Mary Kay Inc. & Ors. v. Zhejiang Tmall Network Co., Ltd & Ors
[2021] HKCFI 1403 & [2022] HKCA 360
How the Argument Played Out
At first instance, the Defendants relied on s.20(1) of the Trade Marks Ordinance, which exhausts a proprietor’s rights once goods are genuinely put on the market by the owner or with consent. The Plaintiffs’ pleaded case did not dispute that the goods were genuine – instead, Mary Kay emphasised the s.20(2) carve-out, arguing the removal of production lot codes and cutting into tamper-proof plastic “changed or impaired” the goods’ condition in a way detrimental to the marks’ reputation.
Lok J rejected this. Following Zino Davidoff SA v A&G Imports Ltd, he held Hong Kong’s s.20(2) — narrower than its EU/UK equivalents — captures only changes to the physical condition of goods, not their “mental condition.” A small hole cut in the plastic wrapping solely to remove the production code, leaving the product itself unaffected, didn’t qualify, and there was no evidence the marks’ reputation was harmed (and, in any event, the evidence showed that the Mainland PIATS traceability system remained available). He also dismissed the argument that DSR contractual restrictions on retail resale meant the goods weren’t validly “put on the market” — calling this a conflation of contract law with trade mark law. Thus the s.20(2) exception did not apply, and the s.20(1) defence was sufficient to defeat the infringement claim.
What Changed on Appeal
Crucially, the Court of Appeal (Chow JA) was hearing only an application for leave to appeal, not the appeal itself — and leave was refused on the ground of material non-disclosure. The CA therefore expressly declined to rule on whether Lok J’s exhaustion analysis was correct, calling it unnecessary to determine and leaving it open for future litigation.
What the CA did do was identifying an unresolved issue: counsel again argued more forcefully the first limb of s.20(1) — whether the goods were “put on the market… by the owner or with his consent” — was itself unsatisfied, since DSR contracts barred retail resale. This drew on the Singapore case Samsonite IP Holdings Sarl v An Sheng Trading Pte Ltd on an equivalently worded provision. The CA noted this sat oddly with the Plaintiffs’ own earlier case (which had proceeded on the footing that the goods had been put on the market and focused on the s.20(2) exception). The CA said resolving it would need detailed factual inquiry into what “market” means under s.20(1) — the sale to DSRs, or the onward sale to the public — and pointedly refused to decide it in an interlocutory hearing.
Implications for Practitioners
- Lok J’s reasoning remains first-instance authority but has neither been endorsed nor rejected by the Court of Appeal. Hong Kong’s s.20(2) exception is narrower than EU/UK law and confined to physical (not “mental”) condition — a useful, but not yet Court of Appeal-endorsed, proposition.
- The “put on the market with consent” question is now a live, unresolved issue. Brand owners using selective/direct-sales distribution models should not assume contractual restrictions on resale channels defeat exhaustion — but defendants should not simply assume the opposite either. Practitioners are advised to plead and evidence this point squarely, rather than skip straight to the “condition changed” limb.
- Full and frank disclosure obligations are broad. Even where a defence’s success is uncertain, its potential applicability must be disclosed in ex parte service-out applications — a point of general procedural importance beyond IP cases.
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