(The Administrations information paper and the Motion Picture Associations letter tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1622/96-97)

Members deliberated on the outstanding issues of the Bill.

Parallel imports

2. The Chairman invited the Administration to comment on the different proposals put forward by various interested parties on the provision of criminal sanction for parallel importation of copyright articles. In response, the Administration explained the rationale for limiting the provision of criminal sanction against parallel importation to 12 months as follows -

Submissions from 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. It was thus appropriate for the introduction of criminal remedies during this period to provide the fullest protection to the copyright owner and the exclusive licensee. Thereafter, civil remedies were still available.
From the consumers perspective, a 12-month period of criminal sanction against parallel importation would have the effect of encouraging 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.
The most important element of the 12-month protection was whether the period was reasonable to enable the sole distributor to maximise his opportunity to exploit the product economically as he would have to secure the co-operation of the copyright owner in taking any civil action against an infringer thereafter.

3. The Director of Intellectual Property (D of IP) supplemented that it was impractical to count the 12-month period for each format of release as some parties had proposed. In the modern environment where there was unending technological development and a greater merging of one category of work into the body of another, it was difficult to envisage the kinds of different formats that technology might develop in due course. Allowing copyright to subsist for a duration for each and every different technical format in which it was exploited would lead to undue prolongation of the protection period. Moreover, copyright only sought to protect the intangible property manifested in the medium, not the medium per se. To protect the medium per se would set a precedent in copyright law.

4. A member opined that a 12-month criminal sanction period would only suffice to protect theatrical and home video releases. It should be extended to provide protection for releases in other formats to ensure fairness to all categories of exclusive licensees, be they cinema operators or television broadcasters. Another member also called for a longer period of criminal sanction to accommodate marketing strategy to release seasonal films at appropriate times. Since reinstatement of criminal sanction was intended to protect local industries, the period should be sufficiently long to serve the purpose.

5. In response, the Deputy Secretary for Trade and Industry (DS/T&I) pointed out that the Administration had already taken into consideration Hong Kongs particular position as a major exporter and consumer of copyright products, especially for films and sound recordings. According to the Motion Picture Associations submission, protection against parallel imports was most crucial for theatrical and home video releases. The proposed period was a right balance. Moreover, the Administration felt that the duration of criminal sanctions should be so determined as to accommodate general trade practices, not special marketing strategies. As far as local films were concerned, there should not be any difficulty in finding screens for theatrical release in 12 months.

6. DS/T&I further explained that the policy objective was to strike a fair balance of interests among copyright owners, exclusive licensees, distributors and consumers. Since the Bill proposed to decriminalise parallel importation, the present proposal was already a compromise on the part of the Administration.

7. In reply to members questions, DS/T&I also clarified that the provision of criminal sanctions for parallel importation of musical products was the same as that for films as the investment involved was similar.

Exercise of concurrent rights

8. Members noted that the Administration would move a Committee stage amendment (CSA) to specify the factors to which the court might take into account in granting leave to an exclusive licensee to proceed with civil actions against parallel importers without the copyright owner joining as a plaintiff.

"Reason to believe" (clause 30)

9. DS/T&I drew members attention to the L A Gear Inc. v. Hi-tech Sports case tried at the Court of Appeal of the United Kingdom in November and December 1991. In this case the judge interpreted the expression "reason to believe" as follows: "Nevertheless, it seems to me that reason to believe must involve the concept of knowledge of facts from which a reasonable man would arrive at the relevant belief. Facts from which a reasonable man might suspect the relevant conclusion cannot be enough. Moreover, as it seems to me, the phrase does connote the allowance of a period of time to enable the reasonable man to evaluate those facts so as to convert the facts into a reasonable belief." In DS/T&Is view, the case should suffice to alleviate any concern over the definition of "reason to believe" as it had clearly shown that the innocent would not be easily or unfairly victimised.

10. Some members referred to the statement made by another lord justice at the trial of the case regarding the relation between different remedies and the state of knowledge. Noting that the state of "reason to believe" could change with the state of knowledge after proceedings had started and that the change could lead to further consequences, they considered it unfair for the defendant to suffer loss as a result of financial commitments made before he had sufficient knowledge to have "reason to believe" that he was dealing with infringing copies. This was particularly so as parallel imports were genuine products and without sight of the licence agreement, an importer could not know for certain whether he was dealing with parallel imports. To complicate things further, the copyright owner or the exclusive licensee might refuse to co-operate in giving proofs of their rights. In view of the great number of titles involved, some members opined that a registry of exclusive licensees should be established to facilitate importers to make reasonable enquiries on the legality of products they intended to import.

11. In response, the Director of Intellectual Property (D of IP) emphasised the following points -

The general principle of copyright law was that a copyright owner should not be obliged to take any procedural step to enjoy or enforce his right. It was therefore a standing practice that any person who wanted to deal in any way with a copyright product should make certain efforts to ascertain the legality of the product.
As parallel importation was defined as a secondary infringement in the Bill, the fact that parallel imports were genuine products was irrelevant. Albeit the difficulties, a person dealing with copyright products had the responsibility to make enquiries and ascertain the status of the products before entering into contractual commitments.
In the absence of an exclusive licensee, the importation right still belonged to the copyright owner under the Hong Kong law. It followed that an importer should always seek prior approval from either the exclusive licensee or, in the absence of one, the copyright owner, before he attempted to deal in any copyright works.

12. Miss Margaret NG echoed the Administrations points and opined that the issue should be approached under the premise that the importer was dealing with something owned by somebody. If he wanted to deal with it, he should try to find out who owned it. Should any difficulties arise in the process, instead of requiring the owner to bear the onus to prove his ownership, the importer should decide for himself whether to run the risk in dealing with the product. In the end, this was a commercial decision.

13. Some members referred to MPAs letter tabled and opined that to enhance transparency, the Bill should clarify the circumstances under which a defendant might claim that he had no reason to believe that he was dealing with infringing copies. These should include inter alia whether the defendant had made enquiries with a relevant trade body in respect of that category of work and whether the response, if any, to those enquiries, was reasonable and timely. Only in this way could a fair system be said to be established to balance the interests of all parties.

14. In response, the Deputy Director of Intellectual Property (DD of IP) said that as long as the defendant had exercised due diligence in making enquiries to ascertain the status of the article he intended to import, he should have a defence. However, if he knew certain primary facts but chose to turn a blind eye, he might be taken to have "actual knowledge" as shown in case law. However, cases also showed that if the plaintiff filed his writ too early, he might lose his case. The defendant would therefore be allowed a reasonable period of time to evaluate the primary facts.

15. Members then examined the circumstances under which a defendant might claim that he had no reason to believe that he was dealing with infringing copies. A member opined that the giving of notice to import in a newspaper or on the Internet might suffice. Another member emphasised that due diligence should be assessed in the context of trade practices and might vary with different situations. In short, the question was not whether any particular act had been done but whether one had done his best and had taken all reasonable steps to ascertain the situation.

16. Members noted that the Administration would not introduce any CSA to clause 30.

Clause 81 (concern raised by the Hong Kong Hotels Association in its submission tabled at the meeting on 15 May 1997 and circulated to members vide LegCo Paper No. CB(1)1607/96-97)

17. As regards the difference in wording between clause 81 in the Bill and clause 78 of the draft Bill, DD of IP explained that the present drafting of clause 81 narrowed the definition of copyright exception of free public showing of programmes. The basic principle for providing a copyright exception was to confine this to special circumstances that would not affect the normal exploitation of the work by the copyright owner or unreasonably prejudice his legitimate interests, hence the exclusion of hotels from the scope of this exception. In fact, clause 81 was not new; there was a similar provision in the existing law. The Bill only sought to clarify that copyright exception was confined to free public showing in charitable organisations. Institutions other than these should be treated the same as other copyright users and be required to pay royalties. Noting that this was a current practice under the existing law, members accepted the clause as it was but requested the Administration to clarify the situation with the Hong Kong Hotels Association.

Admin.

Decompilation

18. DS/T&I briefed members on the draft CSAs regarding decompilation of computer programs. Members noted that the Administration would delete clause 60 to remove copyright exception for decompilation of computer programs and substitute clause 37(3) which excluded decompilation of computer programs from fair dealing with a new subclause specifying the factors to be considered in determining whether or not any dealing with a work was "fair". The new subclause was modelled on the US Copyright Act but with modifications to suit local conditions. To stipulate the general overriding principle, a new subclause following the language of Article 9.2 of the Berne Convention (1971) would also be added to clause 36 to set out the primary considerations in determining whether or not an act would be permitted under copyright. Members noted that the CSAs had been agreed to by the software industry.

Non-infringing accessories

19. DS/T&I and DD of IP briefed members on the draft CSAs regarding copyright in labels attached to non-copyright goods. Members noted that the Administration would introduce CSAs which were modelled on a draft provision in the Australian Copyright Act to clause 35 to stipulate that copyrights which subsisted in labels or packaging ("accessory work") of non-copyright goods would not be infringed by parallel importation of such goods into Hong Kong if the economic value of the goods was not predominantly attributable to the economic value of such accessory works. The CSAs would also clearly define the scope of "accessory work" which would be extended to cover manuals, warranties and written instructions incidental to articles provided on their sale. The Administration considered that the amendments would adequately address the issue.

Clause 82

20. Members noted the CSAs regarding the provision of a revocable implied consent for Satellite Master Antenna Television operators to re-transmit non-encrypted broadcasts.

II Any other business

21. DS/T&I and DD of IP advised that since copyright and registered designs were interrelated, in anticipation of enactment of the Registered Designs Bill, new clauses would have to be added to the Bill to stipulate that "registrable" but unregistered designs should enjoy copyright protection for 15 years from the date of the first industrial application of such a design. For registered designs, the copyright protection would last for a maximum of 25 years as provided for under the Registered Designs Bill. The addition was necessary to encourage designers to register their designs for protection and to rationalise the two different systems of intellectual property protection. In reply to members questions, DD of IP advised that the new clauses would be added to clause 85 and Schedule 2.

22. Members tentatively agreed that the Bill resume Second Reading debate at the last Sitting and a report on the deliberations of the Bills Committee be submitted to the House Committee for consideration on 6 June 1997. The Administration undertook to provide the draft CSAs in both English and Chinese by 23 May 1997 for timely circulation to members. To examine the draft CSAs and to round up deliberations of the Bills Committee, members scheduled two more meetings on 29 and 30 May 1997 at 10:30 am and 8:30 am respectively.

Admin

23. The meeting ended at 2:15 pm.

Provisional Legislative Council Secretariat
16 July 1997

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