In a recent case Wyeth LLC v Wyeth (China) Limited (HCA 7/2010), the Hong Kong court found the defendant was set up to pass off the plaintiff's goodwill in the Wyeth trade marks (English and Chinese). Interestingly, the defendant rejected the plaintiff's sanctioned offers to settle the case and ended up liable for the plaintiff's legal costs on an indemnity basis and additional interest.

The plaintiff, a worldwide supplier of health care products, holds the registered trade marks "Wyeth" and "惠氏" in Hong Kong. The defendant company was set up in Hong Kong in 2009, incorporating those trade marks without the plaintiff's authorisation. Separately, the defendant obtained registrations for those trade marks in China and the plaintiff is seeking to cancel them.

Unlike a large number of shadow company litigation which ends up in default judgments, the defendant filed a defence although it failed to attend the trial. After trial, the court found for the plaintiff.

A few interesting observations about the case:

The defendant's change of name and activities in mainland China:

The defendant did change 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 by reference to the Wyeth trade marks in mainland China. Those products also "copied slavishly" the plaintiff's trade dress, colour scheme and logos. The Chinese company operated websites closely similar to those of the plaintiff's.

The court found that the defendant 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, i.e. in mainland China) was actionable at the place when the supply or authorisation occurred (i.e. Hong Kong).

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

Sanctioned offers:

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 extra interest (not more than 10% on top of the judgment interest rate) on the money 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 under complaint 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 the defendant went on to authorise the activities in China and aggravated the infringement. Seeing that the defendant did worse than the sanctioned offers, the court awarded the plaintiff indemnity costs and interest at 3% above the judgment rate.