PLC Paper No. CB(1)51/97-98
(These minutes have been
seen by the Administration
and cleared with the Chairman)
Ref: CB1/BC/14/96

Bills Committee on Copyright Bill

Minutes of meeting held on Monday, 5 May 1997, at 12:30 pm in the Chamber of the Legislative Council Building

Members present :

    Hon Mrs Selina CHOW, OBE, JP (Chairman)
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon Howard YOUNG, JP
    Hon CHAN Kam-lam
    Dr Hon LAW Cheung-kwok
    Hon Margaret NG
    Hon SIN Chung-kai

Members absent :

    Hon Ambrose LAU Hon-chuen, JP (Deputy Chairman)
    Hon Ronald ARCULLI, OBE, JP
    Dr Hon HUANG Chen-ya, MBE
    Hon Fred LI Wah-ming
    Hon Henry TANG Ying-yen, JP
    Dr Hon Philip WONG Yu-hong

Public officers attending :

    Mr Augustine CHENG
    Deputy Secretary for Trade and Industry
    Mr Peter CHEUNG
    Deputy Director of Intellectual Property
    Mr Patrick NIP
    Principal Assistant Secretary for Trade and Industry
    Ms Elizabeth TSE
    Principal Assistant Secretary for Trade and Industry
    Mr Vincent Y K POON
    Assistant Commissioner of Customs and Excise
    Mrs Spring FUNG
    Deputy Principal Crown Counsel
    Mr Johann WONG
    Assistant Secretary for Trade and Industry

Clerk in attendance:

    Miss Odelia LEUNG
    Chief Assistant Secretary (1)1

Staff in attendance :

    Ms Kitty CHENG
    Assistant Legal Adviser 2
    Ms Sarah YUEN
    Senior Assistant Secretary (1)1
Meeting with the Administration

1. The Chairman drew members’ attention to the following -

  1. two additional meetings had been scheduled for 13 May 1997 at 4:30 pm and 14 May 1997 at 8:30 am; and

  2. the Bills Committee had received Business Software Alliance’s three papers entitled "Case Note on Aztech Systems Pte Ltd. v. Creative Technology Ltd.", "Fair Dealing - the US Experience" and "Self Help Remedies", KPS’s response to the Administration’s papers entitled "Check List of Major Concerns Raised by Consultees" and "Copyright Owners and Exclusive Licences", and a submission from Video Software Dealers Association informing the Bills Committee of its revised position to support the stance of Motion Picture Association (LegCo Paper Nos. CB(1)1442 and 1460/96-97).

Meeting with the Administration

(LegCo Paper Nos. CB(1)1434/96-97(02) and the Administration’s paper entitled "Proposed Alternative Treatment for Parallel Importation of Copyright Articles" tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1498/96-97)

Parallel importation

2. The Deputy Secretary for Trade and Industry (DS/T&I) summarised the arguments for and against continuing with the present restrictions on parallel imports and briefed members on the Administration’s proposed alternative treatment for parallel importation of copyright articles elaborated in its paper (tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1498/96-97). He explained that as there was no international consensus on the subject, it was desirable to create a regime that best suited Hong Kong’s particular position as a major exporter and consumer of copyright products. To achieve the best balance of different views, the Administration proposed that parallel importation should remain a criminal as well as a civil infringement within 12 months after first publication of the copyright work anywhere in the world. Within this period, anybody, including the copyright owner and the exclusive licensee, could lodge a complaint with the enforcement authorities. Thereafter and throughout the copyright term, civil remedies would continue to be available to the copyright owner. The exclusive licensee, however, would have to join the copyright owner in any action against parallel importers. As a balance against the retention of criminal sanction for the first 12 months, the Administration also proposed to provide a defence for parallel importing if the owner or the exclusive licensee had failed in meeting market demands within a specified period. Such an arrangement was a completely new concept. As the world was closely following developments in Hong Kong. Hong Kong would set a precedent in copyright protection if the above proposal was adopted.

3. In response to members’ questions, DS/T&I and the Deputy Director of Intellectual Property (DD of IP) advanced the following reasons for proceeding with the above proposal out of various options -

  1. The proposal to restrict the exclusive licensee’s right in taking statutory cause of action directly against parallel importers reflected the purpose of copyright law to protect copyright owners rather than the licensee’s economic interests.

  2. Compared with HMV’s proposal on "first opportunity to supply", under which restrictions on parallel importation would be lifted upon one incident of failure on the part of the copyright owner or the exclusive licensee to supply the product, the proposal would have the advantage of resolving parallel importation on a case-by-case basis.

  3. The proposal on "first opportunity to supply" was unfair to the exclusive licensee who would be subject to the terms of agreement with the copyright owner whilst parallel importers were at liberty to source licensed products anywhere, the exclusive licensee’s legitimate interests would be prejudiced on the premise of conditions which might be beyond his contractual obligations.

  4. It was not appropriate for Hong Kong to follow the example of Australia to treat different categories of copyright works differently. For the sake of transparency and simplicity, it was important to have a general formula applicable to all types of copyright works. In the modern environment where there were unending technological developments and a greater merging of one category of work into the body of another, it would defeat the benefits of the Bill to divide the categories of works on a technological basis. In fact, one of the reasons for putting Australia on the US Special 301 Watch List was its differential treatment on parallel importation of products.

4. Responding to members’ questions on details of implementation, DD of IP and the Assistant Commissioner of Customs and Excise explained that co-operation of the copyright owner or the exclusive licensee in providing evidence was necessary for initiation of criminal actions against parallel importers. The prosecution would need to prove that the importer "knowingly" parallel imported the products for trade purposes. The copyright owner and the exclusive licensee were free to initiate civil action against the parallel importer alongside with the criminal action.

5. To clarify members’ queries, DS/T&I and DD of IP highlighted the following differences among the existing law, the present proposal and the proposal in the Bill regarding treatment of parallel importation -

  1. Under the existing law, criminal sanctions were available against parallel importation. While the Bill proposed decriminalisation, the present proposal sought to reinstate criminal sanctions against parallel importation within 12 months after first publication of the copyright work anywhere in the world.

  2. Civil remedies were available in all three scenarios. However, it was nebulous in the existing law as to whether the exclusive licensee had a statutory cause of action directly against parallel importers because the case law was unclear as to whether the exclusive licensee had proprietary interests in the work. The Bill elevated the position of the exclusive licensee in that aspect by conferring an implicit proprietary interest, hence his right to take statutory cause of action directly against parallel importers. The present proposal would clarify that although the exclusive licensee had a clear statutory cause of action against parallel importation, procedurally he had to join the copyright owner as plaintiff unless with the leave of the court. This would restrict the exclusive licensee’s right in taking actions against parallel importers but such restrictions were considered necessary to balance against the reinstatement of criminal sanctions.

6. On differences between the rights of the copyright owner and the exclusive licensee, DD of IP further explained that while the copyright owner had a proprietary right, the exclusive licensee’s rights in the copyright work which came from the copyright owner were relatively restricted and were defined in the contract between them. The licensee, therefore, had contractual interests only and had no statutory cause of action directly against parallel importers unless with the leave of the court, which would be granted under very special circumstances, for example, where the copyright owner could not be found. As the relationship between the copyright owner, the exclusive licensee and the parallel importer should best be determined in court, the Administration considered it advisable to clarify in the present proposal the procedural right of the owner and the licensee in taking civil actions.

7. In reply to members’ questions on para. 5(a) above, DD of IP explained the rationale for limiting the provision of criminal sanctions against parallel importation to 12 months as follows -

  1. Unlike other property rights, intellectual property protection through criminal remedies was subject to more restrictions on account of the need to balance the interests of various parties. Discussions with various trades, including the film and music industries, had indicated that the most critical period of economic exploitation of a copyright work (especially for sound recordings and films ) was usually the first 12 months after the work was published or released in the market. Criminal remedies were made available during this period to enable the copyright owner and the exclusive licensee to have the fullest protection. Thereafter, they could still resort to civil actions to protect their rights.

  2. From the consumers’ perspective, the 12-month provision of criminal sanction against parallel importation would encourage both the copyright owner and the exclusive licensee to make available their products in the market earlier in order to satisfy the demands and to take advantage of the enhanced copyright protection.

8. DD of IP further explained that since copyright was regarded as a property right, the Administration considered it appropriate to comply with the international standard of allowing the copyright owner to seek protection of his own rights through civil actions throughout the copyright term. At members’ request, the Administration agreed to provide a paper to elaborate on the above reasons and compare in tabular form criminal and civil remedies against parallel imports available to copyright owners and exclusive licensees within 12 months from the date of first publication of a copyright work and thereafter under the current law, the Bill and the present proposal.

Decompilation

(LegCo Paper No. CB(1)1446/96-97 and Miss Margaret NG’s note on "Decompilation: the US situation" tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1498/96-97)

9. Miss Margaret NG briefed members on her note on "Decompilation: the US situation" in response to the Administration’s paper entitled "Decompilation of Computer Software and the Fair Use Provision in the United States" (LegCo Paper No. CB(1)1446/96-97). She explained that the US Copyright Act did not have a clause dealing specifically with decompilation. Section 117 which dealt with computer program exception applied only when a user was first installing a legal copy to his machine. In the widely quoted case of Sega Enterprises v. Accolade, the Ninth Circuit held that a limited right to decompile could be inferred from the fair use provision as "research". Thus, the limited right to decompile a program in the US was not , as the Administration concluded in its paper, derived from section 117 but from section 107, which allowed copies for purposes such as "criticism, comment, news reporting, teaching, scholarship, or research". If the same reasoning was adopted for Hong Kong, a Hong Kong court would be able to infer a decompilation exception from the fair dealing provision, ie, clauses 37 to 39 in the Bill. If so, the present clause 60, which permitted decompilation for the purpose of interoperability, would be unnecessary.

10. In response, DD of IP made the following points -

  1. Interpretation of the scope and application of fair dealing provisions by the US court was different from the UK court. It was easier to obtain permission to decompile a computer program under the premise of fair use in the US. If members were of the view that decompilation should be a permitted act under fair dealing, clause 37 would need to be expanded.

  2. The attitude of large software companies towards decompilation changed with their needs. Decompilation was normally permitted at the early stage of technological development to build up accepted standards in the industry. Thereafter, when market dominance was achieved, they tended to object to decompilation for fear of competition.

11. Members had divergent views on whether decompilation should be a permitted act to achieve interoperability. Some agreed with the Administration that it was necessary as a safeguard against market dominance; others maintained that the copyright owner should have the right to deny access to his copyright work.

12. Commenting on a member’s proposal to permit decompilation on proven evidence that it was for the permitted objective of interoperability, DS/T&I and DD of IP said that the court would need expert advice in considering whether or not decompilation was conducted purely for the purpose of achieving interoperability or had conflicted with a normal exploitation of the work. Organisations like the American Committee for Interoperable Systems claimed that the permitted objective of interoperability was self-evident because decompilation required great efforts which would only be justified for such a purpose. Detailed written records of the decompilation process had to be kept and normally decompilation and subsequent development of a product on the basis of the information obtained were done by different teams.

13. Members opined that if decompilation was accepted as a permitted act, clause 60(4), which permitted contractual restrictions, should be deleted. However, should it be agreed that decompilation should not be expressly allowed, then clause 60 should be removed altogether. A member said that retention of clause 60 might send a wrong message that Hong Kong was not committed to fighting against copyright infringements.

14. While agreeing that the application of clause 60 which was subject to contractual restrictions was practically very narrow, DD of IP pointed out that according to international agreements, copyright in literary works should be treated as proprietary right to which there should be no or very limited exceptions. Clause 60(4) had been included in the Bill in consideration of views expressed during consultation on the draft Bill.

15. The Chairman reminded members that the next meeting of the Bills Committee would be held on Thursday, 8 May 1997, at 2:30 pm to commence clause-by-clause examination of the Bill.

16. The meeting ended at 2:25 pm.

Provisional Legislative Council Secretariat
16 July 1997

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