HONG KONG'S TINY STEPS TO CURB BUSINESS END-USER

UNCLAS SECTION 01 OF 02 HONG KONG 001369 SIPDIS SIPDIS STATE FOR EB/TPP/MTA/IPC/FELSING STATE FOR EB/IPE STATE FOR EAP/CM STATE FOR INR/EAP NSC FOR KTONG DEPT PASS USTR FOR SMCCOY, ACELICO, RBAE DEPT PASS TO USPTO FOR TBROWNING BEIJING FOR MCOHEN E.O. 12958: N/A TAGS: CH ECON ETRD HK KIPR TW SUBJECT: HONG KONG'S TINY STEPS TO CURB BUSINESS END-USER SOFTWARE PIRACY ¶1. (SBU) Summary: On May 15, the Business Software Alliance (BSA) announced that Hong Kong's 2006 software piracy rate fell to 53% in 2006, a 1% decrease over 2005. Prior to the public release of the study, BSA privately briefed Hong Kong government (HKG) officials and pointed out that the use of pirated software in Hong Kong remained high for a developed economy and that financial losses to the software industry in Hong Kong increased substantially in 2006. HKG officials responded that they would increase educational efforts and that the upcoming passage of the copyright amendment will provide Hong Kong law enforcement authorities with a stronger legal remedy against this crime. ¶2. (SBU) In a separate meeting with EconOff, BSA privately complained that the copyright amendment's provision on directors' liability, which addresses corporate liability for end-user software, has been watered down in the latest version of the bill. The bill also no longer includes a start date for the directors' liability provision, causing BSA concern that even a weak directors' liability provision could be delayed indefinitely. Despite these disagreements, BSA is publicly taking a positive tone towards Hong Kong's IP efforts, largely due to the HKG's responsiveness last year in addressing the software piracy issue even though it did not yield the results expected. END SUMMARY. -------------- -------------- BSA-HKG CLOSED DOOR ROUNDTABLE ON SOFTWARE PIRACY -------------- -------------- ¶3. (U) BSA announced last week that Hong Kong's software end-user piracy rate declined from 54% to 53% from 2005 to ¶2006. While this decline is positive, Hong Kong's regional counterparts witnessed equal or greater declines. In Singapore, for example, the piracy rate fell 1% to 39%; in South Korea, it also declined by 1% to 45%, while Taiwan saw a 2% decrease to 41% and Japan fell by 3% to 25%. These rates show that software piracy in Hong Kong remains particularly high compared to other developed Asian economies. Furthermore, the estimated losses to the industry in Hong Kong skyrocketed from US$112 million to US$180 million. BSA explained to HKG officials that Hong Kong's IT market expanded in 2006 with more businesses buying computers -- some with licensed software and some without. As a result of this overall market growth, the number of unlicensed software packages and subsequent losses incurred from them actually increased, even though the percentage of unlicensed software packages dropped. ¶4. (SBU) Priscilla To, Principal Assistant Secretary for Commerce and Industry at the Commerce, Industry and Technology Bureau (CITB),asked BSA whether the transshipment of computers contributed to Hong Kong's theoretical software piracy rate. BSA replied that their study takes transshipment into account by including only those computers that have been "shipped to and landed in" Hong Kong. HKG officials concluded the meeting by noting that they must increase educational efforts among the business sector and that the new copyright amendment will strengthen the government's ability to crackdown on unlicensed software usage. -------------- BSA BRIEFS CONSULATE -------------- ¶5. (SBU) On May 17, EconOff discussed the software piracy study with BSA's Hong Kong/Macau Chairperson Belinda Lui of Microsoft. BSA appears to be in an awkward position in its relationship with the HKG. After the release of last year's software piracy study, the HKG quickly launched the "Genuine Business Software Campaign" to help companies with infringing software voluntarily purchase legitimate licenses and absolve themselves of liability. However, the program was not as effective as the HKG and BSA had hoped because only 168 out of 30,000 businesses contacted by BSA (less than 1%) purchased licenses for their software through the program. However, BSA wants to encourage the HKG's continued active engagement on software piracy and hopes that a second round could bring better results. Lui noted that the HKG's leadership could provide an example to others in the region. HONG KONG 00001369 002 OF 002 She also has stated that BSA is careful in its public comments regarding the HKG, noting that BSA toned down its submission for the 2007 Special 301 Report because of Hong Kong's general willingness to address the issue, even if its programs have yet to yield significant results. ¶6. (SBU) Nonetheless, Lui remains concerned over the HKG's complacency in addressing software piracy in the legislative framework. The draft Copyright Amendment, now in its final phase of legislative review, not only contains a weakened directors' liability provision, but now includes language that could delay the start date for this provision. In the latest draft, legislators added that the clause will not come into force "until a day appointed by the Secretary for Commerce, Industry and Technology." BSA was told that the HKG wants to delay the implementation of the provision in order to run public awareness campaigns on the new criminal provision. However, in a letter to the Legislative Council (Legco) Bills Committee, BSA noted that there has been much public debate on the directors' liability clause since 2005 and that the "Genuine Business Software Campaign" was geared last fall to build awareness and help companies legitimize their software before the passage of the bill. (NOTE: Hong Kong Intellectual Property Department's (IPD) own annual survey on public knowledge of IPR laws indicates that awareness levels in Hong Kong rose to 84.7% in 2006.) BSA fears this new Legco provision could delay indefinitely the implementation of the clause. If the new language is approved, BSA urges the HKG to take no more than six to nine months to conduct its educational outreach. EconOff separately asked IPD Deputy Director Peter Cheung and To about the status of the directors' liability clause. They both responded that Legco will pass the clause, but that the government will have to do "major educational outreach campaigns" in advance to prepare the business community. Cunningham