but it does not per se make these companies liable for the sale of any infringing items through these websites even if such websites are registered under their name.

35.  Subject to what I have said in §19 above, I do not need to consider Ms Ma’s argument that there should be some other reasons for a trial.

36.  For these reasons, I grant the Defendants unconditional leave to defend the Plaintiff’s claim.  Both parties agree that, under such circumstances, the costs of the summary judgment application should be costs in the cause.  I therefore so order.