MARY KAY INC. AND OTHERS v. ZHEJIANG TMALL NETWORK CO., LTD AND OTHERS

HCA 2406/2017

[2021] HKCFI 1403

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2406 OF 2017

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DECISION

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1.  There are before me the following applications:

(i)  the Plaintiffs’ applications by summonses dated 28 January 2019 for default judgments against the 4^th and 5^th Defendants (“the Default Judgment Applications”);

(ii)  the 3^rd Defendant’s application by summons dated 11 April 2019 to oppose the Default Judgment Applications (“the 3^rd Defendant’s Opposing Application”); and

(iii)  the 1^st and 2^nd Defendants’ application by summons dated 11 April 2019 to set aside the order of Master M Lam dated 19 June 2018 granting leave to serve the concurrent writ out of jurisdiction on them (“the Setting Aside Application”).

2.  The Plaintiffs’ claims are for trade mark infringement and passing-off based on 4 trap orders placed by the Plaintiffs’ solicitors, ATL Law Offices (“ATL”), with the e-commerce shops operated by the 4^th and 5^th Defendants on the online platforms of the 1^st to 3 Defendants.  These trap orders involved genuine Plaintiffs’ “Mary Kay” products but with the production lot codes removed.

I  BACKGROUND

3.  The 1^st to 3^rd Plaintiffs belong to the same group of companies which carry on business in the marketing of skin care and cosmetics products under the trade marks of “Mary Kay” and “玫琳凱” through the “direct-selling” or “network-marketing” model.  They have authorized independent beauty consultants who are by nature direct sales representatives (“DSRs”) to market the products to individuals who can then enroll as DSRs themselves in order to enjoy a larger discount for more goods they purchase.  According to the Plaintiffs, there are currently more than 1 million DSRs in the Mainland and Hong Kong managed by the 2^nd and 3^rd Plaintiffs.  According to the Plaintiffs, the DSRs are contractually bound to market and sell the Plaintiffs’ products by direct-selling only, and are expressly prohibited from marketing or selling the same at retail levels including online-selling.

4.  The 1^st to 3^rd Defendants belong to the “Alibaba Group” which, for the purposes of the present proceedings, can be regarded as the operators of the e-commerce online platforms generally known as “Taobao” and “Tmall”.  Both “Taobao” and “Tmall” provide online platforms for people to trade.  There are millions of stores opened on “Taobao” and “Tmall”, and hundreds of millions of items are available for trading on the platforms.  The 1^st to 3^rd Defendants do not and have never sold any goods on those platforms at all material times.

5.  More specifically, there are 4 online platforms operated by the Alibaba Group, namely: (i) “Taobao China” (www.taobao.com); (ii) “Taobao World” (world.taobao.com); (iii) “Tmall China” (www.tmall.com); and (iv) “Tmall Global” (www.tmall.hk).

6.  “Taobao China” is a Mainland consumer-to-consumer online retail platform for individuals and small businesses.  It operates like a marketplace where individuals can directly and autonomously list products for purchase by consumers (similar to “Amazon” and “eBay”).  The seller is completely autonomous and independent and is the direct seller of the products, and it determines all parameters of the sale including the products, prices, places or countries that the seller is willing to arrange for delivery, etc.  According to the 1^st to 3^rd Defendants, “Taobao China” is not the seller of the products listed but rather it provides the neutral platform for people to trade.  “Taobao China” is operated by Zhejiang Taobao Network Limited (“ZJTNL”) in the Mainland which is not a party to these proceedings.  “Taobao China” is targeted at sellers and consumers in the Mainland.

7.  “Taobao World” is a sub-domain of “Taobao China”.  It is a relatively new overseas business of “Taobao China”.  When consumers enter the web address for “Taobao China” but their Internet Protocol (IP) address is outside the Mainland, they will automatically be diverted to “Taobao World”.  “Taobao World” is also operated by ZJTNL and the 3^rd Defendant.

8.  On the other hand, “Tmall China” is a business-to-consumer online retail platform.  Independent businesses list products on “Tmall China” for purchase by consumers.  According to the 1^st to 3^rd Defendants, “Tmall China” is not the seller of such products.  “Tmall China” is operated by the 1^st and 2^nd Defendants in the Mainland, and this platform is targeted at sellers and consumers in the Mainland.

9.  “Tmall Global” is a separate platform to “Tmall China” with entirely separate operations.  “Tmall Global” is a Chinese language business-to-consumer online retail platform for businesses outside the Mainland to sell goods to consumers in the Mainland only.  “Tmall Global” does not facilitate sales to Hong Kong and indeed there have been none.  “Tmall Global” is operated by the 3^rd Defendant. There are no claims made in relation to “Tmall Global” in this action.

10.  The 4^th Defendant is a limited company incorporated in the Mainland with its registered office situated at Anhui Province.  The 4^th Defendant is and was the registrant of the “庆丰化妆品专营店” (“the QF Shop”) which the Plaintiffs allege to have sold the products complained of to Hong Kong under 2 trap orders.

11.  In §21(e) of the Amended Statement of Claim (“ASOC”), the Plaintiffs also claim that the 4^th Defendant had “re-opened” another shop on “Tmall China” called “加內喜专卖店” (“the JNX Shop”), which the Plaintiffs allege to have sold the products complained of to Hong Kong under the remaining 2 trap orders. However, the undisputed evidence shows that the 4^th Defendant is and was not the registrant of the JNX Shop, which was registered and operated by “安徽加内喜商贸有限公司” (“JNX Co”), a company incorporated in the Mainland.  There is no claim against JNX Co and no allegation that the 1^st to 3^rd Defendants have somehow procured or combined with JNX Co to commit any tort in this action.

12.  The 5^th Defendant is a limited company incorporated in the Mainland with its registered office located in Shanghai.  The 5^th Defendant is and was the registrant of “Tmall Supermarket” (another shop on “Tmall China”) which the Plaintiffs allege to have sold or offered for sale the products complained of.

13.  However, there is no evidence of any sale of the products complained of by the 5^th Defendant to anyone in Hong Kong.  In fact, the Plaintiffs admitted and was at all material times aware that the 5^th Defendant’s shop “Tmall Supermarket” did not sell products to Hong Kong.

14.  According to the 1^st and 2^nd Defendants, they have no connection with and have no knowledge on the actual operations of the 4^th or 5^th Defendant, which are 2 independent sellers among millions of shops listing their products for sale on the 1^st and 2^nd Defendants’ “Tmall China” platform.

15.  After the service of the writ on the 3^rd Defendant within jurisdiction, it filed the Defence on 11 May 2018.

16.  In May 2018, the Plaintiffs applied for leave to serve the concurrent writ on the 1^st, 2^nd, 4^th and 5^th Defendants outside jurisdiction (“the Service Out Application”).  Master M Lam granted such leave on 19 June 2018.

17.  After the service of the concurrent writ on the 4^th and 5^th Defendants, they took no steps in defending the proceedings.  The Plaintiffs took out the summonses for the Default Judgment Applications against them on 29 January 2019 returnable for the first hearing on 16 April 2019.

18.  The 3^rd Defendant took out the 3^rd Defendant’s Opposing Application on 11 April 2019.  On the same day, the 1^st and 2^nd Defendants took out the summons for the Setting Aside Application.  Subsequently on 15 April 2019, they filed a skeletal Defence without prejudice to their rights under the Setting Aside Application.

II  THE SETTING ASIDE APPLICATION

19.  Having addressed the background and the history of the case, I first deal with the Setting Aside Application.

20.  The 1^st and 2^nd Defendants apply to set aside and discharge the leave granted by Master M Lam on 19 June 2018 for service outside jurisdiction.  Alternatively, they ask for an order that the court should not exercise any jurisdiction it may have against them under O 12 r 8(2)(a) of the Rules of the High Court (Cap 4A) (“RHC”), or an order staying the proceedings against them under O 12 r 8(2)(b) of the RHC in favour of the Hangzhou Yuhang People’s Court in the Mainland.

21.  In an application for service out of jurisdiction, which is usually made ex parte, the plaintiff has to satisfy the court that it is a proper case for the exercise of the discretion to grant leave.  He has to show there is a good arguable case that the case falls under one of the sub-paragraphs of O 11 r 1(1) of the RHC; a serious issue to be tried; and that Hong Kong is clearly the appropriate forum for the trial of the action.  The onus remains on the plaintiff when the defendant challenges jurisdiction in an application to set aside the issue and service of the writ at an inter partes hearing pursuant to O 12 r 8 of the RHC.[1]

22.  The grounds relied upon by the 1^st and 2^nd Defendants in support of the Setting Aside Applications are as follows:

(i)  there is no serious issue to be tried in respect of the Plaintiffs’ claims against the 1^st and 2^nd Defendants;

(ii)  the Plaintiffs have failed to show a good arguable case that their claims against the 1^st and 2^nd Defendants fall within O 11 r 1(1)(b), (c) or (f) of the RHC;

(iii)  Hong Kong is not clearly and distinctly the most appropriate forum for the determination of the issues raised by the Plaintiffs’ claims and the trial of this action; and

(iv)  there were serious material and deliberate misstatements and non-disclosures by the Plaintiffs in the Service Out Application.

23.  I will deal with each of the grounds in turn.

II.(a)  Serious issues to be tried

24.  For the first ground, the 1^st and 2^nd Defendants primarily contend that there is no serious issue to be tried in respect of the Plaintiffs’ claims against the 4^th or 5^th Defendant for trade mark infringement or passing-off, and it follows that the 1^st and 2^nd Defendants would not be liable as joint tortfeasors.  As the secondary contention, the 1^st and 2^nd Defendants argue that, even if there are serious issues to be tried for such claims against the 4^th or 5^th Defendant, there is no serious issue to be tried against the 1^st and 2^nd Defendants as they were only neutral online platform operators.

II.(a).(1)  Trade mark infringement

25.  The first question is therefore whether there was any trade mark infringement or passing-off committed by the 4^th or 5^th Defendant or indeed any Defendants.

26.  The starting point is that all the products complained of by the Plaintiffs in this action are genuine products originated from the Plaintiffs.  There are no counterfeits involved in this action.  The only complaint relates to the removal of the production codes in the products.  Mr Hughes, counsel for the Plaintiffs, uses the term “tampered products” to describe these goods.

27.  It is now apparent that the real complaint of the Plaintiffs is that they are unhappy with their products being offered on an online sales platform, which would mean that their DSRs were conducting discounted retail sales rather than to recruit downline DSRs with membership incentives.  Having chosen, for reasons only known to themselves, not to sue the DSRs involved, nor to bring action in the Mainland where the sales activities took place, the Plaintiffs’ obvious aim is to halt online sales by framing this action as a typical infringement action, bringing in the operators of the neutral online platforms for, inter alia, publicity and deterrent effect.  This is despite the 1^st and 2^nd Defendants, as the neutral platform hosts, have taken prompt actions to respond to the complaints made by the Plaintiffs (the complaints of the Plaintiffs were actually initiated by an inquiry raised by the Platform Governance Team of “Tmall China”), and have removed the online stores or the products complained of before the Service Out Application.

28.  I first address the claim for trade mark infringement.

29.  A person infringes a registered trade mark if he commits the acts prescribed under s 18 of the Trade Marks Ordinance (Cap. 559) (“TMO”).

30.  The protection conferred upon owners of registered trade marks under the TMO is territorial, and is restricted to Hong Kong.[2]

31.  S 20 of the TMO provides a defence to trade mark infringement generally known as “Exhaustion of Rights”.  S 20 reads:

“20. Exhaustion of rights conferred by registered trade mark

(1)  Notwithstanding section 18 (infringement of registered trade mark), a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market anywhere in the world under that trade mark by the owner or with his consent (whether express or implied or conditional or unconditional).

(2)  Subsection (1) does not apply where the condition of the goods has been changed or impaired after they have been put on the market, and the use of the registered trade mark in relation to those goods is detrimental to the distinctive character or repute of the trade mark.”

32.  Whilst s 20(2) of the TMO is similar to Article 7(2) of the Trade Mark Directive (“EU Directives”) in the European Union (“EU”) and s 12(2) of the Trade Marks Act 1994 (“TMA 1994”) in the United Kingdom (“UK”), there is an important difference between the section in Hong Kong and the corresponding sections in EU and UK.

33.  Article 7(2) of the EU Directive reads:

“[Exhaustion of rights] shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market.”

34.  S 12(2) of the TMA 1994 reads:

“[Exhaustion of rights] does not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods (in particular, where the condition of the goods has been changed or impaired after they have been put on the market).”

35.  Given the difference in the wordings, it is clear that the scope of exception provided under Article 7(2) of the EU Directive and s 12(2) of the TMA 1994 is wider than the scope of exception provided under s 20(2) of the TMO.  Under s 20(2) of the TMO, the exception applies only where the condition of the goods has been changed or impaired and that the use of the registered trade mark in relation to those goods is detrimental to the distinctive character or repute of the trade mark. On the other hand, under the corresponding provisions in the EU Directive and the TMA 1994, the change of conditions of the goods is only one example of the cases in which the proprietor has a legitimate reason for opposing further exploitation of the goods bearing his mark.[3]

36.  It is because of the particular wordings used in the EU Directive and the TMA 1994 that the cases in EU and UK have introduced the concept of “physical condition” and “mental condition” of the goods.  In Zino Davidoff SA v A&G Imports Ltd[4], Laddie J stated the following:

“If this case represented a definitive statement of the proprietor’s entitlement to object to the continued use of his mark on goods which come from him, it would mean that he would need to show that the defendant had not only modified the goods but that such modification adversely affected their original physical condition. But that is not what article 7(2) says. It states that the proprietor’s right to object arises ‘especially’ where the condition of the goods is changed or impaired after they have been put on the market. In Bristol-Myers Squibb v. Paranova AIS (Joined Cases C-427/93, C-429/93 and C-436/93) [1996] E.C.R. 1-3457 and Parfums Christian Dior S.A. v. Evora B.V. (Case C-337/95) [1997] E.C.R. 1-6013 the Court of Justice noted the use of the word ‘especially” and concluded that cases where the products had been adversely modified were but one example of the cases in which the proprietor had a legitimate reason for opposing further exploitation of goods bearing his mark. So it appears that legitimate reasons cover both adverse modification of the goods themselves and some other types of cases. The former are cases where the physical condition of the goods has been changed. The latter, to use the terminology used in the Parfums Christian Dior case, are cases where the ‘mental condition’ of the goods has been changed.”

37.  As s 20(2) applies only if the condition of the goods has been changed or impaired, I agree with Ms Tam, SC, counsel for the 1^st to 3^rd Defendants, that the exception in Hong Kong can only apply if the “physical condition of the goods” (as opposed to the “mental condition of the goods”) has been changed or impaired.

38.  Not all changes to the physical condition of goods give the proprietor a legitimate excuse to rely on his trade mark to prevent further commercialization of his goods.  It is only if the condition of the product inside the packaging is adversely affected that the proprietor can rely on his trade mark rights.  The damage must be substantial for the restriction to apply.[5]

39.  Even if the exception is to cover both the change of the “physical” and “mental” conditions of the goods under the EU and UK laws, Laddie J had held in Zino Davidoff SA v A&G Imports Ltd[6] that removal or partial removal of the code numbers on the packaging did not alter the “mental condition” of the goods.  Nor was such change sufficient or substantial enough as a change in physical condition to fall within the exception.

40.  A fortiora, the same should also apply in Hong Kong under the narrower exception regime.  In the local decision of Crestron Electronics, Inc v Crestron Asia Ltd[7], L Chan J made the similar dicta in dealing with an interlocutory application in a trade mark infringement action:

“10.  The plaintiff has argued that it has a very well-defined system or mechanism for retail of its products, and once the distributorship of the defendant is put to an end, then the defendant cannot sell such goods, as such sale would amount to changing or impairing the condition of the goods after they have been put on the market, and such use of the market in relation to these changed or impaired goods is detrimental to the distinctive character or repute of the trade mark. What the plaintiff can point out in support of this are samples of dented packaging boxes of the products and the change in the labelling system.

11.  I think neither the existence of a well-defined system or mechanism of retail or marketing of such goods nor the presence of the big holes and so on in the packaging material nor change of labelling system would justify an order stopping the defendant from selling these goods.  I do not think there is a prima facie case that selling such goods outside the plaintiff’s marketing system would amount to infringement either contrary to section 18 of the Trademark Ordinance or section 20(2) of the Ordinance.  I specifically hold that the change of labelling system on the boxes or the presence of some holes or dent marks in the packaging boxes would not amount to impairing or changing the condition of the goods to the extent that is detrimental to the distinctive character or repute of the trademark.”

41.  Mr Hughes has not made any attempt to challenge these principles.  I now turn to the facts of the present case.

42.  There can be no question that the products complained of by the Plaintiffs in this action are genuine products originated from Plaintiffs.  In other words, they are products which have been put on the market by the Plaintiffs or with their consent.

43.  Mr Hughes disagrees.  Under the DSRs’ contracts, The Plaintiffs’ DSRs were not allowed to sell the “Mary Kay” products at retail level, and so Mr Hughes submits that the goods in question had not been put on the market by the Plaintiffs or with their consent.  This simply cannot be right. Mr Hughes has confused the line between contract law and trade mark law.  The object of the latter is not to protect the brand owner’s contractual rights against his wholesalers or retailers.  So long as the sale of the genuine “Mary Kay” products to their DSRs was made by the Plaintiff or with their consent, the Plaintiffs cannot say that the conditions in s 20(1) are not met.

44.  The main issue here is whether the exception in s 20(2) is applicable.  In this regard, the Plaintiffs complain that the condition of the goods has been changed or impaired after they have been put on the market.  The “changes” they rely on are: (a) the removal of the production codes; and (b) the alleged tampering with the plastic tamper-proof packaging, which consists of a plastic wrapping over the products.

45.  As admitted by Mr John Wiseman in his 1^st affirmation (“Wiseman’s 1^st Affirmation”) filed on behalf of the Plaintiffs, the alleged “tampering” with the plastic packaging involves a small hole being cut in the plastic wrapping in order to remove the production codes, otherwise the plastic wrapping is fully intact.

46.  Having fully considered the circumstances of this case, it is clear to me that the exception provision in s 20(2) does not apply and so the Defendants can rely on the “Exhaustion of Rights” defence under s 20(1).

47.  Firstly, there is no change in the condition of the products themselves.  The removal of the production lot codes on the packaging and the alleged tampering with the so-called plastic tamper-proof packaging cannot by any imagination affect the condition of the “products” inside.  In any event, the Plaintiffs have not adduced any evidence showing otherwise.  In fact, the Plaintiffs have never identified, let alone proved, the specific “condition” of the products before or after the alleged change or impairment, whether in the pleading or in the evidence.

48.  Secondly, whether or not there has been change in the condition of the products, which has not been particularized or proved, there is no evidence that the use of the marks in relation to those products is detrimental to the distinctive character or repute of the mark.

49.  In Wiseman’s 1^st Affirmation, the Plaintiffs suggest that the production lot codes will assist in identifying and arranging product recall in the case of contamination of raw materials and bad storage condition. However, similar argument had been run by the plaintiff in Zino Davidoff SA v A&G Imports Ltd[8] and was rejected by Laddie J, who stated the following:

“Hindering recall of goods

58. Because the codes enable the plaintiff to identify the production history of each item produced by it, it is said that their removal or partial obliteration hinders product recall in the case of faults in manufacture. Based on this, Mr. Baumgartner says that the decoded goods ‘will put the safety of customers at risk and could cause serious and incalculable damage to the reputation of the Davidoff brand’ and ‘Decoded goods can also damage the integrity of the trade mark by putting the safety and thus the confidence of consumers at risk.’

59. Even if this evidence were taken as accurate and balanced, so that it could be relied on without qualification for the purposes of this application for summary judgment, it would not entitle the plaintiff to the relief it seeks. It is not the decoding which impairs the quality of the plaintiff’s goods but failures in its own manufacturing plants. As Mr. Dashwood, one of the plaintiff’s witnesses, confirms, the codes permit the plaintiff to trace the channels of distribution and thus recall faulty product much more easily and accurately than would otherwise be possible. Even without the full code it will be possible to recall products if a fault is found. The full codes enable the plaintiff to recall a smaller number of products because it is possible to more precisely identify from where the defective item came. Removing the whole or part of the code could result in a much larger consignment of goods having to be recalled. As helpful as the retention of the code may be to the plaintiff, it appears to me to have little to do with enforcing trade mark rights. The removal of the code does not alter, in a relevant sense, the ‘mental condition’ of the goods. It appears to me that this is not a legitimate reason within article 7(2) of the Trade Marks Directive for allowing the plaintiff to sue for trade mark infringement. Any such proceedings would be designed not so much to protect the reputation of the mark, which can be secured by a wider recall if defective goods are placed on the market by the plaintiff, but as a backdoor way of enforcing the Cosmetics Directive.”

50.  As similar argument had been rejected by the UK court under the wider exception regime under UK law, the same argument, a fortiori, cannot be run by the Plaintiffs in the present case. Furthermore, so far as the return policy of the Plaintiffs in respect of defective goods is concerned, it does not require the goods to be returned in full packaging with the box.  Hence, the removal of the lot codes has nothing to do with the change or impairment of the condition of the goods after they have been put on the market.

51.  In Hong Kong, under the narrow provision of s 20(2), the court in Crestron Electronics, Inc v Crestron Asia Ltd[9] had also held that the change of labelling system on the boxes or the presence of some holes or dent marks in the packaging boxes would not amount to impairing or changing the condition of the goods to the extent that was detrimental to the distinctive character or repute of the trademark.

52.  In any event, according to Madam Li Jieyun of the 1^st to 3^rd Defendants (“Madam Li”)[10], on most of the samples from the Plaintiffs’ test purchases, a label with a code from the “Product, Identification, Authentication and Tracking System” (“PIATS”) is adhered to the product packaging. The PIATS code is a system in the Mainland which allows businesses to register unique bar-codes for each piece of their products to register the corresponding product information with PIATS.  Even without the production lot codes, the PIATS codes (which are registered by the Plaintiffs’ subsidiary in the Mainland) can assist the Plaintiffs in identifying and arranging any product recall.

53.  The present case is therefore very different from the authorities relied on by Mr Hughes.  In Yardley & Co Ltd v Higson[11], the packaging of the soaps had allowed the scent of the soaps to evaporate thereby clearly affecting the physical condition of the goods.  Colgate-Palmolive Ltd v Markwell Finance Ltd[12] is a parallel import case based on the old Trade Marks Act 1938.  Boehringer Ingelheim v Swingard Dowelhurst[13] is an EU case decided on the basis of EU law.  In any event, repackaging of pharmaceutical products (in the EU context) is very different from removal of production codes in cosmetic products.  Finally, Hugo Boss Trade Mark Management GmbH & Co KG v ISA Boutique[14] is only a case on request for further and better particulars, and the decision by the master is not helpful in assisting the court in determining the present applications.

54.  As there is no evidence adduced by the Plaintiffs to show that the condition of the goods has been changed or impaired, or the use of the marks on those goods will be detrimental to the distinctive character or repute of the mark, the Plaintiffs’ case on trade mark infringement is doomed to fail.

55.  This would have been sufficient to dispose of the trade mark infringement claims, but I would make two further observations here.

56.  Firstly, there is absolutely no evidence of infringement against the 5^th Defendant in Hong Kong.  The Plaintiffs admitted that they were unable to purchase the products at “Tmall Supermarket” from Hong Kong.[15] In fact, the 5^th Defendant’s shop “Tmall Supermarket” did not sell products to Hong Kong.  In the absence of any infringing acts of the 5^th Defendant in Hong Kong, the Plaintiffs’ claim against the 5^th Defendant for trade mark infringement is bound to fail.

57.  Secondly, I have serious reservation as to whether the alleged trade mark infringement did occur in Hong Kong.

58.  Trade mark rights are strictly territorial in nature.  The use of a trade mark on a website does not constitute use of the trade mark throughout the world simply because the website can be accessed worldwide.  The fundamental question is whether or not the average consumer of the goods in issue in Hong Kong would regard the site as being aimed and directed at him. All material circumstances must be considered and these will include the nature of the goods, the appearance of the website, whether it is possible for that average consumer to buy goods from the website, whether or not the advertiser has in fact sold goods or services to Hong Kong through the website or otherwise, and any other evidence of the advertiser’s intention.[16]

59.  In the present case, the advertisements posted on the QF Shop and “Tmall Supermarket” are all in simplified Chinese with prices printed in Renminbi (“RMB”).[17] Plainly, the public in Hong Kong would not regard those advertisements as being aimed and directed at them.

60.  More importantly, in respect of “Tmall Supermarket”, the Plaintiffs have in fact admitted that they had tried to conduct test buys from “Tmall Supermarket” from Hong Kong but was told that Hong Kong was not within the service area.[18] Accordingly, there is no question that the online store of the 5^th Defendant was not targeted at the public in Hong Kong.

61.  In respect of the QF Shop, the fact that ATL had conducted 2 trap purchases in Hong Kong does not mean that the said online store was targeted at the public in Hong Kong.  In Kerly’s Law of Trade Marks and Trade Names[19], the learned authors suggested, inter alia, that “[if] the only evidence of purchases being made from the UK is trap purchases conducted on behalf of the claimant, then there is probably no use in the UK, unless the operation has only just commenced”.

62.  On the other hand, I agree with Mr Hughes that there is some evidence indicating that: (i) the goods offered for sale on “Tmall China” platform can be supplied or shipped to customers in Hong Kong; (ii) there are quite a substantial number of registered users in Hong Kong; (iii) customers buying goods in “Tmall China” can pay by payment methods commonly available in Hong Kong; and (iv) some of the sites on “Tmall China” and the purchase documents may contain traditional Chinese characters as opposed to simplified Chinese characters.  Such evidence may tend to suggest that “Tmall China” is and was also targeted to consumers in Hong Kong.  At this stage, I agree that the Plaintiffs may have an arguable case on the “territorial” issue.  But since the Defendants have a clear defence of “Exhaustion of Rights” under s 20(1), the “territorial” argument cannot assist the Plaintiffs’ case in opposing the Setting Aside Application.

63.  As the Plaintiffs’ claims against the 1^st and 2^nd Defendants are only “secondary” in nature (i.e. the Plaintiffs’ claim that the 1^st and 2^nd Defendants should be liable as joint tortfeasors for procuring the acts of the 4^th and 5^th Defendants, or for committing the acts together pursuant to a common design), if there is no serious issue to be tried in respect of the trade mark infringement claims against the 4^th and 5^th Defendants, there should likewise be no serious issue to be tried on whether 1^st and 2^nd Defendants should be liable as joint tortfeasors.

II.(a).(2)  Passing-off

64.  The Plaintiffs’ pleaded case against the 4^th and 5^th Defendants on passing-off is that the QF Shop and the “Tmall Supermarket” were set up and calculated or intended to mislead and deceive and cause the public to believe that: (i) the 4^th and 5^th Defendants; and (ii) the “Mary Kay” products sold by them; are authorized by, connected to, associated with or in some way related to the Plaintiffs, contrary to the facts.[20]

65.  In respect of the second point, the claim is plainly unmeritorious as the goods in question are indeed genuine goods originated from the Plaintiffs.  There is no deception accordingly.

66.  For the first point, that the public would be misled into believing that the 4^th or 5^th Defendant is authorized by, connected to, associated with or in some way related to the Plaintiffs, the argument is misconceived for a number of reasons.

67.  Firstly, there is no evidence whatsoever suggesting that the 4^th and 5^th Defendants had misrepresented to the public that they are related to the Plaintiffs.  I agree with Ms Tam that the fact that an entity is selling certain company’s products on “ebay”, “Amazon”, “Taobao” or “Tmall” does not mean that it was authorized by or is related to that company.  There is no evidence adduced by the Plaintiffs to support their contention.  In fact, in the online store of the QF Shop, it was specifically stated that the production lot codes had been removed in order to avoid the Plaintiffs from tracing the source of the products leading to the discounts.[21]  Under such circumstances, it would be absurd to suggest that the public would be misled into thinking that the 4^th Defendant was authorized by the Plaintiff to operate the QF Shop.

68.  Secondly, the online stores of the 4^th and 5^th Defendants on “Tmall China” were targeted at the public in the Mainland and there is no evidence whatsoever suggesting that the public in Hong Kong have been or would be deceived.

69.  Thirdly, in so far as the Plaintiffs allege that the 1^st and 2^nd Defendants have assisted the 4^th and 5^th Defendants in misrepresenting consumers in the Mainland or Hong Kong that their stores have been authorized by the Plaintiffs[22], it seem that the Plaintiffs are relying on the annual report of the Alibaba Group filed with the United States (“US”) Securities and Exchange Commission, which contains statement to the effect that “Tmall China” is a trusted platform which all third party vendors who set up stores on the platform will be checked and verified.[23]  However, reading in its proper context, the statement referred thereto can only mean that the consumers would understand that the operators of “Tmall China” have taken steps to try and check the vendors’ identity and where their goods are from to ascertain that the source of the goods on “Tmall China” are authorized such that the goods should be genuine products and not counterfeit, and not that “Tmall China” will check and verify with each and every brand or trade mark owner to see whether each new third party applicant applying to become a vendor on “Tmall China” is directly authorized by that brand or trade mark owner to sell on “Tmall China” as suggested by the Plaintiffs, not least because there is no law against sale of genuine products by an unofficial or “unauthorized” seller.[24]  The Plaintiffs’ purported interpretation on what the consumers would understand from the statement is simply contrary to common sense, given the millions of stores available on “Tmall China”.  More importantly, the said annual report was filed in the US and not Hong Kong.  It is simply not open to the Plaintiff to suggest that the public in Hong Kong would be aware of the particular statement made in the annual report filed with the US Securities and Exchange Commission and to interpret and rely on such statement in the way they suggest.

70.  For these reasons, there is plainly no misrepresentation made by the 4^th or 5^th Defendant, let alone misrepresentation made in Hong Kong.  As there was no passing-off committed by them, there is no basis for the Plaintiffs to allege that the 1^st to 3^rd Defendants are liable as joint tortfeasors for procuring the acts of the 4^th and 5^th Defendants or for committing the acts together pursuant to a common design.  There is therefore no serious issue to be tried in respect of the Plaintiffs’ passing-off claims against any of the Defendants.

II.(a).(3)  Joint liability of the 1^st and 2^nd Defendants as online platform operators

71.  Based on my aforesaid decision, it would not be necessary for me to deal with the 1^st and 2^nd Defendants’ secondary contention that, even if there are serious issues to be tried against the 4^th or 5^th Defendant on any of the claims, the 1^st and 2^nd Defendants are not liable because they were only providing the service of neutral online platform operators.  But for sake of completeness, I will give my ruling on such issue as well.

72.  It has been established in Amstrad Consumer Electronics plc v The British Phonographic Industry Ltd[25] that mere knowledge on the part of the supplier of equipment that it would probably be used to infringe someone’s copyright does not make the supply unlawful, nor does an intention to supply the market for such user.  Mere supplying with knowledge and intent is not enough to make the supplier himself an infringer or a joint tortfeasor with someone who is.

73.  Procurement, whether by inducement, incitement or persuasion, must be by a defendant to an individual infringer and must identifiably procure a particular infringement in order to make the defendant liable as a joint infringer.[26]

74.  To establish accessory liability in tort, it is not enough to show that the defendant did acts which facilitated the other’s commission of the tort.  The defendant will be jointly liable with that other person if they combined to do or secure the doing of acts which constituted a tort.  This requires proof of two elements: (i) the defendant must have acted in a way which furthered the commission of the tort by that other person; and (ii) the defendant must have done so in pursuance of a common design to do or secure the doing of the acts which constituted the tort.[27]

75.  More pertinently, in so far as operators of online platforms are concerned, in L’Oreal SA v eBay International AG[28], Arnold J (as he then was) held that “eBay” was not jointly liable in respect of the acts of infringement committed by the sellers on “eBay” based on the following:

(i)  The evidence did not establish procurement by “eBay” of the particular acts of infringement by the other defendants complained of.[29]

(ii)  “eBay” was under no legal duty or obligation to prevent infringement of third parties’ registered trade marks.[30]

(iii)  There was nothing in the systems and policies of “eBay” which favoured or encouraged the listing or sale of counterfeit goods nor of testers and dramming products nor of unboxed products.  The fact that it could have taken further steps to prevent or combat the sales of such items did not affect this.[31]

(iv)  Despite the fact that “eBay” did facilitate the infringement of third parties’ trade marks; they did know that such infringements had occurred and were likely to continue to occur; they profited from such infringements except where the rights owner made a complaint in sufficient time; and no steps were taken to discourage such infringements nor to prevent them, these factors were not enough to make “eBay” liable as joint tortfeasor.[32]

76.  I agree with Ms Tam that the case of L’Oreal v eBay[33] shares many similarities to the present case in that the operation of “eBay” is very similar to that of “TaoBao” and “Tmall”.  The arguments put forward by L’Oreal in trying to argue that “eBay” should be held jointly liable for the infringing acts of the sellers on “eBay” are also similar to (if not stronger than) the arguments relied upon by the Plaintiffs in the present action.  In the end, Arnold J dismissed L’Oreal’s arguments and held that “eBay” was not liable as joint tortfeasor.

77.  In the present case, the Plaintiffs’ pleaded case against the 1^st and 2^nd Defendants is as follows:[34]

(i)  they have authorized, procured and acted in concert with the 4^th or 5^th Defendant to further the common design of setting up shops on the “Tmall” platform;

(ii)  they have approved the shops operated by the 4^th and 5^th Defendants selling “Mary Kay” products without making proper enquiries or seeking verification as to the authorization documents submitted by them (according to the Plaintiffs’ case, the authorizations submitted by the 4^th and 5^th Defendants were false because they had not been authorized by the Plaintiffs to sell the “Mary Kay” products on the platforms); and

(iii)  they have benefited from the above infringement by charging commission on each sale conducted through “Tmall” shops and “Tmall Supermarket”.

78.  In my judgment, these contentions cannot possibly succeed.

79.  Firstly, there is no evidence of authorization or procurement by the 1^st or 2^nd Defendant of any alleged infringing acts by the 4^th or 5^th Defendant.  The mere proof that the 1^st and 2^nd Defendants provided online platforms to facilitate the marketing of the alleged infringing products by the 4^th and 5^th Defendants is not sufficient.  Neither the 1^st nor 2^nd Defendant had procured the 4^th or 5^th Defendant to market any products, and the Plaintiffs have not adduced any evidence to show otherwise. 

80.  Secondly, there is no evidence of any common design between the 1^st and 2^nd Defendants on one hand, and the 4^th and 5^th Defendants on the other.  In fact, the Plaintiffs are not even able to identify the alleged “common design” and the particulars thereof they are relying on.  There is equally no evidence that the 1^st or 2^nd Defendant had acted pursuant to the alleged common design.

81.  In so far as the setting up of the QF Shop by the 4^th Defendant and the “Tmall Supermarket” by the 5^th Defendant on “Tmall” is concerned, the names and URLs (Uniform Resource Locators) of these shops did not contain the words “Mary Kay” or “玫琳凱” or any similar names.  There was nothing wrong in the setting up of those stores by the 4^th or 5^th Defendant.  Accordingly, even if the 1^st and 2^nd Defendants had authorized the setting up of the said stores, that is neither here nor there and it does not assist the Plaintiffs’ claims.

82.  The 1^st to 3^rd Defendants did not approve or procure the 4^th or 5^th Defendant to sell the “Mary Kay” products as alleged, and the Plaintiffs have not adduced any evidence in support of such bold allegation.  What the 1^st and 2^nd Defendants did was to implement a policy which requires an applicant who wants to set up a store on “Tmall China” to submit certain documents showing, inter alia, that the products they are going to sell are genuine on prima facie basis.  “Tmall China” also has “Notice-To-Take-Down” procedure to deal with complaints launched by brand owners.[35]

83.  As held by Arnold J in L’Oreal v eBay[36], “Tmall China” is under no legal duty to prevent infringement.  “Tmall China” is also under no legal obligation to make enquiries with the brand owners in the way as suggested by the Plaintiffs.  Indeed, the Plaintiffs have failed to provide the legal basis of such alleged duty.  Further, there is nothing in the policy of “Tmall China” which favours or encourages infringement.  In fact, the 1^st and 2^nd Defendants have been implementing various measures to combat infringement.  It is therefore difficult to see how they can be said to have procured the alleged infringing acts of the 4^th or 5^th Defendant, or that they had shared a “common design” with the latter to infringe.  Further, as held by Arnold J in L’Oreal v eBay[37], the fact that the 1^st and 2^nd Defendants may have benefited from the acts of the 4^th and 5^th Defendants is not sufficient to make them liable.

84.  Mr Hughes also relies on the fact that there were search engines on the online platforms of the 1^st and 2^nd Defendants to enable customers to search the “Mary Kay” products.  However, such kind of search engine also appears in “eBay” and yet it was not sufficient to attach liability to the online platform in L’Oreal v eBay[38].  In fact, Mr Hughes has not advanced any arguments as to why the propositions established in that case are not applicable here.

85.  For these reasons, even if there are serious issues to be tried in respect of the trade mark infringement or passing-off claim against the 4^th or 5^th Defendant, there is still no serious issue to be tried on whether the 1^st and 2^nd Defendants should be jointly liable for such acts.

II.(b)  Basis for service of writ outside jurisdiction under O 11 r 1(1)

86.  The lack of serious issue to be tried in respect of the claims against the 1^st and 2^nd Defendants would have been sufficient for the court to set aside the service of the writ on them outside jurisdiction.  Nevertheless, I would still proceed to discuss the other grounds relied on by the 1^st and 2^nd Defendants in support of the Setting Aside Application.  This is for the sake of completeness and to cater for the scenario that this case goes elsewhere and contrary views may be taken in respect of some of the matters decided above.

87.  As mentioned earlier, in order to justify the granting of leave to serve the writ out of jurisdiction on the 1^st, 2^nd, 4^th and 5^th Defendants, the Plaintiffs have to show there is a good arguable case that the present case falls under one of the sub-paragraphs of O 11 r 1(1) of the RHC.

88.  In the Service Out Application, the Plaintiffs relied on the following three grounds:

(i)  O 11 r 1(1)(b): “an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing)”;

(ii)  O 11 r 1(1)(c): “the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto”; and

(iii)  O 11 r 1(1)(f): “the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction”.

89.  For the ground under r 1(1)(b), it is trite law that the discretion to grant leave will not be exercised unless: (i) an injunction is a genuine part of the substantive relief sought and has not been claimed merely to bring the case within the rule; and (ii) there is a reasonable prospect of an injunction being granted.[39]

90.  The injunctions sought by the Plaintiffs can be found in §§(1) to (3) of the prayer for relief in the ASOC.  As the passing-off and the trade mark infringement claims against the 4^th and 5^th Defendants are bound to fail, there is no reasonable prospect of the court granting any of the injunctions sought.  In any event, all the shops complained of by the Plaintiffs have been removed from “Tmall China” and “Taobao”, except for shops which also sell other products, in which case the products complained of have been removed from these shops, before the commencement of the present action or before the Plaintiffs’ filing of the Service Out Application.[40]  Hence there is no reasonable prospect of the court granting the injunctions sought.

91.  Further, the injunctions sought do not appear to be limited to acts within Hong Kong, and they are in fact primarily related to acts on “Tmall China” and “Taobao”, which are platforms operated in the Mainland with goods marketed thereon being sold to Mainland customers.  The Plaintiffs have not provided any legal basis to justify such extra-territorial injunctions sought.

92.  For the ground under r 1(1)(c), it is again trite law that whether to grant leave under this “gateway” involves a three-stage enquiry: (i) establishing that genuine proceedings are properly commenced within the jurisdiction and served on a first “anchor” defendant (either in or outside Hong Kong); (ii) determining whether the proposed defendant is a “necessary” or “proper” party thereto; and (iii) determining whether it is appropriate to permit the claim against that defendant to proceed here in terms of forum non conveniens, but bearing in mind that the lis is already pending here.[41]

93.  In the present case, the Plaintiffs are relying on the 3^rd Defendant as the “anchor” defendant.  As such, the Plaintiffs must demonstrate a good arguable case that there is a legitimate claim against the 3^rd Defendant, and that the 1^st and 2^nd Defendants are necessary or proper parties thereto.  However, apart from the fact that the Plaintiffs’ claims for trade mark infringement and passing-off are bound to fail, there is simply no evidence to show that the 3^rd Defendant was in any way involved in the act of selling the trap orders to ATL.  The trap orders were placed through the online platform “Tmall China” of which the 3^rd Defendant had no involvement, and so the claims against the 3^rd Defendant is bound to fail and there is no “real issue” to be tried between them.

94.  For the ground under r 1(1)(f), the Plaintiffs must show: (i) the claim is founded on a tort; and (ii) either damage has been sustained within the jurisdiction, or damage has resulted from an act committed within the jurisdiction.[42]

95.  In the present case, there is no evidence that the Plaintiffs have suffered any damage within the jurisdiction. Further, the only acts committed within the jurisdiction were the alleged sale of the “Mary Kay” products to Hong Kong by the 4^th Defendant under the trap purchases by ATL.  As the only acts committed within the jurisdiction relate to the trap purchases by ATL, it is difficult to see and the Plaintiffs have failed to show any damage arising from such trap purchases.

96.  For these reasons and that there is no serious issue to be tried in respect of the trade mark infringement or passing-off claim, the Plaintiffs have failed to discharge the burden of showing any good arguable case under the gateways provided in O 11 r 1(1).

II.(c)  Forum non conveniens

97.  An applicant for leave to serve out of the jurisdiction must show that Hong Kong is the appropriate forum for the adjudication of the claim under the principles governing forum conveniens.  The appropriate or natural forum is the one with which the action has the most real and substantial connection.  It must be shown clearly that this is the case.[43]

98.  In the affirmation in support of the Service Out Application, the Plaintiffs virtually only rely on the trap purchases placed by ATL in Hong Kong to justify the trial of the action in Hong Kong.  However, what Plaintiffs had failed to disclose and address is that there exists another potential forum, namely Hangzhou Yuhang People’s Court in the Mainland, which is the most natural and appropriate forum for the trial of the present claims because of the following factors:

(i)  the 1^st and 2^nd Defendants are companies incorporated in the Mainland and their business activities are predominantly conducted in the Mainland;

(ii)  the 4^th and 5^th Defendants are also companies incorporated in the Mainland and they have no business in Hong Kong;

(iii)  the online platforms in question, namely “Tmall China” and “Taobao China”, are platforms which target the general public in the Mainland, not Hong Kong;

(iv)  apart from the trap orders by ATL, the Plaintiffs have not adduced any evidence showing any other sale of products by the 4^th or 5^th Defendant to Hong Kong in the present proceedings;

(v)  the online shops complained of on “Tmall China” and “Taobao” were targeted at the public in the Mainland, not Hong Kong; and

(vi)  most of the 1^st and 2^nd Defendants’ witnesses for this case are located in the Mainland.

99.  According to Mr Wiseman of the Plaintiffs, the 3 years’ limitation period in the Mainland has already expired, and so it is not possible for the Plaintiffs to commence legal proceedings in the Mainland. Apart from the limitation issue, Hong Kong law would have to be applied to determine the Plaintiffs’ claims and so it would be more convenient for the action to be adjudicated in the Hong Kong court.

100.  However, it does not alter the fact that the main “infringing” activities that the Plaintiffs seek to stop are taking place in the Mainland.  Apart from the fact the lapse of the limitation period was very much self-induced, the Plaintiffs have not demonstrated that it is not possible for them to commence legal action in the Mainland despite the limitation period.  The application of Hong Kong law is also neither here or there.  Indeed under the double actionability rule if applicable in the present case, the 1^st and 2^nd Defendants would be able to rely on any defences available had the action been commenced in the Mainland such as limitation to oppose the Plaintiffs’ claims in Hong Kong.

101.  For these reasons, I agree with Ms Tam that the Plaintiffs have failed to discharge the burden of showing that Hong Kong is clearly the most appropriate forum to try the present claims.  As the only connection with Hong Kong were the trap purchases placed by ATL, there is some weight in the 1^st and 2^nd Defendants’ criticism that the said trap orders were placed so as to facilitate the Plaintiffs’ forum shopping in Hong Kong. 

II.(d)  Deliberate and material non-disclosure

102.  A plaintiff making an ex parte application to serve the writ out of jurisdiction under O 11 r 1 of the RHC has the duty to give full and frank disclosure.  The following principles are well established:

(i)  The test is whether the court is fully informed of all the facts that are relevant to the weighing operation which the court has to make in deciding the ex parte application.  “Materiality” is to be decided by the court, and not by the assessment of the applicant or his legal advisors.[44]

(ii)  An applicant has a continuing duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information earlier.[45]

(iii)  The fact that a matter might not have changed the order had it been disclosed at the ex parte stage does not mean that the disclosure need not have been made.[46]

(iv)  Necessary disclosures required to be brought to the court’s attention on an ex parte application should be set out in the affidavit and not simply left to be possibly found in the exhibits.[47]

(v)  Where there is a possibility that a foreign jurisdiction may prevail over the dispute, that factor must be brought to the court’s attention.[48]

103.  The two affirmations filed in support of the Service Out Application, i.e. the 1^st and 2^nd affirmations of Mr Law Hang (“Mr Law”), are very short.  They were made by the Plaintiffs’ solicitor and not by anyone from the Plaintiffs.

104.  Ms Tam has put forward six reasons as to why she says the Plaintiffs had deliberately omitted to disclose a number of highly significant and material facts and matters to the court.  I agree with her submissions.

105.  Firstly, the Plaintiffs had deliberately failed to inform the court that the products complained of in this action were “genuine” products originated from the Plaintiffs.  Instead, the Plaintiffs presented the case as if this was a typical counterfeiting case.  For instance, though the term “counterfeit” had not been expressly used, Mr Law stated in his affirmation that Defendants had deceived or caused the trade and/or the public to believe that the “products supplied or offered for sale, sold by or otherwise emanating from the 4^th and 5^th Defendants are those of the said Plaintiffs or are authorized by or associated with the said Plaintiffs”.[49] This certainly gave the impression that the goods involved in the case were counterfeit goods.

106.  In Wiseman’s 1^st Affirmation[50], the Plaintiffs made an astonishing statement, saying that in this action (which involves passing-off and trade mark infringement), whether the products complained of are “genuine” or not is a “red herring”.  This simply cannot be right.  If the products are “counterfeits”, this action would become a straight-forward case of trade mark infringement and passing-off.  If, on the other hand, the products are “genuine”, the defence under s 20 of the TMO will, or at least may, become applicable and which will or can provide the Defendants a complete defence to the Plaintiffs’ trade mark infringement claims.  It also provides a good defence to the passing-off claims because there was no deception involved.  Hence, it was incumbent on the Plaintiffs to disclose this highly material fact to the court so that the court can consider whether there are serious issues to be tried in respect of the Plaintiffs’ passing-off and trade mark infringement claims, whether or not the Plaintiffs knew the 1^st and 2^nd Defendants might rely on the defence.

107.  The omission to mention this crucial fact is plainly deliberate and indefensible.  Prior to the commencement of the action, Deacons, solicitors for the 1^st to 3^rd Defendants, had specifically pointed out to ATL that the products complained of are “genuine” products.  Deacons further requested ATL to provide evidence showing that the products are “counterfeits” if the Plaintiffs so contend.  ATL thus had full notice that the fact that the goods were sourced from Plaintiffs (which they eventually admitted) is a fact considered to be highly significant to the defence case.[51]

108.  Secondly, the Plaintiffs had failed to disclose the 1^st to 3^rd Defendants’ reliance on the legal defence of “Exhaustion of Rights” under s 20 of the TMO.  S 20 of the TMO, if applicable, would provide the Defendants with a complete defence to the Plaintiffs’ trade mark infringement claims.  In so far as the Plaintiffs argue that the “Exhaustion of Rights” defence is not applicable by reason of the exception provided in s 20(2), it was still incumbent on the Plaintiffs to let the court know this main defence relied on by the 1^st to 3^rd Defendants.

109.  On the applicability of s 20(2), the Plaintiffs had also failed to disclose the 1^st to 3^rd Defendants’ position that s 20(2) is inapplicable because there is clear case authority stating that the removal of production codes does not alter the “condition” of the goods.

110.  In fact, the reliance on s 20(1) by the 1^st to 3^rd Defendants, and their position on the inapplicability of s 20(2), had been made clear in the correspondence between the parties’ solicitors before the commencement of the action.  Deacons even provided the case authority to ATL after ATL stated that they were not aware of the relevant case law.  The above positions were also repeated in the Defence filed by the 3^rd Defendant.[52]  In the premises, I agree that the omission to disclose all these by the Plaintiffs in the Service Out Application was both deliberate and indefensible.

111.  Thirdly, the Plaintiffs had completely failed to disclose to the court that there is in fact no evidence that the 5^th Defendant had committed any acts within the jurisdiction, and that there can be no claims against the 5^th Defendant.  Importantly, the Plaintiffs were at all material times aware that “Tmall Supermarket”, the online store operated by the 5^th Defendant and which is complained of by the Plaintiffs in the present action, did not sell products to Hong Kong.  In fact, the Plaintiffs tried to made trap order from “Tmall Supermarket” to Hong Kong but was told that Hong Kong was not within the service area.[53]  If the court were aware of the fact that there is no evidence that the 5^th Defendant had done anything within the jurisdiction, it certainly would not have granted leave to serve the writ out of jurisdiction on the 5^th Defendant, and all the claims against the 1^st to 3^rd Defendants in relation to the 5^th Defendant would likewise be bound to fail.

112.  Fourthly, the Plaintiffs had failed to disclose to the court that the online stores complained of in this action were all targeted at the public in the Mainland.  The advertisements and posts of the stores were printed in simplified Chinese and the prices were in RMB.  The Plaintiffs ought to have disclosed to the court that as a matter of law, the fact that a domain can be accessed anywhere in the world does not mean that there is “use” anywhere in the world.  This is a factor directly relevant in considering whether Hong Kong is “clearly” the appropriate forum to try the claims.

113.  Fifthly, the Plaintiffs had failed to draw the attention of the court to the defence available to neutral online platform operators as demonstrated by L’Oreal v eBay[54]. This is directly relevant in assisting the court to consider if there are serious issues to be tried on whether the 1^st and 2^nd Defendants should be regarded as joint tortfeasors in respect of the alleged infringing acts committed by the 4^th and 5^th Defendants.

114.  Sixthly, the Plaintiffs had failed to disclose to the court that there may exist other potential and more appropriate forum to try the present claims.  As a matter of law, the obligation to give full and frank disclosure requires a party seeking leave to serve out of jurisdiction to deal with any other potential jurisdiction that may exist.[55] However, the Plaintiffs here, whilst simply relying on the trap orders alone to establish jurisdiction somewhat artificially, had failed to deal with the other potential, and in fact more appropriate, forum in the Mainland in the Service Out Application.

115.  Where material non-disclosure has been found, it is generally the case that the order for service out will be set aside and costs will follow the event.  The court has discretion to overlook the non-disclosure but such cases will be very rare.[56]

116.  In the present case, there had been significant and substantial material non-disclosures, and most of them were deliberate and indefensible. Had there been full and frank disclosure, it is likely that leave would not have been granted.  Under such circumstances, this is not a case in which either the material non-disclosure should be ignored or there should be a re-grant of the leave to serve out of jurisdiction.

II.(e)  Conclusion on the Setting Aside Application

117.  As I have demonstrated above, there are multiple reasons as why the court should set aside the service of the writ on the 1^st and 2^nd Defendants.  I therefore so order.

118.  In Wiseman’s 1^st Affirmation[57], the Plaintiffs claim that the 1^st and 2^nd Defendants have already submitted to the jurisdiction of the Hong Kong court thereby barring their rights to set aside the service of the writ.

119.  The argument is clearly misconceived.  It is trite law that filing an acknowledgement of service cannot be taken as submission to jurisdiction.

120.  In so far as the Plaintiffs rely on the 1^st and 2^nd Defendants’ requests for extension of time to file Defence, each of the said requests was accompanied by a cover letter stating unequivocally that the requests were made with express reservation of their rights to make an application under O 12 r 8 of the RHC.  There was nothing done by the 1^st or 2^nd Defendant in the time extension hearings to indicate that they had waived their reservation of rights.  In so far as the Plaintiffs allege that the 1^st and 2^nd Defendants have relied on the pleadings of the Plaintiffs and the 3^rd Defendant, it is difficult to see how such reliance can render the 1^st and 2^nd Defendants as having submitted to the jurisdiction of the Hong Kong court.  Further, the multiple rounds of requests for further and better particulars by the 3^rd Defendant to the Plaintiffs were for the purpose of ascertaining whether the Plaintiffs are indeed claiming that the products complained of are counterfeit products not originating from the Plaintiffs, which forms the crux of any claim for trade mark infringement and passing-off.  Finally, in so far as the Plaintiffs are relying on the skeletal Defence filed by the 1^st and 2^nd Defendants, there was a clear statement at the start of the Defence (and in the cover letter to the court and served on the Plaintiffs) that the Defence was filed purely to comply with the unless order and without prejudice to the present application.

121.  Under such circumstances, the conduct of the 1^st and 2^nd Defendants, when considered objectively in proper contexts, clearly indicates that they have not submitted to the jurisdiction of the court.[58]

III  THE DEFAULT JUDGMENT APPLICATIONS

122.  Finally, I have to deal with the Default Judgment Applications made by the Plaintiffs against the 4^th and 5^th Defendants.  The 3^rd Defendant has taken out a corresponding summons (i.e. the 3^rd Defendant’s Opposing Application) opposing such applications.  By the order made by me dated 16 April 2019, I allowed the 3^rd Defendant to intervene in the Default Judgment Applications and granted leave to it to oppose the Plaintiffs’ applications.

123.  As a matter of law, the court has discretion whether or not to grant default judgment.  For instance, where the relief to be obtained upon grant of default judgment may affect other parties that ought to be decided at the trial, the court can and should exercise its discretion to order the motion to stand over until trial.[59]

124.  In dealing with the Setting Aside Application, I have already explained why the Plaintiffs do not have any arguable claims for trade mark infringement or passing-off against any of the Defendants.  If the 4^th and 5^th Defendants were to make a similar application to set aside the service of the writ on them outside jurisdiction, they would probably succeed.  Under such circumstances, should the court grant default judgments against the 4^th and 5^th Defendants?  If not, should the court just dismiss the Default Judgment Applications, or to adjourn such applications to the trial of the claims against the remaining Defendant or Defendants?

125.  In my judgment, the court should exercise the discretion not to grant default judgments against the 4^th and 5^th Defendants at this stage.

126.  Firstly, as the 1^st and 2^nd Defendants are successful in the Setting Aside Application on all the grounds, the court would have to proceed on the basis that leave granted to serve the concurrent writ out of jurisdiction on the 4^th and 5^th Defendants was improper, as the Plaintiffs are relying on: (i) the same causes of action on trade mark infringement and passing-off against them; and (ii) the same “gateways” as well as the same facts (and non-disclosure of the same material facts); in applying for leave to serve concurrent writ out of jurisdiction on them.  Under such circumstances, even if the 4^th and 5^th Defendants have not come forward to oppose the Default Judgment Applications or made an application to set aside the service of the writ, the court should not grant default judgments against them.  The court will certainly face the embarrassment of inconsistent findings if it finally concludes that the Plaintiffs have no actionable trade mark infringement or passing-off claims against any of the Defendants.  It would be absurd if the court just turns a blind eye to the merits of the case. 

127.  Secondly, the court should take into account the potential risk of injustice to the 1^st to 3^rd Defendants if judgments are entered against the 4^th and 5^th Defendants at this stage.  The scope of the Plaintiffs’ orders sought against the 4^th and 5^th Defendants is extremely wide.  The orders, once granted and made known to third parties or the public, are bound to create a misleading message amongst users of the platforms and the public that even genuine products from “Mary Kay” or other makers are under trade mark law being treated as fake or otherwise illegal once they have had the production lot codes removed, and are prohibited from being sold on the 1^st to 3^rd Defendants’ online platforms, since these platforms are specifically named and singled out in the Plaintiffs’ orders sought.  As stated in Madam Li’s 2^nd affirmation (“Li’s 2^nd Affirmation”)[60], this will cause serious and irreparable damage to the 3^rd Defendants’ and indeed the 1^st and 2^nd Defendants’ businesses, as well as to other sellers and customers on the 1^st to 3^rd Defendants’ online platforms.

128.  Members of the trade and the public may be misled into thinking that the products being injuncted are counterfeit products or products which the Plaintiffs could demonstrate are of a substandard quality or otherwise in breach of the law, when the contrary is true.  If the members of the trade and the public were misled into thinking that the 1^st to 3^rd Defendants allowed such “counterfeit” products to be marketed through their online platforms, this will cause a severe blow to the businesses and reputations of the 1^st to 3^rd Defendants and their platforms, and will inevitably undermine or neutralize the efforts they have made in abating and discouraging counterfeit trading on their platforms.[61]

129.  The evidence shows that the scale of businesses operated by the 4^th and 5^th Defendants was relatively small. They are both Mainland entities with apparently no asset in Hong Kong, and so it does not make a lot of business sense for the Plaintiffs to pursue the claims against them in Hong Kong.  Under such circumstances, I have reasons to believe that the present proceedings are actually targeting the 1^st to 3^rd Defendants which are entities within the well-known “Alibaba Group”.

130.  The evidence suggests that the Plaintiffs are likely to publicize or use any default judgments obtained against the 4^th and 5^th Defendants to stop other sellers of genuine “Mary Kay” products on the online platforms as demonstrated by the correspondence between the parties’ respective solicitors.  On 4 April 2019, the 3^rd Defendant’s solicitors (Deacons) wrote to the Plaintiffs’ solicitors (ATL) to ask whether the Plaintiffs would be prepared to undertake, inter alia, not to publicize or otherwise disclose to any third parties (apart from the 4^th and 5^th Defendants) any default judgments obtained against the 4^th and 5^th Defendants pending the determination of this action as against the 3^rd Defendant.  On 10 April 2019, the Plaintiffs’ solicitors replied and refused to give such undertaking.[62]

131.  In fact, the Plaintiffs have already indicated that they intend to rely on the default judgments to deter others from selling “Mary Kay” products by “pretending they are authorised” to sell their products on “Tmall” and “Taobao” platforms[63], even though they are genuine, albeit with production lot codes removed, when the question of whether in these circumstances they are entitled to do so under intellectual property law is the very issue to be determined by the court.

132.  Thirdly, there is no substantial prejudice caused to the Plaintiffs if the court does not grant default judgments at this stage:

(i)  The online shop operated by the 4^th Defendant on “Tmall China” (i.e. the QF Shop), which the Plaintiffs claim to have sold the alleged infringing products to Hong Kong, had already been closed down even before the commencement of this action.[64]

(ii)  All the alleged infringing products available on the online shop operated by the 5^th Defendant on “Tmall China” (i.e. “Tmall Supermarket”), which the Plaintiffs complain of in this action, had been removed even before the commencement of this action.[65]

(iii)  The Plaintiffs have conceded that “Tmall Supermarket” operated by the 5^th Defendant does not and did not sell or offer to sell any products to Hong Kong.[66]

(iv)  The 3^rd Defendant has indicated that it is willing to undertake not to, and will procure the 1^st and 2^nd Defendants not to, allow the 4^th and 5^th Defendants to sell the subject products complained of by the Plaintiffs on the relevant online platforms pending the determination of the present action.[67]

133.  Hence, the delay in granting judgments against the 4^th and 5^th Defendants will not enable them to continue their alleged infringing acts in Hong Kong because all those alleged acts have ceased even before the commencement of the action (in the case of the 5^th Defendant, there has never been any such act within the jurisdiction).  Further, the Plaintiffs had been closely monitoring the 4^th Defendant’s QF Shop for 6 months before it was shut down.  Despite their knowledge of the 4^th Defendant’s alleged infringing activities, they stood by for six months without restraining the 4^th Defendant or filing any complaint with “Tmall China”.  The Plaintiffs had by choice left the activities unchecked until the Platform Governance Team of “Tmall China” initiated the inquiries with the Plaintiffs.[68]  Finally, the Plaintiffs could have taken legal action against the 4^th and 5^th Defendants in the Mainland to vindicate themselves, in contract or in intellectual property infringement, if they had any complaint that they could substantiate.  But they chose not to take any action.

134.  Mr Hughes makes the following additional points:

(i)  In relying on the case of Halliburton BV Merkezi Hollanda Ankara Merkez Turkiye Subesi v Sheng Yi (HK) Trade Co Ltd[69], the 3^rd Defendant can submit evidence and make submissions only as to how it may be affected by the default judgments and nothing else.

(ii)  The 3^rd Defendant is not entitled and has no locus to intervene on behalf of the defaulting 4^th and 5^th Defendants and make any submissions on the merits of the Default Judgment Applications, including whether the Plaintiffs are entitled to judgment against them on the Plaintiffs’ claims set out in the pleading.

(iii)  The 3^rd Defendant is not entitled to submit any evidence or make any submissions on behalf of the 1^st or 2^nd Defendant, parties who have not sought to intervene in respect of the Default Judgment Applications.  Nor should the 3^rd Defendant be allowed to rely on the affidavit evidence filed by the 1^st or 2^nd Defendant in support of the Setting Aside Application.

(iv)  Adjourning the Default Judgment Applications to trial is equivalent to granting leave to the 4^th and 5^th Defendants to defend the action despite their default in the filing of any Defence.

135.  I do not accept these submissions.

136.  Firstly, RHC provide a procedure for a plaintiff to enter default judgment against the defaulting defendant.  It is not as of right, as the court has a discretion whether to grant the default judgment.

137.  Secondly, in deciding whether to exercise the discretion to enter judgment, the court has to consider the overall circumstances of the case, including whether it is fair and just to enter default judgment and the effect of the default judgment on the other remaining defendants (Halliburton[70] is an example).  Hence, it would be misleading to address the issue as one of the locus of the non-defaulting defendant to intervene in the default judgment application against the defaulting defendant.  After all, the court needs to assess the overall justice of the case, including the effect of the default judgment on the non-defaulting party, in determining whether to exercise the discretion to enter default judgment. 

138.  It is also worth noting that the court in Halliburton[71] did not actually limit the scope of the evidence and submissions of the non-defaulting defendants in that case.

139.  Thirdly, whilst it is trite law that the court, in default judgment application, will generally just look at the pleading and will not receive evidence, there is no rule prohibiting the court from considering evidence, or indeed anything, which casts doubt on the plaintiff’s case.  Indeed, the court would be duty-bound to do so in exercising its discretion on whether to grant default judgment.  In Halliburton[72], the court had also considered the 2^nd defendant’s defence in exercising its discretion of not entering default judgment against the other defendants.

140.  Bearing these principles in mind, it is clear that Mr Hughes’ submissions should not prevent the court from exercising the discretion against the Default Judgment Applications.  In particular, it is not right for the Plaintiffs to say that the 3^rd Defendant is “intervening” on behalf of the 4^th and 5^th Defendants.  Further, the 3^rd Defendant, in Li’s 2^nd Affirmation, had adopted the evidence that is included in Li’s 1^st Affirmation.  Hence, it is not the case that the 3^rd Defendant is trying to rely on the 1^st and 2^nd Defendants’ evidence without any reference or notice.

141.  Mr Hughes also makes a few more desperate attempts.  He submits that default judgments should be granted based on the 3^rd Defendant’s alleged “comprehensive admissions and averments” in its Defence.  He also accuses the 3^rd Defendant of changing its position.  However, the 3^rd Defendant has never admitted that the 4^th or 5^th Defendant had committed any passing-off or trade mark infringement.  This has been made clear in its Defence.[73]  Specifically, the 3^rd Defendant always challenges whether there was any infringing act occurring in Hong Kong.  The 4^th and 5^th Defendants have never filed any Defence and there is no evidence before the court of any admissions made by them, whether before or after these proceedings were commenced.  Neither can the Plaintiffs rely on the closing down of any e-commerce shops in question on the online platforms as admission of guilt.  It is beyond argument that ceasing of the acts complained of should not be treated as admission of liability.

142.  There is also no merit in Mr Hughes’ submission that the 3^rd Defendant’s opposition to the Default Judgment Applications is a “last minute” application.  The Plaintiffs were reluctant to serve the papers of the Default Judgment Applications on the 3^rd Defendant, and as a result that the 3^rd Defendant’s Opposing Application has not been taken out at the first available opportunity.  In any event, this is very much a non-issue, as any such alleged “delay” should not affect the merits of the Default Judgment Applications.

143.  For these reasons, subject to the undertaking mentioned in §132(iv) above, I would not grant default judgment against the 4^th or 5^th Defendant.  As to whether the court should simply dismiss the Default Judgment Applications or to adjourn such applications to the trial against the remaining Defendant or Defendants, I would prefer to adopt the latter course.  I cannot foresee what would happen after the court hands down this Decision.  Technically, there may still be a trial at least against the 3^rd Defendant, and the court may then have to revisit the issue as to whether there is any actionable trade mark infringement or passing-off claim against the 4^th or 5^th Defendant.  Under such circumstances, it would be safer for the court to adjourn the Default Judgment Applications to the trial without dismissing them at this stage.  I therefore so order.

IV  COSTS AND CONCLUDING REMARKS

144.  In respect of the costs of the Setting Aside Application, I make an order nisi that the costs of the application be paid by the Plaintiffs to the 1^st and 2^nd Defendants to be taxed on an indemnity basis with certificate for two counsel.  For the costs of the Default Judgment Applications, I make an order nisi that, subject to the costs of the hearings on 13 & 14 May 2020 be paid by the Plaintiffs to the 3^rd Defendant with certificate for two counsel, the costs of the applications be reserved.  The costs orders nisi shall be made absolute 14 days after the date of the handing down of this Decision.

145.  This case marks another attempt by a brand owner to try to establish jurisdiction in the Hong Kong court with a view to stop alleged “infringing” activities which mainly occur in the Mainland.  Whilst there may be a lot of legitimate and strategic reasons for a brand owner to commence such kind of action in the Hong Kong court and not the Mainland court, the present case is certainly not one that should have been brought here.

146.  Whereas this case was presented as a run-of-the-mill anti-counterfeiting action targeting internet traders and the hosts of the trading platforms selling to Hong Kong, its true nature is that of an unjustified and futile attempt to “create” jurisdiction for the Hong Kong court for a complaint not recognized under Hong Kong law under the guise of intellectual property infringement, i.e. a right to control the channels through which third-party sellers re-sell to customers in the Mainland genuine goods sourced from the brand owner.  Even worse, there was deliberate non-disclosure of material and significant matters that should have been brought to the attention of the court in the Service Out Application.

147.  This case therefore serves as another reminder of the territorial nature and limitation of intellectual property rights. Though there is close business relationship between the Mainland and Hong Kong, the territorial principle of intellectual property law has to be properly observed.

148.  I am grateful to counsel for all the assistance they have provided to this court.