UNIVERSAL MUSIC LTD v. NEWAY MUSIC LTD AND OTHERS

HCA 1738/2017

[2019] HKCFI 61

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1738 OF 2017

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DECISION ON COSTS

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1.  I gave summary judgment to the plaintiff (“Universal”) on 30 October 2018 for copyright infringement of its karaoke music videos (“KMVs”) by the defendant (“Neway”). I also made a costs order nisi that Neway do pay the costs of this action to Universal to be taxed on indemnity basis with certificate for two counsel. Neway applied on 9 November 2018 to vary the order nisi to costs to be taxed on party-to-party basis with certificate for two counsel or any other order that the court may deem just.

2.  In my judgment of 30 October 2018 (“the summary judgment”), I regarded Neway’s opposition to the action by Universal as an abuse of process.  The reason being that the grounds of defence raised by Neway in this action had all been decided in my earlier decision given on 6 January 2017 against Neway (“the discharge decision”) in HCCT 45/2012 between, among others, Universal and Neway.  Hence, Neway should know where it stood in this action.  I further held that it was unreasonable for Neway to challenge Universal’s copyright ownership in this action.  Hence, I ordered indemnity costs.

Abuse of process

3.  I refer to but without repeating the facts summarized in the summary judgment.  Mr Yan, SC, leading counsel for Neway submitted in the written submissions that I did not give summary judgment to Universal on the ground that the issues raised by Neway had been decided in the discharge decision.  Instead, I proceeded in the summary judgment to consider and interpret s 156(3) and (4) of the Copyright Ordinance; Cap. 528 (“the Ordinance”) which were relied on by Neway in defence of this action. 

4.  In opposition to the application for summary judgment, Mr Yan referred to s 156(3) of the Ordinance and submitted that it gave the Copyright Tribunal (“the tribunal”) jurisdiction to make an order, either confirming or varying a licensing scheme that had been referred to it as it might determine to be reasonable in the circumstances.  He further submitted that such order might be in force indefinitely or for such period as the tribunal might determine under s 156(4). 

5.  I held in §§31 to 35 of the summary judgment:

“31. I refer to §§28 to 29 of the discharge decision as follows:

‘28. Mr Yan emphasised that the Tribunal has exclusive jurisdiction under s. 156(3) to confirm or vary the terms of a licensing scheme and to determine under s. 156(4) that the order should last indefinitely or only for a definite period. Whether the Tribunal should make an order in CT2/2010 that the scheme as referred should remain in force beyond 30 June 2015 when the authorization by the record companies to the plaintiff was terminated is a matter that should be left to the Tribunal and not to be decided by this court in the discharge summons.

29. I think Mr Yan, in making this submission, has misunderstood the meaning of s. 156(4) as he equated the order of the Tribunal to be made under s. 156(4) with the scheme that has been referred to the Tribunal. S. 156(4) merely gives the Tribunal power to provide that the order made under s. 156(3) may be in force indefinitely or for such period as the Tribunal may determine. S. 156(4) empowers the Tribunal to determine the duration of the order and not the longevity of the scheme. Even when the scheme should have lapsed, been superseded, or otherwise terminated, it may still be necessary to have the order in force so as to deal with the aftermath. I do not think the legislature should have given the Tribunal the power under s. 156(4) to dictate that the operator should continue a scheme indefinitely if the operator cannot or does not want to do so.’ (emphasis supplied)

32. Mr Yan does not dispute this conclusion, but he submitted that on a proper reading of the discharge decision, I have not rejected Neway Group’s argument on the interpretation of s 156(3) and (4).  He further submitted in §17 that the order to be made by the tribunal under s 156(4) will not compel HKKLA to perform the terms of the scheme, as the scheme has been terminated (based on the discharge decision).  The effect of the order under s 156(4) will only prevent Neway from being liable for infringement provided that it complies with the terms of the order as per s 160(2).”

33. I do not think the tribunal can make an order under s 156(3) and (4) to allow Neway Group to use Universal’s KMVs in return for its payment to Universal thereof otherwise then in the context of a licence.   I am unable to understand how the tribunal can order that Neway Group can continue using Universal’s copyright works when HKKLA’s scheme had already been put to an end.  I also cannot understand how Neway Group can be immune from Universal’s suit of infringement if its use of Universal’s KMVs is not pursuant to a licence granted either by HKKLA pursuant to its licensing scheme or by Universal.  Neway Group can only lawfully use Universal’s KMVs if it is licensed to do so.  For there to be a licence, there must be a licensor and a licensee.

34. I also agree with Mr Wong that any order to be made under s 156(3) is predicated upon the existence of a scheme under which a licence can be granted.  If there is no scheme, there is nothing for the tribunal to confirm or vary under s 156(3).  Since HKKLA’s scheme had already ended on 30 June 2015, the tribunal cannot make any order under s 156(3) to confirm or vary its terms.

35. I also hold that the tribunal cannot make any order under s 156(4) in the CT2 proceedings that can protect Neway Group from an infringement claim brought by Universal in respect Neway Group’s use of Universal’s KMVs from 1 July 2015 in the absence of any licence from Universal.”

6.  Pursuant to what I said in these paragraphs, I held that Neway had no defence and then gave summary judgment to Universal. 

7.  I agree with Mr Wong, SC, leading counsel for Universal that what I said in the summary judgment by way of interpretation of s 156(3) and (4) was in effect a reiteration of what I had already said in §§28 and 29 of the discharge decision.  There was nothing new in the interpretation made in the summary judgment.  The reason for my reiteration of what I had said about s 156(3) and (4) in the discharge decision was Mr Yan’s repetition of his previous argument on the effect of s 156(3) and (4). 

8.  Mr Yan submitted previously that the tribunal had exclusive jurisdiction to confirm or vary under s 156(3) the terms of a licensing scheme and to determine under s 156(4) that such order could last indefinitely so that the scheme would not lapse.  Mr Yan repeated this argument in opposition to summary judgment.  He further submitted that the order that the tribunal makes under s 156(4) would not compel HKKLA to perform the terms of the scheme (as he accepted the termination of the scheme as held in the discharge decision), but would prevent Neway from being liable for infringement provided Neway would comply with the terms of the order as per s 160(2).  But this further submission cannot make an old argument look nascent, because Mr Yan accepted in this argument that Neway had to comply with the terms of the order as per s 160(2); that is to (1) pay to the operator of the scheme any charges payable under the scheme and (2) comply with the other terms applicable to such a licence under the scheme. Hence, his submissions require the extension by the tribunal of the longevities of the scheme and the licence under s 156(4) when I have ruled in the discharge decision that such cannot happen.  It is thus clear that Mr Yan was repeating his previous argument in opposition to summary judgment.

9.  Hence, I said in §40 of the summary judgment that Neway’s defence in this action was an abuse of process as the issues raised had all been decided in the discharge decision. 

10.  I further agree with Mr Wong that Neway not only raised the same point for the second time, it also distorted my discharge decision by saying in §16 of its written submissions for staying this action that I had held that “despite a scheme having ceased for whatever reasons, the tribunal can still make an order under section 156(4) which is to be in force beyond the cessation date of the scheme.”  This submission meant (though not expressly said) that I had decided that the scheme could be lengthened by the order under s 156(4) and is a distortion of what I had decided.  Neway further submitted in §16 of the written submissions to oppose summary judgment that I had not rejected its argument on the interpretation of s 156(3) and 156(4).  This is another distortion.

11.  In fact, I have further held in §§84 to 90 of the discharge decision as follows:

“84. I think Mr Yan’s submission for prolonging the duration of a scheme when a reference is pending in the Tribunal may be more to the point if it is addressed to the reference to the Tribunal of a licence not granted pursuant to a licensing scheme that is open to all as in the case of Candy Rock Recording Ltd v Photographic Performance Ltd. CT 23/95, CT 35/96. For a scheme that is open to all, there are many licensees and Candy Rock is not an appropriate analogy. Candy Rock is also not an appropriate analogy for a reference under s. 156(1) for the further reason that it was concerned about the renewal of a licence granted otherwise than in pursuance of a licensing scheme. It was not a dispute over the terms of a licence granted or to be granted under a licensing scheme or a reference of a licensing scheme to the Tribunal. It was a s. 163 situation.

85. For a licensing scheme pursuant to which a licence should be granted to whoever that may seek it and is willing to abide by its terms, it may not be easy for the scheme operator to frustrate a reference of it to the Tribunal simply by terminating or revoking it after the making of a reference. The scheme is designed not for a particular licencee but for all those who may need to use the copyrighted works and are willing to abide by the scheme terms. Its terms may not allow the operator to put an end to it at any time at his whim. Even if he should be permitted to do so by the terms of the scheme, it is not easy for him to start a new scheme with new terms and to attract all the licensees in the terminated scheme to join the new one. Such an exercise may entail grave financial consequence to the operator that he cannot ignore. I am not convinced that s. 156(2) is to cater for this kind of mischief.

86. I think one of the purposes of s. 156(2) is to prevent a scheme operator from frustrating the reference to the Tribunal by varying the fee levels or other terms and conditions of the scheme after the reference has been made. The variation by the operator would put the Tribunal in difficulty as any order of the Tribunal under s. 156(3) varying the terms of the scheme is supposed to have effect on all licences granted pursuant to this scheme. Any variation of the terms including the fee scale made by the operator (which may affect all existing licences granted under the scheme) when the reference is pending may make the Tribunal’s subsequent order (on the scheme without variation) inappropriate for these licences with varied terms. Hence, it is important that there should not be any change in the scheme terms after a reference is made until the reference is concluded.

87. Furthermore, if the scheme terms should be varied after a reference has been made, the Tribunal may have to deal with the scheme as referred but without the variation and also the scheme as varied. The Tribunal may have difficulty in deciding what to do under s. 156(3) or (4) with the scheme as varied as it is no longer the same as the scheme referred under s. 156(1). Depending on the extent of the variation, the Tribunal may not even have jurisdiction to deal with the varied scheme as it may become a different scheme altogether. Hence, it is important that once a scheme is referred to the Tribunal, it shall remain in operation in the same terms unless it shall for any reason be put to an end. I think that is the purpose of s. 156(2) and the section should be so interpreted.

88. I also agree with Mr Wong’s submissions for Universal that the plaintiff cannot continue to operate the scheme once the record companies withdraw their authorizations for the plaintiff to use and license their copyright works.

89. Mr Wong is also correct in his submission that there is nothing in s. 156 or in the entire Part II Division VIII of the ordinance that requires the record companies to be bound by any order of the Tribunal so that they will be compelled to ensure that the plaintiff can perform the terms of the scheme as may be varied by the Tribunal. The record companies also cannot apply to the Tribunal under s. 156 or s. 157 (which deals with further reference to the Tribunal of a scheme that is subject to an order of the Tribunal made under s. 156). If s. 156(2) shall have the effect as contended by Mr Yan, that will compel the record companies to allow the plaintiff to continue licensing the use of their copyright works to licensees indefinitely once a reference of the scheme is made to the Tribunal. That will deprive the record companies of their contractual and proprietary rights until the conclusion of the reference. I agree with Mr Wong that such interpretation of s. 156 is contrary to the established canons of statutory interpretation. If the intention of the legislature should be as submitted by Mr Yan, clearer wording should be used to spell out such intention.

90. In the light of the above analyses, I am of the following view on the interpretation of s. 156(2). S. 156(1) governs the reference to the Tribunal of a scheme that is “in operation”. The scheme referred is one that is “in operation”. It is not a scheme “proposed to be operated” which is governed by s. 155. Nor is it a scheme that has already been lapsed. Since it is a scheme “in operation”, there is no need to provide for its continuation after the reference is made. However, if for any reason, the scheme cannot continue to operate, then it can come to an end. The reference of it to the Tribunal will only be up to its cessation and not beyond. S. 156(2) does not require the operator to continue its operation if the operator does not desire or is not in a position to do so. If however the scheme, which is in operation when referred to the Tribunal, should continue to operate after the making of the reference, then s. 156(2) requires that it shall remain (or it remains) in operation in the same terms and conditions as and when the reference was made until the conclusion of the reference. The function of s. 156(2) is to preserve the totality of the scheme as referred pending its resolution by the Tribunal.”

12.  Hence, it is wrong for Mr Yan to have submitted that I did not give summary judgment to Universal on the ground that the issues raised by Neway had been decided in the discharge decision.  I did. 

13.  Mr Yan further submitted in §6 of Universal’s reply submissions that nowhere in the entire summary judgment did I ever suggest that interpretation of s 156(3) & (4) was not necessary because that had already been decided in the discharge decision (as contended by P).  The fact is that I did say in §40 of the summary judgment “[t]he issues raised by Neway Group in its defence in this action have all been decided in the discharge decision” and “Neway Group should know where it stands”.  But Mr Yan submitted in §§4 and 5 of his reply submissions that he had already explained in his initial submissions why he disagreed with such “finding” and in §10 that such was wrong in the light of the entire summary judgment.  I do observe that what I said in §40 of the summary judgment as quoted above is not a “finding”.  Furthermore, Mr Yan is at liberty to disagree with me on what I have said.  But he cannot in the same breath assert that I had not said what he disagrees with.

14.  Mr Yan further submitted in the reply submissions that when I gave judgment to Universal in §37 of the summary judgment, I only said “[i]n the light of my interpretation of s 156(3) and (4) above…”.  That shows that it was a fresh interpretation rather than a reiteration of what I had done in the discharge decision.  Mr Yan further submitted that if the interpretation had already been done in the discharge decision, I should have said: In the light of my view that I have already decided the issue in the Discharge Decision…”.  I would only observe that it was not too late for me to say it in §40 though not in the same words that Mr Yan would dictate for me.

15.  The next point is in §§8 and 14(b) of Mr Yan’s reply submissions.  It says that Universal had asked for an order that Neway be “debarred and/or estopped” from raising any argument in relation to the interpretation of s 156(3) and (4), but I did not in the summary judgment even suggest that Neway be “debarred and/or estopped from running such arguments”.  It seems that Mr Yan does not regard the summary judgment against Neway as a final judgment on the interpretation of s 156(3) and (4).

16.  Mr Yan then referred in §9 of his reply submissions to §29 of the summary judgment where I said “I would therefore deal with the interpretation of s 156(3) and (4) and whether the tribunal’s order in the CT2 proceedings can protect Neway Group from infringement claim brought by Universal”.  Mr Yan submitted that this was another good indication that I was interpreting the sub-sections afresh.  But I would say that quibbling with a particular expression in the summary judgment is not as useful as reading the judgment as a whole for understanding what I have decided.  If I had interpreted s 156(3) and (4) in the discharge decision, I could not gainsay that in the summary judgment.  I had indeed interpreted s 156(3) and (4) in §§28 and 29 of the discharge decision and clearly.

17.  Mr Yan then submitted in §13 of the reply submissions that I still have to consider whether on a proper and fair reading of the discharge decision in an objective and reasonable manner, there was absolutely no basis for Neway to contend that I had not decided on the interpretation of s 156(3) & (4) in that decision.  He submitted that the parties could not possibly read what was going through my mind when I wrote the discharge decision.  He raised a few points to show that there was basis for Neway to content that I had not decided on the interpretation of s 156(3) & (4) in that decision.

18.  The first point is in §14(a) of the reply submissions.  He submitted that Neway had been consistent throughout and even before the commencement of this action.  Its position was first stated in a letter dated 3 February 2017 (Exhibit “WKT-18”).  It repeated its position in the Defence (§34).  I do not quite understand this point.  Neway was consistent.  But it was consistent in pursuing an oppressive course in exploiting and infringing Universal’s copyright by raising arguments that had been decided against it in the discharge decision. 

19.  The second point is also in §14(a) of the reply submissions.  Mr Yan submitted that if Universal genuinely believed that Neway’s defence was an abuse of process as the issue had already been decided in the discharge decision, it could and would have naturally applied to strike out the defence (that was in substance Neway’s main, if not sole, defence to Universal’s claims in this action).  Universal did not do so. Instead, it waited for 5 months and then applied for summary judgment.  My immediate observation is that Universal’s course of conduct had nothing to do with what I had decided in the discharge decision.  But if such conduct could reflect on Universal’s “objective” understanding of whether I had decided the interpretation of s 156(34) and (4), then I would say that an application for summary judgment is based the applicant’s understanding that the defendant has no defence to the action.  To knowingly take a previously decided point from the same losing side or flogging a dead horse is no defence.  Universal’s stance was that s 156(3) and (4) had been firmly and clearly decided against Neway in the discharge decision.  Hence, they applied for summary judgment. They also asked for an order that Neway be “debarred and/or estopped” from raising any argument in relation to the interpretation of s 156(3) and (4).  The basis for this is because this has already been done in the discharge decision.

20.  The final point on this issue is that I had in the course of the hearing of the application for summary judgment fairly acknowledged that, at the very least, it was not entirely clear from the discharge decision that I had dealt with and interpreted s 156(3) and (4).  In support of this submission, Mr Yan quoted a few utterances of mine from the transcript showing my lament that if I should have produced a clearer and more embracive discharge decision, this action might have been avoided.  These utterances were all made by me in response to Mr Yan’s opening submissions when he used his forensic skills to the utmost to demonstrate the flaws of my discharge decision.  I did not at the time carry all that I have said in the discharge decision in my mind.  Believing that the attacks were all factually accurate and justified, I lamented at my inadequacies which, I then believed, had resulted in yet another expensive litigation (p. 16K, 16O-17D and 18O-R of the transcript). 

21.  The picture was however corrected by Mr Wong, who in his submissions pointed me to §§28, 29, 72 and 83 of the discharge decision which show that my earlier lament was unnecessary and misplaced (p 35D-M of the transcript).

22.  In a nut-shell, Neway had knowingly infringed Universal’s copyright.  It had forced Universal to take out this action.  It also defended this action with vigour when it should not have.  Its game plan was oppressive and attitude hostile.

23.  The parties have no dispute on the applicable law on the award of indemnity costs.  On this ground alone, Neway should pay costs of the action to Universal to be taxed on indemnity basis.

Unreasonable challenge to Universal’s copyright ownership

24.  Neway submitted that it had only admitted in previous proceedings that Universal had the right to grant authorizations to grant licences but not ownership of the copyright works which would enable it to sue for infringement.  Since Universal had not disclosed assignments of the copyright or any other proof of ownership of the rights in the supporting affirmation, Neway was justified to question Universal’s ownership of the copyright in some of the works in question.  Neway also submitted that the ownership put forward by Universal in this action was inconsistent with the case in previous proceedings which inconsistency was only removed by Universal’s reply affirmation.  

25.  Mr Wong disagreed.  He pointed out that Neway had accepted in its defence that Universal was the copyright owner (and not merely having the right to authorize) of the relevant water-marked KMVs.  Neway also treated Universal as the owner of the relevant copyright works in the previous proceedings in which the discharge decision was made.  Neway in the proceedings leading to the discharge decision had repeatedly asserted that Universal was the “copyright owner” of the KMVs bearing the HKKLA watermark and the true operator of the HKKLA licensing scheme.

26.  Neway in the reply submissions submitted that what was relevant in the previous proceedings in HCCT 45/2012 was whether Universal had the right to authorize HKKLA to grant karaoke server licences in respect of works under its labels.  It was not necessary nor had Neway conceded that Universal alone was the owner of the copyright of all such works.  The paragraphs cited from its defence to this action had to be considered in their proper contexts.  By this submission, Neway wants its admissions of Universal’s copyright ownership to mean its admissions of Universal’s right to authorize the grant of licence only.  I am not prepared to take up this suggestion of rewriting Neway’s own words.

27.  I agree with Mr Wong. Neway was indeed oppressive in challenging Universal’s ownership of the copyright in the application for summary judgment.  This is the additional reason for ordering Neway to pay costs on indemnity basis.  However, I reiterate that Neway’s oppressive attitude in infringing Universal’s copyright prior to the commencement of this action and its abuse of process in defending this action are sufficient justifications for indemnity costs.

Decision

28.  In the premises, I dismiss Neway’s application to vary the costs order nisi with costs of the application be to Universal also to be taxed on indemnity basis with certificate for two counsel.