(b) KPSs comments on the Administrations information paper entitled "Protection and Enforcement of Intellectual Property Rights in Hong Kong" and the effects of the transitional provisions in Schedule 2 to the Bill had been circulated to members vide LegCo Paper No. CB(1)1277/96-97; and

(c) Software Publishers Association, Hong Kong Film Directors Guild, Music Publishers Association of Hong Kong Limited, Pacific Satellite International Ltd. and a Mr Peter CHOY of the American Committee for Interoperable Systems had requested to meet with the Bills Committee.

I Confirmation of minutes of meeting

(LegCo Paper No. CB(1)1239/96-97)

2. The minutes of the meeting held on 20 March 1997 were confirmed.

II Meeting with deputations

3. The Chairman welcomed the deputations and invited them to express their views on the Bill.

Meeting with HMV Hong Kong (HMV)

(LegCo Paper No. CB(1)1263/96-97 and a further submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1309/96-97)

4. Mr Philip KUNG briefed members on HMVs submissions and said that as a leading international retail specialist of pre-recorded music and associated products, HMV had to maintain an active inventory of over 100,000 titles/selections in its stores at any point in time to satisfy consumer demands. As a result, HMV had to rely heavily on overseas sources to make up for the shortfall in local supply. A blanket restriction on parallel imports would seriously affect HMVs business and consumer choice. To address the issue, HMV proposed a mechanism whereby the exclusive licensee was given the first opportunity to supply, failing which the retailer might source that particular order and all future orders for that particular product through parallel importation to satisfy consumer demand. A time-limit of 48 hours was proposed because this was the current delivery time for regular HMV orders.

5. Mr KUNG responded to the concerns raised by the International Federation of the Phonographic Industry (Hong Kong Group) (IFPI) at the meeting of the Bills Committee on 7 April 1997 on HMVs proposal as follows -

(a) IFPIs claim that the marketing investment in new releases was unfairly exploited by parallel importers was unfounded because HMV only parallel imported old releases that were not available from local licensees.

(b) HMV did not parallel import local productions because local suppliers could readily supply all the titles. The investment and creativity of local artists were not jeopardised by HMVs parallel importation of non-available titles.

6. Mr KUNG and Ms Anna WU referred members to paragraph 1.4 of HMVs submission (LegCo Paper No. CB(1)1263/96-97) on the legal drafting of HMVs proposal. In reply to members questions, they made the following clarifications -

(a) HMV proposed to give a partial exemption to parallel import musical products when they were not available from local licensees. Subject to members view, this principle might apply to other products as well.

(b) Under the "first opportunity to supply" proposal, 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. However, members might refine the proposal by handling parallel importation on a case-by-case or annual basis, or by reviewing the availability of the product in question after a certain period of time. Meanwhile, HMVs Import Conversion Programme would continue to ensure that HMV would always place order with local licensees if stock was available. In fact, HMV preferred local suppliers as it would take longer (three to five days) and cost more to source the same product from overseas.

(c) The proposed time-frame of 48 hours was based on the standard practice of local distribution where stock was available. Reference had also been made to the Australian Governments proposal to deregulate parallel importation of musical products on condition of non-availability. The Australian proposal was in response to the Australian Price Surveillance Authoritys call for total deregulation of parallel importation of musical products.

7. The Deputy Secretary for Trade and Industry (DS/T&I) and the Director of Intellectual Property (D of IP) commented on HMVs proposal as follows -

(a) The proposal was unfair to the exclusive licensee who would be subject to the terms of agreement with the copyright owner. Parallel importers, on the other hand, were at liberty to source licensed products anywhere. The exclusive licensees legitimate interests would be prejudiced on the premise of conditions which might be beyond his contractual obligations. Moreover, a time-frame of 48 hours was not reasonable as the right-owner might have to make arrangements for reproduction of out-of-stock products.

(b) 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. Any exemption from the operation of a law which prohibited parallel imports should apply across the board and should not be confined to one specific category of work.

(c) Under HMVs proposal, should the exclusive licensee fail to meet market demands within a reasonable period of time, it would be open to other persons to obtain these works from anywhere in the world. This proposal might create uncertainty as the legal status of the copyright work would change and it was difficult to ascertain its status at a certain point of time.

8. Ms WU emphasised that parallel importation was fundamentally different from piracy. Parallel imports were legitimate goods made by the copyright owner in a place other than Hong Kong and were subsequently imported into the territory. It was thus unreasonable to regulate this activity. Moreover, despite the removal of criminal sanctions, retailers would be worse off should the Bill be enacted on the following reasons -

(a) 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 action directly against parallel importers.

(b) Due to complex commercial reasons, criminal and civil actions on parallel imports were rare. However, by making it actionable if the importer knew or had reason to believe that he was dealing with an infringing copy, the burden of proof on the plaintiff was less onerous. This being the case, it would be much easier for an exclusive licensee to act upon parallel imports.

9. In response, DS/T&I and D of IP clarified that the Bill had not proposed any new restrictions on parallel importation. On the contrary, it proposed to decriminalise parallel importation and clarify the position of exclusive licensees in taking civil actions against parallel importers in breach of exclusive licence agreements. Under the Bill, individuals within Hong Kong were entitled to parallel import copyright works from overseas for private use. The Bill also would not affect parallel importation of non-copyright products such as toys and cosmetics.

10. Members agreed to examine HMVs proposal further and its applicability to other copyright works if the proposal was considered feasible. At their request, the Administration agreed to consult the film sector as to whether the proposal was workable and provide a co-ordinated response to the submissions made by deputations.

Meeting with the Hong Kong Record Merchants Association (the Association)

(LegCo Paper No. CB(1)1282/96-97(02))

11. Mr LAM Yiu briefed members on the Associations submission and drew members attention to the following impacts of the proposal to decriminalise parallel imports -

(a) It would lead to a sharp increase in the sale of parallel products in the street and to monopoly by international chain stores. Both developments would affect the local record industry and result in closure of businesses.

(b) It would be extremely difficult to distinguish parallel imports, thus opening a loophole for counterfeits being disguised as permitted imports.

12. In reply to members questions, Mr LAM and Mr YUEN Mi-chuen supplemented that more than 70% of records sold in Hong Kong were local productions. To promote sales in China, manufacturers normally offered products at a low price. Insufficient protection against parallel imports would result in flow-back of products. The copyright owner would find it difficult to compete with parallel importers because the latter would have a "free ride" on any marketing done by the former.

13. Some members were of the view that consumers should not be denied access to products if licensees could not fulfil their obligation to supply these within reasonable commercial terms. Parallel importation should not be criminalised for the mere purpose of guaranteeing a reasonable return to licensees. As local suppliers would be given the first opportunity to supply and they could similarly import from overseas to satisfy orders, HMVs proposal should have no impact on their rights.

14. As regards HMVs proposal, Mr LAM considered it unreasonable as there could be many reasons for non-fulfilment of orders within 48 hours. It was unfair for one incident of non-fulfilment to deprive the right holder of his exclusive rights. It was against suppliers interest to withhold stock. Whilst stock lasted, goods could be supplied within twelve hours. However, it would take at least a week to supply the goods to retailers if the product was out of stock and had to be manufactured.

Meeting with the Hong Kong Institute of Trade Mark Practitioners (HKITMP)

(LegCo Paper No. CB(1)1282/96-97(01))

15. Mr Tom HOPE briefed members on HKITMPs submission. In gist, while HKITMP welcomed enactment of the Bill before 1 July 1997, it had the following comments -

(a) HKITMP was extremely concerned that the Government had retained the statutory award provision for employee works at clause 14(2). HKITMP believed that this was contrary to the Agreement on Trade-Related Aspects of Intellectual Property Rights of the World Trade Organisation (the TRIPS Agreement) because it imposed a compulsory licensing scheme and denied the possibility of contracting out the obligation to pay "an award". It was irresponsible to create such a mandatory obligation without at least clarifying the many inherent ambiguities of the provision. The same comments applied to clause 15(2) concerning commissioned works.

(b) Clause 65 created an exception to the unauthorised "making available" of copies of a work. Although it was under the heading of "Works in electronic form" and should only apply to the electronic environment, i.e. the Internet, its wording contained no express restriction to that effect. It was so ambiguously worded that it appeared to neutralise the effect of clause 26 altogether by giving a general right to make a copy of a work for viewing or listening regardless of whether or not the copy was "made available" with the authorisation of the copyright proprietor.

(c) HKITMP welcomed the fact that the affidavit could be used in civil as well as criminal proceedings. It also endorsed the requirement to give more particulars of copyright subsistence and ownership in the affidavit. However, it felt that such a requirement should be kept to the minimum. It also considered it undesirable that the affidavit might only be tendered in evidence if the defendant did not require the attendance of the deponent of the affidavit because the defendant would as a matter of course require the deponent to be cross-examined in court to frustrate the plaintiff or the prosecutions case. To plug this possible loophole, an affidavit should be admitted as prima facie evidence of the truth of its contents, subject to a discretion of the court to require the attendance of the witness where the defendant successfully persuaded the court that the ownership or subsistence of the copyright was genuinely in issue.

(d) The inherent ambiguity of the wording of clause 35 did not dispel the uncertainty as to when a parallel import might infringe copyright under the current law. The uncertainty had been succinctly set out in Attachment A to HKITMPs submission. Given the contentious nature of the issue, HKITMP proposed that the clause should be reworded to provide a simpler test of whether parallel importation had been authorised.

(e) Articles in transit should not be excluded from application of the Bill. Empowerment of CED to seize goods in transit did not necessarily disrupt the free flow of goods through Hong Kong.

16. To improve the wording of clause 35, Mr HOPE proposed to rephrase it according to the principle that knowingly dealing with unauthorised copies was wrong. It made no difference as to whether those copies were made locally or imported. As long as a copy was destined neither to fulfil the purpose authorised by the legislature nor licensed by the rights holder, it would be unauthorised and therefore "infringing". In other words, whether the making of a copy was infringing should depend on the nature and purpose of the copy, not on whether the hypothetical making was authorised or not.

17. Members agreed that the Hong Kong Internet Service Providers Association should be invited to respond to HKITMPs comments in paragraph 15(b) above.

(Post-meeting note : a letter was sent to the Association on 17 April 1997 to invite comments.)

18. In view of the complexity of the issues raised, the Administration agreed to provide a written response to HKITMPs submission. D of IP emphasised that the Bill was consistent with the TRIPS Agreement. In introducing a limitation provision in the Bill to balance the rights of the author and the commissioner as a consumer or a user, the Administration had observed Article 13 of the TRIPS Agreement which stipulated that "members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder".

19. The Chairman reminded members of the Bills Committee scheduled for 18 April 1997 at 8:30 am.

Provisional Legislative Council Secretariat
23 July 1997

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Bills Committee on Copyright Bill

Minutes of meeting held on Wednesday, 16 April 1997, at 8:30 am in the Chamber of the Legislative Council Building

I Confirmation of minutes of meeting

II Meeting with deputations

Meeting with HMV Hong Kong (HMV)

Meeting with the Hong Kong Record Merchants Association (the Association)

Meeting with the Hong Kong Institute of Trade Mark Practitioners (HKITMP)

Bills Committee on
Copyright Bill

Minutes of meeting
held on Wednesday, 16 April 1997,
at 8:30 am in the Chamber of
the Legislative Council Building