Design Your Dispute Resolution Mechanisms Before the Relationship Turns Sour

“This is a success story where the relationship of the contributors has turned sour.” These are the opening words of a judgment delivered on 7 January 2013 by Judge Woo of the Hong Kong Court of First Instance (Emagist Entertainment Ltd v Nether Games (Hong Kong) Ltd, HCA 1659/2012).

The case arose in Hong Kong, the “Port of Fragrances” (香港), a city that has rapidly established itself as a thriving technology hub thanks to strong governmental support for innovation. Within this dynamic environment, a number of start-ups have achieved remarkable success. Emagist Entertainment Ltd. (“Emagist”) was one of them.

Emagist was a young company driven by a talented team consisting of three directors (A, F and E) and three creators (B, C and D). Together, they conceived, designed and developed the online game Ninja Saga. The game became an outstanding success on Facebook, generating substantial profits for the company.

Success, however, did not prevent conflict.

An internal dispute eventually divided the team. While director A was away, four members of the company (B, C, D and E) incorporated a new company under the name Nether Games (Hong Kong) Ltd. (“Nether”) and allegedly took control of the data necessary to operate Ninja Saga. According to the judgment, Emagist claimed that the defendants had moved the servers, changed passwords and transferred the databases, source code and graphic files. In practical terms, the company suddenly lost control of the very assets required to operate its flagship game.

Emagist and A therefore commenced proceedings against Nether, B, C, D, E and F, alleging, among other things, copyright infringement, breach of employment contracts and breach of confidentiality. Pending the determination of the action, the plaintiffs sought an interlocutory mandatory injunction requiring the defendants to return all the data necessary to operate the game. Their objective was straightforward: to restore the status quo ante bellum.

To support their claim, Emagist relied on section 14(1)(a) of the Hong Kong Copyright Ordinance, which provides that, where a literary, dramatic, musical or artistic work, or a film, is created by an employee in the course of employment, the employer is the first owner of the copyright unless otherwise agreed.

The three creators disputed that position. They argued that they were independent consultants rather than employees, that they owned the copyright in the game, that they had merely licensed those rights to Emagist and that they were entitled to terminate that licence by taking back control of the game’s operational data.

One of the central issues before the Court was therefore the nature of the legal relationship between Emagist and the three creators. Were they employees, independent contractors or shareholders?

On this point, Emagist presented compelling evidence. The documentation before the Court persuaded Judge Woo that genuine employment relationships existed between the company and the three creators. The Court also observed that, even if a licence agreement had existed, it could hardly be terminated in such a unilateral manner. Judge Woo therefore granted the mandatory injunction and ordered the delivery of all the data necessary to operate the game.

The judgment nevertheless suggests that the underlying dispute had less to do with copyright than with expectations surrounding the company’s ownership structure. According to the evidence, A had promised B, C and D that they would receive shares and participate in the profits generated by Ninja Saga. Disagreements of this nature are not uncommon in start-ups. Unfortunately, they can jeopardise highly innovative and profitable ventures unless they are addressed at an early stage.

This case illustrates the importance of thinking about dispute resolution before disagreements arise.

Mediation, in particular, might have offered the parties a constructive way of resolving their differences while preserving both their commercial relationship and the future of the business. Properly conducted, mediation enables parties to explore practical solutions that litigation is often unable to provide.

Hong Kong has firmly embraced mediation as a preferred means of dispute resolution. The Judiciary introduced Practice Direction 31 in early 2010, encouraging parties to consider mediation, while the Mediation Ordinance (Cap. 620), enacted on 22 June 2012, entered into force on 1 January 2013, providing a comprehensive legislative framework for mediation.

For start-ups, mediation offers several significant advantages. It can be initiated at an early stage, before disagreements escalate into full-scale disputes. It is generally faster and less costly than court proceedings. Perhaps most importantly, mediation is confidential. This confidentiality enables innovative businesses to protect commercially sensitive information, preserve trade secrets and minimise reputational risks.

Section 8 of the Hong Kong Mediation Ordinance expressly provides that mediation communications are confidential, while section 2(1) defines a mediation communication as anything said or done, any document prepared, or any information provided for the purpose of or during a mediation, excluding the mediation agreement itself and any settlement agreement reached.

For entrepreneurs, the lesson is clear. Designing an appropriate dispute resolution mechanism should not be treated as a mere contractual formality. It is an integral part of building a successful business relationship. When expectations are clearly defined and an appropriate mechanism is available to address future disagreements, businesses are often better equipped to overcome conflict without jeopardising the very success they have worked so hard to achieve.

Brief Comment on the European Patent Arbitration and Mediation Center

Adopted alongside Regulations (EU) No 1257/2012 and 1260/2012, the Agreement on a Unified Patent Court of 11 January 2013 establishes a Patent Mediation and Arbitration Centre, seated in Ljubljana and Lisbon. This early commentary welcomes the initiative but questions its design. The Agreement forbids arbitrators from revoking or limiting a patent, whereas several jurisdictions — the United States, Switzerland, France — allow arbitral tribunals such powers, with inter partes effect, to the benefit of speedy resolution. Article 79 similarly prevents parties from revising patents through settlement, although such concessions are often the very substance of negotiated outcomes. Procedural questions remain open: which court will hear actions to set aside awards, and how arbitrators may access preliminary rulings from the Court of Justice. The Centre is a welcome innovation, but its restrictions may compromise its effectiveness.

4 March 2013
Initially published on emmanuelgillet.com

Lacoste v Shein: When a Platform Can No Longer Hide Behind Hosting Status

A platform is not one legal object. In Lacoste v Roadget Business Pte. Ltd. and Infinite Styles Services Co. Ltd. (Paris, Pôle 5 ch. 1, 8 July 2026, RG 25/12454), the Court of Appeal refused to let the operators of shein.com shelter behind the hosting exemption of Article 6 of the Digital Services Act: goods “sold by Shein”, Shein labels and packaging, and the Commission’s designation of the service as a very large online platform revealed a hybrid activity, and the characterisation attached not to the platform as a whole but to the role actually played in the disputed transactions. The judgment reaches beyond the twenty offending products. “Lacoste”, typed into the internal search engine, infringes the word marks; “crocodile”, a free word, grounds unfair competition and parasitism. Interim damages rise from €30,000 to €300,000 — the defendants’ own failure to disclose their turnover counting against them — and the measures run across the European Union.

28 August 2026
Initially published on iptwins.com

COSHIELD: The Scope of the UDRP in Trademark Disputes

Not every dispute involving a trade mark and a domain name amounts to cybersquatting. In Polyco Healthline Limited v. David Beatson (WIPO Case No. D2026-1893), the panelist denied the complaint brought against coshield.com, a domain used since 2020 to sell personal protective equipment in the very sector where the complainant has exploited its SHIELD trade mark since 1997, and despite a settlement agreement concluded between the parties in 2021. The decision turns on the moment of acquisition: created in 2014, the domain name appears to have changed hands in May 2020, at the outset of the COVID-19 pandemic, and the combination of “Co” and “Shield” could describe the business rather than target Polyco. The evidence being “finely balanced”, bad faith was not established. This article examines why trade mark infringement and cybersquatting are two paths that do not necessarily converge.

23 August 2026
Initially published on iptwins.com

Article Information

Author

Emmanuel Gillet

Publication Date

24 February 2013

Jurisdiction

Industry

Related Decision(s)

HCA 1659/2012Hong Kong Court of First InstanceEmagist Entertainment Ltd v Nether Games (Hong Kong) Ltd
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