DYSON TECHNOLOGY LTD AND ANOTHER v. GERMAN POOL GROUP CO LTD AND OTHERS

HCA 838/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 838 of 2011

__________________

BETWEEN
	DYSON TECHNOLOGY LIMITED	1st Plaintiff
	DYSON EXCHANGE LIMITED	2nd Plaintiff
	and
	GERMAN POOL GROUP COMPANY LIMITED	1st Defendant
	GERMAN POOL (HONG KONG) LIMITED	2nd Defendant
	GERMAN POOL KITCHEN EQUIPMENT LIMITED	3rd Defendant

__________________

Before:  Mr Recorder Anthony Houghton SC in Chambers

Dates of Hearing:  13 October 2016

Date of Decision:  12 December 2016

____________________

D E C I S I O N

____________________

Introduction

1.  The plaintiffs in this litigation are companies within the Dyson Group of companies, which are well known manufacturers of household electrical products based, I understand, in the United Kingdom.  The defendants are also members of a group of companies; in this case the German Pool Group, which carries on a business in Hong Kong which also includes the manufacture and sale of domestic electrical appliances.  The litigation dates back to May 2011, proceedings having been commenced by the plaintiffs seeking to restrain the defendant’s from infringing a patent, and copyright held by the 1^st plaintiff in a model of bladeless fan.

2.  Following an inter‑parties hearing on the 3 June 2011 an injunction order was issued by the court restraining the 2^nd and 3^rd defendants from the further manufacture, import or sale of certain models of bladeless fans.  The order did not extend to the 1^st defendant which gave a parallel undertaking to like effect.

3.  At the hearing on 13 October 2016 there were three summonses before the court.  Chronologically, the first of these was a summons filed by the plaintiffs on 13 June 2016 seeking a stay of these proceedings pending the determination of certain proceedings which are ongoing before the European Patents Office (“EPO”).  For their part the defendants issued a summons dated 30 August 2016 by which they sought the discharge of part of the Injunction Order which had been made on 3 June 2011.

4.  The defendants issued a further summons on 12 October 2016 by which they sought to amend their earlier summons so as to include reference to the undertaking in lieu of an injunction which had been given by the 1^st defendant.  The amendment canvassed by this summons was not opposed by the plaintiffs, and an order in terms of that summons was therefore made.

Background

5.  As noted above, the matters in dispute between these parties arise out of allegations of copyright and patent infringement by the defendants.  The plaintiffs’ complaint, put broadly, is that the defendants have marketed and/or sold bladeless fans incorporating component parts which are reproductions of the 1^st plaintiff's artistic works in respect of which the 1^st plaintiff owned copyright, and was the subject of a Hong Kong Patent (referred to as “the 413 Patent”).  The 2^nd plaintiff is the exclusive licensee for the manufacture and sale of products subject to the 413 Patent.

6.  Breach of copyright allegations are no longer in issue between the parties.  At an early stage of the proceedings the defendants admitted liability in regard to copyright infringement and, by a consent order dated 21 November 2012, judgement on liability was obtained by the plaintiffs against the defendants in respect of that part of the plaintiff's claims.  Disputes remain between the parties in regard to the patent issues however, and the plaintiffs’ damages claims arising out of the alleged breaches of the defendants remain to be determined, as do matters arising out of the defendant's counterclaims.

7.  Set out below is a chronology of some of the key events which have taken place in regard to these matters.

Patent application filed in Europe	26/8/2008
Patent granted in Europe	1/12/2010
Patent granted in HK	6/5/2011
Writ issued	17/5/2011
Injunction application	18/5/2011
Statement of Claim in HCA	31/5/2011
Defence and Counterclaim in HCA	12/7/2011
Opposition to European Patent	5/7/2011
P seeks judgment on admissions in HCA	16/11/2012
Judgment by consent in HCA	21/12/2012
Oral hearing in Opposition Division	29/2/2016
D. issues Notice of intention to proceed	15/3/2016
“Revocation” of European Patent by Opposition Division	16/3/2016
P. offered to suspend injunction on terms	5/4/2016
Case Management Summons (D)	3/6/2016
Stay summons	13/6/2016
P. appeal to Technical Board of Appeal	29/7/2016
Discharge Summons	30/8/2016

8.  The relevance of some of the above events calls for some elaboration.  The grant of the 413 Patent in Hong Kong was based upon the grant of a patent in Europe in December 2010, and it is the validity of that European patent which, in many senses, lies at the heart of the remaining issues in Hong Kong.  As appears in the chronology the European patent was applied for in 2008; was granted in December 2010; and the Hong Kong grant followed approximately five months later.  Almost immediately thereafter the plaintiffs moved against the defendants issuing a writ and seeking an injunction to prevent the sale or marketing of bladeless fans by the defendants.

9.  The plaintiffs were successful, obtaining the injunction against the 2^nd and 3^rd defendants with the 1^st defendant making an undertaking in lieu to like effect.  The Injunction Order restrained the defendants, until judgment or further order, from manufacturing or dealing with any bladeless fan that infringed the 413 Patent.

10.  The 413 Patent, as noted above, was granted based upon the existence of the European Patent, and shortly after the Injunction Order was issued a German affiliate company to the defendants commenced Opposition Proceedings before the EPO by which the validity of that European Patent was challenged.  A Brazilian company also challenged that patent in Opposition Proceedings.

11.  As, it appears, is commonly the case, the Opposition Proceedings were prolonged, and the written decision of the Opposition Division was published only on 16 March 2016.  The procedure before the Opposition Division is such however that a preliminary indication of the conclusions of the Opposition Division had been provided to the relevant parties in advance of the oral hearing which was held by the Opposition Division on 29 February 2016.

12.  The decision of the Opposition Division was adverse to the plaintiffs, and was succinctly expressed, as being that “European Patent No EP‑B‑2 191 142 is revoked.”.  The procedures of the EPO provide for an appeal mechanism from decisions of the Opposition Division to, in this case, the Technical Board of Appeal.  The plaintiffs have instigated such an appeal.  It is significant to record that bringing such an appeal has a suspensive effect in regard to the order revoking the European patent.  In other words, until determination of the appeal process, the patent is treated as remaining valid.

13.  Returning to the chronology, the defendants admitted copyright infringement and judgment on liability was entered, by consent, in November 2012, but other than this and the service of a statement of claim, and a defence and counterclaim, there was no substantive progress, or even attempted progress, in the Hong Kong proceedings after the injunction was issued until quite recently.  There were discussions between the parties regarding the possibility of formalising a stay of proceedings to abide the outcome of the proceedings before the Opposition Division, but no such agreement eventuated, despite repeated attempts to reach agreement with the defendants according to the plaintiffs.

14.  The Hong Kong proceedings were “revived” by the defendants on 15 March 2016 when a Notice of Intention to Proceed was issued.  This came hard on the heels of the decision by the Opposition Division to revoke the European patent.  A Case Management Summons was issued by the defendants on 3 June 2016 by which directions for the exchange of lists of documents and witness evidence were proposed, with a further Case Management Conference to be convened at a future date.

15.  The plaintiffs were not content for the Hong Kong proceedings to be resumed and took out the summons of 13 June 2016 (“the Stay summons”) seeking a stay of all further proceedings in this action until the “final determination of the patent opposition filed at the European Patent Office (EPO) by German Pool (Deutschland) GmbH against the first plaintiff's European Patent ... by way of final non‑appealable decision or withdrawal, or the expiry of the applicable period for appeal...”.  What that means in practical terms is discussed below.

16.  Very shortly before the date fixed for the Case Management Conference pursuant to the defendant’s Case Management Summons, the defendants filed their summons seeking the discharge of parts of the Injunction Orders (“the Discharge summons”).  In consequence of this the court directed that both the Stay summons and the Discharge summons be fixed to be heard together before a judge.  Provision was made for the exchange of affirmation evidence.  The Case Management Summons was adjourned sine die.

17.  It is apposite to record that some efforts were made by the parties to reach accommodation over part of the matters canvassed by the summonses.  In particular, the plaintiffs offered to agree to the discharge sought by the defendants, and to undertake to apply to the EPO Technical Board of Appeal to have the appeal heard with expedition, if a stay of the Hong Kong proceedings were to be ordered.

The Stay Summons

18.  The proceedings in Hong Kong have been left in abeyance by both parties since 2012.  Clearly this is unacceptable, but each party points the finger at the other in seeking to attribute responsibility for this situation. The plaintiff submits that it was for the defendant to pursue its counterclaim once the plaintiffs’ position was protected by the injunction.  The defendant submits that the plaintiffs bear the onus to proceed with the litigation, all the more so in circumstances in which interim injunctive relief had been obtained.  I accept that the plaintiffs cannot properly ‘sit back’, having commenced proceedings and obtained injunctive relief, but placing that onus on the plaintiffs does not imply that the defendants bore no responsibility towards the efficient conduct of the proceedings.  Both parties bore a responsibility to regularise the position, by proceeding with the action, or if so advised, by seeking a stay of the proceedings.

19.  In any event, the plaintiffs now seek an order staying the proceedings until the resolution of the EPO proceedings.  This application must be understood in context.  It is common ground that the EPO proceedings may take a further 7 or 8 years in addition to the 4½ years already taken.  This process would involve a decision by the Technical Appeal Board, with the possibility of a remission back to the Opposition Division, followed by, potentially, a further appeal.  It is not certain that this process will necessarily be required; that would depend upon the decision by the Technical Appeal Board, but nor does this time estimate include the possibility of an appeal to an Enlarged Board of Appeal.  What is clear from this however is that any stay is therefore one of a substantial minimum duration.

20.  The defendants oppose a stay of the action.  They wish to achieve commercial certainty by a speedy resolution of this matter, a wish which has emerged, I note, only after several years of inactivity.

Stays pending EPO proceedings

21.  There is no Hong Kong precedent for a stay application in circumstances such as those here.  The position has been considered in the UK however.  The leading case is the Court of Appeal decision in IPCom GmbH & Co KG v HTC Europe Co Ltd [2014] RPC 12 in which Floyd LJ held [at 68]:

“In light of the observations in Virgin and the arguments on this appeal I would recast the Glaxo guidance as follows:

1.  The discretion, which is very wide indeed, should be exercised to achieve the balance of justice between the parties having regard to all the relevant circumstances of the particular case.

2.  The discretion is of the Patents Court, not of the Court of Appeal. The Court of Appeal would not be justified in interfering with a first instance decision that accords with legal principle and has been reach by taken into account all the relevant, and only the relevant, circumstances.

3. Although neither the EPC nor the 1977 Act contains express provisions relating to automatic or discretionary stay of proceedings in national courts, they provide the context and condition in the exercise of the discretion.

4.  It should thus be remembered that the possibility of concurrent proceedings contesting the validity of a patent granted by the EPO is inherent in the system establish by the EPC. It should also be remembered that national courts exercise exclusive jurisdiction on infringement issues.

5.  If there are no other factors, a stay of the national proceedings is the default option. There is no purpose in pursuing two sets of proceedings simply because the Convention allows for it.

6.  It is for the party resisting the grant of the stay to show why it should not be granted. Ultimately it is a question of where the balance of justice lies.

7.  One important factor affecting the exercise of the discretion is the extent to which refusal of a stay will irrevocably deprive a party of any part of the benefit which the concurrent jurisdiction of the EPO and the national court is intended to confer. Thus, if allowing the national court to proceed might allow the patentee to obtain monetary compensation which is not repayable if the patent is subsequently revoked, this would be a weighty factor in favour of the grant of a stay. It may, however, be possible to mitigate the effect of this factor by the offer of suitable undertakings to repay.

8.  The Patents Court judge is entitled to refuse a stay of the national proceedings where the evidence is that some commercial certainty would be achieved at a considerably earlier date in the case of the UK proceedings than in the EPO. It is true that it will not be possible to attain certainty everywhere until the EPO proceedings are finally resolved, but some certainty, sooner rather than later, and somewhere, such as in the UK, rather than nowhere, is, in general, preferable to continuing uncertainty everywhere.

9.  It is permissible to take account of the fact that resolution of the national proceedings, whilst not finally resolving everything may, by deciding some important issues, promote settlement.

10.  An important factor affecting the discretion will be the length of time that it will take for the respective proceedings in the national court and in the EPO to reach a conclusion. This is not an independent factor, but needs to be considered in conjunction with the prejudice which any party will suffer from the delay, and lack of certainty, and what the national proceedings can achieve in terms of certainty.

11.  The public interest in dispelling the uncertainty surrounding the validity of monopoly rights conferred by the grant of a patent is also a factor to be considered.

12.  In weighing the balance it is material to take into account the risk of wasted costs, but this factor will normally be outweighed by commercial factors concerned with early resolution.

13.  The hearing of an application for a stay is not to become a mini‑trial of the various factors affecting its grant or refusal. The parties’ assertions need to be examined critically, but at a relatively high level of generality.”

22.  The defendants submit that the courts in England will seek to find a course of action that will promote “commercial certainty” for the parties, and the defendants urge me to follow suit.  I am reminded of the judgment of Jacob JA in Machinery Developments Ltd & Anor v St Merryn Meat Limited & Anor (at para 15):

“I have to say that waiting for an EPO opposition procedure to end seems often to be close to waiting for Godot. Cases where most (or all) of the life of a patent are taken up are not infrequent. Sometimes this may not matter, where for instance there is no real commercial product or commercial inhibition caused by the patent. Perhaps a point of principle is at issue, or the invention has no real commercial value. But there are plenty of cases where this sort of delay really matters. It must never be forgotten that uncertainty normally favours the patentee: others do not know what they can safely market, or work on by way of development and fresh invention, if they stand in the shadow of a possible patent. So whilst it is of course desirable that one should avoid the possibility of inconsistent judgments or the expense of parallel litigation, as Aldous LJ pointed out in Beloit Technologies v Paper Machinery [1997] RPC 489 at 503 and Kimberly‑Clerk v Proctor & Gamble [2000] FSR 235 at 245, unless resolution in the EPO is reasonably imminent it would often be unjust to stay proceedings here while the EPO procedure runs its leisurely course.”

23.  Somewhat similarly, in Eli Lilly & Company v Janssen Sciences Ireland UC [2016] EWHC 313 (Pat), the plaintiff sought to revoke a patent, and the court was presented with a stay application by the patentee pending determination of validity of the patent by the EPO.  The EPO proceedings were well advanced by the time that application for a stay was made, since the Opposition Division was due to hear the matter later the same year.  A stay was nevertheless refused even though the patentee also undertook to support any application made seeking to accelerate any appeal from the decision of the Opposition Division, and undertook not to seek an injunction against the plaintiff or to seek damages other than on a reasonable royalty basis.

24.  The defendants submit, and it was not challenged, that the effect of a stay would be to allow the plaintiffs to exploit the patent unchallenged in Hong Kong until almost the end of the validity of the patent.

The Factors

25.  It is common ground that whether or not a stay is to be ordered is a matter of discretion involving a balance of both convenience and fairness as between the parties, involving the court in seeking to ensure that its process is used properly, fairly, and efficiently.  Largely based on the guidance given in IPCom, a number of matters were raised by the parties as being relevant considerations during the course of submissions one of which was that Hong Kong, unlike England, does not have a specialist patent court or judge. This, it was submitted, is relevant in 2 respects; one being that some preference should therefore be given for having the patent dispute decided first by the EPO.  Secondly, it was also pointed out in submissions that the approach in England, notwithstanding the existence of a specialist court in that jurisdiction, was to defer to the EPO, and for a stay to be granted pending a decision by the EPO.

26.  It was submitted that the decision of the EPO was, at the least highly important if not decisive as to the validity of the 413 Patent, and it was submitted that it was unlikely that the Hong Kong court would disagree with a decision of the EPO if, of course, the EPO decision was available.

27.  Moreover, it was submitted, the defendants could have no complaint about the time to be taken by the EPO proceedings since they had themselves initiated those proceedings.

28.  As regards costs of the process, it was said to be inevitable that the EPO proceedings will continue, in part because there is another independent party (the Brazilian party) which has challenged the patent, and in part because the decision of the EPO would be necessary to determine validity of the patent in Europe.  The costs associated with the EPO proceedings are therefore inevitable, and there will be no cost saving in a determination by the Hong Kong courts in advance of the EPO decision.  On the other hand, a substantial element of the Hong Kong costs could be avoided if the proceedings here were stayed until after the EPO decision has been rendered.

29.  In addition, proceeding here in advance of the EPO decision gives rise to a greater risk of inconsistent findings as between the Hong Kong courts and the EPO.  Staying the Hong Kong proceedings until after the EPO decision has been given minimises or, most likely obviates, any such risk.

30.  The plaintiffs contended that the defendants bore the burden of establishing through evidence that there would be some degree of enhanced commercial certainty resulting from the Hong Kong action proceeding in advance of the EPO proceedings, but had failed to do so.  To the extent that it is to be inferred that there would be greater commercial certainty resulting from the Hong Kong decision, according to the plaintiffs it was to be kept in mind that such commercial certainty could have been obtained by the defendants by proceeding sooner in Hong Kong.  However, the defendants had chosen not to proceed until the Opposition Division decision emerged in their favour.  The defendants contended commercial certainty cannot be a not a matter of direct evidence, but rather is a matter of inference, and a decision by the court in Hong Kong will, inevitably, promote commercial certainty in Hong Kong even if not more widely. 

31.  The defendants pointed to the fact that Hong Kong proceedings, even if resulting in an appeal would almost certainly lead to a decision as to the validity of this patent in Hong Kong considerably more quickly than would waiting for a decision by the Technical Board of Appeal, even if that process could be expedited.  Granting a stay of the Hong Kong proceedings would preclude the defendants from challenging a patent in Hong Kong which the Opposition Division has found to be, at the lowest, dubious.

32.  Having considered the above, the factors which weigh most heavily with me in seeking to achieve a balance of justice between the parties, are those related to time.  It is clear that the EPO proceedings will be lengthy, and it was common ground between the parties that even an application to have the matter dealt with expeditiously would not significantly shorten the time required.  These proceedings were instigated in Hong Kong 5 years ago and could conceivably have been on foot for 12 or 13 years by the time a final decision is available from the EPO.  By that time, as was pointed out on behalf of the defendants, the validity period of the 413 Patent will be drawing to a close, and the plaintiffs will have had the benefit of the patent without having had to justify its validity, other than to the 413 Patent of the proceedings before the Opposition Division which have already taken place, and which gave a result adverse to the plaintiffs.

33.  In the ordinary course of litigation, a strong basis would be required to justify staying court proceedings for up to 8 years, particularly when the application is made some considerable time after the proceedings were initiated.  The existence of the EPO proceedings, the risk of inconsistent findings as between the Hong Kong courts and the EPO, and the starting point taken by the courts in England and Wales are all factors which lend some support to the plaintiff’s application for a stay, but not, in my judgement, nearly sufficient to outweigh the potential for prejudice to the defendants, and the self‑evident commercial uncertainty that the present position generates.

34.  For those reasons, I am not persuaded that a stay should be ordered, and the stay summons is therefore dismissed.

The Discharge Application

35.  The defendants applied to discharge para 1 of the interlocutory injunction order which was granted in May 2011 and which prohibited the defendants from infringing the Hong Kong 413 Patent.  The summons also sought an order for a speedy trial of the action, with the question of validity of the 413 Patent to be tried as a preliminary issue. 

36.  The basis upon which the discharge (and release from undertaking) was sought was that:

(a)  the European patent “has been found to be invalid at 1^st instance in the EPO”;

(b)  the plaintiffs have proposed amendments to the European patent in order to save that patent, and are continuing to seek to amend the patent on appeal;

(c)  the present proceedings have not been prosecuted by the plaintiffs in the five‑year period since the injunction order was made;

(d)  the plaintiffs are not at risk of irreparable harm; and

(e)  the defendants are prejudiced by the continued existence of the injunction and this action.

37.  The plaintiffs point out that the injunction order was made following an inter partes hearing at which both parties were represented by leading counsel.  The application now made cannot be treated as a rehearing of that application and it is necessary for the defendants to demonstrate that there has been a “significant change” of circumstances (or that new facts have emerged) since the injunction order was made.  There has been, self evidently, a significant lapse of time since the order was made, and the delay on the part of the defendants in making the application is a factor in considering that application.

38.  The plaintiffs submit that the defendants are wholly incorrect when they submit that the European patents has been invalidated by the decision of the Opposition Division.  That European patent remains effective pending the determination by the Technical Appeal Board.  Perhaps more importantly, the Hong Kong patent remains valid, and under section 44 of the Patents Ordinance, will remain so until an order revoking the European patent has been filed, and advertised by the Registrar.

39.  The injunction order was made by Deputy Judge Coleman (as he then was) after having considered submissions regarding the validity of the 413 Patent, and it is submitted that the circumstances now existing or no different to those when the matter was considered by the Deputy Judge.

40.  The reference by the defendants to the amendments proposed to the European patent are also misconceived, according to the plaintiffs, because, firstly, these amendments are not actively pursued, representing a fallback position to the plaintiff’s primary position that the European patent should be maintained as granted.  It is submitted that the amendments arise by way of Auxiliary Requests in the EPO proceedings and, as such, are to be considered only if the patent is not to be maintained as granted.  I was informed by the defendants that the Auxiliary Requests were considered and denied by the Opposition Division.  Secondly there is no application to amend the Hong Kong patent which is the subject matter of the protection conferred by the injunction order.

41.  According to the plaintiffs, it is wrong for the defendants to attribute responsibility for the time which has elapsed since the injunction was made to the plaintiffs, in circumstances in which both parties have acquiesced in what amounts to a de facto stay since then.  Not only have the defendants themselves taken no earlier steps to seek the discharge of the injunction, the application to discharge was not made until approximately 6 months after the Opposition Division decision was handed down.

42.  The plaintiffs do not accept that there is no longer any harm to be suffered by them in the event that competing products are offered by the defendants, and the points made by Mr Terence Chu in his 1^st and 2^nd affirmations in support of the injunction application are said to remain valid.  So far as the prejudice alleged to be suffered by the defendants is concerned, these points have already been considered by the Deputy Judge when making his original order.  In any event the defendants are protected by the cross undertaking in damages which was given as part of the injunction order.

Factors

43.  I take as a threshold question whether or not there could be said to have been a change of circumstances requiring a reconsideration of the injunction order.  I have little doubt in my mind that there has been such a change of circumstances. The defendants point, unsurprisingly, to the decision of the Opposition Division to the effect that the European patent should the invalidated. Although, for present purposes the appropriate course is to proceed on the basis that the European patent remains valid pending the conclusion of the process in the EPO, and indeed the Hong Kong patent also remains valid, nevertheless the decision of the Opposition Division clearly impacts on the ‘strength’ of the plaintiffs’ position.  The only “review” of the grant of the European Patent on which the Hong Kong patent also is based, a review undertaken by a specialist tribunal, has concluded that the patent should be revoked.  Implementation of that decision has been automatically suspended, but the fact that the Opposition Division found against the European patent remains.

44.  Circumstances have also changed as regards the circumstances of the plaintiffs.  Before the Deputy Judge, it appears that there was some considerable emphasis placed on the fact that the plaintiffs’ fans were (then) new to the market in Hong Kong, and it was said that the sale of infringing products was likely to damage the development of the brand and the market at that critical stage.  That is no longer the position since the plaintiffs have been able to exploit the patent and establish their reputation over a period of years since then.

45.  In my judgement therefore these changes of circumstance are significant, and the continued necessity for the Injunction Order should properly be reconsidered.  Doing so, it appears to me, the balance of convenience now weighs quite heavily against the maintenance of the injunction order.  There being no present “threat” of infringement of the 413 Patent by the defendants, and there being no evidence of damage likely to be suffered by the plaintiffs that cannot be remedied in damages, nor any doubt as to the defendants’ ability to meet any such damages claim as might arise, there is no longer any necessity or justification for the injunction order.

46.  In the premises, I will make an order in terms of paras 1 and 1A (added by amendment) of the Discharge Summons.

Speedy Trial?

47.  The question of a speedy trial, and the application for the determination of a preliminary issue were barely touched on at the oral hearing, and I understand the latter application not to be pursued.  So far as the speedy trial is concerned, no justification for such an order has been advanced, other than that the litigation has been drawn out, and no proposals for the concomitant directions that would be required have been provided.  I make no order on either the speedy trial or the preliminary issue applications.

Costs

48.  The parties requested an order nisi as to costs.  Given the circumstances above, the order that I make is, on the requested order nisi basis, that the costs of both the Stay summons and the Discharge summons are to be to the defendants with (although unnecessary, but for the avoidance of doubt) a certificate for two counsel.  Costs of the defendants’ summons of 12 October 2016 are to be to the plaintiffs.

	(Anthony Houghton SC)
	Recorder of the Court of First Instance
	High Court

Mr John Yan SC leading Mr Dominic Pun, instructed by Freshfields Bruckhaus Deringer, for the 1^st and 2^nd plaintiffs

Mr Andrew Liao SC, leading Mr Douglas Clark, instructed by Benny Kong & Tsai, for the 1^st, 2^nd and 3^rd defendants

    

HCA 838/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 838 OF 2011

____________

BETWEEN

	DYSON TECHNOLOGY LIMITED DYSON EXCHANGE LIMITED	1st Plaintiff 2nd Plaintiff
	and
	GERMAN POOL GROUP COMPANY LIMITED	1st Defendant
	GERMAN POOL (HONG KONG) LIMITED	2nd Defendant
	GERMAN POOL KITCHEN EQUIPMENT LIMITED	3rd Defendant

____________

Before: Hon To J in Chambers

Date of Hearing: 6 August 2014

Date of Decision: 19 September 2014

_______________

D E C I S I O N

_______________

Introduction

1.  This is the Plaintiffs’ appeal against the decision of Master C Chow granting the Defendants’ application to stay the taxation of the Plaintiffs’ bill of costs.

2.  By a writ of summons filed on 17 May 2011, the Plaintiffs commenced proceedings against the Defendants for (1) infringing the copyright subsisting in the Plaintiffs’ original artistic works relating to the design of the Plaintiffs’ air multiplier bladeless fan product Model AM01 and the component parts thereof; and (2) infringing Hong Kong Standard Patent No HK1143413. 

3.  By a summons filed on 18 May 2011 (the “Injunction Summons”), the Plaintiffs applied for interlocutory injunctive relief (among other interlocutory relief) based on their claim for copyright and patent infringement against the Defendants, by reason, inter alia, of the Defendants’ dealing with bladeless fan products, in particular the Defendants’ model number OF-510, OF-512, OF-513 and OF-613 fan products.  The Plaintiffs’ claim is based on two causes of action, but the alleged infringing acts complained of are the same.

4.  At the first hearing of the Injunction Summons on 20 May 2011, Sakhrani J adjourned the hearing to 3 June 2011 upon the Defendants’ undertaking not to deal with their bladeless fan products, model number OF-510 and OF-512, pending the adjourned hearing of the summons.  After that the Plaintiffs filed their statement of claim.

5.  At the adjourned hearing on 3 June 2011, the Defendants gave certain undertaking in respect of the interlocutory relief sought and Deputy High Court Judge Coleman SC made orders for further interlocutory injunctive and other relief against the Defendants.

6.  By a letter dated 9 June 2011, the Defendants, through their solicitors, indicated that they would admit liability to the Plaintiffs’ claim for copyright infringement. Subsequently, in paragraph 8 of their defence and counterclaim filed on 12 July 2011, the Defendants confirmed their admission of liability to the copyright infringement claim.  Following some unsuccessful attempts to agree on a form of consent order to deal with a judgment to be obtained against the Defendants based on such admission, the Plaintiffs took out a summons dated 16 November 2012 to apply for judgment on admission against the Defendants regarding the copyright infringement claims.

7.  Subsequently, the parties reached agreement regarding the copyright infringement claims, which were made the terms of a consent order before Deputy High Court Judge Lok on 21 November 2012 (the “Consent Order”).  In the Consent Order, the court granted final relief against the Defendants as sought by the Plaintiffs in respect of its copyright infringement claims, including but not limited to the following paragraphs:

(1) a permanent injunction restraining the Defendants from infringing the Plaintiffs’ artistic works relating to the design of the Plaintiffs’ Air Multiplier bladeless fan model AM01 and the component parts thereof;

(2) a mandatory injunction requiring the Defendants to deliver up most of the infringing products;

(3) an order that the Plaintiffs be at liberty to dispose of the infringing products thus delivered up;

(4) an order that the Defendants were required to verify their compliance with the delivery up obligation by way of affirmations;

(5) an order that there be an enquiry as to damages sustained by the Plaintiffs’ by reason of the Defendants’ copyright infringement; and

(6) an order that the Defendants do pay the Plaintiffs’ costs in relation to the copyright infringement claims, such costs are to be taxed, if not agreed.

8.  On 25 July 2013, some eight months later, the Plaintiffs commenced taxation of the Plaintiffs’ costs in respect of the copyright infringement claims by issuing a Notice of Commencement of Taxation and a bill of costs.  The Defendants filed their List of Objections on 4 October 2013 and at the same time issued a summons applying under Order 62 rule 9D of the Rules of the High Court (“RHC”) seeking an order that the taxation of the Plaintiffs’ bill of costs be stayed until the conclusion of the action (the “Summons for Stay”).  On 8 October 2013, the Plaintiffs applied to set their bill of costs down for taxation. 

9.  On 26 March 2014, the Summons for Stay was heard by the master who granted the Defendants’ application to stay the taxation.  Against that order, the Plaintiffs now appeal.

The legal issues in dispute

10.  An appeal from the master’s decision to the judge is dealt with by way of actual rehearing, and the judge should treat the matter as though it came before him for the first time.  He may give such weight to the master’s decision as he considers appropriate, but is not bound by it. 

11.  The Defendants’ application for stay was made pursuant to RHC Order 62 rule 9D.  Their contention is that the rule applies to debar the taxation of both costs of interlocutory and non-interlocutory proceedings until the conclusion of the action.  As the action has not yet been concluded and in the absence of an order for immediate taxation made under rule 9D(2), the Plaintiffs are not entitled to immediate taxation. The master did not agree with the Defendants’ construction of rule 9D.  She took the view that rule 9D only applies to costs of interlocutory proceedings and therefore does not apply to the instant case.  However, she held that the present case is governed by rules 4 and 9, which require an express order for payment of costs before conclusion of the proceedings, if the party awarded costs desired immediate taxation and payment.  As there was no such express provision in the Consent Order, she ordered the taxation of the Plaintiffs’ bill of costs to be stayed.  

12.  The Plaintiffs’ contention is that the proceedings, at least insofar as the copyright infringement claims are concerned, have been concluded and hence they are entitled to immediate taxation and payment under rule 4(1).  They agree with the master’s construction of rule 9D but disagree with her application of rule 4(1) and rule 9(1).

13.  The legal issues raised by this appeal are what is the true construction of the various rules under Order 62, in particular, whether rule 9D(1) applies only to costs of interlocutory proceedings or to costs of both interlocutory and non-interlocutory proceedings; and whether “conclusion of the action” means conclusion of the entire action or includes conclusion of part of the action, such as one of the causes of action pleaded in the action.

The approach in construing Order 62 and the overall scheme under the order

14.  I agree with counsel of both parties that the court should adopt a purposive approach in construing Order 62 instead of a literal approach.  I should add the obvious that the order has to be construed as a whole, bearing in mind the position before the Civil Justice Reform (“CJR”), the undesirable confusion which the new rules seek to correct, the purpose of the CJR and the underlying objectives of the Rules of the High Court, particularly to increase the cost effectiveness of any practice and procedure to be followed in relation to proceedings before the court.

15.  Order 62 was completely revamped to provide a new regime for costs including the parties’ entitlement and taxation.  Most of the principles relating to entitlement to costs have been incorporated under the section, “Entitlement to Costs”.  An understanding of the overall scheme under the order is essential in construing its rules. 

16.  Rule 3 gives the court exclusive authority to award costs to the parties.  Rule 3(1) provides that no parties shall be entitled to costs of and incidental to any proceedings from any other parties to the proceedings except under an order of the court.

17.  Rule 4(1) which is heavily relied upon by the Plaintiffs gives the court wide discretion to deal with the issue of liability to costs at any stage of the proceedings or after the conclusion of the proceedings.  It provides:

“(1) Costs may be dealt with by the Court at any stage of the proceedings or after the conclusion of the proceedings; and any order of the Court for the payment of any costs may, if the Court thinks fit, and the person against whom the order is made is not an assisted person, require the costs to be paid forthwith notwithstanding that the proceedings have not been concluded.”

The phrase, “at any stage of the proceedings or after the conclusion of the proceedings” are wide enough to support the construction that this rule applies to costs of interlocutory as well as non-interlocutory proceedings.  The power to require payment of costs forthwith notwithstanding that the proceedings have not been concluded further supports that construction.  But, it should also be noted that this rule only covers the issue of liability to costs but not quantum or taxation, in respect of which there are more detailed provisions in the other rules.

18.  On quantum, Order 62 makes separate provision for costs of interlocutory and non-interlocutory proceedings.  Rule 9 deals with quantum of costs in non-interlocutory proceedings.  This rule provides as follows:

“(1) Subject to this order, where by or under these rules or any order or direction of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs.

(2) Paragraph (1) shall not apply to costs which by or under any order or direction of the Court-

(a) are to be paid to a receiver appointed by the Court of First Instance under section 21L of the Ordinance in respect of his remuneration, disbursements or expenses; or

(b) are to be assessed or settled by a taxing master, …

(4) The Court in awarding costs to any person may direct that, instead of taxed costs, that person shall be entitled-

(a) to a proportion specified in the direction of the taxed costs or to the taxed costs from or up to a stage of the proceedings so specified; or

(b) to a sum of money summarily assessed in lieu of taxed costs.

(5) This rule does not apply to costs of an interlocutory application.”

19.  Rule 9(5) puts it beyond doubt that the entire rule applies to costs of non-interlocutory proceedings only.  Under rule 9(1), a party is not entitled to any costs or the actual costs he incurred.  Basically, he is entitled only to his taxed costs taxed under rule 9(1), or costs summarily assessed by the court under rule 9(4)(b), or costs settled or assessed by a taxing master under rule 9(2)(b)), pursuant to an order of the court. 

20.  Rule 9A applies solely to summary assessment of costs in interlocutory proceedings, where an order for immediate taxation and payment has been made under rule 4(1).  If no such order has been made, those costs arising from such interlocutory proceedings will only be taxed or summarily assessed in accordance with rule 9 and become payable at the conclusion of the proceedings.  In the absence of such an order, there is no right to summary assessment of costs of interlocutory proceedings.  Rule 9A(1) gives the court discretion to order payment of taxed costs, or costs summarily assessed in lieu of taxation unconditionally, or subject to the parties’ right to have the summarily assessed costs taxed in accordance with this Order.  This rule provides as follows:    

“(1) Where the Court has determined an interlocutory application at any stage of proceedings and orders a party to pay costs in respect of the interlocutory application to any other party, it may, if it considers it appropriate to do so but subject to rule 9C-

(a) make a summary assessment of the costs by ordering payment of a sum of money to that other party in lieu of taxed costs;

(b) make a summary assessment of the costs by ordering payment of a sum of money to that other party in lieu of taxed costs but subject to the right of either party to have the costs taxed pursuant to paragraph (2); or

(c) order that the costs be taxed in accordance with this Order.”

Rule 9A(2), (3) and (4) provide the regime for challenging the summary assessment by way of formal taxation.

21.  Rule 9B requires the parties to comply with a direction or order for payment of costs of non-interlocutory proceedings made under rule 9(4)(b) or costs of interlocutory proceedings made under 9A(1)(a) or (b) within 14 days of the date of the direction or order; or by such date as the court may specify.  This rule clearly applies to costs of interlocutory and non-interlocutory proceedings.

22.  Rule 9C sets out the circumstances when summary assessment of costs is not allowed.  This rule must apply to costs of interlocutory or non-interlocutory proceedings.

23.  Rule 9D stipulates the time when costs are to be taxed.  This rule provides as follows:

“(1) Subject to paragraphs (2) and (4), the costs of any proceedings shall not be taxed until the conclusion of the action.

(2) If it appears to the Court when making a costs order that all or any part of the costs ought to be taxed at an earlier stage it may order accordingly.

(3) No order may be made under paragraph (2) in a case where the person against whom the costs order is made is an aided person.

(4) Where it appears to a taxing master that there is no likelihood of any further order being made in a cause or matter, he may order the person entitled to payment of the costs of any interlocutory proceedings which have taken place to commence taxation proceedings in accordance with rule 21.”

Rule 9D(1) confirms the general rule that costs shall not be taxed until the conclusion of the action. Rule 9D(2) confirms the exception that if the court considers appropriate it may order part of the costs to be taxed before conclusion of the action, ie to be taxed and paid forthwith.  A further exception is created by rule 9D(4) which gives a taxing master discretion to order a party entitled to costs of interlocutory proceedings to commence taxation, notwithstanding that the action has not been concluded, if it appears to him unlikely that the proceedings will progress further.  Rule 9D is a parallel provision to rule 4.  It deals with taxation, while rule 4 deals with the court’s power to determine liability for and order payment of costs.

24.  Putting aside counsel’s disagreement as to the scope of application of rule 9D(1), they are in general agreement with the construction of the above rules.  The overall scheme under Order 62 is as follows.  The court has exclusive power to award costs.  An award of costs involves a two stage process: first, the making of an order for costs which determines the liability and the scale on which that liability is assessed; and second, the quantification of that liability.  A successful party is only entitled to be awarded his taxed costs or costs summarily assessed by the court or settled or assessed by a taxing master.  Costs are quantified or assessed either formally by way of taxation in accordance with the rules under the order or informally by the court by way of summary assessment or settled or assessed by a taxing master.  As for the time when such costs are to be taxed, the general rule is that costs are to be taxed after the conclusion of the action.  Two exceptions are provided by rule 4(1) under which the court may, if it thinks fit, order payment of costs notwithstanding that the proceedings have not been concluded or by rule 4(4) under which a master may order the party entitled to costs to commence taxation.  

Whether rule 9D applies only to costs of interlocutory proceedings

25.  I now turn to parties’ dispute on the construction of rule 9D.  It is common ground that this rule debars the taxation of costs of interlocutory proceedings until conclusion of the action. The dispute is whether this rule applies only to costs of interlocutory proceedings or whether it applies also to costs of non-interlocutory proceedings.  This boils down to what, on the true construction of Order 62, is the meaning of the phrase “any proceedings” and “the conclusion of the action” in rule 9D(1).  

26.  Mr Yan SC argued that rule 9D(1) applies only to costs of interlocutory proceedings. He quoted extensively from Allied Collection Agencies Ltd v Wood & Anor[1] and Big Boss Investment Ltd v So Lai Kei[2] in support of his submission.   In Allied Collection Agencies Ltd, Neill J criticized the confusion in the application of the then Order 62 of the English Rules of Supreme Court (“RSC”) which arose as a result of practice.  The confusion Neill J referred to was the fact that the words ‘Defendant’s costs’ or the words ‘Plaintiff’s costs’ had in course of time acquired a special meaning which created inconsistencies between RSC Order 62 rule 11(1) and other provisions in RSC.  Neill J concluded at 181f-h as follows:

“I can therefore state my conclusion as follows. (1) Where on an interlocutory application the court intends that one party is to have the costs, the usual form of order is ‘costs in any event’. It is only in exceptional circumstances that the words ‘defendant’s costs’ or the words ‘plaintiff’s costs’ are used. (2) If the words ‘plaintiff’s costs’ or ‘defendant’s costs’ are used they are effective to entitle the party concerned to obtain an immediate taxation.

I would only add this.  I have been forced to conclude on the material which has been put before me that the words ‘defendant’s costs’ have the meaning for which counsel for the defendants contends.  One cannot, however, regard the present situation as satisfactory.  There is an apparent inconsistency between RSC Ord 62, r 11(1), on the one hand, and Ord 62, r 4(1), Ord 14, r 7(1) and Ord 86, r 7, on the other hand.  I would hope that the matter can be brought to the attention of the Rule Committee so that the present formula can be replaced and a form of order can be prescribed to cover the exceptional case where immediate taxation is intended.  I regard the present formula as a source of confusion.”

Allied Collection Agencies Ltd was a decision in 1981.  At the time, the law and practice in the United Kingdom was the same as that in Hong Kong.  In other words, Hong Kong experienced the same confusion.

27.  The above sentiments of Neill J were echoed by Registrar Au-Yeung (as she then was) in Big Boss.  In that case, the 1^st defendant commenced taxation proceedings after the parties disposed of an injunction application by consent with “costs to be paid by the Plaintiff to the 1^st defendant on a party and party basis to be taxed if not agreed”.  Registrar Au-Yeung stayed the taxation proceedings until the action had been completed.  She referred to Allied Collection Agencies Ltd and adopted the passage I quoted in the above paragraph as the Hong Kong position before the CJR.  The applicable rules then were Order 62, rule 4(1), rule 9(1) and rule 11(1); and Order 14 rule 7(1) and Order 86 rule 6 (which is in the same terms).  These rules are retained after the CJR.  Registrar Au-Yeung then discussed the Hong Kong position after the CJR.  She said at paragraph 9 to 13:

 “The Position After the Civil Justice Reform (“CJR”) in Hong Kong

9. The rules set out in paragraph 2 above [quoted above] have been retained in Hong Kong but Rule 9D is added to Order 62 since the coming into effect of the Civil Justice Reform on 2 April 2009  :

[She then quoted Order 62 rule 9D. See the rule as quoted in paragraph 21 above]

10. Section 2 of the High Court Ordinance defines “an action” as “a civil proceeding commenced by writ of summons or in such other manner as may be prescribed by any law.”

11. The effect of rule 9D, in my view, is to reverse the “formula” and unsatisfactory position as described by Neill J.  The “default position” under rules 9D(1) and (2) is thus to allow taxation only after conclusion of an action unless the costs order specifies taxation to be “forthwith” or at some designated time.  The adding of the words “to be taxed” without “forthwith” does not entail immediate taxation.  This is because “taxation” is a matter as of right and wrong, whether or not “to be taxed” are specified in the casts order:  see Order 62, rule 9(1)[2] and 9A(1)(c)[3] and 2[4].  By this construction, Order 62, rule 4(1) and Order 14, rule 7(1) will give the Court discretion to determine the incidence of costs.  It will also have the discretion to specify taxation forthwith but in the absence of its exercise, the taxation will be done at the end of the action.

12. Notwithstanding this major change to the time for taxation, no injustice will be created to the party who has a costs order in his favour.  As provided for under Order 62, rule 9 and 9A, it is always open to a party to seek summary assessment of costs.  This is in fact encouraged for interlocutory applications:  see paragraph 6 of PD 14.3, especially for interlocutory applications.  If, for some reason, summary assessment cannot be done, a party can always ask for taxation forthwith to safeguard his position.  Otherwise, taxation can only proceed upon completion of an action.  This will lead to one taxation per party per action.  In the course of the action, where different parties obtain costs orders, there may be discussions on the amount and set off so that taxation may be dispensed with at the end of a case. 

13. Once taxation is done, I can see no problem with payment “forthwith” in the absence of an order for stay of execution.”

In conclusion, she said at paragraph 20:

“Conclusion

20. Where a costs order does not specify the time for taxation, or does not state that a party should have costs “forthwith”, taxation shall be done upon completion of an action under Order 62, rule 9D(1). A party who has won an interlocutory application and wants immediate payment is thus well-advised to seek summary assessment or costs with taxation forthwith.”

Both Mr Yan SC and Mr Liao SC considered the above passages as a correct construction of rule 9D(1).  What divided them is whether the learned registrar was of the view that rule 9D(1) applies only to costs of interlocutory proceedings or to costs of interlocutory and non-interlocutory proceedings. 

28.  Mr Yan SC argued that the rule should be given a purposive construction.  The purpose was to reverse the confusing practice under the old rules.  He submitted that from the passages quoted above, it is clear that Registrar Au-Yeung was referring to costs of interlocutory proceedings only.  He said that this view was echoed in the explanatory note to Order 62 rule 9D in Hong Kong Civil Procedure 2014 at paragraph 62/9D/1, which reads:

 “Unless a costs order specifies the time for taxation or states that a party should have their costs “forthwith”, taxation of costs shall not take place until the conclusion of the action.  Hence, a party who has won an interlocutory payment and seeks immediate payment should thus seek summary assessment or costs with taxation forthwith.”

With respect, I do not think that must necessarily be the only conclusion.   Though Big Boss was about costs of interlocutory proceedings, Registrar Au-Yeung never mentioned that she was talking about costs of interlocutory proceedings only.  Those words were not used in rule 9D(1) either.  On the contrary, the rule refers to “any proceedings”, which are wide enough to include costs of non-interlocutory as well as interlocutory proceedings.  Thus, it is apparent that in the above quoted passages the learned Registrar was discussing the general position that taxation will take place at the conclusion of the action in the absence of any specific order for immediate taxation, leading to one taxation per party per action.  She made specific reference to the impact of rule 9D on rule 4(1). This resonates my observation that rule 4(1) deals with liability for costs whereas rule 9D deals with taxation or when to tax costs and that both rules apply to costs of interlocutory as well as non-interlocutory proceedings.  By any view, the learned Registrar was not restricting her construction of rule 9D to costs of interlocutory applications.  In fact, as submitted by Mr Liao SC, in light of her specific reference to rule 4 and rule 9, this could not possibly have been her intention.  Indeed, it was equally open to the learned Registrar to reach the same conclusion, if she took the view that rule 9D(1) applies to costs of interlocutory and non-interlocutory proceedings. 

29.  A second basis of Mr Yan SC’s submission is that rule 4(1) was not amended under the CJR, while rules 9A, 9B, 9C and 9D were introduced to Order 62 to replace the old rule 9A concerning interim payment of costs of interlocutory applications, as part of the package of provisions introduced to implement the procedure of summary assessment of costs of interlocutory applications.  He further argued that the introduction of a new sub-rule (5) to rule 9 which specifies that rule 9 does not apply to costs of non-interlocutory applications makes it clear that rules 9A, 9B, 9C and 9D relate to costs of interlocutory proceedings only as is made clear by the amended heading of that rule (“Taxed costs, fractional taxed costs or costs summarily assessed for non-interlocutory applications”) and the heading of rule 9A (“Summary assessment of costs of interlocutory applications”). 

30.  Again, with respect, such argument is misconceived.  There is no evidence to support the suggestion that rules 9A, 9B, 9C and 9D were introduced as a package for implementing the procedure of summary assessment of costs of interlocutory proceedings only.  Nor could such inference be drawn from the language of these rules.  Indeed from the general scheme of Order 62 as I outlined in paragraphs 20 to 24 above, it is apparent that rules 9A to 9D were not introduced as a package for implementing the procedure of summary assessment of costs of interlocutory proceedings only. 

31.  In my view, the old rule 9 applied to costs of interlocutory and non-interlocutory proceedings.  The amendment to the heading of the old rule 9 and the introduction of sub-rule (5), limiting the application of the new rule to costs of interlocutory proceedings was obviously intended to make separate rules for costs of interlocutory proceedings and costs of non-interlocutory proceedings.  Thus, the new rule 9, with the exception of sub-rule (1) which is of general application, becomes applicable to summary assessment of costs of non-interlocutory proceedings only.  The new rule 9A replaced the old one dealing with interim payment of costs.  It expressly deals with summary assessment of costs of interlocutory proceedings only.  The new rules 9B and 9C introduced expressly apply to costs of interlocutory applications under rule 9A and non-interlocutory applications under rule 9(4).  As the heading suggests, rule 9D clearly deals with an entirely separate topic of when to tax costs and not about summary assessment of costs, whether of interlocutory or non-interlocutory proceedings.  Rule 9D(1) expressly refers to the costs of any proceedings, interlocutory or otherwise.  There is nothing to suggest that this rule applies only to costs of “any interlocutory proceedings”.   I am unable to agree with the submission that rules 9A, 9B, 9C and 9D were introduced as a package for implementing the procedure of summary assessment of costs of interlocutory proceedings only and that rule 9D applies to summary assessment of such costs only. 

32.  Furthermore, it can be noted that whenever the legislative intent was that a rule is only applicable to costs of either interlocutory or non-interlocutory applications, it expresses its intention unequivocally, for instance, rule 9 for non-interlocutory proceedings and rule 9A for interlocutory applications.  If the intention was not so expressed, the rule must apply to costs of interlocutory and non-interlocutory proceedings.

33.  Mr Yan SC called in aid the Legislative Council Brief – Subsidiary Legislation Relating to Civil Justice Reform in support of his argument that rule 9D applies only to costs of interlocutory applications.  However, as submitted by Mr Liao SC, none of the documents indicate that rule 9D is only applicable to interlocutory matters and there is nothing inconsistent between the Legislative Council Brief and the interpretation of rule 9D as contended by Mr Liao SC.

34.  Next, Mr Yan SC argued that rule 9D was modelled on the English RSC Order 62 rule 8, which was introduced in 1986, as a result of the criticism by Neill J in Allied Collection Agencies Ltd.  He referred to a number of English authorities which construed the English rule 8 as applying only to costs of interlocutory proceedings.  He said that in Big Boss, the learned Registrar was not referred to this true origin of rule 9D.  The relevant part of the English rule 8 reads:

“(1) Subject to paragraph (2), the costs of any proceedings shall not be taxed until the conclusion of the cause or matter in which the proceedings arise.

(2) If it appears to the Court when making an order for costs that all or any part of the costs ought to be taxed at an earlier stage it may, except in a case to which paragraph (3) applies, order accordingly.

(3) No order may be made under paragraph (2) in a case where the person against whom the order for costs is made is an assisted person within the meaning of the statutory provisions relating to legal aid.

…

(9) Where it appears to a taxing officer on application that there is no likelihood of any further order being made in a cause or matter, he may tax forthwith the costs of any interlocutory proceedings which have taken place.”

35.  Mr Liao SC argued that the wordings of the English rule and our rule 9D are different; that there is no evidence showing that rule 9D(1) was in fact modelled on the English rule 8(1); and that there was no reference to the English rule in the legislative documents submitted in the Legislative Council.  Be that as it may, on a fair reading of the two rules, I agree with Mr Yan SC that the four sub-rules of our rule 9D are similar to those sub-rules under the English rule 8, except that the phrase “cause or matter” instead of “action” was used in the English rule 8(1). 

36.  Mr Yan SC argued that the phrase “cause or matter” is no different in effect from the word “action” under our rule 9D(1). His argument is that as set out in section 151 of the English Supreme Court Act 1981, “cause” means any action or any criminal proceedings, and “matter” means any proceedings in court not in a cause.  Hence, he argued that in the context of civil proceedings, the words “cause” and “action” can be used interchangeably, while the word “matter” is not relevant to the instant case. As the definitions of “action”, “cause” and “matter” under section 2 of the High Court Ordinance are the same as those set out in section 151 of the English Supreme Court Act 1981, he submitted rule 9D(1) has the same construction as the English rule 8(1).  He then referred to three English authorities in which the English rule 8(1) was construed.

37.  In David Marcus Small v Simon Emile Cohen & Ors[3], the Plaintiff was a partner of a firm of solicitors.  He sought six heads of relief against the firm, including dissolution of the partnership and appointment of a receiver.  At the hearing, the judge made no order except that an audited profit and loss account of the firm and an audited balance sheet be drawn up.  Thus, the Plaintiff was substantially unsuccessful.  The judge ordered costs against him in any event but refused to order taxation forthwith.  The accounts were submitted to the Plaintiff, but he did not accept them.  Subsequently, the Plaintiff accepted an offer to retire from the partnership which rendered the outstanding relief sought irrelevant.  The Defendants then sought to vary the costs order to allow the costs be taxed and paid forthwith.  The judge adopted a common sense approach in deciding that the action was concluded for the purpose of the English rule 8(1) and ordered the costs to be taxed and paid.  On appeal, the Court of Appeal referred to the statutory definition under section 151 of the Supreme Court Act and held that for the purpose of rule 8(1), “cause” in effect meant “action”.  Applying that definition to the facts of the case, the Court of Appeal held that while the dispute was substantially resolved, the action had not concluded because of the accountancy issue.  The purpose of quoting this authority was to show that the English rule was no different from our rule 9D(1) by reason of the statutory definition of the words, “cause”, “proceedings” and “action”.  Small v Cohen was a case about costs of interlocutory proceedings to which our rule 9D(1) applies.  However, like Big Boss, that case is not directly on the point that the English rule 8(1), which is equivalent to our rule 9D(1), did not apply to costs of non-interlocutory proceedings, particularly in view of the words “any proceedings” in the two rules.

38.  The second case relied on by Mr Yan SC is London Borough of Enfield v P[4]. The case was about costs in wardship proceedings, which were interlocutory.  Holman J held that the English rule 8 was designed to prevent multiplicity of bills and taxations on interlocutory orders for costs, and to save them up until the conclusion of the substantive action, ie one taxation per party per action. Thus, where an order is made for costs of interlocutory proceedings the entitlement to taxation does not arise until the conclusion of the cause or matter.  That does not exclude the operation of the rule to costs of non-interlocutory proceedings, particularly in the light of the words “any proceedings”.  For the same reason, it does not really assist the Plaintiffs. 

39.  The third case is Rafsanjan Pistachio Producers Co-operative v Bank Leumi (UK) plc[5], which was quoted in Enfield v P.  Mr Yan SC relied on the following passage of Saville J:

 “The words in question “the conclusion of the cause or matter” are, in my view, in the general context in which they appear well capable of meaning the end of the cause or matter before the court in question.  It is clear from Order 62, rule 8 and other rules (e.g. Order 62, rule 3) that the underlying scheme is to draw a distinction between the final adjudication by a court of litigation on the one hand and orders (ie interlocutory orders) made on the way to that final adjudication on the other.  In the case of the latter a special order must be made if the costs are to be taxed before a final adjudication.  In the case of the former taxation follows automatically.”

40.  Mr Yan SC submitted that on these dicta, it is clear that the English rule 8 was, and therefore our rule 9D is, intended to debar taxation of interlocutory orders for costs but not otherwise; and that these rules were intended to reverse the previous practice criticised by Neill J in Allied Collection Agencies Ltd and by Registrar Au-Yeung in Big Boss.  He argued that rule 9D should be given a purposive interpretation and it would be wrong to construe the words “any proceedings” literarily. 

41.  I entertain no doubt that one of the purposes of the rule was to debar taxation of costs in interlocutory proceedings.  But giving the rule a purposive interpretation does not exclude the application of the rule to costs of non-interlocutory proceedings.  In construing the rules, one cannot ignore the phrase “any proceedings” and “conclusion of the cause or matter” under the English rule or “conclusion of the action” under our rule. The real distinction made by the rule, as Saville J emphasised, is the final adjudication of an action and orders made on the way to that final adjudication.  In that context and in the light of the phrase “conclusion of the action”, it is difficult to limit the construction of “any proceedings” to mean “any interlocutory proceedings”.  If that were the intention of the legislature, nothing could be simpler than to add the word “interlocutory” in the rule. 

42.  The following observation of Holman J in London Borough of Enfield v P about rule 8 is illuminating. He said at 76:

“I do not find it easy to reconcile rules 8 and 29. Clearly, rule 8 is designed to prevent a multiplicity of bills and taxations on interlocutory orders for costs and, subject to any express order under rule 8(2), to save them up until the conclusion of the substantive action. …

Further, it is quite clear that the purpose of rule 8 was to implement the conclusions of the report dated 25 January 1983 of a working party on Order 62 chaired by Master Horne. Paragraph 30 of that report was headed “Stage of proceedings at which costs to be dealt with”, and reads as follows:

“We feel that it is generally desirable that the court should deal with all questions of costs together and at the conclusion of the proceedings. Even where costs orders are made at different stages in the proceedings, our experience is that it is usually helpful to tax all those costs together at the conclusion of the proceedings. A general rule to this effect would enable the court and the taxing officer to have before them all relevant considerations when reaching their decisions. However, we recognise that there might well be circumstances when it would be appropriate for the court to make an order for costs before the conclusion of the proceedings and rarer circumstances when the immediate taxation of those costs would be desirable. Nevertheless, we recommend that Order 62 should express the general rule which we have shown above subject to the court’s discretion to do otherwise.” ”

The observation of the working party is also relevant to Hong Kong.  It also reflects generally the rationale underlying rule 9D and the goal of one taxation per party per action.  To achieve that end, the rule must apply to all stages in the proceedings, which necessarily include interlocutory as well as non-interlocutory proceedings.  That, in my view, is precisely what the phrase “any proceedings” is intended to mean.

43.  The last case relied on by Mr Yan SC was Molnlycke AB v Procter & Gamble Limited (No 6)[6]. In that case, final judgment was given after trial, granting relief in all material respects identical to the relief set out in the Consent Order in the present case.  The defendants contended, relying on the English rule 8, that the plaintiffs were not entitled to taxation until the conclusion of the enquiry as to damages which was ordered under the final judgment.  Morritt J distinguished Small v Cohen on the basis that the action was concluded by the judgment notwithstanding that under that judgment there were certain enquiries which were reserved to future hearings.  This is a case where the action has been concluded.  In that sense, it does not assist the Plaintiffs in their construction of rule 9D(1).

44.  The most forceful argument of Mr Yan SC is that the rule could not have been intended to apply to final costs orders made upon the conclusion of the proceedings insofar as it relates to a particular cause of action in an action in which a number of causes of action has been pleaded. To hold otherwise would be unjust as the successful party of one of the causes of action would have to wait, possibly for years, before recovering those costs until the conclusion of other wholly separate and distinct causes of action.  This argument raises the question of what is meant by “conclusion of the action”.

45.  On the face, that phrase means the conclusion of the entire action and not parts of it or some of the causes of action pleaded. Under section 2 of the High Court Ordinance, “action” means a civil proceeding commenced by writ of summons or in such other manner as may be prescribed by any law; and “cause” means any action or any criminal proceeding.  These definitions reinforce the proposition that “cause” in rule 9D(4) meant “action” and “conclusion of the action” in rule 9D(1) means conclusion of all the proceedings commenced by the writ of action and nothing less.  “Action” cannot be construed merely to mean an issue, a collection of issues, a set of proceedings, or one or some of the causes of action in a writ of summons.  It means the entire action.  “Conclusion of the action” means conclusion of the entire action, not just some of the causes of action pleaded in the action.

46.  Under this construction, the hardship suggested by Mr Yan SC may well be real, but the observation of Holman J in London Borough of Enfield v P and the views of the working party quoted above provide the complete answer.  The goal is one taxation per party per action. Thus, the general rule is to debar all taxation until the conclusion of the action.  Rule 9D was therefore intended to be applicable to costs of any proceedings, interlocutory or otherwise.  Rule 9D(1) was intended to debar taxation of any proceedings until conclusion of the entire action.  If the circumstances so justify, a party may apply for summary assessment or immediate taxation under rule 9D(2).  The master may in an appropriate case order the party entitled to costs to commence taxation under rule 9D(4). 

47.  In conclusion, I find that on its true construction rule 9D states the general rule that the costs of any proceedings, whether interlocutory or non-interlocutory, are to be taxed after the conclusion of the action.  That rule applies to any proceedings and not solely to costs of interlocutory proceedings.  The deciding factor is whether the action has concluded.

This Appeal

48.  The Plaintiffs’ action is based on two causes of action, copyright infringement and patent infringement.  They obtained judgment with costs against the Defendants in respect of copyright infringement.  That costs order is a final costs order insofar as the copyright infringement claim is concerned.  However, the action, insofar as the patent infringement is concerned is still continuing. 

49.  The Plaintiffs argue that it may take years before the patent infringement claim is concluded and it would be unfair to require them to wait for such a long period of time before being paid their costs on a claim which they have undoubtedly succeeded.  The patent infringement claim is based on the Plaintiff’s patent in Europe, which is now being litigated abroad.  Mr Liao SC said that if the Plaintiffs failed, the Plaintiffs could have no basis to pursue the patent infringement claim in Hong Kong and if they succeed, the Defendants would not contest the patent infringement claim.  That is no comfort to the Plaintiffs as the conclusion is still a long way off.

50.  There is no dispute that both claims are based on the same infringing acts.  There are common issues.  It may not be appropriate to apportion those costs at this stage.  This is a case in which the principle of one taxation per party per action should apply.  It would be cost effective, just and convenient to have all costs taxed after the patent infringement claim is concluded.  On my construction of rule 9D(1), the action has not concluded. No order for immediate taxation had been sought and made under rule 9D(2).  The Plaintiffs are therefore debarred by rule 9D(1) from taxation of those costs until conclusion of the entire action.  Accordingly, this appeal must be dismissed with costs and certificate for two counsel.

( Anthony To ) Judge of the Court of First Instance High Court

Mr John MY Yan SC and Mr Dominic WH Pun, instructed by Freshfields Bruckhaus Deringer, for the Plaintiffs

Mr Andrew Liao SC and Mr Philips Wong, instructed by Benny Kong & Yeung, for the Defendants

HCA838/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 838 OF 2011

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BETWEEN
	DYSON TECHNOLOGY LIMITED	1st Plaintiff
	DYSON EXCHANGE LIMITED	2nd Plaintiff
and
	GERMAN POOL GROUP COMPANY LIMITED	1st Defendant
	GERMAN POOL (HONG KONG) LIMITED	2nd Defendant
	GERMAN POOL KITCHEN EQUIPMENT LIMITED	3rd Defendant
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Before : Deputy High Court Judge Coleman SC in Chambers

Date of Hearing : 3 June 2011

Date of Judgment : 3 June 2011

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JUDGMENT

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Introduction

1.  In the light of the nature of this application, I will attempt to give my judgment, and reasoning for it, today.  Needless to say, in the time available I have not had the opportunity to do full justice to the submissions made to me by rehearsing them at length in this decision, nor to make reference to vast tranches of the evidence which filled several box files, and included considerable technical evidence.  Nevertheless, I have taken those submissions and that evidence into account in reaching my conclusions.

2.  The plaintiffs are companies within the Dyson Group of companies, which is fairly described as a worldwide group well known for the innovative and unusual, if not unique, designs of their products.  The business model of the Dyson group is to sell a limited range of products, on the basis that those products are unique Dyson products produced as a result of its own research and development.

3.  The 1^st plaintiff carries out the role of research and development activities, and is accordingly the owner of all the patents and copyright in relation to the design and development of products sold by the Dyson Group.  For the purposes of these proceedings, the relevant patent is Hong Kong Standard Patent No. HK1143413 (“the Patent”).  The 2^nd plaintiff is the exclusive licensee to use the Patent in relation to the design and development of products sold by the Dyson Group in connection with the manufacture and sale of the products.

4.  The plaintiffs are represented on this application by Mr John Yan SC, leading Mr Dominic Pun.

5.  The defendants are members of the German Pool Group of companies, carrying on business in Hong Kong for the production and marketing of kitchen cabinetry, kitchen appliances and home electrical appliances.  Mr Chan Kwok Man Edward is a director of all three defendants, the majority shareholder in the 2^nd defendant and a substantial shareholder in the 1^st defendant.  The 2^nd defendant is the majority shareholder of the 1^st and 3^rd defendants.

6.  It is worth noting by way of introduction that the 2^nd defendant is the registered proprietor of various Hong Kong trademarks used in connection with products marketed and sold by the German Pool Group, and had previously brought proceedings (unconnected with this action, of course) seeking injunctive relief and protection against alleged infringement of its copyright.  Mr Edward Chan apparently gave evidence on behalf the 2^nd defendant in those proceedings.

7.  The defendants are represented on this application by Mr Andrew Liao SC, leading Mr Martin Liao.

8.  These proceedings relate to a particular Dyson product namely the Air Multiplier bladeless fan model number AM01 (“the AM01”).  Though there are apparently now to be found other so-called bladeless fans on the market, I do not think I was shown evidence to contradict Mr Yan SC’s submission that there had never been a bladeless fan actually for sale on the market before the product from Dyson.

9.  By a writ issued on 17 May 2011, the plaintiffs have brought this action against the defendants seeking injunctions to restrain the defendants from infringing the Patent and the 1^st plaintiff’s copyright subsisting in original artistic works relating to the design of the AM01.  The writ also seeks an order for delivery up or destruction upon oath of all infringing materials and any further dealing with infringing products as would offend against the injunctions sought.  There is a claim to damages, alternatively an enquiry as to damages or an account of profits in respect of the alleged wrongful acts of infringement of the Patent and copyright.

10.  By summons dated 18 May 2011, the plaintiffs seek:

(1) an interlocutory injunction to restrain the defendants from continuing the acts or threatened acts of which complaint is made;

(2) orders for delivery up and confirmation on oath that the order of the delivery up has been complied with; and

(3) an order for disclosure, and an order granting liberty to the plaintiffs to make use of the information thereby obtained.

11.  The first return date of the summons was 20 May 2011.  At the hearing on that date, and on the defendants’ undertaking in terms of paragraph 1 of the Summons in relation to the defendants’ models OF-510 and OF-512 (but not the models OF-513 and OF-613), Sakhrani J gave directions for the filing of evidence and adjourned the hearing to 3 June 2011.  (The application for an interim injunction wider than the terms of the undertaking was refused by the judge.)

12.  As a result, the matter has come before me.  The 2^nd defendant and the 3^rd defendant have indicated their willingness to continue until trial the undertaking in relation to the models OF-510 and OF-512, on the same terms and on the same basis as the previous undertaking was given, expanded (following an inspection of certain drawings) to include certain other parts.

13.  As a result, the following live issues for determination have been identified:

(1) whether an interlocutory injunction should be granted against the 1^st defendant in terms of paragraph 1 of the Summons;

(2) whether an interlocutory injunction should be granted against the 2^nd defendant and the 3^rd defendant in terms of paragraph 1 of the Summons in respect of those models for which they have not already provided an undertaking; and

(3) whether the various orders should be granted against the defendants for delivery up, confirmation of delivery up, discovery and use of information discovered as sought in paragraphs 2 to 5 of the Summons.

Applicable principles

14.  The principles applicable on applications for the grant of interlocutory injunctions are well-established and well-known, and they need not be rehearsed at any length.  Reference is usually made to the case of American Cyanamid Co. v. Ethicon [1975] AC 396.

15.  It falls to the court first to consider whether there is a serious question to be tried in respect of the claim.  In the context of the issues which fall for determination on this application, it might be helpful to point out that where there are multiple plaintiffs and defendants, it is of course necessary to identify that at least one plaintiff has identified a serious question to be tried in respect of a claim against at least one of the defendants.

16.  If there is a serious question to be tried, the court will go on to consider whether if an interlocutory injunction is not granted and the plaintiff is ultimately successful at trial, it could be adequately compensated by damages in respect of any loss which it might suffer by reason of the defendants continuing to act unrestrained pending trial.

17.  If damages would not be an adequate remedy for the plaintiff, the court will consider whether the defendant would be adequately protected by the plaintiff’s cross undertaking in damages should it later be found that the plaintiff ought not to have been granted the interlocutory injunction.

18.  The above two questions are sometimes phrased as requiring the court to consider whether the greater injustice might arise from the grant of an injunction which it subsequently turns out ought not to have been granted, or from the refusal of an injunction which it subsequently turns out ought to have been granted.

19.  If there is doubt as to the adequacy of damages to the plaintiff or defendant, the court will consider where the balance of convenience lies.  Where that balance is even, the court may consider the relative strengths of each party’s case.  Lastly, where all factors are balanced, it may be prudent to preserve the status quo.

20.  Therefore, in the approach, the court should bear the following matters in mind (see, for example, Series 5 Software Ltd v. Philip Clarke [1996] FSR 273, at 286):

(1) The grant of an interlocutory injunction is a matter of discretion and depends on all the facts of the case.

(2) There are no fixed rules as to when an injunction should or should not be granted.  The relief must be kept flexible.

(3) Because of the practice adopted on the hearing of applications for interlocutory relief, the court should rarely attempt to resolve complex issues of disputed fact or law.

(4) Major factors the court can bear in mind are (a) the extent to which damages are likely to be an adequate remedy for each party and the ability of the other party to pay, (b) the balance of convenience, (c) the maintenance of the status quo, (d) any clear view the court may reach as to the relative strength of the parties’ cases.

21.  In actions in respect of intellectual property rights, damages are often not an adequate remedy since there are difficulties both in ascertaining and in quantifying such damage as injury to the claimant’s property, business, commercial opportunity, reputation and goodwill: see Copinger and Skone James on Copyright 16^th Ed (2011) para. 21-140.  Nevertheless, there is no general rule that damages would not be an adequate remedy in intellectual property claims, and it will be necessary to consider each case on its own facts.

Question of validity of the patent

22.  At the forefront of Mr Liao SC’s argument on behalf of the defendants is the raising of a defence to the claim for infringement of patent by seeking to challenge the validity of the Patent.

23.  The Patent is and has at all material times been in force.  However, the defendants challenge its validity.  As it was put in submission, there are substantial and serious questions to be tried on the validity of the Patent.

24.  Those issues have been canvassed in various pieces of evidence and in particular in the expert report/affidavit of Ho, Charles Songlin, a licensed US patent attorney.  He makes reference to the fact that the patent in suit has counterpart patent applications filed in a number of countries or regions, and he has focused study on the transaction histories of two such applications, in the United States and Japan.

25.  He identifies that those two patent applications are still pending and have not been granted as patents and (in summary) suggests that there is nothing novel and inventive to be found in the patent in suit over certain prior art references.  His conclusion, therefore, is that the Patent is invalid.

26.  During the hearing, Mr Liao SC took me to what he referred to as the strongest points in the references to prior art, casting serious doubt on the novelty claimed by the plaintiffs in the Patent.

27.  In response, the plaintiffs have filed the expert report of Christopher Robert Davies, a UK patent attorney.  In his instructions, he was asked to reach his own independent view as a qualified UK and European patent attorney on the novelty and inventiveness of the Patent (all claims to be considered) based on the information contained in the prior art references to which Mr Ho had made reference in his report.  Mr Davies was also asked to consider what amendments to one or more of the claims of the Patent granted in Hong Kong he would recommend as being sufficient to overcome an objection, if any such claim is either anticipated or is obvious.  Further, he was asked to comment on the methodology employed by Mr Ho.

28.  Mr Davies’ view (again in summary) is that, although this is a matter of expert evidence at trial, claim 1 under the Patent is prima facie not obvious against the identified prior art.  The core of his conclusion relates to what is described as the Coanda surface, as an essential element of the design of the AM01.  Of the subsidiary claims, Mr Davies opines that at least claims 11, 14 and 16 introduce a further inventive concept which does not appear to be obvious.

29.  I do not think for the purposes of this application that I need to descend into a close and detailed examination or comparison of the two expert reports.  However, I think there is some force in the point made by Mr Yan SC that the conclusions reached by Mr Ho do not appear to be backed up by any exhibits or a similar degree of clear and cogent reasoning as are the conclusions reached by Mr Davies. On the other hand, I take on board that Mr Liao SC pointed me to a particular item of prior art on a Japanese patented product called a Coanda air blower, which he said demonstrated that the central claimed novelty feature in the Patent is not in fact novel at all.  This prior art does not seem to have been referred to in the EPO patent.

30.  The real point though is that the issue of the validity of the Patent is not a matter which I can resolve or determine on this application, and I accept Mr Yan SC’s submission that it is not something which I should even attempt to resolve: see, for example, the American Cyanamid case at 407G-408B; Quantel Ltd v. Shima Seiki Europe Ltd [1990] RPC 436, at 440-442.  This principle was not substantially in dispute from Mr Liao SC.

31.  In short, even assuming that there are (as Mr Liao SC submits) substantial and serious questions to be tried on the validity of the Patent, that would only seem to focus on the existence of a serious issue to be tried on the claim.  In any event, that there may be points raised by way of defence to the claim—the very creation of the issue which would need to be tried—does not mean that the plaintiffs cannot satisfy the first limb in the American Cyanamid test.  At most it could go into the discretionary mix when any consideration of the merits of the case might be made.

32.  As it is put forward as an additional point, I reject the defendants’ argument that an interlocutory injunction should be refused on the basis that the plaintiffs have been less than candid with the court.  The criticism arises because the plaintiffs did not produce the specification of one piece of prior art referenced, with its drawings, which it is said are critical to understand the teaching of that prior art.  This point, even if potentially a good one, seems to me to be of less importance on a full inter partes hearing such as is now before me, and in any event is wrapped up in the overall question of validity, which question I have already accepted I cannot and should not attempt to determine in this application.

33.  I necessarily also reject the submission that the court should not grant an interlocutory injunction to restrain enforcement of an only partially valid patent when the enforcement would be claimed on the basis that it is valid.  That submission (again in effect inviting me to determine the question of validity, or partial validity) seems to me, with respect, to misunderstand the nature of the exercise and the principles to be applied in the consideration of whether or not to grant this interim injunction.

Questions of copyright

34.  The defendants did not mount any other serious challenge to the existence of a serious question to be tried, particularly in relation to the claim in copyright at least in respect of models OF-510 and OF-512. For the avoidance of doubt, I would state that (subject to a discussion of the position of the 1^st defendant, separate from the position of the 2^nd and 3^rd defendants—see below) I am satisfied that there is at least a serious question to be tried on the claim to infringement of copyright.

35.  There is clear evidence that copyright subsists in the works relied upon, and that the 1^st plaintiff owns the copyright, that the defendants’ relevant product (at least arguably) constitutes an infringing copy of the plaintiff’s copyright works, and that the defendant has committed acts which infringe the plaintiff’s copyright as provided for under the Copyright Ordinance Cap. 528: see, for example Fossil Inc v. Trimset Ltd [2003] 3 HKLRD 11, at 15-22.

36.  The only “wrinkle” is in relation to the position as regards the two models OF-513 and OF-613.  The defendants’ stance is that because the final design of those models is not yet known, it cannot be said that there is any infringement of copyright.  But against a chronology of when those models were apparently first offered for sale by the manufacturer, there is at least a strong argument that the product then offered, and which features on the defendants’ website, was or would have been in infringement of the plaintiffs’ copyright.

37.  It does not seem to matter to me that, as a result of action now taken by the plaintiffs, the product previously offered may have to be significantly changed, and may ultimately be significantly changed from what might otherwise have been supplied, in an attempt not to cause infringement.  The particular product giving rise to the concern is that already apparently marketed on the website, not some future product that may yet be developed in a way which does not, or may not, infringe.

38.  In my overall approach to the consideration, I have taken into account that the defendants have been at great pains to present themselves as responsible and reputable companies, part of a reputable group of companies, I accept it is correct that those companies did not design and manufacture the infringing product; however, I do not think it is fair to suggest that the design issue is not one of the defendants’ own doing.

39.  It is correct that the infringing product was actually manufactured by a company in the PRC called Wu Yi Delicacy Electrical Appliances Co. Ltd (“Wu Yi”).  A representative of the 2^nd defendant attended a trade fair in Guangzhou in October 2010, and there sourced the infringing product from Wu Yi.

40.  As has been clearly demonstrated, by comparing each and every component of the AM01 with the infringing product, the infringing product is a 100% (or near 100%) copy of the plaintiffs’ product—inside and out.  Even looking only at the outside, it is difficult to see how the startling similarity between the two products could not have been noticed.

41.  In any event, I think there is considerable force in the plaintiffs’ criticism that the defendants cannot have used the best endeavours that they claim to ensure that the manufacturer had the right to make and sell the product concerned.  In her second affirmation filed in support of the application, Gillian Ruth Smith, Group IP Director of the Dyson Group, persuasively sets out the things which the defendants apparently did not do, or chose to ignore (see paragraph 11).  I need not list those matters, but one which leaps out is that the defendants apparently did not even ask Wu Yi if they had developed the product themselves, and the limited material the defendants were shown really amounted only to an assertion that Wu Yi’s “partner” had “registered” the exterior design of the products as a design patent in the PRC.

Position of 1^st defendant

42.  The defendants admit the involvement of the 2^nd and 3^rd defendants in dealing in the alleged infringing products, but deny the involvement of the 1^st defendant.  (I note in passing that originally it was said by the defendants that the 2^nd defendant also had nothing to do with the dealing in the products, though that stance has been abandoned, perhaps in the face of the evidence to the contrary.)

43.  Mr Liao SC points out that the 1^st defendant has never manufactured or traded in any product, let alone the bladeless fan.  This is because it is the investment company within the German Pool Group.

44.  Mr Yan SC submits that all three defendants have clearly worked together to commit the act of both primary and secondary infringement.  He relies on the facts that: the defendants are all companies within the same group of companies sharing the same registered office, that the 2^nd defendant is the majority shareholder of both 1^st and 3^rd defendants, and that Mr Edward Chan is a director all three defendants; that the alleged infringing products are marketed on the group’s website, of which the registrant is the 2^nd defendant but which bears the copyright notice of the 1^st defendant—including specifically on the pages featuring the alleged infringing products; the 2^nd defendant’s participation in a trade fair at which it exhibited, displayed and offered for sale the alleged infringing products was publicised on the group’s website on a page bearing the copyright notice of the 1^st defendant.

45.  In response, Mr Liao SC says that it takes more than a copyright notice to show that the 1^st defendant was trading in the bladeless fans, and the fact is that the website is the website of the entire group of companies, and the 2^nd and 3^rd defendants are listed as individual companies within that group but have no separate websites of their own.

46.  During argument, I asked whether the fact that the 1^st defendant claims copyright in the webpages on which the alleged infringing products are marketed might identify that the 1^st defendant at least is involved in “enabling and/or assisting” the 2^nd and 3^rd defendants to do the acts complained of (that phrase coming from paragraph 1(b) of the Summons).  Whilst Mr Liao SC confessed to having had a hand in the drafting of this phrase, apparently now commonly in use in some other summonses in Hong Kong, he submitted that merely claiming copyright on a web page on which someone else performed a marketing exercise could not properly be considered to be enabling or assisting the other person.  As he put it, to claim copyright on the page is simply a statement which warns “if you copy this page, I will sue you for infringement”; it does not say more than that.

47.  Of course, it might also be thought that as it is the 1^st defendant which claims copyright over the pages, it would logically be the 1^st defendant that would be asked to do something about those pages.  As Mr Yan SC points out, in claiming copyright over the content of the webpages the 1^st defendant must be taken to have accepted that either the 1^st defendant’s employees have performed the work over which copyright is claimed, or the 1^st defendant has commissioned someone to do that work for it.

48.  I also asked why, if the 2^nd and 3^rd defendants were prepared to give the undertaking at least in relation to models OF-510 and OF-512 and their constituent parts, why the 1^st defendant would not likewise offer an undertaking.  The answer, Mr Liao SC tells me, is that the 1^st defendant takes the view that it has not been engaged in infringing activity and that it intends not to be engaged in any such activity, but that if it offers any undertaking not so to engage that might give rise to the perception that it had done something wrong. I suppose that amounts to the suggestion that others may perceive that there is no smoke without fire.

49.  Of course, not giving or offering an undertaking in some circumstances might give rise to a proper inference that there has been wrongdoing and that it is intended to be continued.  I do not think the 1^st defendant’s position falls into that category.  Indeed whilst many people might be prepared to offer an undertaking simply to avoid an argument as to whether or not an injunction should be imposed, it may be more correct not to consider the question of any undertaking before a proper basis for the grant of an injunction has been established.

50.  I take into account the fact that the 1^st defendant is part of a group of companies which ordinarily enjoys a decent reputation in Hong Kong.  On the other hand, I consider that there is at least real force in the points made on behalf of the plaintiffs that two other companies in that group, namely the 2^nd and 3^rd defendants, may not have demonstrated the appropriate care in ensuring that they did not purchase and seek to market infringing products.

51.  Even having firmly in mind that the 1^st defendant itself does not engage in trading or manufacturing, and that it states it has no plans to enter into any business relating to bladeless electric fans, on the above facts, it seems to me that there is a serious issue to be tried on the claims against the 1^st defendant.

Merits

52.  Both Mr Yan SC and Mr Liao SC have, in effect, invited me to rule upon the competing merits in the proceedings.

53.  In relation to the claims in copyright, Mr Yan SC submits that there is no arguable defence because it is clear and unarguable that the defendants have infringed and are threatening to infringe the 1^st plaintiff’s copyright.  As I have pointed out above, and in the light of the undertakings given to the court in respect of the copyright issue on models OF-510 and OF-512 (where I expressly acknowledge that the undertakings have been offered without any admission of liability on the part of the defendants and on the basis of the claims of copyright), the 2^nd and 3^rd defendants (at least) have not really sought to raise any particular defence to the copyright claims on those two models. 

54.  The defendants’ position as regards the other two models, OF-513 and OF-613, is that the complaints are premature in that the final design of the new generation of German Pool bladeless fans is as yet unknown, but looking at the pictures so far available for that product, it can be seen to be different from the design of the Dyson fan (though no explanation is offered as to how the manufacturer would in a rather short time span be able to design each and every component part afresh, without copying from the component parts of the AM01).

55.  The plaintiffs have a strong case in respect of the two models in which the 2^nd and 3^rd defendants have offered an undertaking.  As to the other two models, it would seem to me that there is real force in the point that these two models appear to have been considered suitable for sale by the defendants within a time span that makes it unlikely that the manufacturer could have designed each and every component part afresh.

56.  In relation to the claims for infringement of patent, as I have already pointed out above, there is in effect a clear identification by both the plaintiffs and defendants of the existence of at least a serious issue to be tried.  Whilst I see the argument as regards the lack of novelty in the claims underlying the Patent, made by reference to particular prior art examples, the Patent is currently to be considered valid and subsisting in Hong Kong and the view of Mr Davies (which, I think, Mr Liao SC accepts as being honest and independent) supports the validity.

57.  Mr Yan SC also points out that the objection taken in the US patent process was overcome by amendments, though those amendments do not affect the essential features of the claims as made in the European patent, and hence in Hong Kong in the Patent.

58.  Mr Yan SC also makes the submission that in the context of the balance of convenience consideration, the court should in any event proceed on the basis that the Patent is valid.

59.  Therefore, though I probably do not need in the circumstances of this application to express any real view on the competing merits of the claims and defences, I am at least preliminarily disposed to see more merit in the claims than exists in the defences.  (I might, however, point out that the claims as against the 1^st defendant must be weaker than those against the other two defendants.)

Adequacy of damages

60.  Mr Yan SC relies on the inherent difficulty in ascertaining and quantifying damages in cases of infringement of intellectual property rights, and he says that the general rule (though strictly it is not a ‘rule’) has specific application to the position of the plaintiffs in this case.  Thus, he says that damages would not be an adequate remedy for the plaintiffs.

61.  The relevant product has been on the market in Hong Kong for only around one year.  It is distributed by the 2^nd plaintiff’s exclusive distributor in Hong Kong, Jebsen and Co. Ltd (“Jebsen”).

62.  Evidence has been filed by a senior sales and marketing manager from Jebsen as to the marketing strategy intended for the product.  In short, there was first to be a limited distribution to selective, “high end” retail stores in selected locations during the first year or so, followed by a wider distribution to a range of more mass market oriented stores and retail outlets.  This second stage was planned to coincide with the spring and early summer in Hong Kong, the main selling period for fans in the territory during the year.

63.  The plaintiffs say that the development of the market has been disrupted, and (unless the defendants are restrained) will continue to be disrupted by the presence on the market of the infringing products.  The consequential damage is impossible to ascertain or to quantify.

64.  The plaintiffs further say that the continued marketing and selling of the infringing products would irreparably damage the plaintiffs’ reputation for innovation, and the image of the plaintiffs’ products as being unique, innovative and of patented design, which justify a premium price.

65.  There is evidence (albeit in the form of just one e-mail from a disgruntled consumer) that there may be confusion in the market, and that the reputation of the plaintiffs might be affected by the ability to purchase similar products from the defendants at a cheaper price.  I accept the submission that any such situation would be aggravated by the evidence that the 3^rd defendant’s sales staff appear to be actively promoting the infringing product on the basis that it is the same as but cheaper than the plaintiffs’ product.

66.  The plaintiffs also rely on the substantial investment of time (3 years and 290,000 man hours) and money (£8.5 million) in the designing and development of the AM01, and state that they require the full value of the monopoly offered under the Patent and the rights in the copyright works in order to recover and capitalise upon that investment.  A failure to obtain a proper return on that investment might adversely affect the ability to make further investments towards research and development of other products.

67.  The plaintiffs further refer to concerns arising out of already experienced high volumes of infringing counterfeit copies of the AM01 coming out of the PRC into the plaintiffs’ export market.  A number of claims have been pursued against infringers in the PRC, some to a successful conclusion, others ongoing.  The plaintiffs suggest, therefore, that a failure to restrain the defendants would at least do nothing to discourage unscrupulous manufacturers and traders who might be tempted also to produce infringing products.

68.  I do not think that any evidence has been filed to contradict the assertion that no bladeless fan had actually been marketed until the Dyson product came on the market.  There is, therefore, at least a very decent argument that in so far as there are other such fans now on the market they are copies of the plaintiffs’ product, or made by exploitation of the plaintiffs’ Patent.

69.  How the defendants could make or market a bladeless fan which is not covered by the Patent has not been explained by them.  Indeed, from the evidence of Mr Mak Chun Wah it is clear that the defendants say that they cannot give up dealing altogether with bladeless fans of different design that utilise the Coanda effect or the Coanda surface, to which the plaintiffs are not entitled to patent monopoly.  Mr Liao SC clarified in his submissions that the defendants are thereby saying that it is their position that because the Patent is invalid, there should be no injunction against dealing in fans which utilise the Coanda effect or surface.

70.  As to the adequacy of damages for the defendants, I note that the 1^st defendant says it has no intention to market this product so cannot be contemplating suffering any damage from being restrained from its involvement in offering or exposing for sale and/or supply or otherwise dealing with the product.

71.  I do not accept the submission that the 1^st defendant will suffer some other general reputational damage because of the grant of the injunction.  As Mr Yan SC points out, the complaint appears to relate more to the fact that the 1^st defendant has been sued at all, rather than to the possibility of giving an undertaking, or facing an injunction.  In any event, I am not persuaded that damage of the sort identified is in fact likely to eventuate to any extent that would be difficult to quantify.  Damages would be an adequate remedy, if any remedy at all were needed.

72.  As to the 3^rd defendant, it would seem that whilst the fans have been on display in their show rooms, that was simply by way of complement to the kitchen cabinetry, albeit that if a customer asked to be sold one he or she would be sold a fan.  I do not see any great damages which the 3^rd defendant might sustain from the grant of the injunction, nor any substantial difficulty in arriving at a sum which would be adequate to compensate for any such damage as is suffered.

73.  As to the 2^nd defendant, it claims damages flowing from the loss of being able to continue its Super Cool Special Deal 2011, a marketing campaign under which discounts on the fans are given if new model air-conditioners are purchased. However, in the light of the undertakings already given on the last occasion, the campaign has necessarily been changed—casting at least doubt on the claim that it was near impossible to change.

74.  The 2^nd defendant has also claimed it would suffer irreparable damage from the inability to continue with certain bundled sales and as a result of lost sales from what are described as active negotiations with major banks and companies in Hong Kong in respect of partnership and the supply of its branded bladeless fans for loyalty programs with bank and company customers.  But, because it is stated that the price has been agreed, that can only be a reference to the models OF-510 and OF-512, which are in any event now the subject of the undertakings.  In so far as negotiations have been continued even in the face of the claims made in these proceedings, there is something in Mr Yan SC’s point that the defendants would be the authors of their own misfortune.

75.  The same point might also apply to any claimed damage to the “German Pool” brand as a whole.  But, in summary, I am not persuaded that damages would not be an adequate remedy for the defendants if the injunction was granted, should it turn out that it ought not to have been.

Balance of convenience

76.  As to the balance of convenience, this seems to me to be clearly in favour of the grant of the interlocutory injunctive relief sought by the Summons.

77.  Mr Liao SC advanced an argument, which at first blush might seem attractive, that the plaintiffs and defendants are not really in competition.  This is because the plaintiffs state that their product is intended to be sold at a premium price, whereas the defendants are selling product aimed at the lower end of the market.  As Mr Liao SC said, simply because a customer might buy a cheaper fan does not necessarily mean that had that fan not been available he would pay for an expensive one; he might have bought a different product entirely, such as an air conditioner, or a different cheaper fan.

78.  That might be correct, but it does not seem to me to meet the real point.  First, on the evidence, the real reason why there is a disparity between the prices of the products would appear to be that whilst the plaintiffs have expended considerable resources and bringing their product to market, Wu Yi spent nothing in research and development, save the cost of copying exactly the plaintiffs’ product.

79.  In any event, there is also the reputational damage which would be suffered by the plaintiffs flowing from the disruption in the market which I have identified above.

80.  As Mr Yan SC pointed out, the defendants are directly competing with the plaintiffs when they sell product which is an exact copy of the plaintiffs’ product and which was manufactured using the plaintiffs’ patented technology.

81.  I also agree with the submission that whilst certain people might not go to obvious places where product is sold on the basis that it is “knocked off”, a customer might consider buying from a group of companies with a reputation such as the defendants have, on an assumption that the product that they sell is legitimate and not “knocked off”.

82.  Similarly, there is force in the point that the most important time in the value obtained from the monopoly granted under a patent is at the beginning of the period when the product is brought to market. That period is now.

Form of order

83.  Paragraph 1(a)(i) of the Summons seeks a relevant restraint over dealing with “the Defendants’ model number OF-510, OF-512, OF-513 and OF-613 bladeless fan products; any bladeless fan product which infringes [the Patent]”.

84.  The reference to the first two model numbers are covered by the offered undertakings, so need not concern me.

85.  I have ruled in respect of the second two model numbers, namely that an injunction should be made.

86.  As to the more general latter part of the injunction sought, I have been referred to the cases of Video Arts Ltd v. Paget Industries Ltd [1986] FSR 623, which followed The Staver Co. Inc v. Digitext Display Ltd [1985] FSR 512.  I have also been referred to a passage in paragraphs 18-63 of Terrell on the Law of Patents 17^th Ed.

87.  These cases and text make the well-known point that for any injunction or undertaking pending trial, it is desirable that the defendant should know with as much certainty as possible what he may or may not do.  This is also in the plaintiff’s interest as any breach is easier to identify and enforce.  Accordingly, the injunction would ordinarily best be directed towards restraining a specific act in relation to a particular product or process rather than restraining infringing the plaintiff’s patent (or, I suppose, other intellectual property rights) generally.

88.  In the Staver case, it was pointed out that the purpose of an interlocutory injunction in a case such as the present is to regulate the position of the parties pending trial while avoiding a decision on issues which can only be resolved at trial.  If an interlocutory order cannot be enforced without the plaintiff being required to prove the triable issue, this purpose will not have been achieved by the order.

89.  There is force in the submission that to grant an injunction against other possible infringements of the Patent does not assist in regulating the position of the parties pending trial, and might not be able to be enforced without requiring the plaintiffs to prove the triable issue.

90.  In the Video Arts case, it was said that the question comes essentially down to one whether there is sufficient evidence of prospective probable infringement to warrant the court making an order in wider terms than the actual proved activities of the defendant.  In this respect, Mr Yan SC submits that there is prospective probable infringement, because of what is said on the defendants’ behalf by Mr Mak (as clarified or reiterated by Mr Liao SC) the defendants clearly have taken the position and will apparently proceed on the assumption that the Patent is invalid. 

91.  On balance, I am persuaded that it is better—indeed, it is appropriate—to include the phrase “any bladeless fan product which infringes [the Patent]” at the end of the relevant paragraph of the order.

92.  Turning to the injunction on the copyright claim, as sought by paragraph 1(a)(ii) of the Summons, I am told that an order in the terms of that paragraph is no longer necessary in the light of the undertakings which are offered.  During the course of the day, Mr Yan SC and Mr Liao SC have sensibly and helpfully been discussing appropriate terms for the undertakings, expanded from the terms previously offered.  They will provide me with a copy of those terms, and on the assumption that the undertaking is then reflected in the preamble to the order, I shall not make an order in the terms sought by paragraph 1(a)(ii) of the Summons.

93.  Having determined that it is appropriate for an injunction to be issued against the 1^st defendant, I think it might be fair to offer the 1^st defendant a further opportunity to consider whether or not to offer an undertaking in lieu. In the absence of any undertaking, the injunction will issue.

Other parts of the order

94.  I have not heard any argument, or contest, as to the terms of paragraphs 2 to 5 of the Summons, which paragraphs relate to the orders for discovery and delivery up.  I will give the parties an opportunity to consider those points and anything as to costs.  The Summons asks for an order that the cost of the application be the plaintiffs’ costs in the courts.  I shall hear any necessary submissions as to costs.

[Following discussion between Counsel]

95.  I am told the 1^st defendant will offer an undertaking in the terms of paragraph 1 of the Summons, in view of any injunction order being made against it on that paragraph.

96.  I have been handed the terms of the revised undertakings offered by all three defendants which would remove the necessity to make an order against any of them in the form originally sought by paragraph 1(a)(ii) of the Summons.

97.  I am also informed that, subject to small amendments to the terms of paragraphs 2 to 5 of the Summons (which amendments I accept), the defendants do not object to orders being made in accordance with those paragraphs.

Costs

98.  By consent, I order the cost of the application to be the plaintiffs’ costs in the cause.

99.  Although the matter was not specifically raised, in case it is necessary I would certify the application as suitable for two counsel (which certification shall be on a nisi basis in the first instance, to become absolute in 14 days after the typed version of this Judgment is provided to the parties unless application is made within that time to vary that certificate).

        

   

(Russell Coleman SC) Deputy High Court Judge

Mr John M.Y. Yan, SC and Mr Dominic W.H. Pun, instructed by Messrs Freshfields Bruckhaus Deringer, for the Plaintiffs

Mr Andrew Liao, SC and Mr Martin Liao, instructed by Messrs Benny Kong & Yeung, for the Defendants