Hon James TO Kun-sun had withdrawn from the Bills Committee.
A press release had been issued to invite interested organisations to meet the Bills Committee and public submissions.
Based on information provided by the Administration, the Secretariat had sent 52 letters to interested organisations/individuals to invite them to give views on the Bill.
HMV Hong Kong (HMV), the International Federation of the Phonographic Industry (Hong Kong Group) (IFPI), the Hong Kong, Kowloon and New Territories Motion Picture Industry Association (MPIA), Business Software Alliance (BSA) and Motion Picture Association (MPA) had requested to meet the Bills Committee.

(Post-meeting note: The Secretariat had made arrangements for IFPI and MPA to attend the Bills Committee meeting on 7 April 1997, HMV on 16 April 1997, and BSA and MPIA on 18 April 1997.)

Submissions from IFPI, the film sector, Cheung-Macpherson & Co. Ltd. and HMV to the Chairman had been circulated to members vide LegCo Paper No. CB(1)1132/96-97.

2. The Chairman requested members to pass any submissions directly addressed to them to the Secretariat for circulation to all members of the Bills Committee. She also called upon organisations to send in their submissions to the Bills Committee through the Secretariat.

II Meeting with deputations

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

Meeting with the Hong Kong Retail Management Association (RMA)

(RMAs submission tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1162/96-97)

4.Mr Rick BAILEY briefed members on RMAs submission and highlighted the following salient points -

Hong Kongs success was built on the free market principle. No regulation should infringe on this principle in any way. By seeking to restrict parallel importation, the Bill would undermine Hong Kongs free trade status.
The stated and fundamental objective of the Bill was to uphold the protection of copyrights and of authors. It was to combat piracy and counterfeit goods. RMA fully supported this objective and insisted that the Government should intensify its fight against piracy. However, this should not be achieved by putting further restrictions on parallel importation. The Government should step up actions against all known centres of pirated goods. If the procedures involved were too cumbersome, the Administration should streamline them to enhance efficiency.
Parallel importation was a legitimate negotiating tool that came into being as a result of overpricing of products and/or reluctance or inability of licensees/distributors to supply the products. It was very rare for a parallel importer to continue to parallel import if the product was made available through the distributor at a reasonable price. The Administration should not give monopoly rights to exclusive licensees by putting restrictions on parallel importation of legitimate products. This would limit the choice of Hong Kongs consumers and the ability of Hong Kongs retailers to anticipate and satisfy that choice and increase prices substantially.
The Administration might not intend to apply intellectual property copyrights to goods other than music, video, etc. However, the current drafting of the Bill would make it difficult, if not impossible, to differentiate between products.

5. In response to members questions, Mr BAILEY supplemented the following points -

The proposal in the Bill to allow exclusive licensees in Hong Kong to take action against parallel importers would pose the greatest threat to free trade because they would more likely take such actions than copyright owners who might not reside in Hong Kong.
Parallel importation could not threaten the local film industry if not for its unbalanced global pricing policy. For example, the price of the same video product in China was much cheaper than in Hong Kong. There was therefore the opportunity to parallel import products from China into Hong Kong at competitive prices. The film industry should address its pricing policy to tackle the issue at root.

Meeting with KPS Retail Stores Limited (KPS)

(KPS despatched its presentation outline with 13 supporting documents to each member of the Bills Committee on 25 March 1997)

6. In gist, Mr Garrie ROMAN and Mr Robin BRIDGE opined that the Bill should target at piracy rather than parallel importation. Hong Kong was considered the retail piracy capital in the world. All relevant parties, including film or record producers or retailers, should unite in this anti-piracy cause. The industries claim that counterfeits and pirated goods might easily be disguised as parallel imports was unfounded. Encryption at a very low cost could enable officers of the Customs & Excise Department to differentiate between counterfeits and genuine products. The use of digital video disc (DVD) format as a security measure would also help to ensure that products which were released elsewhere could not be used in Hong Kong.

7. Messrs ROMAN and BRIDGE highlighted the need to deregulate parallel importation as follows -

Experience had shown that an untethered retail market would enhance rather than injure the exploitation of copyright entertainment and educational materials. As a free port, Hong Kong should be taking the lead in promoting a system of distribution right with international exhaustion, ie, imposing no restrictions on importation of legitimate copies after an authorised first sale. The introduction of restrictions on parallel importation would only damage free trade, which was the basis of Hong Kongs success.
KPS neither rented nor sold Chinese language video materials except those made by exclusive licensees for Hong Kong. It only parallel imported non-Chinese language videos in response to customer demands as the copyright owners had failed to make their products available through exclusive licensees in the territory. Prohibition of parallel imports would mean that 2,500 video titles would no longer be made available to Hong Kong consumers, resulting in a more restricted consumer choice. Press cuttings from quality papers had indicated wide public support for the present position, which had helped to ensure a wider consumer choice. KPSs rapid business growth these years was a further proof of massive consumer demands.
It was inappropriate to give rights to the exclusive licensee permitting him the discretion to exploit the copyright work because he could then exercise some form of censorship. The BBC programme on MAO Zedong, whose accessibility was denied to Hong Kong viewers by the television (TV) station which bought the exclusive right, was a typical example of such censorship.

8. To refute claims that parallel importation was affecting the local film industry, Mr ROMAN and Mr BRIDGE pointed out that as the film industry could exploit its products and derive revenues through a window system of five stages, namely, cinema release, video release (six months later), laser disc release (a further three months later), sale to pay TV and sale to other TV, it was wrong to suggest that KPS had been responsible for any of the ills claimed to be suffered by the local film industry. If the film industry could use the windows properly and ensure that film release in Hong Kong would come before video release, parallel imports could bring no harm. In fact, in the event of a delay on the part of the film producer to release a film in time, KPS would be ready to co-operate and remove video products of the film from its shelves to protect its cinema release. Moreover, film producers could license their films instead of selling off their copyrights territory by territory. In this way, they would still own the copyrights and exercise control on their licensees to guard against flow-back of products. A more balanced global pricing policy which ensured that products would not be dumped at certain markets at undervalue would also help to prevent the flow-back. Mr ROMAN also proposed the establishment of a marketing advisory board to assist film producers in marketing matters and offered to donate money for this purpose. In his view, tax concessions to film investors and strengthened enforcement against organised crimes in piracy would also help.

9. Mr BRIDGE supplemented the following points on existing trends in copyright protection -

Copyrights used to be national. However, with developments in transportation, the same product could now be issued in different places of the world simultaneously. As a result, the position in the copyright industries was different. To promote free trade rather than protectionism, there should be total deregulation of parallel imports. Moreover, there were other commercial methods of controlling parallel importation.
The World Intellectual Property Organisation (WIPO) had adopted the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (the Treaties). The aim of the Treaties was to develop and maintain uniform international protection of the works of copyright owners. They recognised copyright owners right of distribution of copies of their works to the public. However, WIPO had not sought to impose uniform protection in respect of parallel importation into the Treaties, effectively allowing each member state to decide whether or not to regulate parallel importation in their respective copyright legislation. It was therefore a misnomer for the Administration to suggest that the international trend was such that countries were introducing restrictions on parallel importation as the subject, even at the WIPO level, remained unresolved.
On the contrary, there was a world-wide trend towards liberalisation of parallel imports of copyright goods. In the Peoples Republic of China, for example, copyright owners had no importation rights. Fifteen European Economic Community countries did not prohibit such goods. Australia had relaxed restrictions on parallel importation of books. Singapore had also amended its copyright law to put it beyond doubt that parallel imports of all copyright materials were lawful. The legislative amendment in Singapore had benefited consumers and at the same time led to increased retail, cinema and tourist trades.

10. Mr BRIDGE further pointed out that as the Customs and Excise Department had not taken any criminal actions against parallel imports since 1993, parallel importation should be decriminalised. He elaborated that since a copyright owner could derive revenues from royalty payment, he might have no objection to parallel importation of his products into Hong Kong. Proposed enhancement of civil structures by empowering exclusive licensees in Hong Kong to obtain interim injunctions would therefore only result in turning contractual rights into statutory rights unjustifiably and might not really benefit the copyright owner. At members request, he agreed to provide for members consideration information on trade losses due to copyright piracy and KPSs proposed amendments to the Bill to incorporate Singapores position to achieve total deregulation.

(Post-meeting note : The information was circulated to members vide LegCo Paper No. CB(1)1175/96-97).

11. Noting the absence of a local film industry in Singapore, members enquired if there was a place which imposed no restrictions on parallel importation but enjoyed a thriving local film or music industry. They opined that the experience in India and Japan might be taken for reference and requested the Administration and KPS, if it so wished, to provide information on the copyright laws on parallel importation in these two places. In response, Mr BRIDGE stressed that Singapore was supporting a strong computer software industry but deregulated parallel importation of computer software.

Admin.

III Meeting with the Administration

(LegCo Paper Nos. CB(1)1147/96-97 (02) and (03))

12. The Deputy Secretary for Trade and Industry (DS/T&I) emphasised that due to the lack of a clear position regarding parallel imports in many countries and the need to consult local practitioners on interpretation and enforcement of their copyright laws, there were difficulties in providing information on overseas experience. However, the Administration had already started examining the application of copyright laws in overseas countries and would try to provide the information as soon as practicable. On Mr ROMANs comments that Hong Kong was the retail piracy capital in the world, he refuted these by quoting the findings of a survey of software piracy jointly conducted by Business Software Alliance and Software Publishers Association, which indicated that Hong Kong was positioned 60 among the 81 countries surveyed. The Administration would further respond to RMA and KPSs representations at a later stage.

13. Members opined that notwithstanding Hong Kongs position in the above survey, the problem of piracy was very serious in Hong Kong. They called on the Administration to step up enforcement actions against piracy. In response, DS/T&I emphasised that the Administration had been determined to tackle the problem through various fronts. The Bill, if enacted, would provide additional legal tools to facilitate enforcement. At members request, the Administration would provide details on the findings of the above survey to the Bills Committee.

Admin

14. DS/T&I briefed members on the Administrations response to media reports which cast doubts on the compatibility of the Bill with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) under the World Trade Organisation (WTO) and the Berne Convention. He assured members that the existing intellectual property regime already complied fully with the TRIPS Agreement. This had been achieved through the Intellectual Property (World Trade Organisation Amendments) Ordinance (Ordinance No. 11 of 1996), which was enacted in May 1996 and brought into full operation on 20 December 1996, some three years in advance of the deadline. The "reciprocity requirement" under the current copyright regime in Hong Kong was also in full accord with the international practice and the Berne Convention. Moreover, the Administration was proposing to adopt an open system in the Bill under which any original copyright works created by any person anywhere in the world would qualify for protection in Hong Kong.

15. The Director of Intellectual Property (Acting) (D of IP (Atg)) briefed members on the comparison of copyright laws on parallel importation in the United States, the European Union, Australia, Singapore and Hong Kong provided by the Administration. He advised that there was so far no international standards or consensus on the issue of parallel importation. Even the TRIPS Agreement, which set the minimum international standards on intellectual property protection, did not specify the handling of parallel imports. The issue was thus left to the local laws of each member of WTO. He then highlighted the features of the application of copyright laws in the above countries as follows -

Australia maintained criminal and civil sanctions against parallel importation in general but allowed direct importation of books under specified circumstances. It was also examining the question of deregulation of parallel importation for sound recordings and computer software under specified circumstances. Australias international counterparts, however, had reservations regarding its contemplated new direction.
The European Union (EU) member states maintained restrictions against parallel imports from outside the Union, although it had abolished restrictions on parallel imports among the member states in line with the European single-market concept. However, while it was clear in the United Kingdom (UK) that criminal remedies were available and that the rights of exclusive licensees in parallel import cases were the same as copyright owners, the position differed among EU members.
Singapore had chosen to allow parallel imports. It was said that this had assisted the cinema trade and increased the range of overseas copyright goods available. However, Singapore did not face the risk of great damage to its economy from flow-back of lower price goods from adjacent markets, given that its exports of copyright works (unlike Hong Kong) were not a major factor in Singapores economic prosperity. Moreover, some form of prohibition on parallel imports was retained with both civil and criminal remedies available. For example, there were restrictions on parallel imports from countries with no copyright protection regimes. Singapore also extended protection to products whose copyrights were still valid in Singapore despite their expiry in the exporting countries.
The US copyright law gave a copyright owner the exclusive right to distribute his copyright works and empowered him to seek remedies for infringement of the distribution right, including criminal remedies. However, the criminal remedy had not been tested in court.
The existing copyright law in Hong Kong was primarily governed by the 1956 Copyright Act of UK as amended and extended to Hong Kong (the 1956 Act). Hong Kongs existing regime provided for both criminal and civil sanctions against parallel imports of copyright works.

16. In reply to members questions regarding the comparison, DS/T&I and D of IP (Atg) provided the following clarifications -

According to EUs single-market concept, restrictions on parallel imports of all goods had been abolished among EU member states.
Due to copyright owners reluctance to co-operate in giving evidence as they might have to disclose sensitive business information, criminal actions against parallel imports had never been initiated in Hong Kong.

16. The meeting ended at 2:00 pm.

Legislative Council Secretariat
23 April 1997

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