Following is the speech by the Director of Public Prosecutions, Mr Grenville Cross at the symposium "Hong Kong - An Intellectual Property Gateway" jointly organised by the Intellectual Property Department and the Asian Patent Attorneys Association, Hong Kong Group today (November 7):
It is over three years since the Hong Kong Special Administrative Region (HKSAR) was established on 1 July 1997. Upon that date this small, vibrant, densely populated region reverted from British to Chinese sovereignty under the principle of One Country, Two Systems. The idea that two distinct systems could co-exist within one country was a bold one, and the world has watched with interest the progress of the HKSAR.
From the outset, there was a recognition that the maintenance of the rule of law was vital to our success. Hong Kong is an international city, a major financial centre, and a bridge between the West and the Mainland. If the Hong Kong way of life is not protected by the rule of law that could change. The international community must know that Hong Kong is a safe place to do business, that corruption will not be tolerated, that investment will be safe, that the financial system is properly regulated, that insider dealing will not be countenanced, and that intellectual property rights will be protected. How have we done?
Although we have our fair share of doom and gloom merchants, it is clear to those of us on the ground that since reunification the rule of law has continued to flourish, basic freedoms have remained intact, and the fundamental principles which underpin our way of life have remained secure. The HKSAR has, as was promised, kept its own way of life, its own way of doing things, and has been left to run its own affairs. The European Commission recently concluded that 'Hong Kong remains one of the freest societies in Asian' and that the principle of One Country Two Systems 'remains intact and is generally working well'. Just last month, Chris Patten, the last Governor of Hong Kong, wrote that 'Hong Kong people have been running Hong Kong, and despite the problems doing it remarkably well'. That this should be so is a tribute to all those who value and work to uphold our way of life.
In recent years, Hong Kong, like other jurisdictions, faced the challenge posed by a blatant disregard of intellectual property rights. We recognised that, unless dealt with, this could have adversely affected Hong Kong's international reputation.
In the period 1994 - 1997, the seizures of infringing copyright CDs grew six-fold. In 1994, the Customs and Excise Department seized a total of 224,760 infringing CDs valued at $9.8 million. In 1997 the seizures of infringing CDs had grown to 1,830,596 - valued at $58 million. In 1996 a global survey placed Hong Kong as the twelfth highest for copyright piracy in the Asia Pacific region and nineteenth in the world. We recognised that a failure on our part to stamp out the traffic in pirated goods would be as bad for our reputation as it would be for our economy. Something had to be done.
THE FIGHT BACK
It was apparent to us all that this was a problem which would, unless addressed, cause great financial loss to the owners of the intellectual property rights in the genuine products. We could not allow Hong Kong to acquire the stigma of being a place which tolerated such a situation. Action was therefore taken at the legislative level, with new laws, at the enforcement level, with stronger action, and at the sentencing level, with deterrent penalties. Our strategy has proved effective.
In 1997 and 1998 new legislative measures were introduced. The Copyright Ordinance came into effect in 1997. The legislation contained new offences aimed both at those engaged in the manufacture of infringing copyright works, and those who sold them. The penalties for such offences were dramatically increased by the new Ordinance. The legislation also increased penalties for pre-existing offences.
Those who possess infringing copies of copyright works became subject to a fine of $50,000 per infringing copy and imprisonment of 4 years. Those who possessed articles or equipment for making infringing copies of a copyrighted work became liable to a fine of $500,000 and imprisonment of 8 years.
New offences were introduced for those who :
* imported or exported articles or equipment which are to be used for making infringing copies of copyright works - 8 years maximum plus fine $500,000
* outside Hong Kong made infringing copies of a copyrighted works for export to Hong Kong - 8 years maximum plus fine $500,000
* outside Hong Kong make articles which can be used to make infringing copies of a copyrighted work knowing they will be used in Hong Kong to make infringing copies of copyrighted works - 8 years maximum and $500,000 fine
* forfeiture provision - any infringing copyright works or any article or machinery used to produce them to be forfeited if found to be infringing copy or used to produce such
The Ordinance also contains a valuable provision to ensure that those responsible for corporate infringement cannot escape their just deserts.
Prevention of Copyright Piracy Ordinance (1998)
To strengthen our capacity to prevent copyright piracy, the HKSAR introduced this legislation in 1998. It has as its main objective the control of the manufacture of optical discs in Hong Kong by way of a licensing system administered by the Customs and Excise Department. It provides :
* every manufacturer of optical discs (eg CD, DVD) must be licensed
* every manufacturer is given a code which must be marked on every optical disc manufactured
* every optical disc must be manufactured at premises named on the licence
The penalties for producing optical discus without a licence are :
* 2 years maximum and fine $500,000 on first conviction
* 4 years maximum and fine of $1 million on a second or subsequent conviction
This Ordinance again prevents offenders from hiding behind the corporate veil. It provides that where a body corporate commits an offence, any act proved to have been committed with the consent or connivance of any director, manager or secretary of the body corporate will also be liable as well as the body corporate.
The Ordinance contains an important clause to enable the Commissioner of Customs and Excise to further multilateral cooperation in the fight against pirated products. The Commissioner is empowered to pass on information to authorities responsible for intellectual property enforcement in any WTO body or other country as he sees fit.
Developments in 2000
Steps have been taken on two fronts in 2000 to strengthen our legislative regime.
A. Organised and Serious Crimes Ordinance, Cap 455
On 14 January 2000, the ambit of the Organised and Serious Crimes Ordinance (OSCO) was extended to cover offences under the Trade Descriptions Ordinance related to the infringement of trade mark rights, and offences related to making and dealing in infringing copies of copyright works in Hong Kong and outside Hong Kong.
That expansion of OSCO was designed to hit hard at organised criminality which involves the trade in pirated goods.
The first effect is that those convicted of the offences concerned are now liable to the enhanced sentencing provisions of OSCO. A court can impose more severe sentences for such crimes if it can be shown that in committing those offences the persons responsible were connected with the activities of a triad society, or the offences involved two or more persons and involved substantial planning and organisation.
The second effect is that OSCO contains special investigative and enforcement powers which can be invoked in respect of organised crimes. These can, for example, be used to compel the small fry in a counterfeit organisation to divulge the identities of the masterminds.
The third effect is that the prosecution can apply for court orders to investigate into the financial assets of suspects, and the assets together with the proceeds of the crimes are liable to confiscation in the event of a conviction.
These new powers facilitate the investigation of offences of suspected copyright or trade mark counterfeiting offences to determine whether the proceeds of the crimes have been hidden in order to protect the profits of the crime. Possible confiscation operates as a powerful deterrent against the commission of offences involving the infringement of intellectual property rights.
B. Intellectual Property (Miscellaneous Amendments) Ordinance 2000
This Ordinance was introduced in July 2000, and it is expected to become operative in 2001.
The first objective of the Ordinance is to clarify the existing offences under s118 of the Copyright Ordinance.
Section 118(1)(d) provides :
(1) A person commits an offence if he, without the licence of the copyright owner -
(d) possesses for the purpose of trade or business with a view to committing any act infringing the copyright;
The view is taken that this offence does not equip law enforcers to prosecute individual companies or firms who engage in normal business activities but used pirated computer software.
The Business Software Alliance report issued in June 2000 stated that half of the software installed in the HKSAR is pirated. The cost to the copyright owners was US$110 million in 1999.
S. 118(1)(d), (e) (f) are therefore to be amended to address this problem. The words "for the purposes of trade or business" in s. 118(1)(d), (e) and (f) will be deleted. Substituted will be the words "for the purposes of, in the course of, or in connection with, any trade or business . . ."
The same amendments are made to the statutory defences available to s 118(1)(d), (e), (f) offences.
A new section is to be added to s 118. It provides that it is immaterial for the purposes of subsection (1)(d) and (e) and (e), whether or not the trade or business consists of dealing in infringing copies of copyright works.
The amendments make it clear that it will constitute an infringement act under the relevant provisions of the Copyright Ordinance to use an infringing article in the course of business activities regardless of whether the business is dealing with infringing articles themselves.
We are confident that once such laws become operative, they will go a long way to clamping down on those who use pirated software in their daily business activities.
The second purpose of the Ordinance is to overcome the problem of bootlegging of films, which occurs by the making of copies of the films in local cinemas, using hand held video recording equipment.
An offence be added to the Prevention of Copyright Piracy Ordinance to deal with this problem.
Section 31C will provide that :
Any person who without lawful authority or reasonable excuse has in his possession in a place of public entertainment any video recording equipment commit an offence and is liable :
(a) on first conviction to a fine of $5,000
(b) on a second or subsequent conviction a fine of $50,000 and imprisonment of 3 months.
Lawful authority is made out if a person is in possession of the video equipment with the consent of the manager of that place of public entertainment.
The section will not become operative until sufficiently wide publicity has been given to the new measure.
The Hong Kong Theatres Association is supportive of the new offences and has undertaken to provide secure storage facilities to patrons to deposit their video equipment before entering the cinemas.
Powers of inspection are given to authorised officers to enter cinemas and search and seize from any person video recording equipment. They may also detain the person in possession of the video recording equipment.
The forfeiture provisions of the Copyright Ordinance will apply to video recording equipment seized.
To crackdown on the flourishing trade in pirated copyright articles and to render the new laws effective, the HKSAR Government through the Intellectual Property Division of the Customs & Excise Department has pursued a policy of rigorous enforcement of the new laws. The policy was aided by the establishment in June 1999 of a special 185 strong anti-piracy taskforce to deal with intellectual property infringement. The effectiveness of new laws and increased enforcement is demonstrated by the figures of seizures of infringing goods :
Year 1997 1998 1999 08/2000 Value of $143.70m $960.09m $297.38m $107.08m seized optical discs
Number of 5 68 14 4 counterfeit production lines seized
Value of $34.00 m $454.00 m $69.10 m $11.50 m counterfeit products
These statistics confirm what those in the industry have reported, namely, that the innovative measures taken have been very successful in driving from Hong Kong the manufacturing of infringing copyrighted goods and reducing the numbers available for sale.
As an example, the number of retail outlets selling infringing copyright works has dropped from more than 1,000 to about 100 since the Customs and Excise task force was established in June 1999.
The enforcement measures taken have not been limited to articles which infringed copyright, but included offences relating to products bearing counterfeit trade marks or trade descriptions, such as clothing, watches, and leather goods. The total value of seizures of such goods was :
HK$52.77 million in 1998 increasing to
HK$60.57 million in 1999, and to
HK$20.97 million up to August 2000
The creation of the taskforce saw piracy-related arrests jumping to 2,701 in 1999, compared to 1,645 in 1998.
Attitude of the Courts
Prior to 1997, most infringement of intellectual property right cases were punished with fines. Prison sentences were rare. For example, in 1995 only 18 persons received sentences of imprisonment for offences related to copyright infringement. Of these, cases two-thirds were prosecuted in the magistrates' courts where the terms of imprisonment imposed were low.
For the new legislation and increased enforcement to be truly effective, it was essential for the courts to increase the sentences imposed for copyright infringement offences so as to deter prospective offenders.
The courts were not slow in responding to the increased penalties set out in the new legislation. This is shown by statistics on the terms of imprisonment imposed on offenders after the introduction of the new legislation.
Copyright Infringement Offences
1997 1998 1999 2000 Less than 6 months 172 291 245 304 Between 6 - 12 months 73 181 357 529 More than 12 months 0 24 39 76
Of the total number of people convicted of copyright offences in 1998, one-third received prison sentences. This increased to 54% in 1999 and 60% so far this year.
There has also been a dramatic increase in the number of persons receiving longer prison terms, that is, more than 6 months, in the years 1997 - 2000. In 1997, 29.8% of the offenders received terms of between 6 - 12 months. That figure has almost doubled to 58.2% up to June 2000 while 8.4% of those convicted received even longer terms.
Trade Mark and Trade Description Offences
1997 1998 1999 2000 Less than 6 months 59 78 45 49 Between 6 - 12 months 14 18 27 27 More than 12 months 0 0 3 5
Again, the increase in the number of persons receiving longer prison terms has increased dramatically in the years 1997 - 2000. In 1997, 19.2% of persons convicted received prison terms of between 6 - 12 months. This has increased to 33.3% as at June 2000. Further, 6.2% of those convicted received sentences in excess of 12 months.
Department of Justice
The Department of Justice is committed to ensuring that the new legislation is effective in combating the flow of pirated products. In appropriate cases, where the sentences passed are considered to be unduly lenient, applications are made to the Court of Appeal for increased sentences. The Court of Appeal has adopted a tough stance in such cases, and indicated to the trial courts that offenders must expect to face imprisonment and fines. This is a far cry from the situation just a few years ago. In one such case in 1999, the Court of Appeal declared :
During the past many years, offences involving counterfeit goods under both the Copyright Ordinance and the Trade Descriptions Ordinance are becoming more prevalent. Some say it has reached an alarming level. This has damaged and will continue to damage the reputation of Hong Kong. If these types of offences are permitted to become prevalent or widespread, Hong Kong will be regarded as a haven for counterfeit goods. Even if in the past, fines might have been considered as adequate punishment for such offences, much tougher and more severe sentences will be required for the future. Deterrent sentences will have to be imposed.
(Secretary for Justice v Lam Chi-wah  4 HKC 343)
The view of the Court of Appeal that custodial sentences are to be imposed in cases involving copyright infringement and those relating to counterfeit trade marks and trade descriptions has been accepted by the lower courts.
Hong Kong can take pride in the efficacy of its measures on various fronts to prevent the trade in counterfeit goods. Our achievements have not gone unnoticed. Officials in the United States have indicated that Hong Kong will stay off their 'watch list' of places where copyright infringement is a serious problem.
We were encouraged when the International Federation of the Phonographic Industry (IFPI) in its Piracy Report 2000 acknowledged that the Administration was taking great strides in the battle against copyright piracy by adopting legislation which recognises piracy as a serious organised crime, and by giving law enforcers and courts greater powers to tackle and to deter the problem.
The Prevention of Copyright Piracy Ordinance has proved an effective tool with which to combat illegal manufacturing. Whereas 82 licences have been issued to produce optical discs involving about 479 production lines, more than one quarter (24) have since been cancelled. Our success in this area has meant that pirates are now using portable CD-ROM writers to make their copies instead of machines which require registration under the Ordinance.
Once the Intellectual Property (Miscellaneous Amendments) Bill is enacted in 2001, we will be in a strong position to penalise bussinesses which use pirated software in their daily operations.
We have, in recent times, taken various initiatives to prevent the abuse of intellectual property rights. Some of these are drastic, even draconian. They reflect our resolve to protect the rights of the proprietors of intellectual property. But more than that, they also indicate our determination to meet our international obligations and to protect the integrity of our economy. This is not an area in which Hong Kong, or any other jurisdiction, can afford to be found wanting.
End/Tuesday, November 7, 2000