Legislative Council
Panel on Trade and Industry

Parallel Importation of Copyright Articles

Introduction

The Administration submitted a paper on the parallel importation of copyright articles (attached at Annex A) to the Panel meeting held on 10 October. The paper set out the background to and outlined the provisions under the Copyright Ordinance pertaining to the treatment of parallel-imported copyright articles. At the meeting of the Panel on 10 October, after hearing the representations of various industry groups, the Panel asked the Administration to prepare some further information for the Panel.

Background

2. Under the previous copyright law, the parallel importation of copyright articles could attract both criminal and civil liabilities. The Law Reform Commission (LRC), in its 1994 report on the reform of the law on copyright, recommended that the act of parallel-importing copyright articles should be "de-criminalised" and should carry only civil liabilities. The LRC deliberated long and hard on the issue, and concluded unanimously that the criminal process should not intervene in the enforcement of such contractual rights. This recommendation was accepted by the Administration and formed the basis of the Administration's original proposal in the Copyright Bill which was introduced into the then Legislative Council in February 1997. An extract from the LRC Report summarizing the case for and against restricting parallel importation is at Annex B for easy reference.

3. During the Bills Committee's deliberations on the Copyright Bill, there were strong views both for and against "de-criminalising" the parallel importation of copyright articles. More than half of the 19 meetings of the Bills Committee were devoted to this issue. The retailers and importers argued for de-regulation of parallel importation; while the music and film industries, on the other hand, argued for more statutory controls.

4. The Bills Committee noted that in most developed economies with net exports of intellectual property products, the parallel importation of copyright articles was regulated in one form or another. The Committee also noted that the argument that the practice of the local and international audio-visual industry to release their products in different formats in a certain sequence was considered to be crucial to the economic return for the rights owners in question.

5. In the end the legislature decided to adopt the existing provisions under the Copyright Ordinance. An overview of these provisions is provided in the paper at Annex A. They provide for various safeguards and defenses aimed at striking a balance among competing interests. Both the legislature and the Administration were aware at the time that the formulation adopted was not entirely satisfactory to any single party who had made representations to the Bills Committee.

Submissions by Deputations

6. At the outset, it should be noted that copyright transactions and licence agreements concern private economic activities. In general, the Administration does not have the legal powers to investigate into private commercial dealings unless specifically empowered to do so under a statutory enquiry. The ability of the Administration to verify conflicting claims by parties involved in private economic disputes is therefore limited. In addition, the performance of any business of necessity depends on a multitude of factors such as consumer behaviour, advent of new technologies and the economic outlook of the market. To establish the precise economic impact of the legal provisions relating to the parallel importation of copyright articles on the parties involved is virtually impossible.

7. Notwithstanding the above, the Administration has the following observations in respect of the major points raised by deputations received by the Panel on 10 October.

Identification of Exclusive Licensees and License Arrangements

8. While no single organisation could claim to represent all copyright owners in the world, we have been given to understand that associations such as the International Federation of the Phonographic Industry, Motion Picture Association and Motion Picture Industry Association collectively represent a majority of the world repertoire of recorded music and films. As regards "compilation" albums, they usually contain works of several authors and artists, and the collective consent of all the rights owners will be required for onward dealings with the album in question. The legislature and the Administration were advised during the deliberations on the Copyright Bill in 1997 that more could and would be done to make rights-holder information available to potential importers. The Administration looks to rights-owners to live up to this expectation.

Parallel Importation and Piracy

9. The main reason for the existence of a pirate market is the significant price differential between the genuine products and the pirated articles. It is difficult to see how genuine products can compete in price with pirated products even if profit margins were cut to zero. We do not consider that the availability of parallel-imported products will reduce this price differential sufficiently to reduce piracy. Rather, legislative and enforcement efforts, coupled with long-term educational and promotional programmes, are required to address the piracy problem.

Parallel Importation under the previous Copyright Ordinance

10. It has been suggested that the previous Copyright Ordinance (Cap. 39) was more liberal in terms of allowing parallel importation. In fact, since the first copyright law was enacted in Hong Kong in 1912, parallel-importing copyright articles into Hong Kong has been a criminal offence. The previous Ordinance was based on UK law. The 1988 Copyright, Designs and Patents Act of the UK clarifies the legislative intent by clearly stipulating that the parallel importation of copyright articles from outside the European Community is a criminal offence.

Availability of Titles

11. It has been suggested that the availability of music titles has significantly improved since the enactment of the Copyright Ordinance in June 1997. The Administration is not able to verify the accuracy of this assertion. In respect of films, the film industry did submit to the Bills Committee on the Copyright Bill that they might need to restrict the supply of certain non-subtitled films. The reason given was that these non-subtitled films could easily be used as a basis for pirate reproductions or unauthorised sub-titling.

Wholesale Prices of Films

12. It has been suggested the wholesale prices of films have been reduced since the introduction of the Copyright Ordinance in June 1997. The Administration is not able to verify the claim independently. As regards the retail prices of recorded music, however, according to a recent survey carried out by the Consumer Council, prices in Hong Kong were comparable to those in the UK (where parallel importation is regulated) and Singapore (where parallel importation is de-regulated).

Copyright Royalty

13. Separately, the Administration has been asked to respond to a submission made by the Federation of Hong Kong Hotel Owners Limited regarding copyright royalties. This is not related to the issue of parallel importation. It has been submitted that the members of the Federation have been approached by a Phonographic Performance (South East Asia) Limited (PPSEAL) for copyright licence fees, when they are already paying such fees the Composers and Authors Society of Hong Kong (CASH). It is alleged that the hotel industry is subject to unreasonable copyright licence fees.

14. The Administration understands that the PPSEAL represents the major record companies and music production houses for copyright subsisting in the performance and recording of certain music materials; CASH, on the other hand, represents the composers, lyricists and authors for copyright subsisting in the score and lyrics of the music concerned.

15. Copyright owners have a statutory right to prevent others from using their works without permission, including the public performance or playing of copyright music and songs. While the Administration believes it inappropriate to intervene in the administration of copyright which is a private property right, the Copyright Ordinance provides a statutory Copyright Tribunal to adjudicate in disputes involving collective administration of copyright under similar bodies like PPSEAL or CASH.

Advice Sought

16. Members are invited to note this paper.

Trade and Industry Bureau
October 1998


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