Panel on Trade and Industry (Papers) 12 Dec 97

PLC PANEL ON TRADE AND INDUSTRY

Prevention of Copyright Piracy Bill

INTRODUCTION

This paper outlines a legislative proposal to introduce a licensing system for the manufacture of optical discs and to require the mandatory use of source coding on all optical discs produced in Hong Kong.

BACKGROUND

2.Hong Kong is fully committed to maintaining a robust regime for the protection of intellectual property rights. In recent months, there has been a notable increase in the number of optical disc manufacturing plants. The Customs and Excise Department (C&ED) also raided, for the first time, three pirate optical disc plants in September 1997, seizing five production lines and more than 100,000 pirated compact discs worth over $70 million. Timely action is thus needed to empower Customs officers to better monitor optical disc manufacturing plants and prevent them from being used for copyright infringing activities.

NATURE OF THE PROBLEM

3.There is at present no requirement for the registration of optical disc manufacturers in Hong Kong. Customs officers have difficulties in locating the places of manufacture and in identifying the operators involved. They do not have the power to make routine inspection of these places.

4.Moreover, Customs officers often have difficulty tracing the source of optical discs in their effort to determine whether the discs are copyright infringing or not. A source identification requirement may assist the tracking process.

POLICY OBJECTIVES OF PROPOSED LEGISLATION

5.We aim to introduce a licensing scheme for the manufacture of optical discs in Hong Kong and to require optical discs produced in Hong Kong to be permanently embossed or marked with a code indicating their source of manufacture.

6.The new system is designed to create minimum disruption for legitimate optical disc manufacturers. At the same time, it should help enforcement agencies to identify the factories for the manufacture of optical discs, empower them to inspect these factories and ensure that the production of optical discs in these factories is lawful. The ultimate objective is to prevent and control copyright piracy at source.

PROPOSED LEGISLATION

7.The proposed legislation is entitled the " Prevention of Copyright Piracy Bill " . It requires the compulsory licensing of optical disc manufacturers and the mandatory use of manufacturer's codes on optical discs produced in Hong Kong (but not on imported ones). The licensing system will be administered by the Commissioner of Customs and Excise (the Commissioner).

Licence required to manufacture optical discs (clause 3)

8.The proposed Bill provides that no person shall manufacture optical discs in Hong Kong unless he holds a valid licence granted by the Commissioner. For the purpose of the proposed Bill, a person manufactures optical discs in Hong Kong if he owns, directs, manages, and otherwise controls a business in Hong Kong which includes the manufacturing of optical discs.

9.As set out in clause 3(2)(a), persons employed by a licensee are not to be held criminally liable. The Secretary for Trade and Industry may also prescribe other exemptions from this licensing requirement (to facilitate academic research, for instance) by making regulations under clause 32. There is, however, no current plan to exercise this power.

Licence requirement for place of manufacture (clause 4)

10.Clause 4 provides that no licensee shall manufacture optical discs at any place other than a place of manufacture specified in the licence.

Registration and grant of licence (clauses 5 - 7, 9 - 11, and 27)

11.The system is intended to be simple and user-friendly. An application for a manufacturer's licence has to be made in a prescribed manner to the Commissioner. The following details will have to be provided in the licence applications -

particulars of the applicant
places for the manufacture of optical discs
number of production lines and production capacity
manufacturer's code to be embossed in optical discs

12.The Commissioner, after being satisfied that the particulars required have been furnished and verified, will register the business and issue a licence to the applicant. An applicant has to pay a fee for obtaining a manufacturer's licence. Each licence will be valid for three years and has to be renewed with payment of the renewal fee upon expiry. However, no fee will be charged for any change of particulars.

13.A licensee must comply with all licence conditions at all times. The licence has to be displayed at all times in a conspicuous location at the licensed place of manufacture. The licensee is obliged to report any subsequent change of particulars to the Commissioner within 30 days (clause 10). However, changes relating to ownership, place of manufacture and manufacturer's code are subject to the prior approval of the Commissioner.

Transfer, revocation of licence, etc. (clauses 8 and 12)

14.A licence is not transferable unless the transfer is approved by the Commissioner. Separately, a licence will be revoked if the licensee has ceased to manufacture optical discs in Hong Kong, or is in breach of any critical licensing condition. In addition, the Commissioner can revoke the licence if the licensee has committed a copyright offence. The Commissioner is required to notify the licensee in writing of the grounds for the revocation within 14 days after his decision.

Appeals to Administrative Appeal Board (clause 13)

15.Any person who is aggrieved by the Commissioner's decision may make an appeal to the Administrative Appeals Board. He may further apply for judicial review of the Administrative Appeals Board's decision under common law.

Manufacturer's code (clauses 14 - 15)

16.A manufacturer's code is defined as any code, mark, sign, symbol, or device that indicates the source of manufacture of an optical disc. It is mandatory for each pre-recorded or blank optical disc manufactured in Hong Kong to be embossed or otherwise marked with a manufacturer's code. The code used must be one of the kinds approved by the Commissioner.

Inspection and enforcement (clauses 16 - 18)

17.An authorised officer will have the power to inspect all licensed premises at all reasonable times without a warrant. The inspection staff can examine and copy any book and document relating to the business, make inquiry and search the manufacturing places if necessary. In addition, they can seize and detain any items in connection with offences under the Bill.

18.An authorised officer may also enter and search a place in which he reasonably suspects that optical discs are manufactured in contravention of the provisions of this Bill, or that it contains evidence of an offence under this Bill. A warrant will normally be required.

Offences (clauses 20 - 26)

19.Any person who owns, manages, directs or otherwise controls the business of manufacturing optical discs without a valid licence will be liable for an offence and on conviction to a fine of $500,000 and to imprisonment for two years. The optical discs and any other items seized (other than optical disc mastering and replication equipment) are also liable to forfeiture.

20.It will be an offence to manufacture in Hong Kong optical discs that do not bear any manufacturer's code. The maximum penalty will be a fine at level 6 (currently $50 001 - $100 000) and imprisonment for two years. In addition, any items seized (other than optical disc mastering and replication equipment) will be liable to forfeiture.

21.Any person who makes any false or misleading statement or furnishes any false or misleading information in connection with application for licence will be liable for an offence and on conviction to a fine at level 1 (currently $1 - $2 000) and to imprisonment for three months. This level of punishment also applies to offences in breach of the minor licensing conditions.

Register (clause 28)

22.The Commissioner will keep a register on licensees and certain parts of the information contained therein will be accessible to the public. We propose that the names of the licensees, their manufacturing premises and the approved manufacturer's codes be made available for public inspection.

Others (clause 29 onward )

23.Clauses 28 to 33 deal with miscellaneous matters including the appointment and liability of authorised officers and the certifications of the Commissioner which may be used in proof of offences under the Bill. Clauses 35 to 39 make consequential amendments to four related ordinances to facilitate the operation and enforcement of this Bill.

24.A copy of the draft Bill is at the Annex.

FINANCIAL AND STAFFING IMPLICATIONS

25.We understand that almost 70% of the local manufacturers have applied source identification codes onto their optical discs. In any event, the additional expense for engraving a code in the mould is minimal and could be absorbed in the overall cost for mould-making.

26.We will seek to recover the costs of licence applications and renewals. The exact details are being worked out. Based on experience under other similar licensing schemes, relevant costs are likely to represent only a small portion of the total operating costs of licensees.

27.The operational details and staffing requirements of the licensing scheme for optical disc manufacturers are being worked out.

TRANSITIONAL ARRANGEMENTS

28.We plan to activate the new requirements as soon as the Provisional Legislative Council (PLC) enacts the Bill. However, we propose to activate the offence provisions after a three-month grace period. This will provide a reasonable time for existing optical disc manufacturers to complete application formalities and enable them to meet the manufacturer's code requirements.

29.The Bill will not have any retroactive effect. Hence, optical discs manufactured in Hong Kong before the three-month grace period, which might be without any code for identification, would not be affected.

PUBLIC CONSULTATION

30.On 19 November 1997, we invited about 80 organisations, including optical disc manufacturers, the copyright industry as well as the legal profession, to comment on the draft Bill. We also organised a seminar for all consultees on 25 November 1997 to clarify our legislative intention. To date, we have received 11 submissions representing 23 organisations. Whilst there are specific proposals for us to refine various aspects of the draft Bill (like increasing the penalties, extending the manufacturer's coding requirement to all optical discs on sale in Hong Kong and clarifying the powers of the Commissioner of Customs and Excise during routine and other inspections), there is general support for the introduction of a simple licensing scheme for optical disc manufacturing and for the mandatory use of manufacturer's code. We will seek to incorporate these proposals as appropriate into a revised draft of the Bill for the consideration of the Chief Executive in Council.

LEGISLATIVE TIMETABLE

31.Subject to the Chief Executive in Council's approval, we intend to introduce the Prevention of Copyright Piracy Bill into the PLC in January 1998 and bring all new legislative measures into operation around mid 1998.

Trade and Industry Bureau
3 December 1997