COVID-19 public health measures have led to a worldwide boom in e-commerce. Businesses and consumers “internet”, offering and buying more goods and services online. Thus, the liability of online platform operators for the acts of third party vendors has become all the more important. The recent case of Mary Kay Inc. & Ors v. Zhejiang Tmall Network Co Ltd & Ors [2021] HKCFI 1403, [2022] HKCA 360 discussed, inter alia, the factors the Hong Kong courts will decide in determining the question.
Case Background
Plaintiffs carry on business in the marketing of skin care and cosmetics products under the trade marks of “Mary Kay” and “玫瑰凱” through the “direct-selling” or “network-marketing” model. They authorize independent beauty consultants who are by nature direct sales representatives (“DSRs”) to market the products to individuals who can then enroll as DSRs. According to the Plaintiffs, the DSRs are contractually bound to market and sell the Plaintiffs’ products by direct-selling only and are expressly prohibited from marketing or selling the same at retail levels including online-selling. The 1st to 3rd Defendants are leading operators of the e-commerce online platforms generally known as “Taobao” and “Tmall”. The 4th and 5th Defendants are companies incorporated in Mainland China and each opened a shop with “Tmall China” which the Plaintiffs allege to have sold the products complained of to Hong Kong.
The Plaintiffs’ claims are for trade mark infringement and passing-off based on 4 trap orders placed by the Plaintiffs with the e-commerce shops operated by the 4th and 5th Defendants on the online platforms of the 1st to 3rd Defendants. These trap orders involved genuine Plaintiffs’ “Mary Kay” products but with the production lot codes removed.
The following applications were before the Court of First Instance (“CFI”) :-
(i) the Plaintiffs applied for default judgments against the 4th and 5th Defendants;
(ii) the 3rd Defendant was within the jurisdiction of Hong Kong and applied to oppose the Default Judgment Application against it; and
(iii) the 1st and 2nd Defendants applied to set aside the order granting leave to serve the concurrent writ out of jurisdiction on them (“the Setting Aside Application”).
The judgment of Mr Justice Lok is very extensive and comprehensive covering multiple issues of law and court procedures. This eNews focuses mainly on the joint liability of the online platform operators. The CFI found the following.
The Setting Aside Application
There was no serious issue to be tried in respect of the trademark infringement claim :-
(a) The “exhaustion of rights” defence under s 20(1) of the Trade Marks Ordinance, Cap 559, applied on the facts of this case and the Plaintiffs’ claim based on trade mark infringement was doomed to fail.
(b) There was no evidence of trade mark infringement by the 5th Defendant in Hong Kong.
(c) Since the Plaintiffs’ claims against the 1st and 2nd Defendants were only “secondary” in nature (ie as joint tortfeasors for procuring the acts of the 4th and 5th Defendants, or for committing the acts together pursuant to a common design), if there was no serious issue to be tried in respect of the trade mark infringement claims against 4th and 5th Defendants, there would likewise be no serious issue to be tried on whether 1st and 2nd Defendants should be liable as joint tortfeasors.
There was also no serious issue to be tried in respect of the passing off claim as the subject in question were genuine goods of the Plaintiff and there was no deception. There was no evidence that the 4th and 5th Defendants had misrepresented to the public that they were related to the Plaintiffs. Further the online store of the 4th and 5th Defendents on Tmall China targeted the public in the Mainland and there was no evidence that the Hong Kong public had been or would be deceived.
Joint Liability of the Online Platform Operators
The CFI affirmed the principle that to establish accessory liability in tort, it is not enough to show that the defendant did acts which facilitated the other’s commission of the tort. The defendant will be jointly liable with that other person if they combined to do or secure the doing of acts which constituted a tort. This requires proof of two elements : (i) the defendant must have acted in a way which furthered the commission of the tort by that other person; and (ii) the defendant must have done so in pursuance of a common design to do or secure the doing of the acts which constituted the tort. Consequently, on the facts of the case, the 1st and 2nd Defendants are not liable because they were only providing the service of neutral online platform operators.
Applying the case of L’Oreal v eBay [2009] RPC 21, the 1st and 2nd Defendants were also not liable as joint tortfeasors. The 1st to 3rd Defendants did not approve or procure the 4th or 5th Defendant to sell the “Mary Kay” products as alleged, and the Plaintiffs have not adduced any evidence in support of any common design between the 1st and 2nd Defendants on the one hand and the 4th and 5th Defendants on the other. What the 1st and 2nd Defendants did was to implement a policy which requires an applicant who wants to set up a store on “Tmall China” to submit certain documents showing, inter alia, that the products they are going to sell are genuine on prima facie basis. “Tmall China” also has “Notice-To-Take-Down” procedure to deal with complaints launched by brand owners. The court found that the 1st and 2nd Defendants, as the neutral platform hosts, had taken prompt actions to respond to the complaints made by the Plaintiffs (the complaints of the Plaintiffs were actually initiated by an inquiry raised by the Platform Governance Team of “Tmall China”), and had removed the online stores or the products complained of before the service out application.
The 1st and 2nd Defendants are under no legal duty to prevent infringement. They are also under no legal obligation to make enquiries with the brand owners in the way as suggested by the Plaintiffs. Further, there was nothing in the policy of the 1st or 2nd Defendants which favours or encourage infringement. The fact that the 1st and 2nd Defendants might have benefited from the acts of the 4th and 5th Defendants was not sufficient to make them liable.
Further, it is noteworthy that the Plaintiffs had failed to draw the attention of the court to the defence available to neutral online platform operators as demonstrated by L’Oreal v eBay. This is directly relevant in assisting the court to consider if there were serious issues to be tried on whether the 1st and 2nd Defendants should be regarded as joint tortfeasors in respect of the alleged infringing acts committed by the 4th and 5th Defendants.
The Plaintiffs then renewed their application for leave to appeal against the CFI decision to the Court of Appeal. Leave was refused as the Plaintiffs’ intended appeal did not have a reasonable prospect of success.
Conclusion
The above is a landmark case and a must read for all those wanting to take legal action against online intellectual property infringers or for protection of the rights of online platform operators. It will be interesting to know whether the judgement may be different if there were in fact trademark or patent infringement or outright fraud and the public in Hong Kong were deceived.
If you have any questions on the above case, matters relating to intellectual property (whether registration, enforcement or otherwise) or litigation and dispute resolution matters, experienced lawyers in our Intellectual Property and Litigation teams would be happy to assist you.