two submissions from HMV commenting on the Administrations proposed Committee stage amendments (CSAs) regarding parallel importation and on transitional provisions regarding parallel goods imported prior to commencement of the Copyright Bill at LegCo Paper Nos. CB(1)1684 and 1624/96-97 respectively;
a letter from the Turner Broadcasting System Asia Pacific commenting on the Hong Kong Hotels Associations submission at LegCo Paper No. CB(1)1648/96-97;
a submission from Tower Records Asia expressing support to HMV and KPS in relation to the questions of "knowledge/reason to believe" and "availability" at LegCo Paper No. CB(1)1694/96-97;
a joint submission from HMV, KPS and Tower Records Hong Kong Limited making a consolidated proposal regarding parallel imports at LegCo Paper No. CB(1)1718/96-97;
a submission from KPS suggesting amendments to paragraph 12(4) of Schedule 2 regarding transitional provisions at LegCo Paper No. CB(1)1719/96-97;
a submission from the Hong Kong Retail Management Association expressing support to proposals made by HMV and KPS on various issues at LegCo Paper No. CB(1)1723/96-97(01); and
a submission from Robert W. H. WANG & Co. summarising HMVs concerns regarding parallel imports at LegCo Paper No. CB(1)1723/96-97(02).

I Discussion on draft Committee stage amendments

(LegCo Paper No. CB(1)1669/96-97)

2. Members went through the draft CSAs.

Clause 1

3. Members noted the Administrations new CSA to subclause (2) to provide for commencement of certain provisions with regard to re-transmission of broadcasts and voluntary registration of licensing bodies on a date to be specified by the Secretary for Trade and Industry.

Clause 35

4. The Chairman was concerned about the adequacy of the Administrations proposed CSA to subclause (3) and the new subclause (6A) in ensuring that copyright which subsisted in labels or packaging ("accessory work") of each and every kind of non-copyright goods would not be infringed by parallel importation of such goods into Hong Kong.

5. In response, the Director of Intellectual Property (D of IP) pointed out that although certain products might have some elements of copyright in that they were developed from two-dimensional design drawings, the chances of claiming sole importation rights on the basis of this type of copyright protection were slim. He assured members that the Administration would monitor the situation closely and would introduce amendments to the Bill should problems arise.

Clause 68

6. The Consultant (Legal Service Division) (CONS(LS)) pointed out that the proposed CSA to subclause (2) was to correct a typographical error.

Clause 82

7. The Chairman drew the Administrations attention to a typographical error in the new subclause (5). The phrase "is respect of" should be "in respect of".

Clause 196

8. CONS(LS) drew members attention to the omission of the word "a" before "qualifying". The Administration agreed to introduce a CSA.

Clause 254

9. The Chairman drew the Administrations attention to a typographical error in subclause (1A). The word "alternation" in line 7 should be "alteration".

Schedule 2

10. The Deputy Director of Intellectual Property (DD of IP) advised that the Administration intended to add, after paragraph 16 in Schedule 2, a provision for transitional arrangements for the exercise of rights under the Copyright Ordinance and the Registered Designs Ordinance. Under this provision, the period of copyright protection for a "registrable" but unregistered design would be 15 years after the date of the first industrial application of such a design prior to 1 August 1989, 25 years on or after 1 August 1989 but before commencement of the Bill, and 15 years after commencement of the Bill.

Schedule 4

11. Members noted the consequential amendment to section 2(1) of the Registered Designs Ordinance regarding the definition of "artistic work".

II Parallel importation of copyright articles

(LegCo Paper No. CB(1)1739/96-97)

12. D of IP briefed members on the Administrations paper entitled "Parallel Importation of Copyright Articles - Rights and Remedies" tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1739/96-97(01). The paper set out the rationale for the proposed amendments to the Bill regarding parallel importation of copyright articles. The Chairman expressed appreciation for the Administrations efforts. Members agreed that interested parties should be invited to express views on the proposals at the meeting of the Bills Committee scheduled for 30 May 1997 before arriving at a decision on the issue.

Clarifications of "reason to believe"

13. D of IP reported that at a meeting with relevant parties coordinated by the Administration, it was revealed that rights owners already had, or were developing, comprehensive databases on exclusive licensees for their works. The Motion Picture Association (MPA) and the International Federation of the Phonographic Industry (IFPI), which represented most major production houses and more than 90% of the world market of commercially recorded music respectively, had been maintaining extensive databases on the exclusive arrangements for works within their repertoire. They had expressed willingness in providing such information upon request. The Hong Kong, Kowloon and New Territories Motion Picture Industry Association (MPIA) was developing a similar database. Adequate information was readily available to respond to reasonable enquiries from prospective importers on more than 90% of films and sound recordings, and to enable them to discharge their legal obligations. To address members concern about uncertainty entailed in the expression "reason to believe", the Administration had proposed CSAs at Annex A to the paper to clarify circumstances under which a defendant might claim that he had no reason to believe that he was dealing with infringing copies.

14. Some members were concerned that there would still be 10% of works whose copyright owners or exclusive licensees were untraceable. The proposed CSA could not entirely allay retailers concern. In this regard, some members suggested considering HMVs proposed drafting regarding reason to believe (LegCo Paper No. CB(1)1739/96-97(02)). HMV proposed that if within the period of 12 months preceding the importation of a copyright work, the importer had either made enquiries with any relevant public register or trade body in Hong Kong, or had placed an advertisement in a prominent newspaper stating interest to import, but received no response within 30 days, the importer should be deemed to have no "reason to believe".

15. In response, D of IP maintained that there was sufficient case law on the meaning of "reason to believe" under various circumstances. The proposed CSAs provided sufficient guidelines on the meaning of "reason to believe". These, together with databases kept by MPA, IFPI and MPIA, should adequately address members concern over any uncertainty created by the term. The Administration was cautious of any proposal for compiling an exhaustive list of actions to be taken by retailers.

16. Miss Margaret NG echoed DD of IPs points and expressed reservations about HMVs proposal. In her view, the proposal would enable an importer to enjoy blanket protection simply by making enquiries with a public register or trade body, or placing an advertisement in a newspaper regardless of whether this was a reasonable step to take in that particular situation. She opined that an importer should decide by himself the reasonable steps to take. The proposed measures alone should not be regarded as conclusive proofs. In any event, the court should not be pre-empted from deciding whether the defendant had "reason to believe". She considered the Administrations proposed amendments reasonable.

17. At the Chairmans invitation, CONS(LS) advised that many laws contained detailed provisions on the meaning of "due diligence". It was up to members to decide on the degree of guidance to be provided in the legislation. While the Administrations CSAs provided indications on likely elements that would make up reasonable actions, these had not dealt with the issue of timeliness. Case law on "reason to believe" showed that the time within which a party made enquiries was a key concern to the court.

18. Some members were of the view that whilst any proposed measures should not be absolute nor exhaustive, certain guidelines were necessary for the court to take into account in determining whether a defendant had reason to believe.

19. D of IP pointed out that ideally a code of practice should be agreed on by the trade, not imposed by the Administration. It was a fundamental international principle of copyright law that copyright owners should not be required to go through any type of formalities to assert their rights. As such, the measures proposed in any code of practice should never be absolute. Due to time constraints, it would be impossible for the Administration to include in the Bill any code of practice agreed to by the trade before the next meeting of the Bills Committee.

20. In recognition of the difficulties highlighted by D of IP, members suggested that the Administration make reference to HMVs proposal and revise the proposed CSAs. Mr SIN Chung-kai suggested that the Administration also consider the proposed amendment to clause 35 on page 6 of the joint submission from HMV, KPS and Tower Records Hong Kong Limited (LegCo Paper No. CB(1)1718/96-97).

21. In reply to Mr SIN, D of IP explained that the expression "medium or version" in HMVs proposed clause 35(4)(1)(a) as regards "deemed reason to believe" would have the effect of allowing an importer to request supply and, in the case of non-availability, to parallel import a copyright work in any format in which it might be marketed.

Leave of court for exclusive licensee to proceed with civil action against parallel importer without the copyright owner joining as plaintiff

22. CONS(LS) referred members to page 2 of the letter from Robert W H WANG & Co. dated 28 May 1997, which summarised HMVs concerns regarding parallel imports (LegCo Paper No. CB(1)1723/96-97(02)). He agreed with HMVs comments that by specifying the circumstances under which leave would be granted, including where "all reasonable steps have been taken to join the copyright owner as plaintiff but he .... is otherwise unable to be so joined", the Administrations proposed new clause 110(1B) might have the following effects -

the copyright owner could state that he was simply not willing to be joined;
the copyright owner was concerned by costs and would not join; or
there was no power in the exclusive licence agreement for the exclusive licensee to take action.

23. CONS(LS) elaborated that as claimed by HMV, the exclusive licensee would be "unable to join the copyright owner or the exclusive licensee, hence getting around the restriction of joint action via the back door". He pointed out that the court would refer to the legislation for indication as to whether the requirement was procedural or substantive in nature. If it was purely a procedural matter, the court would take many other factors into consideration. As members might not wish to leave the matter entirely to the court, it would be advisable to provide sufficient guidelines in the legislation by identifying the exceptional circumstances under which the court should waive joint action. If guidelines were not provided, it might be better to delete the expression "without leave of the court" altogether.

24. Members noted CONS(LS)s advice and considered that the Administrations proposed new clause 110(1B) was loosely drafted and had not reflected the Bills Committees views. The expressions "reasonable steps" and "reasonable grounds" would in particular lead to uncertainty. Members in general agreed that the status of the exclusive licensee should not be elevated to that of the copyright owner and as such the Bill should clearly state that an exclusive licensee might not proceed with civil actions against parallel importers without the copyright owner joining as a plaintiff unless with the leave of the court under very exceptional circumstances. To put the matter beyond doubt, the Chairman proposed to delete the expression "without the leave of the court" altogether.

25. In response, D of IP considered it inappropriate to remove the power of the court to exercise discretion under exceptional circumstances. He agreed to confine the meaning of exceptional circumstances further to where it would be impossible to establish the identity or the whereabouts of the right owner and revise the CSAs.

Avoiding the abuse of exclusive rights - reasonable availability of goods

26. Members noted that to address concerns about availability of goods to consumers and possible abuse by exclusive licensees of their monopolistic position, the Administration had proposed to provide a defence for a person who imported a work without the licence of the copyright owner if the particular copyright owner or the exclusive licensee had acted unconscionably, i.e., by withholding supply on unreasonable grounds, or by agreeing to supply but on unreasonable terms (the non-availability defence) (Annex B to the Administrations paper).

27. Miss Margaret NG referred members to paragraph 14 of the Administrations paper, which explained the rationale behind the proposed CSAs at Annex B. She disagreed with the use of such expressions as "monopolistic position", "abuse of exclusive rights" and "acted unconscionably". In her opinion, copyright was a private right and the owner had every right to exploit his copyright work in any way he liked, including withholding supply. Her views were shared by Dr LAW Cheung-kwok, who pointed out that the possibility of "abuse of exclusive rights" was remote due to keen competition among products.

28. In response, D of IP agreed that the purpose of copyright law was to create monopolies in certain categories of works and that such monopolies should be absolute in all circumstances. However, to address specific concerns of various parties, the Administration was keen to achieve balance to guard against potential abuse, hence the adoption of the concepts of fair dealing and of "unconscionable act" which was taken from the contract law to prevent one party from acting unreasonably to the disadvantage of the other party. To give more assurance to the copyright owner and the exclusive licensee in respect of well-established trade practices with bona fide commercial motives (such as the "window" system of the film industry), the Administration had also stipulated in the new clause 30(4) that in determining whether an exclusive licensee had acted unconscionably, the court should have regard to "established practices of the copyright owner or the exclusive licensee for the orderly distribution of copies of that category of work".

29. CONS(LS) doubted the practicability of the proposed CSA. He opined that it was not advisable to require the judge to assess trade practices as this would necessitate a great deal of calling of expert evidence.

30. Miss Margaret NG echoed CONS(LS)s view and pointed out that as expert evidence was relevant only when there were facts to give evidence on, the Administration had to assure members of the existence of such trade norms against which the court could reach a judgement on whether a right owner had acted "unconscionably". In response, D of IP explained that it was the Administrations intention to have such trade practices developed by the trade.

31. In recognition of the need to guard against abuse of monopolistic position in the market because of an absence of fair trade legislation in Hong Kong, some members expressed support for the proposed CSA in principle. They, however, agreed that its wording should be further refined.

Groundless threats of civil actions against alleged parallel importation

32. Members noted the Administrations proposed CSA as regards groundless threats of civil actions against alleged parallel importation at Annex C to the paper.

III Any other business

33. The Chairman referred members to the letter from the Hong Kong Institute of Trade Mark Practitioners (HKITMP) alleging that the Administration had not addressed their concerns. Members noted that the Administration had done so at different meetings and suggested that it send a written response to HKITMP.

34. The Chairman reminded members of the next meeting of the Bills Committee on 30 May 1997 at 8:30 am and the deadline for notice of CSAs on 13 June 1997.

35. The meeting ended at 12:45 pm.

Provisional Legislative Council Secretariat
4 August 1997

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Bills Committee on Copyright Bill

Minutes of meeting held on Thursday, 29 May 1997, at 10:30 am in the Chamber of the Legislative Council Building