2. Mr Peter CHOY briefed members on ACISs position as regards decompilation of computer programs permitted under the Bill for the purpose of achieving interoperability (clause 60). According to ACIS, decompilation was essential because it was at times the only technical means available to learn the unprotectible elements of computer programs, including interface specifications, required to create new products that would successfully interoperate in computer environments defined by de facto standards. Interoperability was very important in the software industry because unlike other copyright products, software did not stand alone. It was valuable only if it could interoperate with other components in its environment. As world commerce became increasingly dependent on computer networks, interoperability was even more important to ensure access to the most innovative products at competitive prices. In fact, the importance of ensuring that copyright laws fostered, rather than inhibited, interoperability by permitting decompilation for legitimate purposes had already been recognised in many countries. For example, both the European Union (EU) and the United States (US) permitted decompilation in certain circumstances. EUs permission was even embodied in the European Union Software Directive (the Directive). In this regard, ACIS agreed that the Bill was in the right direction. ACIS, however, had identified the following drawbacks in the Bill -

There was one very significant difference between clause 60 of the Bill and other similar decompilation provisions in that the latter specifically prohibited contractual restrictions on decompilation, whereas the former expressly allowed this. For example, Article 9(1) of the Directive unambiguously stated that "any contractual provisions contrary to Article 6... shall be null and void.". On the contrary, clause 60(4) provided that "this section has effect subject to any agreement to the contrary." This was a departure from the delicate balance achieved in the Directive and would render clause 60 a nullity. If contractual restrictions were permitted, software companies would routinely include such a prohibition clause in their licences. In light of commercial and technological importance of decompilation to achieve interoperability and the recent international legal trends towards acknowledging the legality of decompilation, the Bills Committee should amend clause 60 to prohibit contractual restrictions.
Clause 59 which dealt with back-up copies had the same problem. In a market where shrink-wrap licence terms were unilaterally imposed on users, clause 59(3) would render the rest of clause 59 null and void. To resolve the problem, clause 59(3) should be deleted and the original clause 59 in the draft Bill which prohibited contractual restrictions on back-up copies and decompilation should be reinstated.

3. In response to members queries, Mr CHOY supplemented the following points -

Although it was not a market practice to prohibit back-up copies or decompilation in Hong Kong, it was a familiar practice in the US for shrink-wrap licences to provide for restrictions on reverse engineering. Whilst it was not clear whether such a provision was enforceable, Hong Kong should follow EUs lead and the Bill should provide expressly that any attempt to prohibit back-up copies would be void.
Users of a computer program were not a party to the licensing agreement. If the copyright owner of the program did not wish to make available the interface specifications, there was no other way for other parties to achieve interoperability without such information. This being the case, users should be allowed to decompile to access such information, which was by no means trade secrets. This was the rationale behind the decision in the leading US case Sega Enterprises v. Accolade in which the Ninth Circuit held that a limited right to decompile could be inferred from the fair use provision as "research".
The proposal to leave the matter to be decided in the context of fair dealing was extremely disingenuous because fair dealing in common law never permitted commercial uses. If decompilation was considered necessary in the public interest to achieve interoperability, this should be specifically permitted under certain circumstances. If it was left to the law, the uncertainties would further strengthen the monopoly position of large software companies and would most likely drive businessmen to other activities where the application of law was certain.

4. Some members had reservations in accepting decompilation. In their view, a computer program was a creation and a property. The owner should have all rights on how his property should be used, including disclosure of relevant information. He should not be forced to release certain information under the premise of interoperability. In response, Mr CHOY emphasised that unlike other literary works, the ideas in a software were hidden and decompilation was necessary to access the underlying unprotectible ideas. As copyright was to promote multiple implementation of ideas that were freely accessible to others, according to international practice, copyright protection only extended to expressions and not to ideas, and the logic of copyright law was to distinguish which parts of a work were expressions exclusively owned by the author and should be protected, and which parts were ideas in the public domain. As such, copyright in software products should only protect against the taking, or literally copying of the code but not the program elements necessary for interoperability. There was no unfairness in allowing decompilation because it only sought to access the underlying unprotectible ideas to promote software innovation. In fact, as shown in the implementation of the Directive, the idea of permitting decompilation to achieve interoperability was working very well. Since the right of decompilation was by no means unlimited, it had not caused a flood of litigation.

Meeting with Deltamac Limited

(LegCo Paper No. CB(1)1413/96-97 and papers tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1446/96-97)

5. Mr Garrie ROMAN highlighted the severity of open retail piracy in Hong Kong and suggested the following measures to contain the problem -

To empower Customs and Excise Department (CED) to seize and destroy the packaging, signage , display items, posters, etc. used to advertise the availability of pirated copyright products despite genuineness of such packaging materials;
To hold landlords civilly liable for knowingly permitting the conduct of infringing activities in their premises;
To accept affidavit evidence on subsistence of copyright rights;
To provide self help remedies to enable right-holders to seize pirated goods with such safeguards as police notification and requirement to bring seized goods to court within five days after seizure.

6. Mr ROMAN also called for the establishment of an inter-departmental task force to facilitate and co-ordinate actions against copyright piracy so that resources could be directed to combat piracy at the retail level.

7. In reply to members questions on the proposed measures, representatives of Deltamac supplemented the following points -

Deltamac

Prosecution actions against dealing with pirated products depended on co-operation from copyright owners. Should the use of empty covers to promote sale of pirated products be made an offence, CED could take actions without the assistance from copyright owners because such covers were easily identifiable. At members request, Deltamac would propose specific amendments to the Bill to enable CED to seize covers.
Deltamacs proposal regarding the liability of landlords of premises used for infringing acts would send a clear message to the public that everybody had the responsibility to help combat piracy. This proposal was not draconian since only civil sanctions were attached and the landlord was given a reasonable time to terminate the tenancy agreement.
As shown by Deltamacs experience, the introduction of an additional presumption based on affidavit to facilitate proof of copyright subsistence and ownership could greatly facilitate enforcement actions.

8. Mr Russel YEH pointed out that retailers of genuine products were fighting a hard battle against pirated goods. Pirated copies would be available in Hong Kong five to seven days after the release of genuine copies in the US. As genuine copies took three days to reach Hong Kong, legitimate retailers had a head start of only two days before pirated copies flooded the market. If there was any delay in shipment, genuine products might even come into the market later than the pirated ones. Not only was the price of pirated copies much lower but they also had a higher value for money because normally several software programs were compiled onto one illegal disc. With the advent of digital video disc which might contain hundreds of programs, the financial viability of legitimate retailers and even the publishers would be at greater risk.

9. Mr ROMAN added that Hong Kong should not be pre-occupied with the issue of parallel imports. Parallel importation was a contractual issue which should be handled by people in the industry through commercial means. In his capacity as an exclusive licensee, Mr YEH further pointed out that competition from parallel imports could make licensees more responsive and efficient since any delay in making a product available and excessive pricing would provide opportunity for parallel imports to come into the market. Both he and Mr ROMAN expressed support for the proposal of "first opportunity to supply" (option 3) in the Administrations paper on parallel importation (LegCo Paper No. CB(1) 1434/96-97(02)).

II Meeting with the Administration

Decompilation of computer programs

10. At members invitation, the Director of Intellectual Property (Acting) (D of IP (Atg)) explained whether it was legally permissible to decompile computer programs. He said that as copyright was an exclusive right, any exception to it should be limited to special circumstances. This being the case, decompilation was permitted in two situations, i.e., under the fair use exception, as was the case in the US, or under certain prescribed circumstances for specific purposes which were in the public interest, as was the case in the UK. As it was very difficult to draw a line between commercial and non-commercial as far as fair use exception was concerned, the Bill therefore adopted a stricter test of being "indispensable to obtain information" for interoperability, subject to any agreement to the contrary. This provision was stricter than the UK provision which did not allow contractual restrictions. D of IP (Atg) further explained that there was no specific distinction between protectible and unprotectible elements in Hong Kongs copyright law. While protectibility of ideas could be looked at from two levels, i.e., unprotectible ideas which needed no decompilation to access and protectible ideas which were shaped through labour, skill or judgement, the concept was so complex that it was very difficult to differentiate between the two.

Open retail piracy

11. In response to Deltamacs representation, the Deputy Secretary for Trade and Industry (DS/T&I) reaffirmed the Administrations determination to combat copyright piracy. He urged members to support the introduction of additional legal tools in the Bill to enhance CEDs ability to enforce against copyright piracy. As regards Deltamacs suggested measures, he provided the following comments -

The Administration would discuss with members again on the proposal about landlords liability;
The Law Reform Commission (LRC) had considered self-help remedies as provided under section 100 of the 1988 Copyright, Designs and Patents Act (CDPA) of UK. The UK provision allowed seizure of infringing copies from hawkers without a court order. However, in consideration of local circumstances, LRC had not recommended such remedies which might affect public order.
As for the establishment of an inter-departmental task force specially devoted to combating piracy, a similar set-up chaired by the Trade and Industry Branch comprising representatives from the Intellectual Property Department, CED, the Police and the Legal Department had been established for regular exchange of views with copyright owners associations. In fact, the group would meet after enactment of the Bill to review its effectiveness.
Clause 119(1)(b)(ii) empowered CED to seize packaging materials which appeared to be or to contain evidence of an infringing offence. In other words, packaging materials could be seized if there was evidence showing that they were used to promote sale of pirated goods.

12. To address the enforcement problems identified during scrutiny of the Bill, some members put forth the following proposals -

The Administration should regularise the set-up mentioned in para 12 (c) above after enactment of the Bill; and
To facilitate investigation, retailers should be legally obliged to provide information on suppliers of infringing copies. This proposal could be easily implemented by requiring retailers to keep a record of supplied goods.

13. In response, the Administration said that although under the law, a retailer might refuse to disclose the source of pirated copies, CED could gather useful clues for follow-up action. The proposal to require retailers to keep a record of supplied goods would involve a complex title verification process. The Bill contained provisions to enable CED to exercise power of forfeiture over suspected pirated copyright products seized without having to initiate legal actions (clause 127). This would overcome the difficulties in seeking owners co-operation in giving evidence. The Bill also included an export offence provision to penalise exporters of articles used to make infringing copies of copyright works from Hong Kong to other places. Cross-border actions targeted at manufacture of pirated products had also been strengthened.

Parallel importation

(LegCo Paper No. CB(1)1434/96-97(02)

14. D of IP (Atg) briefed members on the table prepared by the Administration on treatment of parallel importation under the existing law, the proposals in the Bill and other options suggested by deputations. Members noted that the existing law provided for both criminal and civil sanctions against parallel imports. However, the case law was unclear as to whether the exclusive licensee had a statutory course of action directly against parallel importers. Following LRCs recommendation to decriminalise parallel importation but maintain civil remedies, the Bill proposed to adopt a provision from CDPA to clarify the position of exclusive licensees so that they might take civil actions directly against parallel importers. Having regard to the views expressed during scrutiny of the Bill, the Administration was considering whether to give the exclusive licensee explicit proprietary interests, or just contractual interests with no statutory course of action directly against parallel importers. It was also considering a third option of "first opportunity to supply" with a defence provision for parallel importers to import the licensed goods if the licensee failed in meeting market demands within a specified period. Alternatively, parallel importers be allowed to import after the licensee had failed in meeting market demands within a specified period. A further option would be to provide for criminal sanctions for one year after first release of the work anywhere in the world and thereafter, only civil remedies would be available. A one-year criminal sanction period was considered appropriate because the most critical period of economic exploitation of a copyright work (especially films and sound recordings ) was usually the first 12 months immediately following first publication of the work. From the consumers perspective, the 12-month provision of criminal sanction against parallel importation would also encourage both the copyright owners and the exclusive licensees to make available their products in the market earlier to satisfy the demands and to take advantage of the enhanced copyright protection.

15. Members agreed to consider the merits and demerits of the above options at the next meeting of the Bills Committee to be held on Monday, 5 May 1997, at 12:30 pm.

16. The meeting ended at 10:30 am.

Provisional Legislative Council Secretariat
14 July 1997

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