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Can I continue shipping products if I am being sued for patent infringement? A summary of the Court’s considerations

2021-11-29

Can I continue shipping products if I am being sued for patent infringement? A summary of the Court’s considerations

Introduction

In Illumina Cambridge ltd v MGI Tech Co., Ltd and Others [2021] HKCFI 3264, the Plaintiff claimed against the Defendants on the ground that the Defendants’ products and services (the “Products and Services”) infringed the Plaintiff’s Hong Kong patent (the “Patent”). The Court of First Instance rejected the Plaintiff’s application to disallow the Defendants from continuing with the transhipment of the Products and Services to their overseas customers (“Overseas Customers”) pending trial and seek disclosure of the customers and suppliers of the Defendants.

 

Facts

The Plaintiff and the Defendants (who are members of the BGI Group) are the major players in the genetics sequencing industry. The Products and Services are manufactured by the BGI Group in mainland China, the majority of which are sold and supplied to the Overseas Customers through the Hong Kong airport. The Defendants had been engaging in these transhipment activities (the “Transhipment Activities”) for at least 2 to 3 years prior to the Plaintiff’s application and subsequent approval for the Patent.

The Plaintiff applied to the court for interlocutory reliefs, including an interlocutory injunction against the Defendants pending trial of the action. The Defendants were ordered by the court to give various interim undertakings in relation to the Products and Services as set out below:

  1. the Defendants may sell or supply the Products and Services to their existing Hong Kong customers for the purpose of replacement or (with the Plaintiff’s consent or the court’s approval) increasing capacity up to certain limits;
  2. the Defendants may sell or supply the Products and Services to the Overseas Customers for use outside Hong Kong, provided that such unit(s) is to be imported for this purpose, and they would only do so for transit and remain sealed in their containers; and
  3. the Defendants would procure the maintenance of full and proper existing records in relation to the dealings in or with the Products and Services, and the keeping of such records for such future dealings.

Notably, the Plaintiff has successfully claimed against some of the corporate entities within the BGI Group for infringement of the European patent (the “European Patent”) of the Patent in various jurisdictions. Nevertheless, the validity of the European Patent is also under challenge before the European Patent Office at the moment.

 


Application of the Plaintiff

In the present proceedings, the Plaintiff applied to the court for, among others, the following:

  1. tightening the restriction in the Undertakings to the effect that the Defendants are not allowed to sell and supply the Products and Services to the Overseas Customers by transit via Hong Kong; and
  2. a disclosure order under which the Defendants would be required to disclose the names and addresses of their customers and suppliers of the Products and Services which have been supplied in or through Hong Kong.

 

Transhipment arrangement

The main issue is whether the Defendants should be allowed to continue with the Transhipment Activities in relation to the Products and Services pending trial. It is agreed by the parties that there are serious issues to be tried in respect of the Plaintiff’s claim, and given the complexity of this case, the parties should not go into the merits of the parties’ arguments on patent infringement at this stage.

The Plaintiff argued that it will suffer irreparable harm if the Defendants are allowed to carry on with the Transhipment Activities, including the following:

  1. damages would be insufficient to compensate the Plaintiff for the loss of sales to its overseas customers and reputational loss in the event that the Plaintiff’s claim succeeds;
  2. the sale and supply of the Products and Services by the Defendants pending trial would lead to irreversible price erosion on the Plaintiff’s products, and the Plaintiff will face the risks of damaging customer relationship and goodwill if it seeks to restore the price of its products to the current level;
  3. the Plaintiff’s customers would lose confidence and trust in the Plaintiff for failure to prevent the Defendants from selling or supplying the Products and Services; and
  4. the Transhipment Activities will bolster the Defendants’ portfolio as it suggests to the Defendants’ customers that the Defendants have networks and service centres in Hong Kong. 

On the other hand, the Defendants argue that they will fall victim to irreparable damage if they are not allowed to carry on with the Transhipment Activities, including:

  1. some of the customer contracts between the Defendants and their customers explicitly require the Products to be shipped by transit via Hong Kong;
  2. the prohibition of the Transhipment Activities would seriously disrupt the logistic arrangements of the shipment of the Products and Services to the Overseas Customers, especially given that this logistic arrangement has become the most important route for the Defendants’ business; and
  3. the Defendants would suffer irreparable loss of sales, customers and reputation if the Transhipment Activities are prohibited pending trial. 

Upon hearing both sides’ submissions, the court has come to the conclusion that the risk of damage to either party is comparable, and the court should maintain the status quo as it existed prior to the commencement of the proceedings. After all, since both parties face difficulties in quantifying their potential loses, the loss of revenue should be treated as a neutral factor. In addition, the court took into consideration the fact that the Patent was registered only in August 2020 and the Transhipment Activities had been ongoing even prior to the Plaintiff’s application for the Patent, which renders it unfair to the Defendants to prohibit the Transhipment Activities pending trial.

The court also found the Plaintiff’s concern about loss of customers’ confidence to be unnecessary, as the court has already imposed necessary measures to restrain the Defendants from expanding their business in and through Hong Kong pending trial. For instance, the Defendants already undertook to sell or supply the Products and Services to their existing Hong Kong customers only for the purpose of replacement and it would need the approval from the court to expand the scale of the Transhipment Activities.


 

Disclosure of the Defendants’ suppliers and customers

The Plaintiff also applied for a disclosure order to compel the Defendants to disclose the names and addresses of their customers and suppliers of the Products and Services which have been supplied in or through Hong Kong. The Plaintiff sought to justify the disclosure order on the basis that, among others, the disclosure would enable the Plaintiff to put the Defendants’ customers on notice about their potential patent infringement, and that the Plaintiff would claim against the Defendants’ customers who are aware of the patent infringement but nevertheless resell or transfer the Products and Services.


At the outset, the court reiterated the importance of exercising caution in making a disclosure order. In particular, the court is of the view that the identity of the Defendants’ customers would be unhelpful to establish the Plaintiff’s case on liability and thus irrelevant, and would only become relevant in assessing damages should the Plaintiff succeeds. Further, given that the parties are the major participants and competitors in the genetics sequencing industry, the the parties are the major participants and competitors in the genetics sequencing industry, the Defendants have a legitimate concern that upon disclosure, the Plaintiff would use the information in a way prejudicial to their business even if the Plaintiff’s claim is ultimately rejected.


Lastly, disclosure is not necessary to put the Defendants’ customers on notice of the patent proceedings, as the Defendants are willing to undertake to notify their customers of the existing legal proceedings. As such, the court rejected the Plaintiff’s application for disclosure.

 

Conclusion

In deciding whether to grant interim measures in a patent infringement case, the court would consider the potential losses that would be caused to the respective parties. In so doing, the court is essentially carrying out a balancing exercise in relation to the parties’ interests. Where the risk of damage and loss to both parties appears to be comparable and it is difficult to quantify the respective losses, the court would be inclined to maintain the status quo as it existed prior to the commencement of the proceedings.

 


 


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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021

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