CB(1)1457/98-99(01)

Urgent by Fax & Post

June 4, 1999

Legislative Council
Legislative Council Building
8 Jackson Road
Central
Hong Kong

Attn.: Ms. Estella Chan
(Clerk to Panel)

Dear Ms. Chan,

Re : LegCo Panel on Trade and Industry
Meeting on 7 June, 1999

I refer to your letter of invitation dated May 31, 1999 and thank you for accepting our request for a presence at the LegCo Panel Meeting on June 7, 1999.

I am sorry to inform you that because of some urgent change in my schedule, I will not be able to attend above mentioned Panel Meeting. However, I would like to take the opportunity to refer to the submission we made to the Trade and Industry Bureau on April 30, 1999 in response to the public consultation on additional measures to combat copyright infringement. The submission summarizes the position of our association and our feedback on the options listed out in the consultation paper.

In summary, the association believes that the widespread piracy on streets is the highest-priority problem to deal with, for which we need more enforcement resources and some minimum form of consumer liability. Police involvement in closing down the piracy shops is necessary. We also believe that some minimum form of consumer liability will work within a carefully defined framework.

On the other hand, in view of the already very tight legislative regime that controls the optical disc manufacturers in Hong Kong, any new measures should not further add to their obligations and hinder their flexibility of operations.

I have enclosed herewith a copy of the above-mentioned submission we made to the Trade and Industry Bureau. We would appreciate if it can be distributed to the Panel members for a better understanding of the position of our association.

Yours sincerely,

William Wan
Chairman
Hong Kong Optical Disc Manufacturers Association

Encl.

Submission to the Trade and Industry Bureau

in Response to the Consultation Paper:

Combating Intellectual Property Rights Infringement in
the Hong Kong Special Administrative Region:
Possible Additional Legal Tools
February 1999

by

The Hong Kong Optical Disc Manufacturers Association

Date: April 30, 1999

Introduction

In recent years, the problem of copyright piracy has worsened tremendously and seems to have spread over every corner in Hong Kong. Shops that sell pirated optical discs are everywhere, in the most prominent places in the street and shopping arcades. Consumers freely enjoy themselves in these shops, picking their favorite pirated titles without a sense of shame. Policemen pass by these shops naturally without interfering. The situation is simply unbelievable and intolerable.

Copyright-based industries in Hong Kong, which include music, movie, and computer software, retailers of audiovisual products and computer software, cinemas, cable and satellite TV, video-on-demand services, and optical disc manufacturing, form an important part of Hong Kong's economy and offer a lot of employment opportunities. However, the industries are now facing the biggest challenges than ever from piracy and it has already come to a point that if something more effective is not done quickly enough, the industries will collapse. If this happen, one thing also for sure is that the legitimate optical discs manufacturers in Hong Kong, which support the content owners here by manufacturing optical discs that carry their content to the market, will disappear together. For this reason, we, the Hong Kong Optical Disc Manufacturers Association (HKODMA), representing the most recognized and reputable optical disc manufacturers in Hong Kong, would like to take the opportunity of this public consultation to express our views on the possible additional legal tools that may be suitably adopted to further combat copyright piracy in Hong Kong.

The association believes that legal framework, effective enforcement, and intensified education should work together to improve the current situation. The strategy should also be cutting all levels of both the supply and the demand for pirated goods at the same time. As far as the manufacturing level of the supply is concerned, we have already had the following measures in place:

• Prevention of Copyright Piracy Ordinance

  Since August 1998, we have had this legislation, which requires licensing and regular inspection of all optical disc manufacturers in Hong Kong by the Customs. It also requires the embossing of traceable source identification codes on all discs that the manufacturers produce.

• Control on Optical Disc Manufacturing Equipment

  Since December 1997, optical disc manufacturing equipment is subject to a special import and export control that requires approval of all import, export and moving within the territory of Hong Kong of such equipment by the Customs.

• Border Control

  The Customs has been working on the border to prevent pirated optical discs manufactured elsewhere from being imported into Hong Kong.

However, as far as the retail and wholesale level of the supply and the demand for pirated goods are concerned, there seem to be not enough measures. This has left a big loophole in the whole piracy combating strategy and the result is that the problem of piracy still remains serious. Therefore, we believe that any new measures to be developed should address this issue. In addition, in view of the already very tight legislative regime that governs optical disc manufacturers, any new measures to be developed should not further add to their obligations or hinder the flexibility of their operations.

We see this consultation paper a good indication of the SAR government's determination to further combat the problem of piracy and re-build Hong Kong as a place for creative talents. However, in view of the nature and magnitude of the current problem, we believe that the government should be determined not to easily give in to the resistance that the public may show to some apparently controversial but sensible measures. In the following paragraphs, we would try to comment on the options listed in the consultation paper and express our support to those that we believe are the most viable ones.

Option 1: Including Piracy and Counterfeiting Offences under the Organized and Serious Crimes Ordinance
Option 2: Amending the Copyright Ordinance and the Trade and Description Ordinance to Provide for the Confiscation of Criminal Proceeds from Intellectual Property Infringement Offences.

There is more and more evidence that shows that copyright piracy is more and more an organized crime than an offence by individuals. Some piracy even operates on an international scale. It very often also involves interests of triad societies in activities like smuggling, distribution, and retail sale of pirated CDs. The problem is now already of such a nature and magnitude that is beyond what the Customs can handle with the resources that it has been given. In such cases, police involvement and the special investigation and enforcement powers available under the Organized and Serious Crimes Ordinance ("OSCO") will be very helpful in tracing piracy offences to the real criminals behind the scene. Right now, the uncooperative front men at most pirate CD shops pose great difficulties to the investigations of the Customs. Detection and confiscation of criminal proceeds available under OSCO will also significantly add to the risk and cost of the pirates.

When compared with Option 1, Option 2 is obviously deficient in the sense that only the power of proceeds detection and confiscation, but not the resources factor, is considered. As mentioned above, the Customs has obviously not enough resources to handle the currently very widespread piracy on streets and the more and more organized nature of the crime. Unless the Customs is given significant increase in resources in terms of doubling or tripling its manpower, police involvement and the OSCO option is considered to be a practical solution.

However, the key to the problem is still to put a lot more resources to stop the very widespread piracy on streets to make pirated CDs much less accessible to consumers than it is now. To achieve this, police involvement targeting the retail and wholesale level of piracy, through OSCO or otherwise, is considered very important. With police involvement at the retail and wholesale level and the already existing Customs' control at the border and manufacturing level, the whole chain of supply of piracy will have been dealt with.

In view of the urgency of the matter and the time it will possibly take for the legislative procedure, any measures that will trigger immediate police involvement in combating piracy at the retail and wholesale level should be considered.

Option 3: Introduction of Mandatory or Standard Sentences for Copyright and Trademark Offences

Heavier penalties handed down from the courts for piracy offences, no matter how, are definitely necessary to avoid fines being treated as normal costs of doing business by pirates. However, for justice reasons, these heavy penalties should be addressed to those real criminals rather than those "innocent" on the front line. For the same reasons, a straightforward mandatory or standard sentence that does not allow sufficient flexibility for the court to consider the circumstances of each case and the prosecuted may not be appropriate. From the information as provided in the consultation paper, sentencing guidelines from the Court of Appeal seem to be a better alternative for this purpose.

Option 4: Closure Orders Against Premises Used Repeatedly for Piracy or Counterfeiting Activities
Option 5: Immediate Closure Orders for Premises Used for Piracy or Counterfeiting Activities

The availability of closure orders as one of the weapons makes sense to be there to remind landlords of their responsibility not to deliberately or too casually allow their premises to be used for piracy activities, even in view of the highly mobile nature of the activities of piracy sales. However, immediate closure of premises seems to be too harsh. Landlords should be given an opportunity to rectify the wrong and, therefore, closure orders based on subsequent convictions are more reasonable.

Option 6: Banning Unauthorized Video Recording in Cinemas
Option 7 Banning Video Equipment in Cinemas

In view of the fact that a lot of pirated VCDs are made from unauthorized recordings in cinemas and that the stage of theatrical release is the most important source of income for movie producers, measures that prevent such unauthorized recordings are considered necessary. However, in view of the darkened and crowded environment in a cinema, enforcement within the cinema may be difficult. For this reason, banning video equipment in cinemas will be easier from the enforcement point of view. We believe that the difficulties with checking people carrying recording equipment to cinemas and safe-keeping the equipment there can be solved with administrative support of the cinemas and, practically, we do not expect many ordinary people actually carrying such equipment to the cinema.

Option 8: Imposing Consumer Liability
Option 8(a): Fixed Penalty for Possession of Infringing Articles
Option 8(b): Create a Smuggling Offence at the Border in Respect of Import or Export of Infringing Articles
Option 8(c): Recasting the Offence of Possession of Infringing Articles

This seems to be the most controversial part of the consultation. We perfectly agree that consumer liability should not go too extreme. However, some minimum form of consumer liability is still very much recommended because of the educational effect that attaches to the liability. It is considered to be one of the most effective ways to carry the message of copyright protection to the minds of the consumers in the current situation of rampant piracy. As mentioned above, the strategy of combating piracy should be cutting both the supply and the demand at the same time. Some form of consumer liability, even in its minimum form, is expected to give a big effect on cutting the demand.

Consumer liability does not have to do with monetary penalties, criminal conviction records, or jail. It can be confined to just confiscation of the pirated goods that the consumers have bought, which is reasonable within a certain framework.

The consultation paper has already outlined the framework in which the consumer liability will probably apply. It will only aim at consumers caught "red-handed", i.e. at premises raided for suspected piracy and disturbance to the public will be kept to a minimum.

Widespread piracy on streets in Hong Kong should be the highest-priority problem to deal with in the current situation. Consumer liability should at least take such a form that it can effectively discourage consumers from going to the pirate shops in Hong Kong and buying pirated goods from there. For this purpose, Options 8(b) and 8(c) may not work very well.

The argument that most consumers will raise in response to any forms of consumer liability is the difficulty to distinguish the pirated from genuine goods. However, this argument has to be assessed skeptically. The fact is that if consumers are asked whether they did buy any pirated CDs in the past say half a year, most of them will be able to give a very straightforward answer of yes or no. The truth behind is that most of those who buy pirated CDs do know what they are buying and they are not so "innocent". It is actually the very easy access of the consumers to pirated goods together with their lack of copyright protection concepts that has caused the current rampant situation of piracy in Hong Kong. It is an undeniable responsibility of the government to stop the rampant piracy and, to achieve this, the government must be very determined and not easily give in to the resistance that the public may show to some apparently controversial but sensible measures.

Summary

To sum up, the strategy of combating piracy must be to cut both the supply and the demand at the same time. The widespread piracy on streets in Hong Kong is the highest-priority problem to deal with, for which we need a lot more enforcement resources and some minimum form of consumer liability. Unless there is a significant increase in the manpower resources of the Customs, police involvement and inclusion of copyright piracy offences in the OSCO will provide a practical solution. It is believed that some minimum form of consumer liability is necessary to go with the intensified front-end enforcement and it will work within a carefully defined framework. Confiscation of pirated goods possessed by consumers caught "red-handed", which does not involve monetary penalties, criminal conviction records, or jail, is considered reasonable and effective in significantly scaling down the current level of piracy in Hong Kong.

Other additional legislative tools will definitely add to the effectiveness of the overall legislative regime, however, piracy at the retail and wholesale level is the key problem and it has to be sufficiently tackled.

In view of the already very tight legislative regime that control the optical disc manufacturers, any new measures should not further add to their obligations and hinder their flexibility of operations.

The above paragraphs express the opinions of the Hong Kong Optical Disc Manufacturers Association and we hope that these opinions will be taken seriously in the formulation of new legislative tools to re-build Hong Kong as a place excellent for copyright-based industries and all foreign investors.

William Wan
Chairman
Hong Kong Optical Disc Manufacturers Association