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Hong Kong – Court Of Final Appeal Lowers Threshold For Statutory Defence Against Selling Counterfeits. What Can TM Proprietors Do?

3 December, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Intellectual Property

 

It is a criminal offence to sell goods with a forged trade mark, in contravention of the Trade Descriptions Ordinance (TDO), and in this regard there have been seizures by Hong Kong Customs Excise Department from time to time followed by prosecutions.  Previously, the Hong Kong court would often rule in favour of trade mark proprietors once the seized goods were proven to be counterfeit and the chances of successfully putting forth the statutory defence are low.  However, the defendants may now face a better chance after a recent Court of Final Appeal decision.

 

Statutory defence

 

The TDO expressly makes defence available to the following situations: if the accused can prove that he:


1)           did not know,

2)           had no reason to suspect and

3)           could not with reasonable diligence have ascertained the falsity of the mark applied (the ‘third leg’).


The burden of proof of this defence rests on the accused – to be acquitted, the accused has to negate ALL three conditions.

 

Previous approach

 

In Lee To Nei v Hong Kong Special Administrative Region [2012] HKCU 701, the accused was originally convicted because he failed to prove the third leg even though he succeeded in (1) and (2) above. In the Court of Final Appeal (CFA), constitutional issues were raised regarding i) whether the defence imposed on the accused was a persuasive or evidential burden and ii) whether there was a derogation of presumption of innocence if persuasive burden was placed on the accused.

 

The CFA held that such a reverse onus provision may be justified if it satisfies the rationality and proportionality tests. Since the protection of trade marks is vital to both businesses and consumers, it was rationally connected to societal interests to require the accused to ascertain the authenticity of the marks he sought to apply.

 

The real issue was whether the derogation was proportional, i.e. whether or not the reverse onus was no more than necessary to achieve the legislative aim of protecting businesses and consumers. The CFA revisited the English decisions relied heavily by the previous courts but came to a diametrically different conclusion because there was a fundamental difference between the Hong Kong and UK provisions – the UK provision merely requires the accused to show that he believed on reasonable grounds that the use of the mark was not an infringement – without proof of the third leg as required by the Hong Kong provisions.

 

New approach laid down by the CFA

 

As a result, the CFA held that the statutory defence under the TDO must be read down to imposing only an evidential burden on the accused who has to adduce credible evidence indicating his innocence, while the persuasive burden remains on the prosecution throughout.

 

In other words, if the accused successfully raises an issue as to his innocence in relation to the 3 legs, then it will be for the prosecution to satisfy the court beyond reasonable doubt that the accused could have discovered the falsity of the mark by taking appropriate steps (not by every possible means).

 

Message for trade mark proprietors

 

In the same CFA judgment, another case, Lau Hok-tung et al. v Hong Kong Special Administrative Region (the Lau case), was heard together.  However, conviction was upheld even under the revised CFA approach. 

 

In the Lau case, evidence such as inferior quality, easy access to enquiries as to potential falsity of marks, satisfied the CFA in establishing that the accused did have reason to suspect the falsity of the marks and that reasonable diligence would have enabled the accused to realize that the marks were indeed forged. 

 

In the light of the above CFA judgment, trade mark proprietors are recommended to take steps to educate the local market how to identify fake goods, and to provide readily accessible contacts for traders and consumers for inquiring as to the genuineness or otherwise of the goods in case of doubt.                            

 

 





For further information, please contact:
 
May Chan, Ella Cheong (Hong Kong & Beijing)
mchan@ellacheong.com
 

 

 

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