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Following is a speech by the Secretary for Trade and Industry, Mr Chau Tak Hay, at the WIPO Asian Regional Symposium today (Monday):

The Challenge of Piracy and Counterfeiting

Mr Sabharwal, distinguished guests, ladies and gentlemen,

I am very pleased to be able to take part in this important symposium today. Meeting the challenge of piracy and counterfeiting will remain high on the agenda of many Asian governments. I am therefore especially grateful for this opportunity to share with you Hong Kong's experience in dealing with the complex subject of protecting intellectual property rights.

The Importance of Intellectual Property Rights Protection

Within the Government of the Hong Kong Special Administrative Region of the People's Republic of China, policy responsibility for intellectual property rights protection falls within my portfolio as the Secretary for Trade and Industry. This is a reflection of our recognition of the fact that intellectual property rights protection is an essential element in the development of trade, investment and technology transfer.

We have for long recognised that it is very much in Hong Kong's own interest to protect intellectual property rights. And we do not have to look far for the reasons. Much of our economy depends on the creativity of our people. Whether we are talking about fashion, toys, watches or jewellery, which together account for a large chunk of our exports, much of the value added has come from the design of the products. We are also one of the largest exporters of cinema films in the world. I can go on to list other examples. But the underlying message should be abundantly clear. Our economic well-being depends on the brain power of our people. Attempts to steal the intellectual property attaching to the products and services of our legitimate businesses amount to attempts to undermine our economic viability.

Hong Kong is also an excellent destination for foreign investment. Our attractions are manifold. Among those most commonly cited are our superb physical infrastructure, our simple tax regime and low tax rates, our well developed financial support services and regulatory system, the rule of law and in general a very business-friendly environment. There are of course many ingredients in a business-friendly environment, but many internationally renowned surveys count the existence of a reliable system for the effective protection of intellectual property rights as an integral part of such an environment. This is natural. Investors need peace of mind about the protection of their legitimate interests. They will be deterred if they are worried that their orders will be over-produced for channeling to the illegal market or that their inventions will be copied without authorization. For us to sustain and sharpen our attractiveness as a destination for foreign investment and reap the benefits of technology upgrading and wealth creation, intellectual property protection is not a luxury, but a must.

Another relevant consideration in this equation is the future of our economic development. Over the past two decades, Hong Kong has undergone a restructuring of its economy. Many of the more labour and land intensive assembly processes have been relocated to our hinterland in Southern China, or even further north. This has allowed us to become a command centre for much offshore production while retaining and developing higher value-added manufacturing and services in Hong Kong. Despite the recent setbacks resulting from the Asian financial turmoil, there can be no denying that our economic development over the last 20 years or so has been a resounding success. Our standard of living has improved considerably as a consequence.

But competition is keen in the Region. If we are to sustain and uplift our standard of living, we cannot seek to compete on low value added processes or cheap labour and land. We have to be able to build a technology-based and knowledge-based economy. An increasing proportion of the value added will have to come from innovation - not only in respect of products, but also in respect of processes and application; not only in respect of manufacturing, but also in respect of services. No one will however be prepared to invest their time and effort in innovation if the output is easily stolen. It is therefore critical that a robust regime of intellectual property protection is in place to support our economic development into the 21st century.

I realize that I may well be preaching to the converted. However, I believe that many of the considerations applicable to Hong Kong are equally applicable to other economies in the Region and, indeed, in the rest of the world. Hong Kong may have moved a little faster than some of our neighbours in recognizing that we cannot compete on cost alone. But if our experience is anything to go by, it is only a question of time when an economy has to move from relying solely on cheap land and labour. Climbing up the value added ladder is the way forward. So the pressure to protect intellectual property will increasingly come from internal rather than external forces.

Against this background, and in an increasingly globalized world economy, different countries and territories face many common problems in protecting intellectual property rights. For example, the ease of transport has inadvertently facilitated, among other perfectly worthy and legitimate causes, cross-border shipments of pirated and counterfeit goods. Advances in technology have also enabled pirates to make infringing copies more easily than before. This underlines the need for economies in the Region to meet regularly to examine and re-examine the problem and together lay down effective strategies to deal with changing situations.

Tackling the Problem

I now turn to how we in Hong Kong tackle the problem of piracy and counterfeiting. Essentially we have a multiple-pronged approach: legislation, enforcement, education and cooperation with intellectual property rights owners.

(a) Legislation

As I have just said, the nature of the piracy problem is changing. We have to ensure that our laws remain relevant to changing circumstances. We also need to provide our enforcement officers with the proper legal tools to carry out their work effectively.

On 1 July, 1997, Hong Kong was reunited with the Mainland of China. To prepare for the transition, we had to establish a new, independent set of laws for the protection of intellectual property rights. Three ordinances were passed in June 1997 - the Copyright Ordinance, the Registered Designs Ordinance and the Patents Ordinance. This was no easy task. In the formulation of these laws, we had put in a great deal of effort to make them meet the highest possible standards in line with international norms. I am pleased to say that our new laws now meet the standards set down in the Trade-related Aspects of Intellectual Property Rights Agreement, or the TRIPS Agreement as it is commonly known, of the World Trade Organisation.

International standards apart, we have always been mindful to take account of Hong Kong's own specific circumstances in approaching our legislative work. For example, the high concentration of population here facilitates the selling of goods to a relatively large number of customers within a relatively short time, thus increasing the temptation for pirates to make and sell pirated copies or counterfeit goods. We therefore believe that penalties for piracy and counterfeiting should be set at an appropriately high level to have the necessary deterrent effect. Thus, under the Copyright Ordinance, the maximum penalty for possessing infringing copies for trade or business is a fine of HK$50,000 per infringing copy and imprisonment for up to four years. Possession of "plates" for manufacturing infringing copies is subject to a maximum penalty of HK$500,000 in fine and imprisonment for eight years.

To enable us to deal more effectively with the piracy problem at source, we amended the subsidiary legislation of our Import and Export Ordinance last December to introduce a licensing requirement for the importation and exportation of equipment for manufacturing optical discs. In March this year, the Prevention of Copyright Piracy Ordinance was enacted. It requires all optical disc manufacturers to obtain a license from the Government, and adds a mandatory requirement for all locally manufactured optical discs to bear a source identification code. Manufacturing optical discs without a valid license or forgery of a source code carries a maximum penalty of a fine of HK$500,000 and two years' imprisonment for a first conviction. The penalties will double for repeat convictions.

The aim of these moves is to let the government keep better track of the production of optical discs, to distinguish legitimate businesses from illegal ones and to empower the enforcement agencies to tackle the problem at the production level. We believe that, over time, the effect of these measures will filter down to, and reduce the problem at, the retail level.

b) Enforcement

Combating piracy and counterfeiting is a demanding task and is manpower intensive. To make sure we have enough hands available, we will have doubled the number of officers in the Intellectual Property Investigation Bureau of our Customs and Excise Department from 117 in 1994 to 237 in 1999. The Bureau will be one of the most powerful intellectual property rights enforcement agencies in the Region.

Besides controlling the problem at the production level, our dedicated enforcement officers also attack the problem at the distribution and retail levels. Our Customs officers conduct frequent territory-wide raids against retail outlets. In this effort they are assisted by other law enforcement agencies from time to time. In the first five months of this year, our law enforcement officers seized more than 28 million suspected pirated optical discs. Retail piracy in some of the more notorious shopping arcades has subsided under our persistent enforcement efforts.

At the importation and distribution levels, our law enforcement officers have conducted many successful raids on storage premises and stepped up enforcement actions at various border control points. We are also strengthening our work in the gathering of intelligence and are maintaining close contact with other enforcement authorities, including those in the Mainland.

We can be proud of our enforcement work. Through these examples, I hope you can see not only our determination to combat the problem of intellectual property rights infringement, but also the considerable amount of resources and efforts that we have put in to fight this continuing battle.

(c) Education

Many experts in the audience will agree with me that no amount of legislation and enforcement is sufficient if the public continues to demand cheap pirated and counterfeit goods. We therefore see public education as an equally important area of work in intellectual property rights protection. We believe in the need to educate our public to respect intellectual property rights from an early age. Thus we have started a series of education programmes to drive home the message.

Starting from last September, the Intellectual Property Department has been visiting secondary schools and talking to students directly about the importance of intellectual property protection. By the end of May, officers of the department have already visited 93 schools and talked to 25,000 students. During such talks, we cover the concept of intellectual property and the importance of its protection. We also put great emphasis on going beyond mere theory and on exploring one's own potential and creativity. If our young people realize the pleasure of enjoying the fruits of their own hard work, they will gradually take their own initiative to protect intellectual property rights.

(d) Cooperation with Intellectual Property Rights Owners

Intellectual property rights are private economic rights. At the end of the day, it is critically important that we have the full cooperation of rights owners or their agents. I am pleased to say that we have done quite well in this regard. Rights owners and their representatives have on the whole been forthcoming in helping us to identify infringing copies, for example. I believe that there is further scope in such cooperation. Our public education drive is a case in point. Indeed we are maintaining a regular dialogue with rights owners and other interested parties on this and other issues of mutual concern.

Challenges Ahead

I would now like to turn to future developments in protecting intellectual property rights and how we can further build on the foundation that we have laid.

I believe that the problem of piracy of optical discs will continue to be an area of concern in the next few years. Whether we like it or not, the demand is still there. And the potentially huge profit is a major incentive for pirates. To keep the problem under control, regional cooperation to stop cross-border shipments of infringing goods is necessary. We look forward to closer ties among enforcement authorities in the Region in this respect.

Another area of concern is the problem of piracy on the Internet. Hong Kong is probably one of very few places which extend their copyright protection to materials on the Internet. Nonetheless, even the most advanced of economies will acknowledge that there are many technical problems on the enforcement side. To address this, we should ensure that we have qualified personnel who have the necessary computer knowledge, technological expertise and professional training to enable them to identify piracy and find ways to tackle the problem. In addition, regional enforcement agencies and the computer industry will need to come together to find out how to employ technical means to bar illegal duplication of materials and how to equip enforcement officers with the tools to identify and track down infringement. Again, regional cooperation is an important element in our efforts.

Crime in the digital environment is not confined to copyright piracy. Physical communication and transport among economies is improving. The Internet is increasingly being used by illegal businesses to provide electronically-hidden mail-order services for counterfeit articles; and by computer hackers to gain unauthorised commercial information and break open trade secrets. These are all areas where we should prepare ourselves to move forward together in the future.

We should also consider ways to make the proof of copyright subsistence easier. One possibility is to set up an international centralised copyright rights-management information system. The concept is not a compulsory copyright registration system, but a voluntary database to assist the world's copyright owners to manage and assert their rights, as and when they need to. By registering rights - particularly licenses and assignments - with such a system, rights owners and enforcement agencies from around the world would be able to have easier access to the verification of copyright, thus facilitating prosecution, and resulting in better protection of the interests of the rights owners. There are of course many problems, both technical and legal, to be addressed in developing this concept. I would invite all of you to give further thought to the subject.

Finally, we should study the suggestion to broaden legal liability in copyright piracy and counterfeiting to combat the problem of piracy at the consumer level. For example, we are studying the possibility of applying closure orders to premises found with the production, distribution or trading of pirated and counterfeiting goods. We also suspect that if we do not see a fall in consumer demand for pirated and counterfeit articles, we may have to visit the question of whether the consumer can continue to be given unlimited freedom to create market demand for illegal articles with such impunity. These are controversial issues that cannot be dealt with lightly and we will need to ensure that all relevant considerations are taken into account.

Conclusion

We believe in an integrated approach to counter piracy and counterfeiting in the short term as well as in the longer term. Only by such commitment could creativity, talent, trade and industry flourish. I hope that I have been able to provide some points for discussion during this Symposium as well as after it. I look forward to learning from your contributions.

Thank you.

End/Monday, June 1, 1998

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