PLC Paper No. CB(1)16/97-98
(These minutes have been
seen by the Administration
and cleared with the Chairman)
Ref: CB1/BC/14/96

Bills Committee on Copyright Bill

Minutes of meeting held on Monday, 7 April 1997, at 4:30 pm in the Chamber of the Legislative Council Building

Members present :

    Hon Mrs Selina CHOW, OBE, JP (Chairman)
    Hon Ambrose LAU Hon-chuen, JP (Deputy Chairman)
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon Fred LI Wah-ming
    Hon CHAN Kam-lam
    Dr Hon LAW Cheung-kwok
    Hon SIN Chung-kai

Members absent :

    Hon Ronald ARCULLI, OBE, JP
    Dr Hon HUANG Chen-ya, MBE
    Hon Henry TANG Ying-yen, JP
    Dr Hon Philip WONG Yu-hong
    Hon Howard YOUNG, JP
    Hon Margaret NG

Public officers :

    Mr Augustine CHENG
    attending Deputy Secretary for Trade and Industry
    Mr Stephen SELBY
    Director of Intellectual Property
    Mr Peter CHEUNG
    Deputy Director of Intellectual Property
    Mr Vincent Y K POON
    Assistant Commissioner of Customs and Excise
    Mr Patrick NIP
    Principal Assistant Secretary for Trade and Industry
    Mrs Spring FUNG
    Deputy Principal Crown Counsel
    Mr Johann WONG
    Assistant Secretary for Trade and Industry

Attendance by invitation :

    Motion Picture Association

    Mr Jeffrey HARDEE
    Vice President, Asia Pacific Region
    Mr Steve HOWES
    Director, Australian Film and Video Security Office
    Mr Jared MARGOLIS
    Solicitor, Margolis & Associates

    International Federation of the Phonographic Industry

    Mr Ricky FUNG
    Project Manager
    Ms LEONG May Seey
    Deputy Regional Director
    Mr GIOUW Jui Chian
    Regional Director, Asia Council
    Ms Gabriela KENNEDY
    Legal Advisor

Clerk in attendance:

    Miss Odelia LEUNG
    Chief Assistant Secretary (1)1

Staff in attendance :

    Ms Kitty CHENG
    Assistant Legal Adviser 2
    Ms Sarah YUEN
    Senior Assistant Secretary (1)1

1. The Chairman drew members’ attention to the following -

  1. Hon Andrew CHENG Kar-foo had withdrawn from the Bills Committee.

  2. The Secretariat had made arrangements for HMV to attend the Bills Committee meeting on 16 April 1997, and Business Software Alliance and Hong Kong, Kowloon and New Territories Motion Picture Industry Association on 18 April 1997.

  3. KPS Retail Stores Limited had proposed some amendments to clause 35 which had been circulated to members vide LegCo Paper No. CB(1)1175/96-97(01).

I Meeting with deputations

2. The Chairman welcomed the deputations and invited them to express their views on the Bill.

Meeting with the Motion Picture Association (MPA)

(LegCo Paper No. CB(1)1188/96-97(01) and papers tabled at the meeting and circulated to members vide LegCo Paper No. CB(1)1229 /96-97)

3. Mr Jeffrey HARDEE briefed members on MPA’s submission. Members noted that MPA was a trade association representing seven of the largest US producers and distributors of film entertainment. Its major activities included working to eliminate restrictive trade regulations pertaining to the film industry and protecting its members’ copyrights. It worked with the film industries of other countries on matters of common interest. In MPA’s view, arguments put forward by some parties in support of deregulation of parallel importation were far-fetched. MPA refuted such arguments as follows-

  1. Deregulation of parallel importation would not bring about greater consumer choice

    Foreign copyright owners basically distributed their videos to Hong Kong in three ways, namely direct distribution of localised/subtitled versions and imported versions by the copyright owners themselves, appointment of exclusive licensees for distribution of localised/subtitled versions and imported versions, and hands-off approach where no localisation of products would be involved. Copyright owners who distributed directly set up offices in Hong Kong to release their titles. Exclusive licensees paid copyright owners upfront for exclusive distribution rights, taking a gamble on how well the film would do in Hong Kong. It was therefore irrational for either the copyright owner or the exclusive licensee not to release any titles. If the hands-off approach was adopted, the copyright owner would have no objection to parallel importation of their products irrespective of whether or not the Bill provided protection against parallel import. Thus the existing system of distribution had already provided sufficient guarantee for the availability of a full range of products. Retention of protection against parallel imports in the Bill would not have any adverse effect on the choice of titles for consumers. Quite to the contrary, copyright owners and exclusive licensees would not release localised titles in Hong Kong if they were beaten to the market by parallel imports, and the interests of the non-English speaking majority of Hong Kong consumers would be affected.

  2. Deregulation of parallel importation would not result in lower prices

    Claims about "monopoly" and "price fixing cartels" put forward by retailers were false. First, all MPA member companies, which accounted for a significant share of the video market in Hong Kong, were forbidden by US anti-trust laws to collude on pricing. Second, so many films were produced that it was simply not possible for an exclusive licensee to use his/her so-called "monopoly" on a particular film or films to set the pricing levels for videos. Third, those movies for which there were no exclusive licensees would continue to be parallel imported and their prices would be set by retailers. Fourth, prices were determined by many factors in a market.

  3. Copyright owners and exclusive licensees in fact worked in concert

    Claims that copyright owners were not concerned about the interests of their exclusive licensees were false. Copyright owners worked in concert with their exclusive licensees and it was in their interests to protect exclusive licensees’ rights.

  4. Overseas experience had been misquoted to support deregulation of parallel importation

    The claim that the video market in Taiwan "was destroyed overnight" when protection against parallel imports was introduced in 1993 was false. The fact was that home video revenue in Taiwan had grown, not dropped, since 1993. The use of Singapore as an example to highlight the benefits of parallel importation was also irrelevant because Singapore had never imposed restrictions against parallel imports. The claim that deregulation of parallel importation had led to the recent increase in box offices there was thus incorrect. Moreover, there were many differences between Hong Kong and Singapore. Firstly, Singapore only had a small local film industry. Secondly, virtually everyone in Singapore understood English and there was no need for localisation of products. In fact, the increased box offices in Singapore was attributed to the construction of multiplex theatres, some of which were the best in the world.

4. Mr HARDEE went on to explain that the film industry was unique because films might be viewed in a variety of formats. The best way to realise the earning potential of films was to release them sequentially in different formats as theatrical release, home video release (six months later), video-on-demand (three months later), pay television (TV) (three months later), and free TV (six to twelve months later). The sequential release system promoted the development of theatres, video outlets, pay TV services and broadcasters while maximising returns in each format. The system ensured a strong film industry, which served Hong Kong well, and was possible only with strong copyright laws and enforcement. Parallel imports, though not pirated goods, disrupted the release schedule and undermined the marketing strategy and sales opportunities of the exclusive licensee who had already paid the copyright owner a fee based on the expected market potential. If this happened repeatedly, exclusive licensees would stop buying exclusive rights and localised products would dry up. Hence protection against parallel imports was in the best interest of the Hong Kong film industry and consumers. In this regard, Mr HARDEE commended the Bill for having incorporated the following -

  1. Under the Bill, a product would be considered a parallel import if it violated an exclusive licence agreement, regardless of whether the product was parallel imported by an overseas exclusive licensee or the copyright owner himself. This was reasonable because it recognised the investment and risk an exclusive licensee undertook in obtaining exclusive distribution rights.

  2. The Bill would ease the burden of proof on copyright owners and exclusive licensees in initiating actions against parallel importers. Under the current legislation, a plaintiff had to prove actual knowledge of parallel importers, whereas under the Bill, copyright owners and exclusive licensees would only need to prove that the defendant "knows or has reason to believe" that the goods were infringing goods.

5. Notwithstanding the above new elements, Mr HARDEE disagreed that the Bill conferred with exclusive licensees too many rights. In his view, the Bill neither added or took away any of the rights exclusive licensees already enjoyed in terms of initiating court actions. The copyright owner was still required to join the exclusive licensee as a plaintiff or be added as a defendant. MPA requested that criminal penalties and border control measures should continue to apply to parallel imports in order to protect the Hong Kong film industry and consumers.

6. In response to members’ questions, Mr HARDEE supplemented the following information -

  1. It was practically impossible to stop an overseas exclusive licensee to parallel import products into Hong Kong notwithstanding the specification of territorial rights in the sale of the products and of no exportation rights in the contract. The Hong Kong exclusive licensee was powerless in initiating actions against the overseas exclusive licensee because they were not bound by any contractual obligations. As there was no way to prevent the overseas licensee from exporting the products to Hong Kong, it was necessary to impose restrictions on the importation front.

  2. Although the US anti-trust laws did not apply to Hong Kong, as a practice and policy of MPA, there was no discussion of pricing among MPA member companies.

7. Mr Steve HOWES then briefed members on the Australian situation by highlighting the following salient points -

  1. The Australian Copyright Act of 1968 provided for the protection of copyright property from being imported without the license of the copyright owner into the country for the purpose of trade. Since 1 June 1996 the Act also provided for border control measures whereby the owner or licensee of a product could lodge an "objection" with the Customs to prevent unauthorised products from being imported. Both civil and criminal remedies were available. The Australian Government reviewed the Copyright Act in 1986. Consequently, the penalty provisions and evidentiary requirements were strengthened but the criminal provisions for importation were subject to further review. Subsequent reviews in the ensuing years resulted in relaxation of importation laws involving literature. The film and video industry was also closely examined primarily from a "price structure" point of view. However, the Australian Government considered that the industry was competitive within the world market and import protection for its products should remain.

  2. A careful examination of case histories in Australia indicated that to combat piracy, it was necessary to cut off the source, i.e., the illegally imported products. While civil proceedings could be resorted to, only criminal sanctions were effective. If provisions were not available to prevent or seize parallel imported products, the problem of piracy would worsen.

  3. The absence of censorship for parallel imported films, videos and interactive games should also be considered. As illegally imported products were not submitted for classification and frequently displayed incorrect censorship ratings or no rating at all, young people would be exposed to inappropriate materials.

8. In addressing members’ queries, Mr HOWES explained that deregulation of parallel importation of books in Australia had not created any problem because unlike the film industry, the publishing industry was not operating on a window system. The window system was unique to the film industry which needed protection against parallel importation.

9. While recognising the need to protect the local film industry, members considered it important also to balance and safeguard the interests of the consumers. To ensure product availability and fair pricing, some members proposed to impose a time frame on first release of films. Representatives of MPA considered this suggestion not viable because there were not enough screens in Hong Kong to enable local distributors to release a film simultaneously with the US theatrical release. As the delay in local theatrical release would create different release dates for home videos between the United States and Hong Kong, parallel import of home videos from the US would deny local distributors the opportunity to maximize local theatrical release without competition from videos. The implications would not stop at the copyright owners’ level, other market segments involved such as theatre owners, video retailers and TV services would also be affected. Moreover, film producers should be allowed to determine the release schedule and the strategy of marketing their products to maximise the returns. India was also experimenting with the window system and had seen positive results.

10. Members explored the feasibility of allowing parallel importation under certain circumstances, such as when the licensee had no intention of supplying a certain product. Representatives of MPA replied that there was no hold-up of titles. In the case of purchase of exclusive distribution rights on a title-by-title basis, the exclusive licensee had to pay upfront for the right to release the product and there was no reason not to release a title. As for the few licensees who had the exclusive video rights for a whole line-up of film titles, it was also an existing practice for them to co-operate with retailers to ensure the availability of the full range of products to consumers. Should they choose not to supply a certain product, they would allow retailers to parallel import. In fact, any delay in local theatrical release was due to the shortage of screens, rather than a deliberate hold-up. The window system was to protect and benefit all relevant market segments, and not just the theatrical release. Video retailers’ businesses would also be seriously affected if the window system collapsed and a title was released on TV at the same time as video release. As the system had been working well under economic forces without legislative intervention, the situation should be allowed to continue.

Meeting with the International Federation of the Phonographic Industry (IFPI)

(LegCo Paper No. CB(1)1207/96-97)

11. Mr Ricky FUNG briefed members on IFPI’s submission. Members noted that being a copyright industry, the record industry subsisted under unique rules. As opposed to general commodities, importation rights were conferred with copyright owners and exclusive licensees in many countries by virtue of national copyright laws. Copyright protection, including restrictions on parallel importation, was therefore the key to the local record industry’s survival. This explained why currently 33 countries, most of which with active local repertoire, imposed import restrictions against parallel importation. According to IFPI, decriminalisation of parallel importation would affect the local record industry in the following ways -

  1. The reclassification of parallel importation as a civil offence under the Bill would have significant implications as the Customs and Excise Department (Customs) would no longer have the authority to intercept parallel imported records. As a result, there would be an influx of pirated products under the disguise of parallel imports. Since the use of regional coding against piracy was not viable in the record industry, its survival would be threatened by the influx of counterfeits.

  2. Decriminalisation would allow parallel importers to take an unfair advantage of free advertising and marketing over record investors in Hong Kong. To mitigate the harmful effects of parallel importation, the digital video disc (DVD) format had to be developed as a security measure against parallel imports in the video industry.

12. Mr FUNG then put forth the following reasons to dispel claims that parallel importation would lead to wider consumer choice and lower prices -

  1. Parallel importation would increase choice only if the goods were not supplied by the licensees. The record industry was equally concerned with consumer choice and had taken various measures to satisfy specific demands. For example, record licensees in Hong Kong were providing indent order services to meet demands for unstocked items and special products. Normally it would be a breach of the exclusive licensing contract if a licensee who had no intention of supplying a certain product prohibited others from parallel importing it. Licensees had been closely co-operating with retailers to ensure product availability. There was no need to lift restrictions on parallel importation under the pretext of ensuring product availability. In fact, the majority of parallel imports were best sellers readily supplied by the licensees, some of these were local productions the supply of which had never been a problem.

  2. The retail price of records in Hong Kong had been maintained at a reasonable level as compared to countries with similar economic conditions. In fact, free market competition had been keeping prices low and it was not uncommon to find parallel imported records in Hong Kong 5 to 10% more expensive. It was therefore unnecessary for Hong Kong to open the market for parallel importation for the sake of price control. In fact, as exemplified by Japan and Singapore, unrestricted parallel importation had not resulted in lower retail prices for consumers. Unlike Japan, Hong Kong’s record industry had to rely heavily on the export markets, and needed all the more protection against flow-back of musical products.

13. To conclude, Mr FUNG strongly urged the Government to maintain restrictions on parallel import to enable the local record industry to continue to grow and to make cultural and economic contributions to Hong Kong. To this end, criminal sanction was the most effective deterrent.

14. In reply to members’ questions on enforcement, Mr FUNG supplemented the following information -

  1. During 1991 to 1992, IFPI had been trying hard to take actions against parallel imports. However, due to the requirement to give sufficient notice of infringement to the retailer in question, who could then destroy the evidence timely, the efforts proved futile. IFPI later diverted its efforts to combat piracy when the problem got serious in 1993.

  2. As a member of the World Trade Organisation (WTO), Hong Kong’s proposed copyright regime should meet international standards. It was inappropriate to apply different treatment to local and foreign productions as some members suggested.

15. The Deputy Secretary for Trade and Industry (DS/T&I) provided the following information on the current situation of law enforcement -

  1. In compliance with WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement), foreign products and local products should enjoy the same treatment. The issue of parallel importation should best be addressed in the context of contractual rights.

  2. Although criminal sanctions against parallel importation were available under the existing law, it was very difficult to take prosecution actions because of complex contractual issues. For example, it was impossible to ascertain whether or not a product was parallel imported without the copyright owners’ co-operation. Actions could only be taken upon notification by the copyright owner.

16. Some members opined that decriminalisation of parallel importation should not weaken border checks to guard against importation of pirated goods under the guise of parallel imports. They also pointed out that instead of shirking the responsibility for initiating actions to the trade, the Administration should actively enforce the law and refer to overseas experience to establish an effective mechanism for combating piracy. Some members suggested that certification by trade associations in the exporting country on the status of goods might be a viable option.

17. In response, representatives of the Administration made the following points -

  1. The Administration was firmly and totally committed to taking actions to combat copyright piracy and would continue to do so at the retail, distribution, storage and importation levels. In fact, Customs had all along been co-operating with the Police in surveillance and intelligence-gathering on piracy activities and the selling of infringing products in Hong Kong, and would continue to take vigorous enforcement actions. It had to be appreciated that before contemplating a court action, the Administration had to gather sufficient evidence, which was only possible with the full co-operation of the copyright owner or the distributor.

  2. Co-operation of the copyright owner was also necessary in surveillance and intelligence-gathering. Customs had been maintaining close liaison with copyright owners in taking enforcement and prosecution actions. After seizure of suspected infringing items on the basis of intelligence provided by the copyright owner, the Administration always invited the copyright owner to jointly inspect these goods.

  3. It would be difficult for infringing products to disguise as parallel imports upon decriminalisation of parallel importation. Firstly, border measures would not relax as a result of decriminalisation. In any suspected case, the Administration would take the initiative to contact the copyright owner. Secondly, through close contact with copyright owners, the Administration had already established an intelligence network on product authenticity. Thirdly, the Bill would strengthen border measures by increasing the power of the Customs to detain suspected infringing goods with authorisation from the copyright owner.

18. Members thanked IFPI for providing a resourceful paper entitled "Importation Rights in National Copyright Law". At members’ request, IFPI agreed to provide a summary in tabular form to highlight the remedies available in countries which regulated parallel imports.

(Post-meeting note: The table was circulated to members vide LegCo Paper No. CB(1)1286/96-97)

19. In response to members’ request to provide similar information, DS/T&I and the Director of Intellectual Property said that due to the lack of a clear position regarding parallel imports in many countries and the need to consult local practitioners on interpretation and enforcement of their copyright laws, there were practical difficulties in providing information on overseas experience.

20. The meeting ended at 6:30 pm.

Provisional Legislative Council Secretariat
9 July 1997

Last Updated on {{PUBLISH AUTO[[DATE("d mmm, yyyy")]]}}