THE POLO/LAUREN COMPANY AND OTHERS v. SURPLUSWAY LIMITED AND OTHERS

bjbj HCA005027/1988 1988, No. A5027 IN THE HIGH COURT OF JUSTICE HONG KONG ------------------ BETWEEN THE POLO/LAUREN COMPANY 1st Plaintiff POLO RALPH LAUREN CORPORATION 2nd Plaintiff POLO/RALPH LAUREN (H.K.) CO. LTD. 3rd Plaintiff AND SURPLUSWAY LIMITED 1st Defendant SPICA LEATHER GOODS COMPANY LIMITED 2nd Defendant LAU CHING HO 3rd Defendant ------------------ Coram : Hon. Jones J. in Chambers Dates of hearing : 18th and 19th August 1988 Date of delivery of judgment : 26th August 1988 ----------------- JUDGMENT ----------------- The plaintiffs by an inter partes summons issued on the 18th July 1988 seek to continue an interlocutory injunction that was granted ex parte by Barnes J. on the 15th July 1988 that inter alia restrained the defendants from passing off handbags and travelware that are not of the plaintiff s manufacture. The Polo/Lauren Company (the 1st plaintiff) and Polo Ralph Lauren Corporation (the 2nd plaintiff) are well known companies in the United States that design, manufacture and supply high fashion travelware, handbags, clothing and other goods under various trademarks such as Polo and Ralph Lauren and a device in the symbol of a polo player. The plaintiffs goods enjoy a very high reputation and, are sold, apart from the United States in many other countries in the world including Hong Kong. Polo/Ralph Lauren (H.K.) Co. Ltd. (the 3rd plaintiff) which is a member of the Dickson group of companies was formed in 1983 to represent the 1st and 2nd plaintiffs as its exclusive authorised distributor in Hong Kong and other countries in Southeast Asia with the exception of Japan. The plaintiffs products are sold in Hong Kong exclusively by five boutiques in prestige areas under licence from the 3rd plaintiff. Retail sales of the plaintiffs goods in Hong Kong for the year ending the 31st March 1984 amounted to HK$16,000,000 and for the year ending the 31st March 1988 HK$158,600,000. Substantial sums have been invested by the 3rd plaintiff for advertising and between June 1987 to May 1988, this amounted to HK$800,000. In 1986, the 1st and 2nd plaintiffs created a new line of travelware and handbags called the Blackwatch Collection . These goods are made from pure cotton with a pattern based on the Scottish Blackwatch tartan pattern. The fabric is treated with a protective vinyl which in turn is embossed with a pebble grained surface. Cases and bags are fitted with English bridle leather with brass hardware and locks. The Blackwatch Collection was first sold on the 15th October 1986 and proved to be an instant success. Its success was repeated in Hong Kong when it was launched in May 1987. Sales for the first year amounted to nearly HK$25,000,000. Emphasis has been placed on the prominent display and promotion of the goods so that the products are instantly recognised. In about April 1988, the 3rd plaintiff became aware that a number of customers had made complaints to some of their authorised dealers enquiring why genuine goods for the Blackwatch Collection were sold at a much higher price than imitations while imitations had been purchased by customers who had mistaken them for the genuine article. Following these complaints, sales of the Blackwatch Collection have fallen since April 1988 according to some retailers by up to 25%. As a result of investigations carried out on behalf of the plaintiffs, four separate High Court actions have been instituted against nine companies for passing off whilst letters have been written to twelve other companies requesting that they desist from their activities. Two of those actions have been settled and it is anticipated that a settlement will be reached in the other two. At the beginning of June 1988, the plaintiffs learnt that handbags similar to those produced and sold by the plaintiffs were being produced and sold by the defendants. The only differences from the plaintiffs product are the words Miracle Duck printed on the bags and a device of a duck marked with the same words that is attached to the outside of the bag. The 1st defendant is the manufacturer of the offending articles. The 2nd defendant is a retailer of these goods which it contends forms 5% of its total sales. The 3rd defendant is a director and shareholder of both companies whilst his wife is a director and shareholder of the 2nd defendant. Two of the defendants handbags that were produced as exhibits TDD-5 and AFSY-1 incorporate all the distinctive features of the Blackwatch Collection for the PVC material from which the handbags are made has the same pattern and the colour scheme of green, blue and black. The defendants material is also similarly embossed with a pebble grained surface. Further the tanned colour PVC material has an appearance similar to the tanned coloured leather which is also used for the trimming and brass hardware. The plaintiffs rely on the general appearance of its goods and in particular upon the pattern and colour scheme for their instant recognition. The names of Ralph Lauren and Polo are used on the plaintiffs goods, but are not prominently shown. It is therefore contended that the defendants products have become instantly recognised with the result that they are highly deceptive and misleading to members of the public for the goods are not common to the trade. The defendants bags cost between $180 and $400 whereas the plaintiffs cheapest bag costs $390. Objection was taken by Mr Garland who appeared for the defendants to the evidence of the plaintiffs retailers being inadmissible as hearsay on the grounds that the sources of their information had not been supplied. In fact this objection only related to the actual identity of the customers who had made the complaints. However, it would have been highly unlikely that enquiries would have been made by the retailers under these circumstances. In my judgment, the objection taken to the admissibility of this evidence is without merit for the evidence sets the general picture of confusion experienced by customers who had either purchased imitations that were much cheaper than those which are genuine or had purchased the genuine article and had expressed surprise later upon hearing that imitations were being sold at a much cheaper price. I do not consider that details of the identity of a particular customer are necessary so that the evidence is admissible. It is significant that the first items manufactured by the 1st defendant were two lines of leather bags, one in black and one in brown. However for reasons which have not been given, neither line was continued. The 1st defendant then started to produce bags with the colours and features used by the plaintiffs to which I have referred. Sales proved to be very successful to such an extent that in May and June 1988 they represented 75% - 85% of the 1st defendant s total production. Despite the obvious similarities the defendants maintain that there are differences which do not cause confusion to a potential customer. These differences are the use of the trade name Miracle Duck , the pattern and a darker shade of blue. Mr Garland submitted that purchasers of the plaintiffs goods would not mistake those of the defendants for those of the plaintiffs because they would have some idea of what they were buying. He argued that the high quality of the plaintiffs articles which are expensive items will cause customers to look carefully before making a purchase in contrast to someone who makes a casual purchase of an everyday article from a supermarket. Nevertheless, an unwary customer, could well be confused by the two products which are clearly strikingly similar. The mere addition of the name or mark printed upon the bags which I did not observe until it was pointed out to me, nor the device of the Miracle Duck that is attached to the bag, detract from the distinctive fabric, pattern, and the colour scheme so that it does not diminish the likelihood of confusion or deception. In order to constitute passing off, the plaintiffs must establish that there has been a misrepresentation by the defendants to customers or prospective customers that the goods they are selling are the goods of the plaintiffs. Lord Diplock in Erven Warnink B.V. v. J. Townsend & Sons (Hull) Limited(1) at 742 set out the following five characteristics that must be present to constitute a valid cause of action in passing off :- (1) a misrepresentation; (2) made by a trader in the course of trade; (3) to prospective customers of his or ultimate consumers of goods or services supplied by him; (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so. I am quite satisfied that the plaintiffs, and it was not seriously disputed, have established a reputation of goodwill in the goods that they produce. The present proceedings have of course been instituted for the purpose of protecting that goodwill. The evidence of misrepresentation may be inferred from the evidence and it is a question of fact to be decided as to whether the actions of the defendants were calculated to lead to the confusion of the products of the plaintiffs with those of the defendants. This confusion must be due to a false representation, the onus of proof being upon the plaintiffs to establish such deception. I must be satisfied that there is a serious question to be tried that the defendants intended to pass off their goods as those of the plaintiffs so as to produce confusion in the minds of probable customers that they will be likely to result in the defendants goods being bought and sold for those of the plaintiffs. In other words the plaintiffs claim that the defendants immediate success is derived from its distinctive get-up in the pattern and colour scheme. Whereas they had an alternative colour and pattern that they could have chosen, the 1st defendant adopted that used by the plaintiffs and has provided no explanation for so doing. Further, there was no evidence that the defendants had incurred advertising expenses or promotional expenses in setting up their collection. There is therefore a strong inference to be drawn that the defendants success has been based upon the plaintiffs reputation and goodwill. I am quite satisfied that upon the evidence before me, upon which at this stage as it is an interlocutory application, no final determination can be made, there is a serious question to be tried, having regard to the close resemblance between the products of the plaintiffs and the defendants. Confusion is likely to arise while an unwary customer could be misled. I therefore come to the balance of convenience as to whether the injunction should be continued on the basis that damages will not be an adequate remedy for the plaintiffs. The defendants contended that they have orders for 1,000 pieces outstanding from a number of dealers, which if they are not completed, could damage their relationship with customers while it will affect the 1st defendant s goodwill and reputation which it can ill-afford in the early stages of its business. However there is evidence that sales of the plaintiffs products have declined since about April this year up to as much as 25% and there is every likelihood, on the basis that such evidence is accepted, that there will continue to be a decline in the sales of the plaintiffs goods. On the other hand, the defendants have not put forward any reason as to why they have adopted the distinctive features of the plaintiffs goods and there is strong prima facie evidence that they have passed off their goods as those of the plaintiffs. The plaintiffs do not seek to prevent the defendants from producing bags provided that the product does not induce unwary members of the public to buy those products, believing them to be those of the plaintiffs. If the defendants are permitted to continue to manufacture their products, the plaintiffs are likely to lose their exclusivity while their reputation will be adversely affected. However, if the defendants are successful an award of damages will adequately compensate them for any loss that they suffer. As a result I consider that damages will not be an adequate remedy for the balance of convenience undoubtedly lies with the plaintiffs. Accordingly I shall make an order that the injunction do continue. (B.L. Jones) Judge of the High Court Representation: Mr A. Liao and Mr P. Tse (Wilkinson & Grist) for the plaintiffs. Mr P. Garland (Hastings & Co.) for the defendants (1) [1979] A.C. 731. 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