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HCA002409E/2002
HCA 2409/2002
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2409 OF 2002
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| BETWEEN |
| KABUSHIKI KAISHA YAKULT HONSHA |
1st Plaintiff |
YAKULT COMPANY LIMITED
（養樂多股份有限公司） |
2nd Plaintiff |
HONG KONG YAKULT COMPANY LIMITED
（香港益力多乳品有限公司） |
3rd Plaintiff |
| AND |
YAKUDO GROUP HOLDINGS LIMITED
（養樂多集團控股有限公司） |
1st Defendant |
| LEE TAO KUANG（李道光） |
2nd Defendant |
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Coram: Hon Lam J in Court
Dates of Hearing: 27, 28, 29, 30 October, 3, 4, 5, 6, 7 November and 18 December 2003
Date of Judgment: 26 February 2004
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J U D G M E N T
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1. Hong Kong is a centre for international trade and prides herself as a regional hub for international travelers. The development of its common law has therefore been marked by recognition by the court of the need of the international traders with appropriate responses to new and technological changes in international communications. In the field of passing off, Leonard J held in Wienerwald Holding AG v Kwan Wong Tan & Fong [1979] FSR 381 that the idea that goodwill must be acquired by user or trading within the jurisdiction was outdated and was not the appropriate rule for Hong Kong in 1979. This was followed by Hunter J in Hong Kong Caterers Ltd v Maxim's Ltd [1983] HKLR 287 and Sears J in Tan-ichi Co. Ltd v Jancar Ltd [1990] FSR 151. There has been much debate in this trial as to whether Hong Kong court should adopt the soft line approach (exemplified by these cases and other Commonwealth authorities including ConAgra Inc v Mc Cain Foods (1992) 23 IPR 193, C & A Modes v C & A (Waterford) [1978] FSR 126, Orkin Exterminating Co. Inc v Pestco of Canada (1985) 19 DLR 90 and Dominion Rent a Car v Budget Rent a Car [1978] 2 NZLR 395) or the hard line approach in the English cases like Alain Bernardin et Compagnie v Pavillion Properties [1967] RPC 581 (the Crazy Horse case) and Anheuser-Busch Inc v Budejovicky Budvar [1984] FSR 413 (the Budweiser Case).
2. However, the present case does not concern a trader without any business in Hong Kong. I have set out the background to this case in Paragraphs 1 to 7 in my Reasons for Ruling of 6 September 2002 which is reported at [2002] 3 HKLRD 595. As I said on that occasion, Yakult had been here since late 1960's and from the evidence as to its sales and advertising figures, it has been very successful in Hong Kong. Having heard all the evidence and submissions from counsel, I am of the view that what I said in those paragraphs in my said Ruling could still be adopted as a summary of the background to this case.
3. It has been agreed between the parties although the activities of the Defendants took place in different places, this court should focus on matters occurred within this jurisdiction and the goodwill the Plaintiffs in Hong Kong (see Paragraphs 8, 15 and 18 of the said Ruling and Paragraph 9 of my Ruling on 12 June 2003). Hence, it has not been argued before me that the Plaintiffs could sue the Defendants in this action in respect of tortious acts committed outside the jurisdiction pursuant to the rule of Boys v Chaplin [1971] AC 356. I therefore need not be concerned with the applicability of that rule to intellectual property rights as to which there seems to be conflicting decisions in England: see Tyburn Production v Conan Doyle [1991] Ch 75 and Pearce v Ove Arup Partnership Ltd [1999] 1 All ER 769. There are in fact legal proceedings in mainland China in respect of the activities of the Defendants in the mainland.
4. There is not much dispute as to the primary facts of this case. Agreed facts between the parties are set out in Paragraphs 33 to 56 of the Amended Agreed List of Issues dated 8 August 2003. In addition, at a hearing on 15 May 2003, Mr Ho, counsel for the Defendants, admitted on behalf of the Defendants that the 1st Defendant intended to use a bottle of the same shape and size of the Yakult bottle in mainland China. The witnesses called by the Plaintiffs were not subject to much cross-examination by Mr Ho. In his closing submissions, Mr Ho focused on arguing the insufficiency of evidence to demonstrate a reputation of the Plaintiffs in Hong Kong in the name "養樂多" and to demonstrate confusion in the market occasioned by the Defendants' activities here. Mr Ho also urged this court to distinguish between the goodwill attached to the business of the 2nd Plaintiff from that attached to the business of the 1st and 3rd Plaintiffs. The findings below, unless otherwise stated, are based on the evidence from the Plaintiffs' witnesses which I accept to be true.
The Plaintiffs and their goodwill
5. I need not repeat what I said previously in Paragraph 1 in my Reasons for Ruling of 6 September 2002 in respect of the Plaintiffs and their relationships. Since one of the issues is whether there is an international reputation enjoyed by all members within the Yakult group of companies, I will discuss more about the image of the Plaintiffs as a multi-national group and what measures are in place to ensure the uniformity of standard and quality within the group.
6. The 1st Plaintiff is now holding 15% of the shareholding in the 2nd Plaintiff. The largest shareholder of the 2nd Plaintiff, Matsusho Kabushiki Kaisha transferred 15% out of its 49% shareholding in the 2nd Plaintiff to the 1st Plaintiff in July 2003. 5 out of 10 of the directors of the 2nd Plaintiff are representatives of Matsusho Kabushiki Kaisha. Matsusho Kabushiki Kaisha is also the largest shareholder of the 1st Plaintiff. The evidence of Mr Matsuzono, the current Vice General Manager of the 2nd Plaintiff, established that management staff and technicians were transferred from the 1st Plaintiff to the 2nd Plaintiff. The 1st Plaintiff therefore exercised significant influence over the business operation of the 2nd Plaintiff. It also exercised quality control in respect of the products of the 2nd Plaintiff. Raw material, strains of bacteria and technology are supplied by the 1st Plaintiff. Flavourings for the 2nd Plaintiff's products are provided by a subsidiary of the 1st Plaintiff. There are Technical Collaboration Agreements and Trade Mark Agreements made between the 1st and 2nd Plaintiffs. Those agreements contained provisions governing the licence granted by the 1st Plaintiff to the 2nd Plaintiff as to the use of know-how and trade mark owned by the 1st Plaintiff, including the mark "養樂多".
7. The brochure and promotional material of the 1st and 2nd Plaintiffs produced before this court showed that the 2nd Plaintiff identified itself as part of the worldwide Yakult Group.
8. As for the 3rd Plaintiff, the 1st Plaintiff holds 80% of its shareholding. Mr Eizawa was the President and Managing Director of the 3rd Plaintiff from 1986 to September 2002. He is now an Advisor to the 3rd Plaintiff. He first joined the Yakult Group in 1966 when he worked for the 1st Plaintiff in Japan. He gave evidence that the 1st Plaintiff exercised control over the operation of the 3rd Plaintiff by similar means as those in respect of the 2nd Plaintiff. There were also Agreements made between the 1st and 3rd Plaintiffs concerning the transfer of know-how and technical assistance and the use of trade marks and design rights owned by the 1st Plaintiff.
9. In the promotional material and newspaper advertisements of the 3rd Plaintiff, it highlighted the fact that it was a member of the worldwide Yakult Group and people consumed Yakult products all over the world (e.g. see Bundle E6 p. 2095, 2110, 2127, 2128, 2141, 2152, 2164).
10. The Plaintiffs are very concerned about the standard of hygiene at their manufacturing facilities. Due to the nature of the products, they had to be produced at local plants. The 1st Plaintiff adopted measures to ensure that all production plants within the Yakult Group including overseas ones are of the same standard and detailed internal guidelines were issued by the 1st Plaintiff. It has obtained ISO 14001 certification in respect of quality control and assurance for the Yakult plants. A hygiene control system called Hazard Analysis Critical Control Point was developed by the 1st Plaintiff and adopted by the Yakult production plants. That system facilitates the implementation of total hygiene control through the analysis of potential contamination by harmful microorganism or foreign matter in respect of each and every stage of production.
11. The confidence of the Plaintiffs in their production facilities is demonstrated by their policy of welcoming members of public to visit their factories. In Hong Kong, the 3rd Plaintiff adopted this policy as early as 1982 (see Bundle E6 p. 2159). Press tours to its factory in Taipo were organized in 1998 and the high standard of hygiene was reported in some newspapers (see Bundle E6 p. 2083-4). Similar policies are adopted by other members of the group, e.g. in Europe, see Bundle E7, p. 2246; in Australia, see Bundle E7 p. 2288; in Guangzhou, see Bundle E7 p. 2226.
12. Supporting research and scientific development for the whole Yakult group is carried out by the Yakult Central Institute for Microbiological Research in Japan. It developed a range of healthy food and drinks, cosmetics and pharmaceuticals over the years for sales by companies within the group. Samples of lactic acid bacteria were supplied by the 1st Plaintiff on a regular basis to overseas plants. In respect of the production in Hong Kong, the bacteria used by the 3rd Plaintiff for production are cultured from those supplied by the 1st Plaintiff.
13. As mentioned, the Plaintiffs have been promoting an image that all the Yakult companies over the world are members...
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