Legislative Council Panel on Trade and Industry

Possible Additional Measures to
Combat Intellectual Property Rights Infringement
INTRODUCTION

This note outlines the outcome of the public consultation on possible additional legal tools to combat intellectual property rights infringement, and sets out the Government's proposed way forward.

BACKGROUND

2. We issued a public consultation paper, "Combating Intellectual Property Rights Infringement in the HKSAR: Possible Additional Legal Tools" (a copy of which was attached to the note considered by members at the Panel meeting on 1 March 1999). The paper sought public views on various options to further enhance our intellectual property laws. In response to public comments urging for immediate action, we have shortened the consultation period to just over two months. It ended on 30 April 1999.

THE PUBLIC CONSULTATION EXERCISE

3. We have received more than 500 submissions, the majority of which from individual members of the public. There is general support for most of the options presented in the public consultation paper, whilst opinion on whether to impose "consumer liability" is ambivalent. A number of submissions support this option, while there has been rather widespread public criticisms levelled at the option during the consultation period. Most professional and trade organisations have also expressed their general support for more stringent enforcement powers and higher penalties against infringing activities. A summary of the submissions received is at the Annex.

WAY FORWARD

4. To ensure that action may be taken quickly, we propose to proceed with three relatively straightforward options as a first step. We also propose to further pursue some other options for longer-term consideration. The details are set out below.

Shorter Term Measures (a) Including Piracy and Counterfeiting Offences under the Organized and Serious Crimes Ordinance (OSCO)

5. Inclusion of an offence under Schedule 1 of OSCO would enable the prosecution to apply for court orders to investigate into the financial affairs and assets of suspects, and assets together with the proceeds of the offence might eventually be confiscated on conviction. In addition, the Secretary for Justice may apply for a court order to compel a person to divulge information or materials to assist in the investigation of an offence related to an organised crime as defined in section 2 of OSCO. In general, the option has been well received. We therefore propose to include copyright and trade mark infringement in Schedule 1 of OSCO. With the adoption of this option, the much more cumbersome alternative of copying the confiscation procedures of OSCO to our copyright and trade mark infringement laws may be discarded.

(b) Preventing Bootlegging

6. We have put forward two options to deal with bootlegging, i.e. either

1. making it illegal to record or possess an unauthorized recording of a film being shown in a cinema or of performances in public concert venues; or

2. creating an offence of unauthorized possession of video recording equipment in a cinema or concert venue. Cinema and concert venue operators would provide secure storage facilities for customers who wish to deposit their recording equipment.

7. The latter option is simpler because it would overcome the enforcement problem of catching someone "red-handed". Again we have received a number of supportive comments especially from the cinema trade. In view of this, we propose to prepare the necessary legislative amendments to implement this option.

(c) Removing a Possible Loophole

8. At present, criminal enforcement against piracy and counterfeiting is most frequently taken under the provisions in the respective legislation which makes it an offence to be in possession of infringing articles for the purpose of trade or business. The law as it stands may be interpreted as permitting the possession of infringing articles for trade or business, provided that the trade is not in selling the infringing articles themselves. Although how the courts would judge such actions based on the present wording is not certain, it is for consideration if this possible loophole should be sealed. The option of revising our law to put beyond doubt that an offence is committed by any person possessing an infringing article other than for personal domestic use has gained much public support among those submissions commenting on it. The removal of this possible loophole would allow us to take criminal action against, for example, corporate software piracy and firms producing their goods or services using infringing copies of computer software. We therefore propose to prepare the legislative amendments to put it into effect.

Longer Term Considerations

9. Moving beyond the short-term measures, we propose to consider other options as follows.

(a) Introduction of Mandatory or Standard Sentences for Copyright and Trade Mark Offences

10. The idea is that some minimum sentences be introduced to act as a deterrent. Again there is much support among the submissions for this option. However, implementing it would restrict the discretion of the Judiciary in sentencing. It would also be unacceptable from the legal policy point of view. We therefore intend to pursue the alternative idea of asking the Court of Appeal to hand down sentencing guidelines for the lower courts to follow, as in the case of drug offences, when suitable cases arise.

(b) Applying Closure Orders to Premises Used for Piracy or Counterfeiting Activities

11. The idea is that premises used for piracy or counterfeiting activities should be closed for a sufficiently long period, using similar provisions governing vice establishments. There has been much public support for the option of applying a closure order after repeated convictions and the more severe option of an immediate closure order after a first conviction. Our assessment is that, given the modus operandi of pirates and counterfeiters, only immediate closure after a first conviction will have some limited effect. To avoid casting the net too widely, we propose to target this option at premises selling or dealing in infringing optical discs only.

(c) Facilitating Enforcement

12. A number of suggestions have been put forward to facilitate enforcement, especially on one form of copyright piracy - pirated optical discs. They all seek to address the present problem of the massive follow up work required after a raid to identify the rightful owners of the intellectual property rights involved.

1. allowing a random sampling of suspected infringing goods to be conclusive evidence in a criminal case

   At present, Customs have to process each seized item to facilitate subsequent identification by the rights owners. This is a resource intensive exercise especially for pirated optical discs, given the large number of seizures. The proposal is that where a sample of seized copies (say 10 percent) proves to be infringing, it should be prima facie evidence that the remaining category of seized inventory is also infringing. It could then be provided that if the defence demands that the balance of the evidence be proven, and it is subsequently proven, then the accused must meet the costs involved. This would considerably reduce the resource commitment for examining all the seized discs and would speed up prosecution.

2. shifting the evidential burden of proof on the issue of licensing of copyright articles

   At present, the prosecution has to prove subsistence of copyright and to prove that the optical discs are infringing (that is, to prove that the accused was not authorized to deal in them). The proposal is to shift the evidential burden of proof on the issue of licensing of copyright articles, i.e., the accused should prove that he has a licence to deal in such items. This would overcome the present problem of Customs in soliciting the cooperation of some copyright owners in submitting affidavits for criminal prosecution. This problem is especially accentuated where the copyright owners do not have representatives or agents in Hong Kong.

3. licensing retail outlets selling optical discs

   The idea is that as long as a retail outlet is not licensed, all its optical discs may be seized and forfeited and an unlicensed dealer may be prosecuted immediately without the need to prove the infringing nature of the discs (like the goods of illegal hawkers).

13. Of the three proposals set out in paragraph 12, the first two (random sampling and burden of proof) would help reduce the follow up work required after the seizures and are, prima facie, technically feasible. We would suggest to further develop details along the lines of these two proposals. As regards the third proposal (licensing), although it would also help enforcement, the resources required for putting in place an effective licensing and enforcement system would be considerable. The possible inconvenience and cost to legitimate retailers would also have to be taken into account. We therefore suggest to put this proposal aside at least for the time being.

(d) Introducing Consumer Liability

14. Unsurprisingly, there has been much criticism on the option to make consumers of infringing works liable, either by imposing a fixed penalty for possession of infringing articles at the premises of raids, or by making the import or export of infringing articles a smuggling offence. Nonetheless, we have also received quite a number of submissions from individual members of the public in support of the option. While many oppose this idea in principle, some believe that it could be the only effective solution to stopping the demand for pirated and counterfeit goods if all else fails. The Government is called upon to consider carefully under what circumstances a person would become liable, and how an accused could defend himself if he had mistakenly bought infringing goods believing them to be genuine.

15. In this connection, we have received a suggestion for confiscating infringing articles from consumers at the point of purchase without any further sanction. We doubt if this is an effective deterrent, however, as the infringing goods are generally inexpensive. More important, there is a need to create an offence for possessing infringing goods to provide a legal basis for confiscating them. In addition, a presumption of the infringing nature of the goods would also have to be created because in situ proof of the infringing nature is almost impossible. If these were all accepted, however, they would be no different from the basis on which the fixed penalty option was constructed. If the original fixed penalty option is not supported, therefore, we are not sure whether an option with similar presumptions is necessarily an improvement.

Other Measures

16. In addition to improving our legislative regime to combat intellectual property rights infringement, the Government will continue to rigorously undertake enforcement action. A special task force of some 100 officers initially will be established soon to enhance the existing enforcement capabilities in the Customs and Excise Department against infringement activities at the retail level. The Police and Customs will continue to cooperate closely. We will continue to keep in view the need to flexibly deploy our enforcement resources in this area.

17. Separately, we will continue and deepen our educational effort. The Intellectual Property Department (IPD) will be carrying out public education campaigns on intellectual property protection. It will also continue with its school visit programme and promote the 'No Fakes Pledge' scheme under which retail outlets give their own guarantee to purchasers, through a prominently displayed sticker, that their goods are genuine. The Customs and Excise Department has also launched a campaign jointly with the computer software industry to promote the use of genuine software and give public recognition to organisations following proper software management practices.

ADVICE SOUGHT

18. Members are invited to discuss the various points raised in this note.

Trade and Industry Bureau
June 1999


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Annex

I. Numerical Analysis

(Basic Assessment Criteria)

• each signed letter or e-mail will be counted as one submission

• general statements on the legal or administrative IPR regime are not counted as opinions in favour of or against a particular option

Total Number of Submissions : 518¹
(411 from private individuals and 107 from organisations or other bodies)

Option	In Favour	Against/Reservations	No Comment/Not Indicated
1. To include IPR offences as Organised and Serious Crimes	270	31	217
2. To amend the IP laws to incorporate special investigation and enforcement powers under OSCO.	250	11	257
3. To impose minimum or standard sentences for IPR offences	233	35	250
4. To impose closure orders following the model of the Crimes Ordinance	261	13	244
5. To impose immediate closure orders following 1st conviction of IPR offences	240	40	238
6. To ban unauthorised recording in cinemas and concert venues	250	22	246
7. To ban recording equipment in cinemas and concert venues	251	30	237
8a. To introduce fixed penalties for consumers of infringing goods	2262	1533	139
8b. To introduce offence for import or export of even a small quantity of infringing goods for private use	218 (please also see footnote 2)	42	258
8c. To re-cast the offence of possessing of infringing articles	218(please also see footnote 2)	34	266

1 This figure does not include the late submissions.

2 It should be noted that there are more than 240 submissions from employees or organisations directly related to the movie or cinema industries, and the majority supports the "consumer liability" concept.

3 Including one submission attaching 1,238 signatures objecting to the options on banning recording equipment in cinemas or other places or public performances; fixed penalty for consumers of pirated materials; and the introduction of an offence for import or export of even a small quantity of infringing goods for private use.