Shadow company loses passing-off case and pays the price

Hong Kong

In Wyeth LLC v Wyeth (China) Limited (HCA 7/2010), a Hong Kong court has found that the defendant intended to pass off the plaintiff's goodwill in the WYETH marks (in English and Chinese). Interestingly, the defendant rejected the plaintiff's sanctioned offers to settle the case and was ordered to pay the plaintiff's legal costs on an indemnity basis and additional interest.

The plaintiff, a worldwide supplier of healthcare products, holds the registered trademarks WYETH and 惠氏 in Hong Kong. The defendant company was set up in Hong Kong in 2009, incorporating those trademarks without the plaintiff's authorisation. Separately, the defendant obtained registrations for those marks in China and the plaintiff sought to cancel them.

In contrast to a large number of cases involving shadow companies which end up in default judgments, the defendant filed a defence, but failed to attend the trial. After trial, the court found for the plaintiff.

A few interesting observations can be made about the case.

First, the defendant changed its company name voluntarily after the filing of the lawsuit. Yet, subsequent to that, the defendant appeared to have granted authorisation to a Chinese company to sell infant products using the WYETH marks in mainland China. Those products "slavishly copied" the plaintiff's trade dress, colour scheme and logos. Moreover, the Chinese company operated websites that were very similar to those of the plaintiff.

The court found that the defendant's company name was used as an instrument of deception to enable the Chinese company to cause confusion among the public. The supply of, or the authorisation to use, instruments of deception for passing off (even abroad - ie, in mainland China) was actionable at the place where the supply or authorisation occurred (ie, Hong Kong).

The court also considered that the defendant's change of name was equivalent to an admission of guilt.

Second, sanctioned offers to settle were introduced to Hong Kong in April 2009 as part of the civil justice reform. Under this procedure, a plaintiff can make an offer to the defendant to accept less than what is claimed in the pleadings. If the defendant rejects the offer, but is held to be liable for more at the trial, the court may award the plaintiff legal costs to be assessed on an indemnity basis (more favourable than the usual party-to-party basis), in addition to additional interest (not more than 10% on top of the judgment interest rate) on the monetary award.

In this case, the plaintiff made two sanctioned offers to induce settlement:

  • The first offer was that the plaintiff would accept a consent judgment that the defendant would not form a company or carry on business under the names at issue or other confusingly similar names.
  • The second, improved offer came with a payment of HK$30,000 to the defendant.

The defendant did not accept the offers. Worse still, the court found that the defendant went on to authorise the activities in China and aggravate the infringement. As a consequence, the court awarded the plaintiff indemnity costs and interest at 3% above the judgment rate.

Kenny Wong and Eugene Low, Mayer Brown JSM, Hong Kong

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