PLC Paper No. CB(1)110
(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 Friday, 18 April 1997, at 8:30 am
in the Chamber of the Legislative Council Building

Members present :

    Hon Mrs Selina CHOW, OBE, JP (Chairman)
    Hon Ambrose LAU Hon-chuen, JP (Deputy Chairman)
    Hon Ronald ARCULLI, OBE, JP
    Hon Fred LI Wah-ming
    Hon Howard YOUNG, JP
    Hon CHAN Kam-lam
    Hon Margaret NG
    Hon SIN Chung-kai

Members absent :

    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Dr Hon HUANG Chen-ya, MBE
    Hon Henry TANG Ying-yen, JP
    Dr Hon Philip WONG Yu-hong
    Dr Hon LAW Cheung-kwok

Public officers attending :

Mr Augustine CHENG
Deputy Secretary for Trade and Industry
Mr Stephen SELBY
Director of Intellectual Property
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

Attendance by invitation :

Business Software Alliance

Mr Emery SIMON
Vice President - Policy
Ms Valerie COLBOURN
Vice President
Mr Robert ARNOLD
Partner
Baker & McKenzie
Ms Ophelia CHEUNG
Chairman & Managing Director
Cheung-Macpherson & Co., Ltd.
Mr Edward GILLESPIE
Programme Manager
Intellectual Property

Counsel of Software Publishers Association

Mr Kenny WONG
Ms Grace CHU

Music Publishers Association of Hong Kong Ltd.

Mr John SWAINE Jr.
Chairman of The Media Bank Group
Miss Susanna NG
Chairman

Hong Kong, Kowloon & New Territories Motion Picture Industry Association

Mr MA Fung-kwok
Vice Chairman
Mr TSUNG Wan-chi, Woody
Chief Executive
Mr W M Maurice LEE
Partner, Robertson Double & Lee
Consultant
Mr Richard FAWCETT
Foreign Lawyer, Robertson Double & Lee
Consultant

Hong Kong Film Directors’ Guild

Mr NG See-yuen
Permanent Honorary President

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

The Chairman drew members’ attention to the following -

  1. the International Federation of the Phonographic Industry (Hong Kong Group) had provided a table on remedies available in countries with copyright laws regulating parallel imports at LegCo Paper No. CB(1)1286/96-97(01);

  2. on the instruction of members, the Secretariat had forwarded the submission of the Hong Kong Institute of Trade Mark Practitioners to the Hong Kong Internet Service Providers Association for comments; and

  3. Hero Investment Limited, The Chinese General Chamber of Commerce and Copyright Agency Limited had each made a written submission to the Bills Committee at LegCo Paper Nos. CB(1)1205, 1248 and 1312/96-97 respectively.

Meeting with deputations

2. The Chairman welcomed the deputations and invited them to comment on the Bill.

Meeting with Business Software Alliance (BSA)

(LegCo Paper Nos. CB(1)1288/96-97(01) and (02))

3. Mr Emery SIMON stated that BSA supported the Bill but was disappointed at the proposal to introduce a decompilation right by enactment of clause 60. He called upon members to delete clause 60 for the following reasons -

  1. Decompilation was piracy in disguise. It was a term used to describe the process of converting a computer program from the form in which it was used by a customer in a computer (object code) to the form in which the computer programmer wrote it (source code). Since the source code was the essence of a computer program, decompilation was tantamount to stealing the blueprint of the software developer who had invested considerable efforts and skills in developing the program. At members’ request, BSA would provide a note on a case tried in Singapore’s Court of Appeal (the Singapore case) to illustrate this point.

  2. The right of decompilation would not promote the development of Hong Kong’s software industry or economy. Software developers were compelled by market forces to release information to ensure interoperability of their products. Creating a special exception to increase the availability of interface information would interfere with the efficient functioning of the market and tip the scales in favour of imitators and software pirates. As international software companies were reluctant to operate in a market with insufficient copyright protection, few would be willing to invest in Hong Kong. Concurrently, fewer localised versions of foreign products would be available and both the spirit of innovation and consumer interests would be adversely affected.

  3. Decompilation for commercial purpose was purely a means used by competitors to displace each other and as such should not be legitimised. As for consumers, a balance between their rights and those of the right owners was already achieved in the Bill by the permission for limited decompilation in the context of fair dealing. Since fair dealing took into consideration a number of factors including the purpose, the amount of material taken, etc., it should not be a general exception but should be granted on a case-by-case basis.

4. Mr SIMON disagreed with the claims of some software companies that decompilation would ensure interoperability among computer programs and was in line with the UK Copyright, Designs and Patents Act 1988 (CDPA). He substantiated his position with the following reasons -

  1. Decompilation was not the only way to achieve interoperability. Interoperability had been achieved constantly and pervasively through licensing on commercial terms. Copyright owners usually made available information necessary to create interoperable programs to responsible software developers because making their products more compatible and thus more marketable would be in their interest. Decompilation was resorted to because it was cheaper than obtaining a licence and easier than developing a new program.

  2. The international trend was moving away from permitting commercial decompilation. Apart from the European Union (EU), no other jurisdiction in the world provided for a statutory right of decompilation. EU adopted the Software Directive only because some of its members did not have the fair dealing concept in their laws. Being an EU member, UK was obliged to adopt the Directive, but there was no need for Hong Kong to follow suit because the Bill already permitted decompilation under its fair dealing provisions.

5. In reply to members’ questions, Mr SIMON supplemented the following information -

  1. Whilst clauses 60(2) to (4) were meant to restrict the circumstances in which decompilation might take place, the wording would lead to uncertainty which would make it difficult for the court to interpret the legislative intent.

  2. Both the Indian government and the local software industry were strongly opposed to decompilation. Since decompilation involved the making of an unauthorised copy and was by definition a prohibited act, unless the statute expressly permitted it, countries that did not expressly permit decompilation by way of a statutory exception could be taken to be opposed to decompilation.

  3. Copyright laws protected expressions, not ideas. If the extraction of a particular piece of code was indispensable, that code should be an unprotectible idea and the fair dealing provisions in the Bill could adequately protect its decompilation. Clause 60(2)(a) which provided for an indispensability test was a redundant statement of a concept already enshrined in the fair dealing provisions and would only lead to confusion. If clause 60 was deleted, clause 37(3) which excluded decompilation from fair dealing should also be deleted.

  4. Most software transactions were international. Although licensing agreements could prohibit decompilation, if Hong Kong’s law differed from other places, confusion would arise as to which law should apply.

6. In reply to a member’s question, Ms Valerie COLBOURN explained that under section 100 of CDPA, self-help remedies were available to enable right-holders to seize infringing copies from hawkers without a court order. BSA suggested that such self-help remedies should be available in Hong Kong but with certain safeguards. At members’ request, BSA would provide a note on the subject for members’ reference.

Meeting with Software Publishers Association (SPA)

(LegCo Paper No. CB(1)1311/96-97)

7. Mr Kenny WONG briefed members on SPA’s submission. SPA supported BSA’s position as regards decompilation. He supplemented the following points -

  1. Landlords should be held liable for knowingly allowing software piracy activities in their premises. Landlords’ liability as provided for in clause 33 should be expanded to cover all types of infringing acts on any premises. A plaintiff could serve a letter to the landlord drawing his attention to the infringement. Should the infringing activities continue, it could be taken as proof of the landlord’s knowledge of the use of his premises for the activities.

  2. Civil damages under the current law were always inadequate because of difficulties in gathering evidence to substantiate large-scale infringement. To address this, statutory damages should be awarded against infringers in civil proceedings.

8.Mr WONG and Ms Grace CHU then highlighted the importance of copyright protection in Hong Kong. They explained that according to SPA’s international data programs, revenues from legitimate software licensing in Hong Kong in 1996 were around US$30 million. SPA and BSA estimated that 65% of all business application softwares used in Hong Kong in 1996 were illegal copies, costing US software companies more than US$89 million loss in revenue. Despite the gravity of the problem, SPA members encountered great difficulties in enforcing copyrights in Hong Kong as described in Appendix I to SPA’s submission. An expansion of landlord’s liability in clause 33 was urgently needed.

Meeting with the Music Publishers Association of Hong Kong Limited (MPAHK)

(LegCo Paper No. CB(1)1288/96-97(04))

9. Mr John SWAINE briefed members on MPAHK’s position on the Bill. In gist, MPAHK supported retaining criminal sanctions against parallel importation of musical products on the following grounds -

  1. Parallel importation would threaten the survival of the music industry. Musical compositions were the end products of investment of time, energy, talent, and money of the music publishing industry. Decriminalisation of parallel importation would weaken protection and affect supply of new musical compositions.

  2. From a legal point of view, copyright was a property and should be treated as such. A composer was entitled to restrict exploitation of his song as he saw fit because he was the owner of that song. Parallel importation disregarded such rights.

  3. From an operational point of view, parallel importation would render futile the sophisticated exclusive licensing system developed by the music industry for the administration of copyrights.

  4. From a moral perspective, parallel importation should not be condoned. There was no dispute on importing products containing intellectual property whose exploitation in a given territory had not been permitted by the owner. This act wilfully abrogated a copyright owner’s right and was illegal as a matter of civil and criminal law. Parallel importation was also parasitic because it did not supplement in any way the industry that created the copyright works but only arose out of the wish to make more profits.

  5. Historically parallel importation had been considered wrong for over 300 years. The value of intellectual property to its owner and the need to deter those who sought to undermine that ownership had not diminished over the last three centuries. On the contrary, the importance of intellectual property and the need to protect it increased with the growing sophistication of modern society.

10. Members opined that HMV’s "first opportunity to supply" proposal might balance copyright holders’ interests against those of consumers. The proposal might secure better protection for copyright owners as they would have the first opportunity to supply. If a licensee was able to maintain constant supply in the market, he should have no cause for alarm. At members’ invitation, Mr SWAINE commented on HMV’s proposal as follows -

  1. The music industry was presently controlled by a number of large retailers which had risen to a dominant position by illegally parallel importing copyright products into Hong Kong. Although right owners had been reluctant to take them to court to avoid jeopardising relationships, they did not favour weakening the law to legitimise parallel importation under HMV’s proposal. In fact, the current law awarded sufficient protection to licensees. The problem lay with retailers who did not take the law seriously and never contacted local licensees to ascertain if they could parallel import the products. Any relaxation of control would only make the law less enforceable. Moreover, a time-frame of 48 hours for fulfillment of orders was neither reasonable nor practical.

  2. Non-availability of products was more apparent than real because an exclusive licence carried a positive obligation. If a licensee should refuse to import, the copyright owner would not renew his licence.

Meeting with the Hong Kong, Kowloon and New Territories Motion Picture Industry Association (MPIA)

(LegCo Paper No. CB(1)1288/96-97(03)

11. Mr MA Fung-kwok called upon members to retain criminal sanctions against parallel imports for the survival of the film industry in Hong Kong. He put forth the following points -

  1. Differing from other copyright products which could retain certain residual value even if the market was flooded with parallel imports, the value of a film was in its originality. As soon as a film was released, its value would diminish and the time for economic exploitation was limited. There was thus a need to enable film investors to exploit the economic value of a film with as much protection as possible within its short economic life.

  2. The film industry was unique because films might be viewed in a variety of formats. The best way to realise the earning potential of films was to release them sequentially in different formats as theatrical release, home video release, video-on-demand, pay television (TV), and free TV. Parallel imports seriously disrupted this release schedule and undermined sales opportunities of the exclusive licensees.

  3. Due to a number of reasons, it was not possible for film distributors to achieve simultaneous, world-wide theatrical release. Even locally made films were often released theatrically overseas first, as a measure to counteract piracy in certain countries. In the case of films co-produced with the People’s Republic of China (PRC), the PRC party would invariably reserve the right to release and distribute the film in China prior to release in Hong Kong. Given the price differential between Hong Kong and PRC, Hong Kong would be flooded with parallel imports of local films from China to the serious detriment of the local industry if criminal sanctions against parallel importation were removed.

  4. Parallel importers enjoyed a free ride on the substantial investments made by copyright owners and exclusive licensees in producing and marketing films. Decriminalisation of parallel imports would discourage investments in the film industry.

Meeting with the Hong Kong Film Directors’ Guild (HKFDG)

12. Mr NG See-yuen echoed MPIA’s points and supplemented the following -

  1. The Hong Kong film industry was already struggling hard to survive against piracy and escalating production costs. Decriminalisation of parallel imports would strike a further blow to the industry. This would inevitably result in significant loss of revenues and jobs in the movie sector and adversely affect Hong Kong’s economy.

  2. Regulation of parallel importation would not limit consumers’ choice. On the contrary, if the local film industry was threatened by parallel importation, Hong Kong consumers would be denied the opportunity to enjoy good local productions. As a matter of fact, many local licensees dealt with niche films to ensure a wide range of choice to consumers.

13. To enable the representatives of the film sector to elaborate on their views, members invited them to attend another meeting of the Bills Committee on 28 April 1997 at 4:30 pm.

14. The Chairman reminded members of the next meeting on 22 April 1997 at 2:30 pm.

15. The meeting ended at 10:45 am.



Provisional Legislative Council Secretariat
4 August 1997

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