BIOZEAL, LLC AND ANOTHER v. NATURE’S STORY CO LTD AND ANOTHER

HCIP 34/2021

[2024] HKCFI 2045

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 34 OF 2021

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DECISION ON COSTS

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1.  This is my decision on costs in respect an application by the Defendants to stay the present action in favour of the Mainland courts on the ground of forum non conveniens (“the Forum Application”).

2.  The background of this case has been fully set out in my Reasons for Decision in respect of the application for interlocutory injunctive relief handed down on 20 October 2021 and the Decision on leave to appeal and stay of execution handed down on 9 December 2021.  For the purpose of this Decision on Costs, I will adopt the same abbreviations that were used in the said Reasons and Decision.

3.  In the hearing itself, I had indicated to the parties that the Hong Kong court should perhaps wait for the decisions of the Mainland courts or authorities on the validity of TNSG’s registration of the Chinese Mark in the Mainland.  In fact, the Plaintiffs made a proposal shortly before the substantive hearing that the present action be stayed pending the determination of the Action No (2021) Zhe 01 Min Chu 2987 (the action relating to the Plaintiffs’ claims for unfair competition) before the Hangzhou Court. 

4.  After some discussions between the parties, they eventually agreed for an order that all further proceedings in this action be stayed pending the final determination of the proceedings listed in items (a) to (d) and (f) in §7 of the Affirmation of Li Zhanke (“the Interim Stay”).  The only remaining matter that requires my adjudication is costs. 

5.  Ms Tam SC, counsel for the Defendants, asks for the costs of the Forum Application on the ground that the Defendants, by getting the Interim Stay, have in substance obtained what they sought in the Forum Application.  In particular, Ms Tam relies on my observation that the Mainland courts should be in the “driving seat” in adjudicating the disputes between the parties and the Hong Kong court should wait for the relevant decisions of the Mainland courts on the material issues (“the Material Issues”), such as whether the registration of the Chinese Mark by TNSG is valid and whether the Defendants’ alleged wrongful acts constituted unfair competition under Articles  2, 6 and 8 of the AUCL.

6.  Despite my said observation, I disagree that the Defendants should get the costs of the Forum Application at least at the present stage.  What the Defendants are seeking by way of the Forum Application is a permanent stay of the proceedings in favour of the Mainland courts.  In other words, the Hong Kong court, despite having jurisdiction over the claim, should allow the Mainland courts to adjudicate the disputes in place of the Hong Kong court.  However, what the Defendants have obtained by the way of the Consent Order is in substance only a case management stay.  Instead of waiving its jurisdiction, the Hong Kong court is now only waiting for the results of the relevant legal proceedings in the Mainland before deciding how to proceed with the claim in the Hong Kong court.

7.  Neither should the Plaintiffs get the costs immediately at this stage.   If the Mainland courts were to rule the Material Issues in favour of the Defendants, there is a possibility that the Plaintiffs’ claim (or part of it) would be dismissed by the Hong Kong court.  In such case, there is no reason why the Defendants should be asked to pay the Plaintiffs for the costs of the Forum Application.

8.  Mr Yan SC, counsel for the Plaintiffs, proposes an alternative option of costs in the cause.  In my judgment, this is the most appropriate costs order in view of the particular circumstances of the present case.  If either camp succeeds in the claim in the action, there is no reason why the counter-parties should not be ordered to pay for the costs of the Forum Application as well.

9.  My only reservation is that the present claim covers the use of the English Mark, the Chinese Mark and the Device Mark.  If the Plaintiffs eventually succeed in the claim on the English Mark and the Device Mark but fail in the claim on the Chinese Mark, then the court may consider to make spilt costs orders for different claims.  Further, apart from the jurisdiction issue, it seems that the Defendants are not seriously disputing the claim on the English Mark and the Device Mark, and it is arguable that a substantial part of the costs in this action were incurred in respect of the claim on the Chinese Mark.  Under such circumstances, in order to give more flexibility to the court in dealing with the scenario that the Plaintiffs succeed in only part of the claim, I would simply reserve the costs of the Forum Application at this stage.  I therefore so order.

HCIP 34/2021

[2021] HKCFI 3725

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 34 OF 2021

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_____________

____________________

DECISIONS

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1.  This is the Defendants’ application for: (i) leave to appeal against my decision to grant interlocutory injunctions (“the Injunctions”) against the Defendants (“the Leave Application”); and (2) stay of execution of the Injunctions pending the application for leave to appeal and the appeal (“the Stay Application”). The Reasons (“the Reasons”) for my earlier order to grant the Injunctions (“the Order”) was handed down by me on 20 October 2021. For the purpose of these Decisions, I would adopt the same abbreviations I used in the Reasons.

2.  The application for the Injunctions (“the Injunctions Application”) was first taken out by the Plaintiffs on 5 July 2021. By another application dated 8 July 2021, the Defendants applied to stay the present proceedings in favour of arbitration proceedings (“the Arbitration Application”) which they expressly told this court that they intended to commence.

3.  Both the Injunctions Application and the Arbitration Application came before me on 9 July 2021.  Directions were given for the filing of the affidavit evidence for both applications.  In the following two months, the parties had filed extensive evidence in relation to both applications, including expert evidence on California law in relation to the Arbitration Application.  Shortly before the substantive hearing of both applications on 28 September 2021 (“the Substantive Hearing”), the Defendants abandoned the Arbitration Application and took out the Forum Application instead.  No issue had been taken by the Defendants on jurisdiction ground.  In the Substantive Hearing, I myself raised the jurisdiction issue as to whether the Hong Kong courts have the power to grant interlocutory injunctions with extra-territorial effect in respect infringement of intellectual property rights.  After the Plaintiffs had referred me to authorities such as The Law of Passing-Off, Unfair Competition by Misrepresentation by Wadlow^[1] to show that the common law is treating passing-off differently from other intellectual property rights on this particular issue, the Defendants accepted the position without raising any counter arguments.

4.  Now the Defendants are seeking to appeal against the Order for the granting of the Injunctions.  In supporting the application, Ms Tam, SC, who did not appear before me in the Substantive Hearing and is the third senior counsel appearing for the Defendants in these proceedings, submits more than 37 pages of submissions and 35 authorities.  A substantial part of the arguments relate to jurisdiction issue which have not been canvassed before me in the Substantive Hearing.  Needless to say, most of the authorities had not been referred to me in the Substantive Hearing.

5.  Delay in litigation devalues intellectual property rights, in particular in modern world when commercial merchandise may not enjoy long product cycle.  That is why interlocutory injunction application plays an important role in IP litigations, and the court has to examine all the circumstances in such kind of application to decide what should be best way to protect the rights of the parties pending the final determination of the dispute. The parties are expected to put forward all the evidence and arguments to support their respective cases so that the court can make the right decision usually on an urgent basis.  The practice of putting forward a half-baked case in the first hearing, then appealing against the first instance decision and applying for stay of execution with a view to further delay the granting of interim relief should not therefore be encouraged.

6.  Despite these observations about the conduct of the case by the Defendants, the court should still consider carefully the arguments put forward by the Defendants in support of the Leave Application, in particular those on jurisdiction issues.  The appellate court is obliged to entertain challenges of jurisdiction on appeal.[2]  After all, it is the merits of the intended appeal that count.

7.  The Defendants have made it clear that they will only seek to appeal against the Injunctions in so far as they relate to the mark “童年時光”, i.e.the Chinese Mark.

PRINCIPLES GOVERNING LEAVE TO APPEAL APPLICATIONS

8.  For the purpose of the Leave Application, the following legal principles are relevant.

9.  Leave to appeal will only be granted if the appeal has a reasonable prospect of success, viz. the prospect of success must be more than fanciful though without having to be probable.  This is only a threshold.  The court has a discretion to refuse leave even if such threshold is met.[3] The court can also grant leave to appeal if there is some other reason in the interests of justice that the appeal should be heard.[4]

10.  The granting of an interlocutory injunction is a matter of discretion.  It is not enough that members of the appellate court would have exercised the discretion differently had they been the primary judge.[5]

11.  The English Court of Appeal has also stressed that the appellate court does not exist to provide a second bite at each interim cherry in the sense that it is open to parties, having failed in front of the first instance judge, simply to start again and have a de novo hearing in the hope that they will succeed in front of the appellate court.  The court also reiterated that particularly in the field of interim injunctions, it is primarily the trial judge who is appointed to decide whether or not an injunction should be granted.  There is a heavy burden on the appellant to show that the first instance judge has erred in principle, and that in exercising their discretion there is either an error of principle or that they exercised their discretion in a way which no reasonable judge properly directing themselves as to the relevant considerations could have exercised it.[6]

12.  Repeating the arguments that had been made before without demonstrating how and why the judge went wrong is of little assistance and does not begin to make out a case that the judge’s conclusion is plainly wrong.[7]

13.  Where a party omitted to take a point at trial and then seeks to raise it on appeal, they will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at trial.  The foundational imperative of the “state of the evidence bar” is fairness.[8]

14.  Similarly, in the context of an appeal in relation to interlocutory applications, whilst the appellate court has power to entertain new points in such an appeal, it is clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the hearing below should not be allowed.  Though this principle is usually applied in situations where the new points necessitate further evidence to be adduced, it is not confined to such scenarios.  Very often, the raising of new point by one party may lead to the other party raising counter arguments and the consideration of such counter arguments may involve factual assessment in a different light from that undertaken by the court below.  Sometimes, it may involve a different weighing of factors in the exercise of discretion.  Alternatively, the other party may embark on a different course of forensic conduct if the new point were taken earlier.  The appellate court, in considering whether the new point would be entertained, is entitled to take these matters into account in order to avoid unfairness to the other party.[9]

15.  Generally, a new point which is fact and evidence sensitive and for other reasons affecting the conduct of the case below by the other side should not be entertained on appeal.  It is not simply a matter of admitting new evidence in order to support the additional ground of appeal.  The more fundamental question is whether the additional ground can be entertained in the light of the deliberate choice of those acting for the appellant not to rely on that ground below.[10]

16.  The Ladd v Marshall principles governing admission of new evidence on appeal are trite and I do not intend to repeat the same here.  It is right to say that the application for leave to adduce new evidence cannot be entertained until after leave to appeal has been granted, but the court is entitled to take into account the likelihood of the intended appellant in satisfying the high threshold test in considering the prospect of success of the appeal.

GROUNDS FOR APPEAL

17.  I then consider the various grounds of appeal advanced by the Defendants.

(i)      Ground based on non-justiciability of validity of foreign trade marks

18.  The first ground of appeal is that the court has no subject matter jurisdiction.  Since the Plaintiffs’ passing-off claim involves challenging the validity of a foreign trade mark, the court should have held that the claim is non-justiciable.  The Defendants are relying on the Moçambique rule that the court should not claim jurisdiction to adjudicate upon matters which, under generally accepted principles of private international law, are within the peculiar province and competence of another jurisdiction.[11]

19.  This is an entirely new argument which was never raised or relied upon by the Defendants at the Substantive Hearing.  Though this court did, on its own volition, raise the issue as to whether a Hong Kong court does have the power to grant injunction to restrain passing-off activities which take place outside jurisdiction, this is quite different from the existing new argument put forward by the Defendants as to whether the Hong Kong court has the power to decide matters which are somewhat relate to the validity of trade marks registered outside jurisdiction.

20.  Even if the Defendants were to be allowed to run such argument at the appeal, I do not find that it can take the Defendants’ defence any further.  This is not a matter concerning the jurisdiction of the Hong Kong court.  The Hong Kong court does have personal jurisdiction over both Defendants in the present case, at least that was not disputed by the Defendants in the Substantive Hearing.  The issue then before the court was whether the Defendants’ passing-off activities (not trade mark infringement activities) in the Mainland are also actionable under Mainland law.

21.  One must understand that the Plaintiffs’ claim on passing-off is not based on the Mainland trade mark registrations.  The Plaintiffs’ claim on double-actionability is based on passing-off in Hong Kong and unfair competition in the Mainland.  As foreign law is a matter of fact, I find that the Plaintiffs have a strong case against the Defendants that the Defendants’ passing-off activities in the Mainland are also actionable under the Mainland Unfair Competition Law.  From the authorities cited in the Reasons[12], it is clear that, in so far as extra-territorial effect is concerned, the law is treating passing-off differently from the other intellectual property rights including registered trade marks.  Because the Chinese Mark has been used in the Defendants’ passing-off activities (unfair competition activities under the Mainland law), the Injunctions may cover the prohibition of the use of the Chinese Mark, but this court was not making a decision on the validity of the registration of the Chinese Mark in the Mainland.  Though the two may be related, the court is not trespassing on the jurisdiction of the Chinese authorities in so far as the validity of the registration of the Chinese Mark is concerned.

22.  The Defendants contend that because they have sought to raise the Mainland registrations as a defence to the Plaintiffs’ claims and this court has no subject matter jurisdiction over the validity of these Mainland registrations, it somehow also follows that Hong Kong court also has no subject matter jurisdiction over the unfair competition claim.  Apart from the lack of authorities to support such proposition, the Hong Kong court did not, in granting the Injunctions, assume or even purport to assume subject matter jurisdiction over the validity of the Mainland registrations.   Instead, I only stated that “[on] the basis of the Plaintiffs’ case as pleaded, they can apply to invalidate the registrationsof the Chinese Mark and the Heart Device by TNSG.”^[13] I then went on to stress that “[whether] TNSG was acting in bad faith or maliciously in obtaining the registrations is certainly a fact-sensitive matter”, but pointed out that “[based] on the Plaintiffs’ alleged case, TNSG must have been acting maliciously, dishonestly, or at the very least in bad faith, when it applied to register the Chinese Mark and the Device Mark.”^[14]

23.  Thus, this court has never assumed nor sought to assume subject matter jurisdiction over the validity of the Mainland registrations. Instead, I merely dealt with the issue from the perspective of whether the Plaintiffs have demonstrated a serious issue to be tried in respect of the unfair competition claim in the Mainland.

24.  Considering the scenario that the Chinese authority eventually decides that the registration of the Chinese Mark is valid (despite the fact that TNSG was trying to register not just the Chinese Mark, but also the English Mark and the Device Mark which clearly belonged to the Plaintiffs, in 2011 and 2012), does it mean that the Defendants’ passing-off activities (including the use of the Chinese Mark) are not actionable under the Mainland Unfair Competition Law?  It may or may not be the case.  Dr Jiang’s Opinion points out that the Mainland registrations are not a bar to an unfair competition claim in the Mainland.  In other words, the Mainland court can determine such claims even if the Mainland registrations have yet to be declared invalid.^[15]  The Defendants’ experts may take a different view, but it clearly shows that the actionability of the Defendants’ passing-off activities in the Mainland and the validity of the Mainland registrations, thought related, are two distinct issues.

25.  Despite these observations, I, with great reluctance, agree to grant leave to the Defendants to appeal on such ground. The Defendants apparently accept that the Hong Kong courts have subject matter jurisdiction in respect of foreign acts amounting to passing-off, but Ms Tam submits that there is a proviso to such principle i.e. the validity of foreign trade marks is not a substantial or principal issue to be tried.

26.  There may be a lot of arguments as to whether this proviso is the law and whether the validity of the Chinese Mark registered in the Mainland is a substantial or principal issue to be tried in the present case.  Though these matters have not been canvassed before me, I have expressed my view on such issues above.  Further, no matter whether the Defendants’ argument can succeed or not, I take a firm view that it should not disturb the Injunctions as the court was entitled to make a preliminary assessment on the strength of the case based on foreign law (i.e. the Plaintiffs’ claim on passing-off is actionable under the Mainland Unfair Competition Law) which is a question of fact.

27.  Here I would put forward one more scenario for consideration.  The using of shadow companies to deceive the public is common in IP litigations in Hong Kong.  Most of these claims were not defended.  These cases usually involve a Hong Kong company using a well-known overseas trade mark as part of the name of its own company.  The shadow company would then be used to apply for registration of that well-known mark in the Mainland.  In most of these cases, the company would also issue licences to various Mainland entities to use that well-known mark as it forms part of the name of the shadow company.  Under such circumstances, the Hong Kong courts would step in and grant relief to stop such kind of activities in the Mainland, on the ground that the shadow company is being used as an instrument of deception to deceive the public outside jurisdiction.  As shown in §43 of the Reasons, the courts do not need to concern with double actionability in such scenario.

28.  Now, assuming that that shadow company somehow manages to obtain a registration of that well-known mark in the Mainland, does it mean that the Hong Kong courts should wait for result of the trade mark proceedings in the Mainland before granting any interim relief (if the all the conditions for the granting of such relief are met) to prohibit the use of a Hong Kong company as an instrument of deception elsewhere?  In my judgment, the answer is clearly no.  If the circumstances so warrant, the Hong Kong courts should act immediately and the Mainland proceedings should not be used as an excuse to delay the matter.  The Hong Kong courts cannot interfere with the businesses carried on by any Mainland entitles in the Mainland, but if that Mainland entity uses a Hong Kong company as part of the deception plan, then that Hong Kong company may be subject to the jurisdiction of the Hong Kong courts.  The Hong Kong courts must have their own role to play under such circumstances, so as to prevent Hong Kong companies from being used for deception activities elsewhere.

29.  Despite these observations, I do not think that I should shut the door for the Defendants to appeal on jurisdiction-related ground.  The Defendants should be allowed to advance their arguments on the part to play by the trade mark proceedings in the Mainland, which have not been canvassed before me in the Substantive Hearing.  Further, the recent United Kingdom Supreme Court’s decision of Lucasfilm v Ainsworth[16] might have qualified the Moçambique rule, when the court held that claims for infringement of foreign copyright were justiciable in the English courts.  The application of the relevant principles therein has yet to be tested in the Hong Kong courts.

30.  Jurisdiction is now a heated issue in IP litigations in the local scene.  Due to the close economic tie between the Mainland and Hong Kong, a lot of infringement activities have cross-border implications. Hence, the Hong Kong courts have to visit such issue from time to time, and this case is just one of them.  The decision by the appellate court on such issue may clarify the law on such area which may be beneficial for the development of Hong Kong as an IP hub in the region.

31.  For these reasons, I, with much reluctance, agree that this is an appropriate case for the granting of leave to appeal.

(ii)     Other grounds of appeal

32.  Though I find no merit in the other grounds of appeal, I decide to grant general leave to appeal as the appellate court may take a different view from my own on those issues.  For the sake of completeness, I will now express briefly my views on the merits of the other grounds.

33.  Ground 2 relates to personal jurisdiction over the 1^st Defendant. 

34.  This is the first time that the Defendants are complaining that the service of these proceedings on the 1^st Defendant was irregular.  The authorities are absolutely clear that this kind of new point relating to service should not be allowed to be argued for the first time on appeal for the reasons set out in §12 of LehmanBrown v Union Trade[17]. In any event, irrespective of whether the Plaintiffs had properly effected service of process on the 1^st Defendant pursuant to s 803(1) of the Companies Ordinance (Cap. 622), there can be no dispute that the Plaintiffs had, as early as on 6 July 2021, sent copies of all relevant papers (including the Writ of Summons) to the Defendants’ solicitors who had unequivocally stated that they had instructions to act for the 1^st and 2^nd Defendants in the subject proceedings and had requested for such documents to be also sent to them.   Further, for over 12 weeks until the Substantive Hearing, and despite being legally represented throughout (and represented by two different teams of senior counsel and counsel), the Defendants had never complained about the service of process on the 1^st Defendant.  The issue was only raised for the very first time in Guo’s 5^th Affirmation served on 26 October 2021, i.e. after the Substantive Hearing.  In the premises, it is simply unconscionable for the Defendants to raise such irregularity for the first time in the Leave Application.

35.  Ground 3^[18] relates to comity and need to respect Mainland jurisdiction process.  The Defendants contend that I have erred in refusing to withhold the granting of the Injunctions pending the determination of the Forum Application.

36.  I have already outlined the history of this case in §§ 3 and 4 above.  At the Substantive Hearing on 28 September 2021, the Defendants did not make any application to adjourn the Injunctions Application.   Instead, as pointed out in §129 of the Reasons, the Defendants’ previous senior counsel had, in concluding his submissions, merely asked the court to consider withholding the granting of any interim or interlocutory injunction pending the decision of the CNIPA and had made a faint suggestion that the court should not grant the Injunctions before hearing the Forum Application.

37.  The fact is that there had been substantial and unexplained delay in taking out the Forum Application.  The application had been made and the supporting evidence had been adduced only very shortly before the Substantive Hearing. In the Reasons, I have already explained in details as to why the court should grant interim relief without further delay.  In my judgment, the Defendants have failed to demonstrate that this court has made any error of the type which the appellate courts have repeatedly emphasized must be shown before they will interfere with the exercise of discretion by the lower courts.

38.  Ms Tam has kept on reminding this court that the Injunctions will interfere with the proceedings in the principal forum.  This is certainly an exaggeration.  First, this court, in the Reasons, has made it clear that the Hong Kong court has no jurisdiction to deal with passing-off activities committed outside jurisdiction by foreign entities.  The Injunctions cannot therefore stop TNSG from continuing to use the Chinese Mark in the Mainland.  On the other hand, if TNSG’s group decided to use Hong Kong company or company carrying on business in Hong Kong to deceive overseas customers, there is nothing to stop the Hong Kong court from granting interim relief if the circumstances so warrant.  Second, the Mainland authority would be free to make a decision upholding the Mainland registration of the Chinese Mark.  In the event that the Mainland authority upholds such registration, there is nothing to stop the Defendants from coming back to this court to discharge or vary the Injunctions.  However, if the Hong Kong court takes a particular view about the law in the Mainland i.e. whether the Defendants’ passing-off activities are actionable under the Mainland Unfair Competition Law, it should act without delay if it is in the interests of justice to do so.  Ample reasons for this have been set out in the Reasons.

39.  Ground 4[19] relates to the alleged final dispositive effect of the Injunctions.  In particular, the Defendants contend that I had failed to take into account the following matters:

(i)  That the Injunctions would allegedly have final dispositive effect and are likely to dispose of the need for a trial in the Mainland or in Hong Kong.

(ii)  That the Injunctions allegedly disturb the status quo and interrupt the Defendants’ conduct of their alleged established enterprise in the Flagship Stores.

(iii)  That the goodwill in connection with the Chinese Mark will be irremediably eroded, as neither the Plaintiffs nor the Defendants can use the Chinese Mark in the Mainland pending trial.

(iv)  That as the Injunctions would allegedly have final dispositive effect, a higher merits threshold should be adopted to assess the Plaintiffs’ case.

40.  However, the court’s exercise of discretion in granting the Injunctions simply cannot be faulted on the grounds that the matters set out in the previous paragraph had not been taken into account by the court, as these contentions (and the authorities relied upon) are new and had never been argued by the Defendants nor drawn to the attention of the court.[20] It is clear from the Defendants’ submissions (for example §§33-35) that these new contentions are fact and evidence sensitive, as demonstrated by the Defendants’ reliance on the new evidence in Guo’s 3^rd and 5^th Affirmations.  It is highly unlikely that the Defendants can satisfy the Ladd v Marshall test in adducing such new evidence in the appeal.

41.  In so far as the Defendants now contend that the Injunctions would have final dispositive effect, the Injunctions only target the Defendants and the Flagship Stores operated by them.  The Injunctions do not stop TNSG and other entities from using the Chinese Mark in the Mainland.  This is not the case that during this period of time, the Chinese Mark will disappear altogether from the market, as TNSG and its other affiliated companies can continue using the Chinese Mark.  In fact, the proviso at the end of Injunctions was specifically included at the request of the Defendants to ensure that the Injunctions will not catch TNSG.

42.  Further, in so far as the Defendants contend that the Injunctions disturb the status quo and interrupt the Defendants’ conduct of their alleged established enterprise in the Flagship Stores, I have already found that the evidence in the present case overwhelmingly shows that the Chinese Mark had only been used by the Defendants: (1) on and in relation to and for the purposes of promoting the Plaintiffs and the ChildLife Products; and (2) in conjunction with the English Mark and the Heart Device.[21] The Chinese Mark does not have any independent significance apart from being the Chinese version of the English “ChildLife” mark.  Accordingly, the Defendants’ established enterprise in the Flagship Stores for many years until the termination of the 2018 Distributorship Agreements was to use the Chinese Mark on and in relation to the Plaintiffs’ ChildLife Products.  There is no “established enterprise in the Flagship Stores” for the misuse of the Chinese Mark to mislead consumers into believing that the Inne Products are upgrade versions of Plaintiffs’ ChildLife Products or in any way associated with the ChildLife Products.

43.  As demonstrated in the Reasons, this court fully appreciated the effect of the Injunctions.  However, the Injunctions only target the Flagship Stores using the Chinese Mark.  The evidence shows that the Defendants are now using the Flagship Stores carrying the Chinese Mark, i.e. “童年時光”, only to market the Inne Products.  But before that and throughout the years, the Defendants had been using the Flagship Stores carrying the Chinese name of “童年時光” only to market the Plaintiffs’ ChildLife Products.  As the evidence shows that such name had only been used to describe the Plaintiffs’ ChildLife Products, and the Defendants had actively deceived the customers by describing that the Inne Products are upgraded versions of the Plaintiffs ChildLife Products, it is only just and fair to grant the Injunctions even at this interlocutory stage to stop the Defendants from using such name in the Flagship Stores to market different products.

44.  Ground 5^[22] involves a complaint that no strong case on the merits has been shown by the Plaintiffs.  The Defendants are contending that I have erred in concluding that the Plaintiffs have established a strong case that the Defendants’ wrongful activities are actionable under Mainland law.  Again I find no merit in this ground of appeal.

45.  First, I do not find that the dicta of the Court of Appeal in Tsit Wing (Hong Kong) Co Ltd v TWG Tea Co Pte Ltd[23] can in any way assist the Defendants.  The dicta was made in respect of the question of degree of evidence adduced by the defendants to show the extent of their international reputation.  It was in that context that Lam JA (as he then was) said it would be unfair to the defendants in that case to assume that they had placed before the court all the evidence relating to their alleged international reputation.  That is completely different from the context of the paragraphs in the Reasons referred to by the Defendants (§§13, 23, 54, 56, 59, 61-62 of the Reasons), as I was highlighting the complete absence of any explanation or justification by or evidence from the Defendants on matters which cried out for such explanation, justification or evidence.  More importantly, my conclusion was not based only on the absence of such explanations, justifications or evidence but on a detailed analysis of all the evidence and the Defendants’ submissions as contained in §§48-97 of the Reasons.

46.  Foreign law is question of fact.  The court can only take a particular view on the foreign law based on the expert evidence adduced by the parties.  Unless the Defendants can satisfy the high threshold of the Ladd v Marshall test, which I am of the view that the chance is slim, the Defendants cannot rely on the expert opinion on foreign law adduced by them for the Forum Application or the present Leave Application.

47.  The issue of double actionability only relates to the question as to whether the Defendants’ passing-off activities, given TNSG’s Mainland registration of the Chinese Mark, are actionable in the Mainland under the Mainland Unfair Competition Law.  In the Reasons, I have already given a detailed analysis as to why I say that, on the then existing evidence, the Plaintiffs have managed to establish a strong case on this issue.  In considering whether to grant the Injunctions, the court was obliged to take a preliminary view on the strength of the respective cases of the parties.

48.  In so far as the Defendants contend that this court’s conclusion that the Defendants may have acted maliciously, dishonestly or with bad faith when applying to register the Chinese Mark is inconsistent with the Chronology included in the submissions, the Defendants have deliberately left out important facts and circumstances leading to and surrounding TNSG’s application to register the Chinese Mark including, in particular, TNSG’s unexplained application to register the English Mark “CHILDLIFE” simultaneously with the Chinese Mark which I have highlighted in the Reasons.

49.  Further, whilst the Defendants have artfully eschewed any appeal against the Injunctions to restrain the Defendants’ wrongful use of the Heart Device (no doubt because they realise that TNSG’s application to register the 2^nd Plaintiff’s copyright work is indefensible), my finding that TNSG must have been acting maliciously, dishonestly or with bad faith was also based on TNSG’s wrongful registration of the Heart Device.  This court was clearly entitled to take into account TNSG’s entire course of conduct over the years in assessing whether it had acted maliciously, dishonestly or with bad faith, not just the limited facts set out in the Chronology.

50.  These observations also apply in respect of my finding that the Plaintiffs have a strong case on the ownership of the goodwill associated with the Chinese Mark.  Hence I find no merit in this ground of appeal.

51.  According to Ground 6^[24], the Defendants complain that  restraint of the use of the English mark and the Heart Device would be sufficient to protect the interests of the Plaintiffs.  The Injunctions do not need to cover the prohibition of the use of the Chinese Mark.

52.  However, as the evidence in this case overwhelmingly shows[25], the Defendants were using both the Chinese Mark and the Heart Device as well as other misleading representations to mislead customers into believing that the Inne products are upgraded versions of the Plaintiffs’ ChildLife Products.  Further, the history of the case clearly shows that the Defendants had been using the English Mark, the Chinese Mark and the Heart Device to promote and market the Plaintiffs’ ChildLife Products.  Given the likely confusion caused to the customers under such circumstances, the Plaintiffs would clearly not be sufficiently protected if the Defendants were not restrained from using the Chinese Mark.

53.  Ms Tam also submits that this court has not found the Defendants’ case that TNSG owns the goodwill in the Chinese Mark to be unarguable.  Hence, an injunction which precludes TNSG or the Defendants from reverting to the Chinese Mark after they succeed at trial goes beyond what is necessary to protect the Plaintiffs.

54.  Again Ms Tam has overlooked the analysis given by me in respect of such allegation contained in §§51-63 of the Reasons.  In this part of the Reasons, I have considered and addressed TNSG’s arguments in support of such case and found that the Plaintiffs have a strong case in defeating these arguments. Further, as mentioned above[26], the Injunctions do not preclude TNSG or the Defendants from reverting to the Chinese Mark if they were to succeed at trial nor do they go beyond what is necessary to protect the Plaintiffs.

55.  Ground 7^[27] is about a complaint that the court has no power to grant extra-territorial injunction over foreigners.  The Defendants are concerned that the conduct of the Defendants’ affiliates in the Mainland may be subject to the Injunctions.  This intended ground of appeal is entirely misconceived.

56.  First, I have made it clear at the Substantive Hearing that the Injunctions only cover the Defendants and anyone acting on behalf of or as agents of the Defendants.  §(1) of the Injunctions only restrains the Defendants, whether acting by themselves or through their employees, representatives, agents, etc..  The Injunctions do not restrain such employees, representatives or agents per se, but only when they are acting for or on behalf of the Defendants.

57.  Second, as the Defendants’ then senior counsel had expressed concern that TNSG^[28] would somehow be caught by the Injunctions, I had made it clear that the Injunctions would not bind TNSG for whatever it does in the Mainland and specifically fixed a hearing on 30 September 2021 to allow the parties time to draft a proviso to make sure that the Injunctions would not bind TNSG.

58.  Third, at the hearing on 30 September 2021, despite my pointing out that the Defendants could explicitly include any of their Mainland entities other than TNSG in the proviso to §(1) of the Injunctions, the Defendants did not identify any further entity which they were concerned might be, but should not be, caught by the Injunctions (as the Defendants now seek to do in their submissions). I then expressly granted liberty to apply to enable the Defendants to apply to vary or clarify the order if necessary, in particular as to whether any of the Defendants’ affiliated companies are allowed to carry on certain activities in the Mainland. Further, in §§134-137 of the Reasons, I specifically explained the terms of the Injunctions, in particular, the reason for the express grant of liberty to apply.

59.  Guo in his 5^th Affirmation has purportedly pointed out that some of the Defendants’ associates in the Mainland may be affected by the Injunctions.  If that is the case, I wonder why the Defendants have not raised the matter in the hearing on 30 September 2021 so that I could deal with the same in the proviso.  The Defendants are also at liberty to apply to the court to vary the terms of the Injunctions to expressly exclude these entities.

60.  For these reasons, none of the other grounds of appeal has any merit.

THE STAY APPLICATION

61.  Despite the granting of the leave to appeal, I take a firm view that the Order should not be stayed for execution pending the appeal.

(i)      The relevant legal principles

62.  For the Stay Application, the following legal principles are relevant.

63.  An appeal does not operate as a stay of execution of proceedings.[29]

64.  The legal principles applicable to stay of execution are well established, and they have been summarized by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management.[30]

65.  The applicant must show an arguable ground of appeal (viz. one with reasonable prospect of success) before the discretion to grant stay is engaged.  The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay.[31]

66.  Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party the fruit of the judgment. Sometimes, the applicant may do so by showing the existence of strong ground of appeal.  Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted.  In either case, the court must also have regard to the prejudice that may be suffered by the successful party if a stay is granted.  In all cases where the discretion is engaged, ultimately it is a balancing process with common sense.[32]

67.  When conducting the balancing exercise, the starting point is that the successful party should not be deprived of the fruits of their success.[33]

(ii)     Discussions

68.  The Defendants only seek a stay of the Injunctions in relation to the Chinese Mark.  But even if the Defendants can show arguable grounds of appeal in respect of the use of the Chinese Mark, there should not be a stay of the Injunctions for the following reasons.

69.  First, the starting point is that the Plaintiffs, being the successful party, should not be deprived of the fruits of their success.  When exercising the discretion in granting the Injunctions, the court had already considered all the irreparable damage which the Defendants allege they will suffer if the Injunctions are granted.  After balancing all the factors, the court considered it necessary and fair and just to grant the interim relief to protect the interests of the Plaintiffs pending the trial of the action.

70.  Second, and more importantly, it would be grossly unfair to the Plaintiffs as a stay would mean the suspension of the Injunctions for at least another 6 months (according to the Defendants’ own estimate), which will entirely defeat the whole purpose of applying for the Injunctions in the first place.

71.  I have already highlighted the way in which the Defendants conducted the opposition in §§3 and 4 above.  The Defendants intended to oppose the Injunctions Application initially on arbitration ground.  By dropping the Arbitration Application at the last minute, a lot of preparation works had been wasted.  Even at the Substantive Hearing, apart from the issue of double actionability, the Defendants did not rely on any other jurisdiction grounds to oppose the Injunctions Application.  It follows that no evidence had been adduced by the Defendants specifically for these other grounds.  After the court had alerted the parties in the Substantive Hearing about the possible extra-territorial effect of the Injunctions, the Defendants did not advance any counter arguments.  Now in this intended appeal, the Defendants are relying on jurisdiction ground advanced for the first time to oppose the Injunctions Application.  Numerous new authorities are cited to the court.  In support of the Leave Application, the Defendants are relying on evidence adduced by them for the first time in the Forum Application and the Leave Application (which was filed after the Substantive Hearing).  In my judgment, the Defendants should not be allowed to benefit from the fact that they only put forward a half-baked case in the Substantive Hearing, then advanced new grounds and evidence in support of the appeal and applied for stay of execution pending appeal.

72.  As I have demonstrated in the Reasons, the Plaintiffs have a very strong case on the other grounds:

(i)  the Defendants had engaged in the practice of actively deceiving the customers into believing that the Inne Products are upgraded versions of the Plaintiffs’ ChildLife Products;

(ii)  in doing so, the Defendants had been using both the Chinese Mark and the Device Mark, the latter of which clearly belonged to the Plaintiffs;

(iii)  the Plaintiffs had a strong case on the ownership of the Chinese Mark, taking into account, inter alia, what happened when TNSG came to be the agent for the distribution of the Plaintiffs’ ChildLife Products in the Mainland and the terms of the 2018 Distributorship Agreements;

(iv)  until the alleged wrongful conduct of the Defendants, the Chinese Mark had been used by the Defendants only to promote the Plaintiffs’ ChildLife Products and nothing else;

(v)  until the alleged wrongful conduct of the Defendants, only the Plaintiffs’ ChildLife Products had been sold in the Flagship Stores using the Chinese Mark as their shop name;

(vi)  the Plaintiffs had granted licence to the Defendants to use the Chinese Mark when the Flagship Stores were first set up;

(vii)  the Defendants cannot offer any explanation as to why they applied to register also the English Mark and the Device Mark which clearly belonged to the Plaintiffs.

73.  These are only some of the factors highlighted in the Reasons as to why the Plaintiffs have a strong case on the non-jurisdiction grounds. Under such circumstances, it would be grossly unfair to the Plaintiffs if the Defendants are allowed to rely on new arguments and evidence on jurisdiction ground to delay the process and the granting of the interim relief.

74.  Third, despite the granting of the leave to appeal (mainly for the purpose of clarifying the law relating to the power of the court to grant injunctions to prevent passing-off activities outside jurisdiction which may involve the validity of foreign trade mark registration), I cannot say that the Defendants have demonstrated strong ground of appeal.

75.  Fourth, the Defendants point out that, through their good faith and for compliance, the names of the Flagship Stores have been changed on 19 to 20 October 2021 to “綠野仙踪海外旗艦店” on JD.hk and “Inne母嬰海外旗艦店” on Tmall.hk.[34]  But should the Defendants be required to adopt a new name for an extended period of time, the Defendants argue that it would be pointless to revert the names of the Defendants’ Flagship Stores to the Chinese Mark even if the Defendants succeed on appeal.

76.  However, it is important to note that, as emphasized many times in these Decisions and the Reasons, the Injunctions only target the Defendants and the Flagship Stores operated by them.  The Injunctions do not stop TNSG and other entities from using the Chinese Mark in the Mainland.  This is notthe case that during this period of time, the Chinese Mark will disappear altogether from the market, as TNSG and its other affiliated companies can continue using the Chinese Mark.  In fact, the proviso at the end of Injunctions was specifically included at the request of the Defendants to ensure that the Injunctions will not catch TNSG.  Accordingly, even if the Defendants succeed in the appeal, there is no reason why the Defendants cannot revert the names of the Flagship Stores back to the Chinese Mark if they so wish.

77.  Fifth, the Defendants have set out the damage they have allegedly suffered as a result of the Injunctions in their written submissions, such as the loss of sales through the Flagship Stores.  However, the presence of any such alleged damage is not a reason justifying the stay of the Injunctions. The Injunctions were granted precisely to stop the wrongful acts of the Defendants pending the trial of the action.  Naturally, the Defendants would have suffered by reason of the Injunctions, because they can no longer make any misrepresentation to the public or make use of the Plaintiffs’ various trade marks and goodwill for their own benefits.  Accordingly, the alleged loss in sales and the alleged drop in traffic in respect of the Defendants’ Flagship Stores can hardly justify the stay of the Injunctions.

78.  In fact, Mr Yan, SC, counsel for the Plaintiffs, points out that some of the new evidence in support of the Defendants’ case on losses as stated in Guo’s 5^th Affirmation (which is supposed to be a reply affirmation) may not even be true.  But given that there would not be further round of evidence, the Plaintiffs do not have the opportunity to adduce further rebuttal evidence.

79.  In so far as the Defendants contend that they cannot sell the ChildLife Products on the Flagship Stores given §1 of the Injunctions, and that the Defendants have remaining stocks of the ChildLife Products which amount to about HK$25 million, such argument is plainly unmeritorious.  First, there is no documentary evidence adduced in support of the alleged remaining stocks of the ChildLife Products.^[35] More importantly, there is clear evidence that the Defendants had deliberately stepped down the marketing, promotion and sales of the ChildLife Products in the Flagship Stores even before the Injunctions took effect.^[36]  The Defendants could have continued to market the genuine ChildLife Products on the Flagship Stores if they had wished to do so.  Yet, they deliberately chose not to do so.  Further, I cannot understand why the Defendants have not put forward such argument to oppose the Injunctions Application in the Substantive Hearing.  In the premises, the contention that the Defendants will not be able to market the ChildLife Products because of the Injunctions is plainly disingenuous and unmeritorious.

80.  Sixth, the factors considered in the balance of convenience exercise in the Reasons are also relevant as to why the Order should not be stayed for execution pending appeal.  In particular, there is possible immense irreparable damage resulting from: (i) the confusion caused to the public by using the Chinese Mark for the Inne Products; (ii) damage to the well-established brand of the Plaintiffs’ ChildLife Products.  Weighing this possible harm to a well-established brand with the possible harm to a new brand now marketed by the Defendants, I take the firm view that there should be no stay pending the appeal.  It carries the least injustice to the parties even if this court turns out to be wrong.

81.  As a last desperate attempt, the Defendants contend that the fortification of HK$5 million as to the Plaintiffs’ cross-undertaking is insufficient to make good the Defendants’ losses and that the Plaintiffs have no assets or financial means in Hong Kong to honour the cross-undertaking. Such contention is again entirely unmeritorious.  The fortification was ordered precisely in response to the Defendants’ submissions at the Substantive Hearing that there is no evidence showing that the Plaintiffs have assets within the jurisdiction.  The Defendants have not appealed against the amount of fortification ordered by this court.  In the premises, it is not open to the Defendants to contend now that the amount of fortification ordered is not sufficient to protect the Defendants.

82.  For the above reasons, I grant general leave to the Defendants to appeal against the Order but dismiss the Stay Application.  I also make a costs order nisi that the costs of both applications be costs in the cause of the appeal with certificate for 2 counsel, which shall be made absolute 14 days after the date of the handing down of these Decisions.

HCIP 34/2021

[2021] HKCFI 3137

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 34 OF 2021

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_____________

_________________________

REASONS FOR DECISION

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1.  This is the Plaintiffs’ application for interlocutory injunctions and ancillary relief against the Defendants pursuant to O 29 of the Rules of the High Court (Cap 4A) by way of summons dated 5 July 2021 (“the Summons”). In the hearing on 30 September 2021, subject to the payment of HK$ 5 million into court as fortification as to undertaking as to damages, I granted the application subject to some revision in the terms. I now give my reasons.

BACKGROUND AND THE BASIS OF THE PLAINTIFFS CLAIMS

(i)      The Plaintiffs and the ChildLife products

2.  The 2^nd Plaintiff, Dr Murray Colin Clarke, is a renowned paediatrician in the United States.  Since 1996, the 2^nd Plaintiff had started formulating nutritional and dietary supplements for children after noticing a dramatic increase in the number of patients with illnesses such as immune deficiencies, allergies and eczema.  The first complete line of nutritional supplements made specifically for infants and children were subsequently developed under the brands “CHILDLIFE” and “CHILDLIFE ESSENTIAL”.

3.  In 1997, the 2^nd Plaintiff founded the 1^st Plaintiff with the objective of marketing the supplements formulated by him in the United States and around the world.  The 1^st Plaintiff, trading as “CHILDLIFE ESSENTIALS”, is and has at all material times been in the business of overseeing the production and distribution of the nutritional and dietary supplement products specially formulated by the 2^nd Plaintiff for infants and children (“the ChildLife Products”).

4.  The ChildLife Products have been marketed and promoted extensively throughout the world over the years, including through social media websites on the internet.  In terms of sales turnover, the 1^st Plaintiff has achieved hundreds of millions of US dollars of sales of the ChildLife Products from 2018 to 2020 globally.  In Hong Kong, the 1^st Plaintiff’s sales of the ChildLife Products in 2018 and 2019 were at least US$2.4 million and US$1.5 million respectively.  According to the Plaintiffs, after two decades of specializing in formulating nutritional and dietary supplements for infants and children, the Plaintiffs have become one of the global leaders in children health products.  The ChildLife Products have also received numerous awards over the years.

5.  The ChildLife Products were and have been marketed under and by reference to the marks “CHILDLIFE”, “童年時光” (“the Chinese Mark”) (in Chinese speaking markets) and a heart device “” (“the Heart Device”, and collectively “the ChildLife Marks”).

6.  The ChildLife Marks have been registered around the world in relation to Class 5 products.  The earliest “CHILDLIFE” trade mark was registered in the United States on 30 January 1996.

7.  According to the Plaintiffs, the Heart Device was originally drawn and created in 1996 by one Mr Koji Takei, an American creative artist, on commission basis by the 2^nd Plaintiff.  The 2^nd Plaintiff is and was at all material times the owner of the copyright subsisting in the Heart Device.

(ii)     The Defendants and their relationship with the Plaintiffs

8.  The Plaintiffs’ case on the claims against the Defendants can be summarised as follows.

9.  One Mr Lu Qidong (“Lu”) first approached the Plaintiffs in August 2009 in his then capacity as the marketing manager of a company named “High Hope International Group” (“High Hope”).  He expressed interest in marketing some of the ChildLife Products in the Mainland, and explored the possibility of co-operation with the 1^st Plaintiff.  By that time, the ChildLife Products had already been widely available and the Plaintiffs had also secured trade mark registrations for the mark “CHILDLIFE” in different jurisdictions around the world, including the International Registration No 880154 for the mark “CHILDLIFE” in Class 5, registered as of 6 February 2006 and designating, inter alia, the Mainland.

10.  In or about early December 2009, GDS Group, Inc. (“GDS Group”), the then official distributor of the ChildLife Products worldwide, invited Lu to submit a marketing plan for the ChildLife Products and the purchase target for the first year for GDS Group’s consideration.  A meeting was eventually held on 2 February 2010 for Lu and his colleagues from Asambly Chemicals Co., Ltd (“Asambly”), a subsidiary of High Hope responsible for this project, to make a presentation to GDS Group (“the 2010 Presentation”).

11.  The Heart Device, as used alongside and in conjunction with the mark “CHILDLIFE” and the slogan “Leaders in Nutritional Supplements for Kids!” on the ChildLife Products packaging and marketing materials, had already been reproduced by Lu on 2 pages of the 2010 Presentation.  According to the Plaintiffs, this unequivocally shows that Lu was clearly aware that Plaintiffs had already been using the Heart Device at the time.

12.  Eventually, an exclusive distributorship agreement was signed between GDS Group and Asambly on 1 April 2010.  A Mainland corporate entity, Nanjing TNSG Biotech Co., Limited (“TNSG”), was appointed as a sub-distributor of Asambly some time in 2010, though the Plaintiffs were only subsequently informed of the said appointment in May 2011.

13.  TNSG, a company run and controlled by Lu with his wife Madam Guo Zhijuan (“Madam Guo”), was incorporated on 26 March 2010, just 6 days before the exclusive distributorship agreement was signed.  On 20 April 2010, i.e. within a month after TNSG’s incorporation and about 2 weeks after the signing of the exclusive distributorship agreement between GDS Group and Asambly, TNSG applied to register both the English mark “CHILDLIFE” and the Chinese Mark “童年時光” in the Mainland.  According to the Plaintiffs, this is clear evidence showing that TNSG had been incorporated in anticipation of and with a view to its being used in the marketing and distribution of the ChildLife Products.   Further, the trade mark applications had also been filed in anticipation of TNSG’s marketing of the ChildLife Products in the Mainland, and that the intention was for the Chinese Mark to be used as the Chinese equivalent of the English mark “CHILDLIFE”.  The Defendants have not provided any other explanation regarding the simultaneous applications to register the Plaintiffs’ mark “CHILDLIFE” (which they have acknowledged belongs to the Plaintiffs) and the Chinese Mark.

14.  The distributorship agreement between GDS Group and Asambly was subsequently terminated in or about 2012 after Lu had tried very hard to convince, and did eventually succeeded in persuading, GDS Group to do so.  In an earlier email dated 28 August 2011, Lu had informed GDS Group that he was leaving Asambly to work for TNSG.

15.  Upon the termination of the distributorship relationship with Asambly, TNSG immediately took over the distribution of the ChildLife Products in the Mainland.  The Plaintiffs are now unable to locate a copy of the 2012 distributorship agreement signed between GDS Group and TNSG at the time.  The subsequent agreements signed in 2013 (“the 2013 Distributorship Agreement”) and 2018 (“the 2018 Distributorship Agreements”) have been produced in evidence.

16.  The 2018 Distributorship Agreements define the Plaintiffs’ “Intellectual Property” as including, inter alia, all “CHILDLIFE” trademarks, trade names, designs and copyrights used in connection with the advertising, promotion, sale and/or distribution of the ChildLife Products in English and any translations thereof or other versions of the same in languages other than English.

17.  It is the Plaintiffs’ case that, throughout the years, the Chinese Mark has consistently been used as the Chinese version of the brand “CHILDLIFE”.  Even in TNSG’s own website[1], TNSG had unequivocally acknowledged that the Chinese Mark was a brand created by the 2^nd Plaintiff, and that the Chinese Mark is equivalent to “CHILDLIFE” and is the Chinese version of the brand “CHILDLIFE”.  The awards obtained by and the history of the ChildLife Products had been referred to in the 1^st Defendant’s flagship store on Tmall.hk.

18.  Under Section V(c) of the 2018 Distributorship Agreements, TNSG was permitted to display and use the Plaintiffs’ “Intellectual Property” solely in connection with the advertising, promotion, sale and distribution of the ChildLife Products.  Further, TNSG and its affiliates were prohibited from registering or filing for registration of any mark or slogan of the ChildLife Products within any class or category without prior written approval from the Plaintiffs.

19.  Upon the request of TNSG, the Plaintiffs had previously authorised the 1^st Defendant (TNSG’s subsidiary) to operate a flagship store for the ChildLife Products on the e-commerce platform Tmall.hk. A flagship store is a store which is specifically authorised by a brand owner to exclusively market the products of the brand.  Both Tmall.hk and JD.hk only allow a single flagship store for one brand on their e-commerce forums.

20.  The period of authorisation was from 1 January 2018 to 31 December 2022, which is exactly the term stipulated under the 2018 Distributorship Agreements.

21.  Pursuant to the said authorisation, the 1^st Defendant set up and operated a flagship store for the ChildLife products on Tmall.hk (“the Tmall Store”).  Apart from operating the Tmall Store, the 1^st Defendant also set up and operated a flagship store for the ChildLife Products on JD.hk (“the JD Store”), but the Plaintiffs have not been able to locate any authorization letter issued to the 1^st Defendant authorising it to operate this flagship store.  I would refer both flagship stores collectively as “the Flagship Stores”).

(iii)    Termination of the distributorship relationship and the subsequent conducts of the Defendants

22.  The 2018 Distributorship Agreements were terminated by the Plaintiff in March 2021.  The Plaintiffs alleged that there were various serious breaches by TNSG under the said agreements.  One of the allegations was that, without the prior written approval of the Plaintiffs, TNSG and its affiliates had extensively registered or filed to register a number of marks of the ChildLife Products[2], including “CHILDLIFE” (made on 20 April 2010), the Heart Device (made on 7 November 2019), “童年時光”, i.e. the Chinese Mark (about 40 applications made on 29 March 2018, 3 January, 4 February, 9 August and 7 November 2019, and 25 November 2020) and “FIRST DEFENCE” (made on 16 March 2020).

23.  Though the Defendants have contended in affirmation that there was no basis for the Plaintiffs to terminate the 2018 Distributorship Agreements, Mr Wong, SC, counsel for the Defendants, does not pursue such argument in his submissions.  In any event, the Defendants have not put forward any argument or evidence to substantiate such allegation.  Neither have they or TNSG done anything in the past 6 months to dispute the said termination (including instituting arbitration proceedings pursuant to the arbitration clause in the 2018 Distributorship Agreements).

24.  Indeed, whether the 2018 Distributorship Agreements had been validly terminated is a non-issue for the purpose of the present application.  Even if such agreements were still subsisting and continue to be binding, TNSG and its affiliates would then be bound by Section V(c) of the agreements not to use the “Intellectual Property” in relation to non-ChildLife Products.  Hence, if the Plaintiffs are the owners of the ChildLife Marks and the goodwill associated with such marks, TNSG and the Defendants are prohibited from using any of the ChildLife Marks to promote or market non-ChildLife Products irrespective of whether or not the 2018 Distributorship Agreements have been terminated.

25.  After the termination of the 2018 Distributorship Agreements, it is common ground that the 1^st Defendant continued to operate the Flagship Stores on Tmall.hk and JD.hk, which sold similar children nutritional and dietary supplement products under the brand name “INNE”.  According to the information provided therein, the “Inne” products (“the Inne Products”) they are now marketing is an upgraded new version of the ChildLife Products, in particular, by the use of descriptions such as “煥新升級”.  The Chinese Mark and the Device Mark also appear in the webpage of the Flagship Stores.  The Defendants’ Inne Products were shown in the promotional materials to display the Device Mark.

26.  It cannot be seriously disputed that customers seeing the promotional materials in the Flagship Stores will be led to believe that the Inne Products are the upgraded version of the Plaintiffs’ ChildLife Products. In fact, the Defendants have placed representations of the Plaintiffs’ ChildLife Products bearing the mark “CHILDLIFE” alongside representations of the Defendants’ Inne Products to back up their misrepresentation.  Further, the customer service of the Tmall Store has indicated to consumers that the Inne Products are of the same brand as the ChildLife Products, and the former are the upgraded version of the latter.  The 1^st Plaintiff has also received an email from a customer in the Mainland, who was clearly confused and had been deceived into believing that the Inne Products came from the Plaintiffs.

27.  It is also not disputed that TNSG has recently released articles in the media relating to its allegedly “new and upgraded” “童年時光” products.  In the said articles, TNSG claimed that the new “Inne” series was an upgrade from the previous “童年時光” products (which obviously referred to the ChildLife Products).  TNSG further claimed that “童年時光” has been the number one infant nutrition brand in the Mainland.  Since the only infant nutrition products which had been marketed and sold in the Mainland under and by reference to the name and mark “童年時光” were the ChildLife Products, members of the trade and public would have been misled into believing that the “Inne” Products are upgraded ChildLife Products.

28.  When comparing the Defendants’ Tmall Store in early July 2021 with what can presently been seen thereon, it is not difficult to see that the Defendants are replacing the ChildLife Products with the Inne Products.  However, importantly, when marketing the Inne Products, the Defendants are still relying on the previous sales figures of the ChildLife Products in support.  The layout of the pages is also confusingly similar save and except the replacement of the products in the photos, and the products themselves are also similar in appearance and bear the Heart Device as well as the Plaintiffs’ “Nutrition for Kids” trade mark.

29.  It is also common ground that, since a date unknown to the Plaintiffs, the 1^st Defendant has transferred the operation of the JD Store to the 2^nd Defendant.  Both Defendants are related companies controlled by Madam Guo.

30.  The Plaintiffs now seek interlocutory injunctive relief to stop the Defendants from, inter alia, operating the Flagship Stores and from marketing non-ChildLife Products under and by reference to the ChildLife Marks, pending the trial of this Action.  It is the Plaintiffs’ case that by reason of the wrongful acts of the Defendants, there has been and continues to be considerable confusion amongst members of the trade and the public.  Members of the trade and the public have in fact been deceived into thinking that the non-ChildLife products such as the Inne Products marketed by the Defendants are the same as or are upgraded version of the Plaintiffs’ ChildLife Products.

LEGAL PRINCIPLES FOR THE GRANTING OF INTERLOCUTORY INJUNCTION

31.  The principles governing the grant of interlocutory injunctions are well-established.  As set out in the landmark decision of American Cyanamid Co v Ethicon[3], the plaintiff must show:

(i)  there is a serious question to be tried in respect of the claim;

(ii)  the plaintiff will suffer irreparable damage if no injunction is granted;

(iii)  the defendant will not suffer irreparable damage if the injunction sought is granted; and

(iv)  if (ii) and (iii) are not conclusive, on a proper consideration of the balance of convenience or balance of justice, an injunction shall be granted.

32.  If the court considers that the balance of convenience is evenly balanced, the court can take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced.

33.  In the case of interlocutory mandatory injunctions, the principles governing the grant were summarized by DHCJ Lisa Wong SC (as she then was) in Wu Wei v Liu Yi Ping:[4]

(i)  The difference between the grant of a mandatory interlocutory injunction and a negative interlocutory injunction is not one of principle.

(ii)  The ultimate question is: what is the course to adopt which involves the least injustice in case the grant or refusal of interlocutory relief, as the case may be, turns out to be wrong.

(iii)  The balance of convenience test is in reality a balance of the risk of doing an injustice.

(iv)  The more “assured” the court is on the merits of the applicant’s case, the less will be the risk of injustice.

(v)  However, if the circumstances are that justice requires the grant of the mandatory injunction at an interlocutory stage, then such an injunction should be granted irrespective of whether the court has a “high degree of assurance” as to the merits of the applicant’s case.

(vi)  Nor does the court lose sight of the practical realities of the situation to which the injunction will apply.

(vii)  Much depends on what mandatory injunction is sought.  Where the injunction sought is not expensive to comply with, or is not irreversible or would not effectively pre-empt the trial, the court may well grant the injunction without requiring a high degree of assurance even if the injunction is mandatory in effect.

34.  In cases where the defendant is not able to demonstrate an arguable defence to the plaintiff’s claim, there is no need to consider the adequacy of damages or the balance of convenience in accordance with the principles laid down in American Cynamid and the court should grant the injunction sought.[5]

35.  Damages will usually not be an adequate remedy to the plaintiff in cases in which one of the allegations is the likelihood of confusion in the trade.[6]

36.  In considering the balance of convenience or the balance of justice, the court is entitled to take into account the following factors:

(i)  Whether the plaintiff has demonstrated a strong case on the merits[7];

(ii)  Whether the defendant had chosen to walk into the existing situation with its eyes open or through a lack of prudence[8].

THE DEFENDANTS’ GROUNDS OF OPPOSITION

37.  It is the Defendants’ contention that there is no serious issue to be tried in respect of the Plaintiffs’ claims.  Whilst they acknowledge that the Plaintiffs are the owner of the English Mark and the associated goodwill thereof, the Defendants claim that their affiliated company TNSG is the owner of the Chinese Mark and the Heart Device and their associated goodwill in the Mainland.  That is why the Defendants say that they are entitled to market the Inne Products in their Flagship Stores by reference to the Chinese Mark and the Heart Device.

38.  Apart from no serious issue to be tried, the Defendants are also relying on the following grounds to oppose the Plaintiffs’ O 29 application:

(i)  The Plaintiffs have failed to show irreparable harm if no interim or interlocutory injunction is granted.

(ii)  The Defendants will suffer irreparable harm if an interim or interlocutory injunction is granted.

(iii)  The Plaintiffs have not shown that they are able, or have assets within the jurisdiction, to honour their undertaking as to damages in the event that the interim or interlocutory injunction is wrongly granted.

(iv)  There is inordinate and unexplained delay in making this application.

(v)  If the court deems it necessary, the Summons should be adjourned pending the decisions of the China National Intellectual Property Administration (“CNIPA”)[9] and the disposal of the Defendants’ application for a stay of proceedings on forum non conveniens grounds (“the Forum Application”).[10]  In the meantime, no interim relief ought to be granted.

39.  I will deal with each of the objections in turn.  But before I do so, I will address the question as to whether the court has jurisdiction to grant the injunction as sought by the Plaintiffs which would have certain extra-territorial effect.

POWER OF THE HONG KONG COURT TO GRANT INTERLOCUTORY INJUNCTION WITH EXTRA-TERRITORIAL EFFECT IN RESPECT OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS

40.  It is common ground the Defendants’ Flagship Stores do not ship the Inne Products to a Hong Kong address.  The target customers of the Flagship Stores are all in the Mainland, and the products are also shipped from the Mainland.  In trying to stop the Defendants from selling their products by reference to the Chinese Mark and the Device Mark by way of injunction, the Plaintiffs are actually trying to stop the Defendants’ alleged passing-off or copyright infringement activities in the Mainland.  In the hearing, I have raised the issue as to whether the Hong Kong court has jurisdiction to grant the interlocutory injunction with such extra-territorial effect.

41.  In answering my queries, Mr Yan, SC, counsel for the Plaintiffs, has referred me to the following passages in The Law of Passing-Off, Unfair Competition by Misrepresentation by Wadlow:[11]

“A claim brought in England in respect of acts of passing off or unfair competition taking place overseas is likely to involve at least the following issues: personal jurisdiction over the proposed defendant(s), including the grounds under which the claim form may be served out of the jurisdiction if necessary, and whether with or without leave; subject matter jurisdiction or the justiciability of the claim, and the possibilities of arguments of forum non conveniens; identification of the applicable law for the claim; ascertainment by expert evidence of the requirements of that law; and evidence of liability or not in fact.

… … …

In contrast to other fields of intellectual property, actions in respect of acts of passing off or injurious falsehood committed abroad are by no means a novelty. … … …

If the case can be framed as one of export of instruments of deception, then an extra-territorial claim on that basis is attractively simple – especially if many different foreign markets are involved, or the relevant local law is difficult of proof or is ineffective.

More recently, it came to be recognised that conduct in a foreign country which would have been actionable as passing-off had it occurred in England could be restrained by the English courts, and damages awarded, if the latter had personal jurisdiction over the defendant, quite irrespective of whether instruments of deception are involved or whether it could be said that a tort had been committed under English law. This formerly arose from application of the rule in Phillips v Eyre, but the same result may now be achieved under the Private International Law (Miscellaneous Provisions) Act 1995.

… … …

In Alfred Dunhill v Sunoptic, the Court of Appeal went one step further by granting an interlocutory injunction against passing off sunglasses and spectacle frames in Switzerland as well as Britain. That was not an instruments of deception case, as the defendants’ sunglasses and frames were manufactured by a contractor in Italy and had no connection with the UK. The plaintiffs had asked for a worldwide injunction but Switzerland (where the defendant company was incorporated) was the only country for which they had adduced satisfactory evidence of local law. The court rejected the argument that the plaintiffs could rely on the presumption that foreign law corresponds to English. If the plaintiffs wanted more extensive injunctions, they could come back to the court with evidence of reputation, confusion and consequent legal liability in those countries. In James Burrough v Speymalt, the pursuers were able to maintain an action for alleged passing off in Italy, although claims for registered trade mark infringement were struck out as not being justiciable in Scotland.

… … …

The foregoing cases in which the respective plaintiffs failed, in addition to Alfred Dunhill v Sunoptic in so far as it concerned foreign countries other than Switzerland, should be taken solely as illustrating the importance of giving evidence of the relevant foreign law if an injunction is to be awarded in respect of conduct abroad.

… … …

As a practical matter, the only relevant bases of jurisdiction at common law are or were that if the High Court had personal jurisdiction over the defendant (typically by virtue of the latter being a UK-incorporated company with its registered office in England and Wales, and/or by carrying on business in the jurisdiction) then the latter could in principle be sued for acts of passing off, etc. committed anywhere in the World. Also, if a foreign defendant had committed or was otherwise liable for acts of passing-off or injurious falsehood within the jurisdiction, then service on him would be permitted outside the jurisdiction under the former RSC Ord. 11 r.1(1)(h) – tort committed within the jurisdiction. In the former respect, there was and is a recognised and well-established distinction between passing-off and the proprietary intellectual property torts, such as patent, copyright and even trade mark infringement,

Unlike the latter, neither the former ‘double actionability’ rule of Phillips v Eyre, nor the rule in the Mocambique case, ever prevented a foreign cause of action being entertained.  The leading cases deciding against the common law justiciability in the UK of infringements of foreign proprietary intellectual rights expressly distinguished, and approved, the separate treatment of passing-off.”

42.  In the United Kingdom, the double actionability rule has been abolished by the Private International Law (Miscellaneous Provisions) Act 1995.  The rule still exists in Hong Kong law and so the common law principles as cited in the said passages are applicable here.

43.  The following principles can be summarised from these passages:

(i)  In so far as a claim for infringement of intellectual property rights outside jurisdiction is concerned, the law is treating passing-off (and injurious falsehood) differently from other types of intellectual property rights such as patents and registered trade marks (where separate registration of the claimant’s right in that jurisdiction is required).

(ii)  To sue the defendant from committing passing-off outside jurisdiction, the court must have personal jurisdiction over the defendant (usually by showing that the defendant is a Hong Kong resident or a company incorporated in Hong Kong).

(iii)  The claimant can formulate the claim in either or both of the following manners:

(a)  the defendant is trying to export an instrument of deception (the most usual case being using a Hong Kong “shadow” company with the name incorporating the claimant’s trade mark to carry on business outside Hong Kong including granting licences to others to use the relevant trade mark) with a view to deceive the public and consumers outside Hong Kong;

(b)  the defendant’s passing-off activities are also actionable in the foreign jurisdiction concerned.

(iv)  In the case of (b) above, the claimant would have to produce evidence of the relevant foreign law to prove that the defendant’s passing-off activities are also actionable under the law of that jurisdiction.

44.  Being the judge in charge of the Intellectual Property List, I have come across many attempts made by practitioners, in particular in default judgment applications, to ask the court to grant injunction to stop passing-off activities outside jurisdiction.  The aforesaid passages would provide a useful guideline for them to prepare similar applications in the future.

45.  Mr Wong does not seek to dispute these legal principles.

46.  In the present context, the Hong Kong court has personal jurisdiction over both Defendants as they are companies incorporated in Hong Kong.  Provided that the Plaintiffs can show that the Defendants’ passing-off activities in the Mainland are actionable under Mainland law, the Hong Kong court has jurisdiction to grant an injunction to prohibit the Defendants from continuing such activities in the Mainland.

47.  Both sides have adduced contrary expert evidence on such subject.  I will deal with such issue in the latter part of this Reasons for Decision.[12]

SERIOUS ISSUES TO BE TRIED

(i)      The ownership of the Chinese Mark and the Heart Device and their associated goodwill in the Mainland

48.  Having addressed the issue of the extra-territorial effect of the injunction, I then turn to the different objections raised by the Defendants, starting with the allegation that there is no serious issue to be tried in respect of the Plaintiffs’ claims.

49.  As a matter of law, in order for the Defendants to succeed in arguing that there is no serious issue to be tried, it would be necessary for them to demonstrate that the claim should be struck out.  The threshold for the Defendants to succeed is therefore a high one.^[13]

50.  As mentioned above, it is the Defendants’ case that their affiliated company TNSG is the owner of the Chinese Mark, the Heart Device and their associated goodwill in the Mainland.  Hence, after the termination of the 2018 Distributorship Agreements on 23 March 2021, they have the right to use the Chinese Mark and the Heart Device in the Mainland. Further, the Defendants deny that they had represented themselves as the authorised distributors of the Plaintiffs after the termination of the said agreements.  However, the report of the investigator engaged by the Plaintiffs show that the Defendants did make such representation on at least one occasion.

51.  In trying to establish that TNSG is the owner of the Chinese Mark and the Heart Device and their associated goodwill in the Mainland, the Defendants are relying on the following points:

(i)  There is no suggestion by the Plaintiffs that they devised the Chinese Mark, which is part of the name of “TNSG Biotech Company Limited (南京童年時光生物技術有限公司)”, i.e. TNSG.  The Chinese Mark (童年時光) is not a literal translation of “CHILDLIFE”.

(ii)  There is also no suggestion that the Plaintiffs have at any time used the Heart Device or the Chinese Mark themselves in the Mainland or Hong Kong.  They have no registrations of such marks in the Mainland or Hong Kong.

(iii)  The Chinese Mark had existed and had been used by TNSG before the marketing of the ChildLife Products by TNSG.

(iv)  In the Mainland, TNSG is currently the registered owner of the Chinese Mark and the Heart Device.  As early as 20 April 2010, TNSG applied for the registration of the Chinese Mark.  That was before TNSG was even appointed as a sub-distributor of the Plaintiffs’ ChildLife Products on 15 August 2011.[14] It also applied for the registration of the Heart Device on 4 January 2012.

(v)  Prior to the termination of the distributorship relationship, it was TNSG which promoted and marketed the ChildLife Products in the Mainland.  The ChildLife Products were promoted and sold under the Chinese Mark and the Heart Device but without reference to the English Mark.  Further, the sale was conducted by TNSG without any reference to it being the authorised agent of the Plaintiffs.  Under such circumstances, the Defendants are the owners of the Chinese Mark and the Heart Device and their associated goodwill in the Mainland.

(vi)  The Defendants also claim that the the Plaintiffs were aware of TNSG’s registrations of the Chinese Mark and the Heart Device since at least 5 May 2017 (if not earlier given that the registrations were and are matters of public record), when the 2^nd Plaintiff (the founder and president of the 1^st Plaintiff) made a statement in support of an infringement action launched in the Mainland by TNSG (“the 2017 Statement”).  Rather than complaining about the registrations as being malicious or dishonest, or taking steps to revoke them, or to claim ownership thereof, the 2^nd Plaintiff supported TNSG as the legal and rightful owner of those marks and the goodwill in the 2017 Statement.

(vii)  Hence, the scope of “Intellectual Property” referred to in the 2018 Distributorship Agreements said to be owned by the Plaintiffs must be understood to exclude the Chinese Mark and Heart Device and their associated goodwill, which the 2017 Statement acknowledges to be owned by TNSG.  It was never alleged that TNSG held the registrations of those marks, which the Plaintiffs were aware of when the 2018 Distributorship Agreements were made, as the agent on behalf of the Plaintiffs.

52.  In my judgment, there is little merit in these contentions. In fact, some of these contentions are contrary to the overwhelming and undisputed evidence about the promotion and the marketing of the ChildLife Products prior to the termination of the relationship between the parties.

53.  First, it is clear that TNSG has marketed the ChildLife Products using the Chinese Mark (童年時光) as the Chinese version of “CHILDLIFE”.  The evidence is simply overwhelming:

(i)  In TNSG’s own website[15], TNSG has unequivocally acknowledged that the 2^nd Plaintiff was the founder of “童年時光”, that “童年時光” was established in the United States in 2000 and that “童年時光” has had a history of 21 years (as at 2021).  Further, TNSG has identified various ChildLife Products as being “童年時光” products.  In the circumstances, TNSG has itself acknowledged and represented to the public that “童年時光” is equivalent to “CHILDLIFE” and is the Chinese version of the brand “CHILDLIFE”.

(ii)  Upon the request of TNSG, the Plaintiffs issued a statement (which was drafted by Lu) on 28 September 2012 to warn the general public of potential fake ChildLife Products in the market.  In the Chinese part of the statement, the Chinese Mark was clearly used as the Chinese version of the “CHILDLIFE” brand as it referred to “CHILDLIFE/童年時光產品”.

(iii)  In the 2017 Statement made by the 2^nd Plaintiff on 5 May 2017 which was drafted by Lu, it was stated that: “The original label contains the trademark “Childlife”.  And all Childlife-branded products sold within [the Mainland] should bear the mark in Chinese language together with the logo of “red heart”.”  The “mark” obviously referred to “the trademark ‘Childlife’” and the only mark in Chinese language which has ever appeared on the ChildLife Products was “童年時光”.

(iv)  In the Defendants’ Flagship Stores, there were pages which specifically state and acknowledge that: (a) “童年時光” is a brand from the United States; (b) the 2^nd Plaintiff was the brand creator of “童年時光”; (c) “童年時光” was created in 1998; and (d) “童年時光” had achieved numerous awards over the years globally.  All the awards referred to therein were actually awarded to the ChildLife Products.  Further, in the Tmall Store, the brand of the ChildLife Products is stated to be “ChildLife/童年時光”, which clearly represents and acknowledges that “CHILDLIFE” and the Chinese Mark both refer to the same brand.

(v)  There are photos and advertisements to show that, in Hong Kong, the ChildLife Products have been marketed under the English Mark, the Chinese Mark and the Heart Device.  The Chinese Mark was used as the Chinese equivalent of “CHILDLIFE”.

(vi)  There is ample evidence (including the references in “Baidu 百科” and documents from e-commerce retailers) to show that, throughout the years, the Chinese Mark has consistently been used as the Chinese version of the brand “CHILDLIFE” by members of the trade and the public.

54.  In the affirmations filed by the Defendants, they have completely failed to address the evidence mentioned above.

55.  Mr Guo Guilin, the father of Madam Guo (“Guo”), in his 2^nd Affirmation tried to contend that the Flagship Stores are “童年時光” flagship stores and not “CHILDLIFE” flagship stores.  Such contention is completely unmeritorious.

56.  First, as mentioned above, “童年時光” and “CHILDLIFE” refer to the same brand.  The Chinese Mark is simply the Chinese version of the English mark “CHILDLIFE”.  Over the past decade, the public and the trade has been educated as such, and TNSG and the Defendants have themselves acknowledged and represented this to be the case.  Further, there is no evidence whatsoever that there were other “童年時光” products available in the market which were not the ChildLife Products of the Plaintiffs, except those products which the Plaintiffs have recently discovered to be available at the Defendants’ Flagship Stores and about which the Plaintiffs are now complaining.  Accordingly, the Defendants’ attempt to draw the purported distinction between a “童年時光” flagship store and a “CHILDLIFE” flagship store is totally without substance and wholly disingenuous.

57.  Second, it is misleading for Guo to make such contention.  An investigation using the “Wayback Machine” (a digital archive of the world wide web) has revealed that the Defendants’ JD Store was originally called the “童年時光CHILDLIFE 海外旗艦店”, as can be gleaned from the record archived on 15 June 2019.  The banner setting out this name of the JD Store is also further proof that the Chinese Mark “童年時光” is the Chinese version of the English mark “CHILDLIFE”.   Some time between 15 June and 30 July 2019, the Defendants, without the authority and knowledge of the Plaintiffs, changed the name and removed the reference to “CHILDLIFE” from the shop name.  The timing actually coincides with the date (about 3 July 2019) when the Defendants allegedly first started selling a non-ChildLife Product on the Flagship Stores.  Though the Plaintiffs could not obtain similar records about the Tmall Store, there is reason for the court to believe that the Tmall Store, like the JD Store, also had “CHILDLIFE” in its name in the past.

58.  Third, the Tmall Store was initially opened with the authority of the Plaintiffs.  There were two such authorisation letters issued upon the request of Lu^[16], and the Tmall Store was probably set up pursuant to these authorisations.  The Defendants have provided no evidence of them having set up another “CHILDLIFE” flagship store on Tmall.hk other than the subject one.  If Guo’s claim that the “童年時光” flagship store is not the “ChildLife” flagship store (which TNSG had been authorised to set up with these authorisations) were true, there would have been no point for TNSG to have asked the Plaintiffs for the said authorisations.

59.  In applying to set up a flagship store on Tmall.hk or JD.hk, the Defendants must have been required to submit the relevant authorisation letter from the brand owner.  Without producing authorisations from other brand owner, the Defendants must have submitted the authorisations given by the Plaintiffs as part of the documents submitted in setting up the Flagship Stores.

60.  The contention that the Chinese Mark had existed and had been used by TNSG before the marketing of the ChildLife Products by TNSG is equally without substance and contrary to the overwhelming evidence.

61.  If the Defendants’ contention were true, it would only have seen sensible for the Defendants to disclose the background leading to the setting up of TNSG.  By deliberately omitting to provide such information, there is no reason for the court to doubt the Plaintiffs’ evidence that TNSG was incorporated and the Chinese Mark was applied for in anticipation of the marketing of the ChildLife Products.  In fact, the timing and the sequence of events very much support the Plaintiffs’ case.  It is also hard for the Defendants to explain why on the very same day that TNSG applied to register the Chinese Mark, it also applied to register the English mark “CHILDLIFE” (though in respect of other goods which were chocolate drinks and candy, etc), which the Defendants acknowledge is rightly owned by the Plaintiffs.

62.  For the Defendants’ claim that TNSG had marketed other nutritional products for children under the Chinese Mark in 2011, the evidence produced by the Defendants, including an invoice and two photographs, is far from adequate in supporting the Defendants’ claim.  They do not show the use of the Chinese Mark (in fact they show the use of other marks) on the products and the quantity involved is both minimal and questionable.  When the 2^nd Plaintiff asked Lu to produce details of the other products on which TNSG claimed to have used the Chinese Mark and when such use had occurred, Lu was unable to provide any more details.  If there were indeed such use, it would be very difficult to explain why the Defendants could not have produced better evidence to support this important aspect of their case.  Further, if the Chinese Mark and the Heart Device were the Defendants’ own brand, the Defendants cannot offer any satisfactory explanation as to why they referred to the Plaintiffs’ history and the achievements of the ChildLife Products in marketing their “own” brand using the Chinese Mark and the Device Mark.  Under such circumstances, there is weight in Mr Yan’s submission that the Defendants’ claim in this regard is blatantly false.

63.  In any event, even if TNSG had used the Chinese Mark on one product in 2011, by subsequently using and promoting the Chinese Mark as the Chinese version of the brand “CHILDLIFE”, and by agreeing that such Chinese version forms part of the “Intellectual Property” of the Plaintiffs under the 2013 Distributorship Agreement and the 2018 Distributorship Agreements, TNSG has clearly acknowledged that the Chinese Mark should belong to the Plaintiffs.

64.  Irrespective of the ownership of the Chinese Mark, it is very difficult for the Defendants to defend their position on the ownership of the Heart Device.  It is clear that the 2^nd Plaintiff is the owner of the copyright of the Heart Device.  As the Plaintiffs have all along marketed the ChildLife Products by reference to the Heart Device, it is difficult to explain why the Plaintiffs would have given up their rights in respect of such device so lightly in the Mainland.

65.  There is also abundant evidence to show the use of the Heart Device by the Plaintiffs in the Mainland and Hong Kong prior to 2011:

(i)  In the Mainland, the Heart Device was prominently displayed at the 6th China International Healthcare Fair held in 2006.

(ii)  The Heart Device was also extensively used in the marketing of the ChildLife Products by the Plaintiffs’ previous distributor Green Century Health Product Chain Management (Guangdong) Co., Ltd in 2005.

(iii)  In Hong Kong, the Heart Device was also prominently displayed at the 2004, 2005 and 2007 Natural Products Expo Asia held at the Hong Kong Convention & Exhibition Centre.

66.  In so far as the Defendants are contending that they are not aware of the Plaintiffs’ use of the Heart Device before 2011, such contention is simply incapable of being believed.  In Lu’s 2010 Presentation to the GDS Group, it featured representations of the Heart Device, as used alongside and in conjunction with the “CHILDLIFE” mark on the Plaintiffs’ ChildLife Products packaging and marketing materials as displayed and marketed as described in the preceding paragraph.

(ii)     The issue of acquiescence and the significance of the 2017 Statement

67.  One of the main contentions relied on by the Defendants in support of TNSG’s ownership of the Chinese Mark, the Heart Device and their associated goodwill in the Mainland is that the Plaintiffs have acknowledged and acquiesced TNSG’s ownership by: (i)  agreeing to TNSG’s ownership of the said rights in a negotiation in or around 2013; (ii) not taking any action to challenge TNSG’s registrations of the Chinese Mark and the Heart Device in the Mainland throughout the years; (iii) the 2^nd Plaintiff’s signing of the 2017 Statement acknowledging TNSG’s right to take legal proceedings against the infringers of the Chinese Mark and the Heart Device in the Mainland.

68.  It is neither possible nor appropriate for the court to resolve factual disputes in an interlocutory application.  However, I must say that the Defendants’ factual basis in support of these contentions is rather weak.

69.  For the first contention, Guo claimed that “to the best of [his] recollection, [he] did make it clear to Harty during the negotiation process in or around 2013 that TNSG has ownership over ‘童年時光’”.[17]   The reference to “Harty” was clearly a reference to Mr Brian Harty (“Harty”) as he is the only person named “Harty” in the 1^st Plaintiff.  Guo went on to say that Harty must have agreed to, or at the very least acquiesced to the adoption of “童年時光” on the packaging of the ChildLife Products on the basis of TNSG’s said ownership over “童年時光”.  However, Harty only joined the 1^st Plaintiff in 2017, and so he could not possibly have had the fictitious negotiation with Guo in 2013.  In fact, he had never communicated with Guo in his entire life.  Further, the Plaintiffs have also checked and confirmed that no one from the Plaintiffs had ever negotiated with Guo on anything relating to the ChildLife Products, as no one even knew that he was involved in the running of TNSG until he made the two affirmations in these proceedings.  Apart from bare allegation, there is no satisfactory evidence to show that Guo was somewhat involved in the management of TNSG or the Defendants.

70.  For the second contention, there is a factual dispute as to whether the Plaintiffs were aware of the registrations of the Chinese Mark and the Mark Device at an earlier time, say 2017.  The Plaintiffs maintain that they only knew about such matter shortly before the Plaintiffs terminated the 2018 Distributorship Agreements in March 2021, whereas the Defendants claim that the Plaintiffs should have known the registrations earlier as the same were and are matters of public record, and that the Plaintiffs should have conducted due diligence investigation about TNSG’s background before its appointment as the Plaintiffs’ distributor in the Mainland.

71.  However, the rhetorical question to ask in the present case is whether there are some sensible reasons for the Plaintiffs to have given up their rights in respect of the Chinese Mark and the Mark Device which have been used to market the ChildLife Products in the Mainland.

72.  It is a matter of simple commercial sense that the brand owner of a product would jealously guard their interest in respect of the brand names and trade marks of their products.  The goodwill associated with these names and marks would be most valuable to a business. That is why the Plaintiffs have applied for international registration of their “CHILDLIFE” mark designating places including the Mainland.  If an English name and a local name have been applied to market the same product, there is also no logical reason as to why the brand owner would have lightly allowed another person to own the goodwill associated with the local brand name.  This bounds to create confusion as both the English name and the local name would, in the eyes of the local consumers, refer to the same product, and one can easily imagine the problems and complications that may arise if these names are owned by different persons.

73.  The argument is even stronger for the Heart Device.  It cannot be seriously disputed that the Plaintiffs have all along used the Heart Device to market their ChildLife Products.  Unless the Defendants can supply some sensible reasons, which there is none, it is difficult to explain why the Plaintiffs would have allowed or acquiesced TNSG to own the rights associated with the Heart Device in the Mainland.

74.  For the 2017 Statement, one has to understand the context under which the 2^nd Plaintiff had been asked to sign the document.  The 2017 Statement was prepared upon TNSG’s request, drafted by Lu and was for the sole purpose of assisting TNSG to “win a lawsuit” against a third party “smuggler” of the ChildLife Products in the Mainland.  There is nothing to suggest that the 2017 Statement was intended to be a declaration of rights by the 2^nd Plaintiff as between the Plaintiffs and TNSG.

75.  Further, there is nothing in the 2017 Statement which indicates that the 2^nd Plaintiff was aware of TNSG’s earlier registrations of the Chinese Mark and the Heart Device.  In so far as the statement contained one and only one reference to the “trade mark registration in [the Mainland”, the same plainly refers to the trade mark registration in respect of the “CHILDLIFE” mark^[18]. In view of the legal proceedings against the “smuggler”, Lu required the 2^nd Plaintiff’s assistance in making the statement to show to the Mainland court that TNSG was authorised to use the ChildLife Marks and hence it could enforce the rights against the infringers.

76.  Viewing the 2017 Statement in its proper context, and bearing in mind that by that time the parties had already entered into the 2013 Distributorship Agreement which defines “Intellectual Property” as including the “CHILDLIFE” trade mark, any other version of the same in languages other than English (which necessarily encompass the Chinese Mark), and the Heart Device, Lu and TNSG clearly realized that they had no right to enforce the rights relating to any of these marks against the infringers, and therefore they required the Plaintiffs’ assistance in making the 2017 Statement.  They would not have done so if they could simply rely on TNSG’s earlier trade mark rights relating to the Chinese Mark and the Heart Device.  Hence, the request for assistance in making the 2017 Statement actually runs against the Defendants’ own case.

77.  As mentioned above[19], it is completely nonsensical that the 2^nd Plaintiff would have acknowledged TNSG’s alleged trade mark rights in respect of the Chinese Mark and the Heart Device in the 2017 Statement, as contended by the Defendants, if he was indeed aware of the said registrations.

78.  In addition, in the latter part of the 2017 Statement, it was specifically stated that TNSG was legitimately authorised by the Plaintiffs to use the “logo of the red heart” and the ChildLife trademarks in plural(which can only mean both the ChildLife mark and the Chinese Mark in the context of the entire statement).  The mention of this express authorisation further reinforces the point that the Plaintiffs are the owners of the ChildLife Marks in the Mainland.

79.  The court should not make factual findings in interlocutory applications.  However, judging from the available evidence before the court at this stage, I can say that the Plaintiffs have a strong case in rebutting the defence of acknowledgement and acquiescence.

80.  Indeed, if the Defendants consider that they have a strong defence, I wonder why they do not continue to the use the Chinese Mark to market their new products, as such mark has, according to the Defendants, proven to have a good sales track record.  Rather, they are making every effort to mislead the consumers in the Mainland that their new Inne Products are upgraded version of the ChildLife Products, which to me is a clear deception.  Taking into account the overall circumstances of the case, I have reasons to believe that the Defendants are making their last effort to boost the sales of their new products by wrongfully riding on the reputation of the Plaintiffs’ ChildLife Marks.

(iii)    The issue of double actionability

81.  By way of the injunction, the Plaintiffs are seeking to restrain the alleged infringement activities of the Defendants in the Mainland.  The Defendants contend that there is no serious issue to be tried because the acts complained of are not actionable in the Mainland.

82.  Both sides have filed expert evidence on Mainland law on the issue: Professor Yi for the Plaintiffs and Professor Kong for the Defendants. Professor Yi is a professor of law in Peking University, whereas Professor Kong is the Dean of the law school in Shanghai Jiao Tong University and formerly a judge of the Supreme People’s Court and the President of its Intellectual Property Tribunal.

83.  Having carefully considered their evidence, I agree with Mr Yan that the Plaintiffs have demonstrated not only a serious question to be tried but a very strong case on the issue of double actionability.

84.  Based on the facts of the Plaintiffs’ case, the unauthorised use of the Chinese Mark and the Heart Device, and the misleading use of the history and achievements of the ChildLife Products, to market and promote the Defendants’ non-ChildLife Products plainly constitute actionable misrepresentation under the tort of passing-off in Hong Kong, if such acts are committed in Hong Kong. It is also wrongful for the Defendants to make any representation to the public that they are still authorised to operate the Flagship Stores for the ChildLife Products or that they are still the authorised distributors of the ChildLife Products, contrary to the truth.  According to Professor Yi, such acts are equally actionable in the Mainland under Articles 2, 6 and 8 of the Anti-Unfair Competition Law (“the AUCL”).

85.  Likewise, the unauthorised reproduction and use of the Heart Device on TNSG’s or the Defendants’ products and in the webpages of the Defendants’ Flagship Stores, if done in Hong Kong, would constitute copyright infringement under the Copyright Ordinance (Cap 528).  According to Professor Yi, such acts are also actionable in the Mainland under the Mainland Copyright Law.

86.  In dealing with the extra-territorial effect of the injunction as mentioned above[20], I have not addressed the question as to whether the court has jurisdiction to deal with copyright infringement committed outside Hong Kong.  As the Plaintiffs’ passing-off claim in the present case is wide enough to prohibit the Defendants from using the Heart Device, I do not propose to deal with the Plaintiffs’ claim for copyright infringement committed outside Hong Kong.

87.  In response to the Plaintiffs’ evidence, the Defendants rely on three main “themes” which run through the opinion of Professor Kong:

(i)  the fact that TNSG owns the Chinese Mark and the Heart Device as registered trade marks in the Mainland, giving it the whole right to use, and to authorise others to use, the same;

(ii)  the goodwill in those marks being owned by TNSG after years of exclusive use, a fact acknowledged in the 2017 Statement; and

(iii)  the fact that TNSG and the Defendants did not and do not act maliciously, dishonestly, or lacking in good faith, in using the Chinese Mark and the Heart Device.

88.  Professor Kong’s opinion is therefore based on a very important premise, i.e. TNSG is the rightful owner of the Chinese Mark and the Heart Device and their associated goodwill in the Mainland.  As I have demonstrated above, the Plaintiffs have established a strong case that TNSG is not such rightful owner despite the fact that it registered the marks back in 2010 and 2012.

89.  Professor Kong also makes an important factual assumption that there would be no confusion amongst the consumers in the Mainland.  He says the following in his report:

“For the characteristics of flagship stores and the specific goods purchased, consumers would have a full and clear understanding and therefore would not be confused or misled as to the source of relevant products and services”.^[21]

90.  As I have demonstrated above, such factual assumption cannot be right.  In view of the fact that, in the Mainland: (i) TNSG had along used the Chinese Mark to market the Plaintiffs’ ChildLife Products (which display the English Mark and the Heart Device) and both the English Mark and the Chinese Mark refer to the same product; (ii) TNSG had told the consumers that the ChildLife Products it marketed originated from the United States (by referring to the history of the brand and the awards the products received); and (iii) the Defendants had told the public through the Flagship Stores that their new products were upgraded version of the ChildLife Products, it is quite impossible for the Defendants to argue that there would be no confusion amongst the Mainland consumers caused by  such clear misrepresentation or deception.

91.  Based on the factual scenario as put forward by the Plaintiffs, this is a simple case that, after the termination of the distributorship arrangement, the distributor continued to use the brand owner’s marks and device to market its new products.  The distributor claims that it has the right to do so, relying on the earlier registrations of the mark and device in the Mainland of which the brand owner was not aware until recently.  Professor Kong is now suggesting that the brand owner cannot have any redress under the AUCL in such circumstances.  Despite his remarkable credentials, I cannot accept his opinion on such issue.

92.  The AUFL has been enacted in the Mainland to prevent unfair competition in the market.  There is no tort of passing-off in the Mainland, but the ambit of AUFL may cover some of the conducts which are classified as passing-off under the common law.

93.  Professor Kong has not expressed any views on Articles 6 and 8 of the AUCL which are contrary to or different from those expressed by Professor Yi.  Professor Kong’s views on Article 2, and in particular that the conduct of “[TNSG] does not constitute any act of unfair competition as stipulated in Article 2”, are not supported by any authorities or meaningful analysis.  On the contrary, Professor Yi has cited a number of authorities in support of his view as to why Article 2 of the AUCL is applicable to the present case.[22]

94.  Professor Kong relies very much on the earlier registrations of the Chinese Mark and the Device Mark by TNSG.  However, unlike the old trade marks law in the Mainland, the existing law allows the brand owner to challenge the earlier registration of a mark by some other person on the ground that they are the real owner of such mark.  On the basis of the Plaintiffs’ case as pleaded, they can apply to invalidate the registrations of the Chinese Mark and the Heart Device by TNSG.

95.  Professor Kong relies on Article 45 of the Mainland Trademark Law and contends that the validity of TNSG’s trade mark registrations have become incontestable after five years.  However, Professor Yi provides a detailed analysis, backed up by decided cases, as to why he says the five years’ limitation period would not apply if the previous registration was made maliciously[23], or was acquired by fraud or any other improper means[24], or made in violation of principles of honesty and good faith[25]. Though the facts may be different in those decided cases, they still show that the five years’ limitation period would not be applicable in certain circumstances such as malicious registration cases.

96.  Whether TNSG was acting in bad faith or maliciously in obtaining the registrations is certainly a fact-sensitive matter.  But as I have demonstrated above, the Plaintiffs have established a good case that the registrations of the Chinese Mark and the Heart Device were made without their prior knowledge or approval.   In fact, at the time when TNSG applied to register the Chinese Mark, it also applied to register the English Mark (which the Defendants acknowledge that it is owned by the Plaintiffs) in defiance of the Plaintiffs’ right, though the registration was made in respect of other goods such as chocolate drinks and candy.  Further, the it is indisputable that the 2^nd Plaintiff is the copyright owner of the Heart Device.  It cannot possibly be argued that the Plaintiffs would have given up their rights in respect of such device lightly, which has all along been used for the marketing of the ChildLife Products worldwide.  Based on the Plaintiffs’ alleged case, TNSG must have been acting maliciously, dishonestly, or at the very least in bad faith, when it applied to register the Chinese Mark and the Device Mark.  As forcefully submitted by Mr Yan, if such kind of conduct was not bad faith, what then is bad faith?

97.  For these reasons, the Plaintiffs have established a strong case that the Defendants’ alleged passing-off activities in the Mainland are also actionable under Mainland law.

98.  Given the aforesaid analysis, the merit of the Plaintiffs’ claims is so strong that both the factors of irreparable damage and balance of convenience should not deter the court from granting the injunction which is only just and fair in the circumstances.  In any event, I am of the view that these two considerations also favour the granting of such interlocutory relief.

IRREPARABLE DAMAGE SUFFERED BY THE PARTIES AND BALANCE OF CONVENIENCE

(i)      Alleged irreparable damage suffered by the Plaintiffs

99.  The Hong Kong court does not have personal jurisdiction over TNSG, and so the injunction should not have the effect of preventing TNSG from marketing the Inne Products (or indeed the ChildLife Products) in the Mainland.  The object of the injunction sought by the Plaintiffs is, therefore, to stop the Defendants from using the Flagship Stores as a platform to continue to sell any products by reference to the ChildLife Marks.

100.  As mentioned above, it is indisputable that the customers of the Flagship Stores would be led to believe that the Defendants’ Inne Products are upgraded version of the Plaintiffs’ ChildLife Products.  It is also common ground that the Plaintiffs have no control over the quality of the Inne Products. Indeed, whilst the Defendants claim that the Inne Products originated from Germany, the products themselves do not contain any information regarding the manufacturer.  The Plaintiffs are also unable to locate any record showing the marketing of the Inne Products in Germany, or indeed in any other parts of the world.  There is also question about the certification of the Defendants’ products known as “Inne Healthy Vision”.

101.  If there is any problem or complaint in relation to the quality of these products or any bad publicity is generated in respect of such products, this will cause enormous harm to the reputation of the Plaintiffs and the ChildLife Products, particularly since the Defendants have been marketing the Inne Products as upgraded version of the ChildLife Products.  I agree with Mr Yan that such damage is plainly irreparable by an award of monetary damages.

102.  Further, the Defendants’ marketing of the Inne Products as upgraded version of the ChildLife Products will have serious adverse effects on the business of the Plaintiffs and the sale of the ChildLife Products, as the public will be misled into thinking that the Inne Products are the better and improved version of the ChildLife Products.  If this is allowed to occur and continue to occur, the image of the “CHILDLIFE” brand will be significantly tarnished as consumers will be misled to think that the ChildLife Products are inferior to those marketed and sold under the “INNE” brand and its value irreversibly damaged.  No one will want to buy the ChildLife Products anymore given there are “better” and “upgraded” version thereof available at comparative prices.  This will have considerable effect on the reputation and goodwill built up in relation to the “CHILDLIFE” brand and the ChildLife Products over the years.

(ii)     Alleged irreparable damage suffered by the Defendants

103.  On the other hand, the Defendants argue that they will suffer irreparable harm if the court were to grant the injunction. It would mean that the Flagship Stores would have to close down completely and the Defendants would be put out of business.  At least, it would cause a major disruption to their business resulting in irreparable damage to them.

104.  Mr Yan submits that the Flagship Stores should not contain any reference to the ChildLife Marks or the ChildLife Products.  Further, the websites should not contain any digital footprint with linkage to them, such that the consumers can be somewhat directed to the webpages of the Flagship Stores by typing in any of the keywords relating to the ChildLife Marks in the internet search engine.  In other words, the injunction should not prevent the Defendants from operating the Flagship Stores to sell the Inne Products, provided that no reference is made to the ChildLife Products and the ChildLife Marks and no representation would be made about the Defendants being the authorised agents of the Plaintiffs in respect of any goods.

105.  Given these circumstances, the Defendants have certainly exaggerated the damage that they may suffer as a result of the injunction.

106.  First, as mentioned above, the injunction would not bind TNSG as the court does not have personal jurisdiction over it.  In other words, the court cannot prohibit it from marketing any products in the Mainland.

107.  Second, in so far as the Defendants are concerned, the injunction would not prevent them from operating the Flagship Stores and they are able to sell the Inne Products through such platforms.  The Defendants do not plan to sell any other products in the Flagship Stores apart from the Inne Products.  The injunction would restrain the Defendants from saying in the Flagship Stores that the Inne Products are upgraded version of the ChildLife Products, which the Defendants should not be allowed to do in any event as such representation is a clear misrepresentation aiming to deceive the customers.  The injunction may have the effect of preventing the Defendants from using the Chinese Mark and the Heart Device in marketing the Inne Products, but such loss will be relatively easy to quantify and calculate by reference to and compare the sales records before and after the granting of the interlocutory injunction.

108.  Thirdly, the injunction will not prohibit the Defendants from selling the Inne Products and other non-ChildLife Products through other channels to their target customers in the Mainland, provided that no misrepresentation is made to the consumers about the origin of the goods.

(iii)    Balance of convenience

109.  Even if the Defendants will suffer some damage, I am of the view that the balance of convenience still favours the granting of the injunction.

110.  I do not need to repeat the enormous irreparable damage (in particular the potential damage to the image of the brand and the products) that may be caused to the Plaintiffs if the Defendants were to be allowed to continue the acts complained of.[26]

111.  It is an indisputable fact that, prior to the termination of the 2018 Distributorship Agreements, the English Mark and the Chinese Mark had been used to market the same products, i.e. the ChildLife Products.  Now that the Defendants are seeking to sell a new line of products (i.e. the Inne Products) in the Flagship Stores.  Yet, given the history of the marketing of the ChildLife Products prior to the termination of the distributorship relationship, customers buying the Inne Products in the Flagship Stores, if they see any reference to the ChildLife Products and the ChildLife Marks, must believe that the Inne Products are related to the ChildLife Products.  The potential damage is direct and irreparable.

112.  On the other hand, the Inne Products have a relatively short history in the Mainland market (as compared with the ChildLife Products).  At least there is no evidence to suggest that the Inne Products were generally available in the market before the same had been promoted for sales in the Flagship Stores.  “INNE” is certainly a new brand in the eyes of the consumers.  The loss suffered by the Defendants would be the loss of opportunities of promoting the Inne Products by reference to the Chinese Mark and the Device Mark.  There would be no possible damage to the brand name or the image of the Inne Products, as opposed to such damage that may be suffered by the Plaintiffs by reference to the brand name of “CHILDLIFE” and the image of the ChildLife Products.

113.  Further, there is no serious dispute that the Flagship Stores had all along been used to sell only the Plaintiffs’ ChildLife Products until recently.  Under such circumstances, customers of the Flagship Stores would certainly associate the Flagship Stores with the Plaintiffs’ ChildLife Products, in particular a flagship store is supposed to market the products of one brand only.[27] On the other hand, the Inne Products are completely different products, at least that should have been the case in the eyes of the consumers if they have not been misled.  Even if the Defendants are prohibited from selling the Inne Products in the Flagship Stores, what harm would that be done to the image of the Inne Products or the Defendants?  In my judgment, there would be none, or at least the harm would be limited. After all, Inne Products are different products, and so it is only natural for them to be marketed in platforms other than the Flagship Stores which have all along been used to market the ChildLife Products.  Comparing the Defendants’ alleged “harm” with the enormous irreparable damage that may be caused to the image of the “CHILDLIFE” brand and the ChildLife Products, balance of convenience certainly favours the granting of the injunction.

114.  Even if the inconvenience to the parties is finely balanced, which I do not accept it to be the case, I am of the view the following additional factors certainly favour the granting of the injunction.

115.  First, as demonstrated above, the Plaintiffs have managed to establish a strong case on the merits.  Even ignoring the use of the Chinese Mark and the Heart Device in the webpages of the Flagship Stores, what have been stated in these webpages about the Inne Products being the upgraded version of the ChildLife Products are simply false.  This is a clear case of deception.

116.  As observed by DHCJ Lisa Wong, SC in Wu Wei v Liu Yi Ping[28], the balance of convenience test is in reality a balance of the risk of doing an injustice.  The more “assured” the court is on the merits of the applicant’s case, the less will be the risk of injustice.

117.  Second, the Defendants clearly embarked upon their wrongful acts with their eyes wide open.  They have always known that they do not have the right to operate the Flagship Stores to sell the ChildLife Products upon the termination of the 2018 Distributorship Agreements.  They must also be aware that they are not entitled to market the non-ChildLife products by reference to the ChildLife Marks, or by reference to the history and awards of the ChildLife Products.  Yet, they proceeded to do so. Accordingly, the Defendants only have themselves to blame if their risky venture backfires.

THE PLAINTIFFS’ FINANCIAL ABILITY TO PAY THE POSSIBLE DAMAGES UNDER THE CROSS-UNDERTAKING AS TO DAMAGES

118.  Mr Wong submits that the court should not grant the injunction as the Plaintiffs have not produced any evidence of their ability to pay damages pursuant to the cross-undertaking as to damages.

119.  It is true that there is no such evidence.  No matter how substantial is the volume of the worldwide sales, the Plaintiffs have failed to show that they have any local assets which can be used to pay the damages.  Despite that, taking into account the merits of the Plaintiffs’ claims and the potential irreparable damage caused to the Plaintiffs by the continuous operation of the Flagship Stores in the existing manner, it is only fair and just for the court to grant the injunction.  As to the concern about the Plaintiffs’ financial ability, the same can be taken care of by an order for the Plaintiffs to pay an appropriate sum into court to fortify the undertaking.

120.  Regarding the quantum of the fortification, there is a lack of direct evidence about the volume of the previous sales of the Plaintiffs’ ChildLife Products through the Flagship Stores.  In any event, the past sales figures provide little guidance in assessing the quantum of the fortification.  It is not the Defendants’ case that they would continue to sell the ChildLife Products through the Flagship Stores.  Instead, they are marketing the new Inne Products with no past tracking records.  Furthermore, the Defendants are free to sell the Inne Products in whatever way they want.  The only thing they are not allowed to do is they cannot market the Inne Products with reference to the ChildLife Marks or the ChildLife Products.  Further, the injunction is targeting the Flagship Stores only.  Under such circumstances, the only loss suffered by the Defendants would be limited to the loss of sales of the Inne Products caused by the loss of opportunities of promoting them with reference to the Chinese Mark and the Heart Device.  Due to the lack of information in assessing such loss, I am of the view that HK$ 5 million would be an appropriate sum for the fortification.  I therefore so ordered.

ALLEGED DELAY IN MAKING THE APPLICATION

121.  The Defendants also contend that there is delay in making this application.  According to them, the 2018 Distributorship Agreements were terminated on 23 March 2021.  The Plaintiffs were aware of the continuous operation of the Flagship Stores since then.  However, the Plaintiffs only instructed the investigator to gather evidence on 27 April 2021.  No explanation was given as to why the investigator was only able to produce the report on 20 May 2021 and why the Summons was only taken out on 5 July 2021.  According to Mr Wong, the delay should have been counted from even earlier time when the Plaintiffs did not object to the Defendants’ use of the Chinese Mark and the Heart Device for the past ten years.  In any event, the delay should have run from 2017 when the 2^nd Plaintiff signed the 2017 Statement.

122.  Despite the able submission of Mr Wong, I cannot accept such argument.

123.  First, there is simply no delay in making this application.  The notice of termination of the 2018 Distributorship Agreements (which was also in effect a cease and desist letter) was sent to TNSG on 23 March 2021.  TNSG’s solicitors only provided a substantive reply on 8 May 2021.  In the meantime, there had been email negotiation between Lu and the Plaintiffs between 29 March and 2 April 2021, and instructions were given to conduct investigation against the Flagship Stores on 27 April 2021.  The Defendants criticize that it had taken the investigator about 3 weeks to conduct the investigation and prepare the report.  However, the investigation involved the ordering and shipping of the samples purchased. In the premises, the time taken by the investigator to prepare the report was certainly not unreasonable, especially taking into account the logistical difficulties occasioned by the current COVID-19 pandemic.  In any event, the Plaintiffs cannot possibly be said to be guilty of inordinate delay by reason of this.

124.  Following the receipt of the investigation report on 20 May 2021, the Plaintiffs had immediately started preparing the application.  Before taking out the Summons, the Plaintiffs had issued cease and desist letters to the 1^st and 2^nd Defendants on 22 and 29 June 2021 respectively.  On 28 June 2021, the Defendants’ solicitors contacted the Plaintiffs’ solicitors and acknowledged receipt of the letter on behalf of the 1^st Defendant, and said they were taking instructions and would revert.  As no reply was heard from the Defendants’ solicitors, the Plaintiffs took out the Summons on 5 July 2021.  Under such circumstances, it is difficult to see how Plaintiffs can be said to be guilty of delay in making the O 29 application.

125.  Further, even if there were delay, it is trite law that delay per se is not fatal.  The Defendants must show that because of the delay, it will be unreasonable and unjust for the court to grant the relief.[29] In the present case, the Defendants have failed to demonstrate why and how the alleged delay of a few weeks will make the granting of the interlocutory injunction unreasonable and unjust.

126.  There is also no substance in the Defendants’ argument that there had been delay in the last ten years for the Plaintiffs to object to the use of the Chinese Mark and the Heart Device.  TNSG and its affiliates were operating as the distributor and sub-distributors of the Plaintiffs at the time.  Obviously, the Plaintiffs did not object to the use of the Chinese Mark and the Heart Device by TNSG and its affiliates for the marketing of the ChildLife Products.

127.  For these reasons, there is simply no merit in the delay argument.

THE DEFENDANTS’ REQUEST FOR THE COURT TO WITHHOLD THE GRANTING OF INTERIM INJUNCTIVE RELIEF AT THIS STAGE

128.  Shorting before the hearing of the Summons, the Defendants withdrew their application to stay the proceedings on arbitration ground.  Yet the Defendants took out a different application to stay the Hong Kong proceedings on forum non conveniens grounds, i.e. the Forum Application.  The parties agree that the Forum Application will have to be dealt with by the court on some future date.

129.  In this O 29 application, Mr Wong asks the court to withhold the granting of any interim or interlocutory injunction pending the decision of the CNIPA.  There is also a faint suggestion that the court should not grant such relief before the hearing of the Forum Application.[30]

130.  I disagree.  It is clear that the Hong Kong court has personal jurisdiction over both Defendants.  As the Plaintiffs have established a good arguable case that the Defendants have committed passing-off actionable in Hong Kong, and that the Plaintiffs will probably suffer enormous irreparable damage caused by the continuous acts of the Defendants, it is only fair and just for the Hong Kong court to act immediately to stop the alleged wrongful acts.  In particular, there is clear misrepresentation to the consumers that the Defendants’ products are upgraded version of the Plaintiffs’ products, and so the Hong Kong court should not allow such deception to continue.

131.  The Defendants are switching to market a new line of products. As mentioned above[31], I have reasons to believe that the Defendants are trying to buy time for their scheme of boosting the sales of their new products by leading the former consumers of the ChildLife Products to believe that their new products are somewhat related to the ChildLife Products.  To delay the granting of interlocutory injunction under such circumstances would, in my judgment, cause further injustice in the present case.

132.  When the Defendants learnt that I would allow the O 29 application near the end of the hearing, they asked the court to grant an interim stay of execution pending the Defendants’ intended application for leave to appeal against my decision.  Taking into account the strength of the Plaintiffs’ case and the injustice that may be caused by the delay in the granting of relief as mentioned in the preceding paragraph, I only allowed a short interim stay of execution pending the handing down of the Reasons for the Decision, which, as I indicated to parties, would be available two to three weeks after the hearing.  After that, it would be up to the Defendants to take whatever action as they see fit, but at least they would have the reasons of the court by then.

FINAL TERMS OF THE INJUNCTION

133.  There are a few observations that I would like to make about the terms of the interlocutory injunction ultimately granted by the court.

134.  First, the injunction would only cover the alleged passing-off activities in Hong Kong and the Mainland, as there is no evidence to show that the Defendants had carried on such activities outside these two places.  There is also no evidence of foreign law on other places.

135.  Second, express provision has been made to clarify that TNSG is not bound by the injunction.  The Hong Kong court does not have personal jurisdiction over TNSG which is foreign entity, and hence this court has no jurisdiction to grant an injunction to stop it from carrying on any passing-off activities in the Mainland.

136.  Third, the injunction would not prevent the Defendants from running the Flagship Stores to sell products not related to the Plaintiffs.  However, any reference to the Plaintiffs’ ChildLife Products and the ChildLife Marks should be removed.

137.  Fourth, I grant liberty to the parties to apply.  There may be technical matters relating to the operation of the Flagship Stores which may still show the digital linkage to the Plaintiffs’ products and marks, for example by way of search engine, and the Defendants may seek further clarification as to whether their other affiliated companies, if any, are allowed to carry on certain activities in the Mainland.  Hence, I insert the provision to cater for these possibilities.

138.  There is no serious argument between the parties that the costs of the Summons should be costs in the cause.  I therefore so ordered.

139.  Before I hand down this Reasons for Decision, I have received a request by the Defendants to vary the terms of the injunction by allowing the Defendants to keep the existing name of the Flagship Stores. According to their letter dated 14 October 2021, by reason of the existing rules and regulations of Tmall.hk and JD.hk, the Defendants cannot change the name of the Flagship Stores which contains the words “童年時光”.  Hence, the existing terms of the injunction would have the effect of putting the Flagship Stores out of business.  However, the court cannot deal with the request ex parte.  If necessary, the Defendants would have to take out an inter parte application for variation of the terms of the injunction.