Mary Kay Inc. And Others v Zhejiang Tmall Network Co, Ltd And Others

CAMP 301/2021

[2022] HKCA 360

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 301 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 2406 OF 2017)

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JUDGMENT

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Hon Chow JA (giving the Judgment of the Court):

Introduction

1. This is the Plaintiffs’ application for leave to appeal against the decision of Lok J dated 20 May 2021 whereby the Judge:

(1) set aside the order of Master M Lam dated 19 June 2018 granting leave to the Plaintiffs to issue a concurrent writ of summons for service out of the jurisdiction, and to serve the same on the 1^st and 2^nd Defendants in Mainland China; and

(2) adjourned the Plaintiffs’ applications by summonses dated 28 January 2019 for default judgment against the 4^th and 5^th Defendants to the trial of the action against the remaining defendant(s).

Basic facts

(i) The parties

2. The 1^st Plaintiff is a company incorporated in Delaware, USA. Together with the 2^nd Plaintiff (incorporated in Hong Kong) and the 3^rd Plaintiff (incorporated in Hangzhou, PRC), both being wholly-owned subsidiaries of the 1^st Plaintiff, they carry on business in the production and marketing of skin care, toiletries and cosmetic products under the trade marks or names of “MARY KAY” and “玫琳凱” (“Mary Kay Products”) worldwide, including Hong Kong and Mainland China. The 1^st Plaintiff is the registered proprietor of various trade marks and/or service marks bearing the names or words “MARY KAY” and “玫琳凱” in Hong Kong in the classes and specifications as set out in Schedule 1 to the Amended Statement of Claim (“the Registered Trade Mark(s)”).

3. According to the Plaintiffs, they have been promoting Mary Kay Products extensively in Hong Kong and China since at least 1994 under or by reference to the “MARY KAY” and “玫琳凱” marks through publicity and advertisements in trade press, other print media and websites, and have acquired substantial reputation and goodwill worldwide, including Hong Kong and Mainland China, in respect of the said trade marks and/or Registered Trade Marks.

4. It is the Plaintiffs’ case that they conduct their business through the “direct-selling” or “network-marketing model”, under which authorized direct sales representatives (“DSRs”) market Mary Kay Products to individuals who can then enroll themselves as DSRs in order to enjoy a larger discount for more goods that they purchase. There are currently more than 1 million DSRs in the Mainland and Hong Kong managed by the 2^nd and 3^rd Plaintiffs, and they are contractually bound to market and sell Mary Kay Products by direct-selling only, and are expressly prohibited from marketing or selling the same at retail levels including online-selling.

5. The 1^st and 2^nd Defendants (both incorporated in the PRC) and the 3^rd Defendant (incorporated in Hong Kong) belong to the “Alibaba Group”. The 1^st and 2^nd Defendants are operators of an e-commerce platform known as “Tmall China”, while the 3^rd Defendant is the operator of “Tmall Global”. According to the 3^rd Defendant[1]:

(1) Tmall China is a business-to-consumer online retail platform, through which independent businesses list products for purchase by consumers. It is a neutral platform, or “marketplace’, in the sense that all products sold on Tmall China are those of, and sold directly by, independent businesses. Tmall China is not the seller of such products. It targets sellers and consumers in Mainland China. The website is in simplified Chinese and all prices are listed in RMB. Products sold on Tmall China are predominantly shipped to consumers in Mainland China, although some of the products may also be shipped to addresses outside Mainland China (including Hong Kong) if consumers access the site from outside Mainland China and the vendors allow shipping to such destinations. A vendor who has been allowed to sell his products on Tmall China selects his shop name in accordance with the type of shop to be opened and what has been referred to as the “Tmall China naming convention”. The vendor has full autonomy and control over all of the parameters of his sale operations including the products, price, countries to which he is willing to arrange for delivery of goods, etc. There are currently tens of thousands of shops on Tmall China.

(2) Tmall Global is a separate platform from Tmall China with entirely separate operations. Tmall Global is a Chinese language business-to-consumer online retail platform for businesses outside the Mainland to sell goods to consumers in the Mainland only. There are no claims made in relation to Tmall Global in this action.

6. In the papers before the court, there are references to 2 other e-commerce platforms, namely, “Taobao China” and “Taobao World”, operated by the Alibaba Group which were not involved in the trap orders referred to below:

(1) Taobao China is a Mainland China online retail platform for individuals and small businesses. Similar to Tmall China, it is a neutral platform and operates like a marketplace whereby individuals and small businesses can directly and autonomously list products for purchase by consumers, and determine all the parameters of the sale operations including the products, price and the countries to which the sellers are willing to arrange for delivery of goods. Taobao China targets sellers and consumers in Mainland China. The website is in simplified Chinese and all prices are listed in RMB.

(2) Taobao World is a sub-domain of Taobao China for overseas business. When a person enters the web address for Taobao China in his browser but his IP address is outside China, he will automatically be diverted to Taobao World. It is not possible to list products directly on Taobao World. All products shown on Taobao World originate from another platform (eg Taobao China). It operates on similar terms and conditions as Taobao China.

7. The 4^th Defendant is a limited company incorporated in the PRC with its registered office situated in Anhui Province. It is and was the registrant of “庆丰化妆品专营店” (“the QF Shop”) on Tmall China which the Plaintiffs allege to have sold Mary Kay Products to Hong Kong. The QF Shop was closed by the “Platform Governance Team” of Tmall China on 1 July 2016 following a report made by an individual on or around 1 March 2016 that a document submitted by the 4^th Defendant as part of the application documents to open the QF Shop on Tmall China was forged and further investigations conducted by the Platform Governance Team (including inquiries with the Plaintiffs). The Plaintiffs also claim that the 4^th Defendant then “re-opened” another shop on Tmall China called “加內喜专卖店” or “玫琳凱加內喜专卖店” (“the JNX Shop”) using the URL (Uniform Resource Locator) of “http://marykayjnx.tmall.com/”, which is also alleged to have sold Mary Kay Products to Hong Kong. However, as stated in the decision of the Judge handed down on 20 May 2021 (“the Decision”), at §11, the undisputed evidence shows that the 4^th Defendant is and was not the registrant of the JNX Shop, which was registered and operated by another company incorporated in the PRC called “安徽加内喜商贸有限公司” (“JNX Co”). There is no claim against JNX Co and no allegation that the 1^st to 3^rd Defendants have procured or combined with JNX Co to commit any tort in the Amended Statement of Claim.

8. The 5^th Defendant is a limited company incorporated in the PRC with its registered office located in Shanghai. It is and was the registrant of “Tmall Supermarket” (an online shop on Tmall China) which the Plaintiffs allege to have sold or offered for sale Mary Kay Products. However, as mentioned in the Decision, at §13, there is no evidence of any sale of Mary Kay Products by the 5^th Defendant to anyone in Hong Kong. In fact, the Plaintiffs admitted, and was at all material times aware, that Tmall Supermarket did not sell goods to Hong Kong.

(ii) The trap orders

9. In 2016, the Plaintiffs’ solicitors, ATL Law Offices (“ATL”), made 4 trap orders for Mary Kay Products through Tmall China. Particulars of the trap orders are given under §25 of the Amended Statement of Claim:

“(a) The Plaintiffs have purchased samples of Mary Kay Products from [the QF Shop] and [the JNX Shop] on 7 June 2016, 16 June 2016, 29 June 2016 and 11 July 2016 and the goods were directly delivered by the respective vendors to an address in Hong Kong (‘Plaintiffs’ Test Buys’);

(b) Payments on all Plaintiffs’ Test Buys were collected by the Alibaba Group;

(c) The vast majority of the Mary Kay Products sold by the 4^th & 5^th Defendants have been tampered with by removing the production lot codes which are printed onto the packing prior to the products leaving the factories of the Plaintiffs (“Tampered Mary Kay’s Products”);

(d) The 4^th & 5^th Defendant has published statements or...