HONG KONG SEEKS TO MODERNIZE COPYRIGHT ORDINANCE

C O N F I D E N T I A L SECTION 01 OF 04 HONG KONG 001775

SIPDIS

STATE FOR EAP/CM

E.O. 12958: DECL: 09/23/2018
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: HONG KONG SEEKS TO MODERNIZE COPYRIGHT ORDINANCE

Classified By: Deputy Principal Officer Christopher Marut for reasons 1
.4 (b) and (d).


1. (C) Summary: The HKG recently closed its written public
comment period on several proposals to modernize and
strengthen Hong Kong's Copyright Ordinance (CO). The
proposed amendments largely concern the digital transmission
of copyrighted materials, especially via the Internet. Many
Internet service providers, content users and content
providers (and their various representative groups) provided
written comments to the HKG by the August 31 deadline.
Several major content provider representatives supplied their
written comments to us, as well. While content providers
support the HKG's efforts to improve the CO's effectiveness
in reducing IPR infringements, they seek to tighten almost
all of the HKG's proposals to better protect copyrighted
materials from illegal distribution. End summary.


2. (C) Comment: Content provider representatives told EconOff
they are generally pleased with the HKG's efforts to
investigate, arrest, and prosecute IPR infringers. Content
providers support the HKG's efforts to modernize its CO to
cover digital transmission of copyright infringing materials,
while better synchronizing Hong Kong's legal framework with
those of Hong Kong's largest trading partners. Despite the
written objections from content providers about specific
aspects of the HKG's proposed amendments to the CO, we
believe the HKG is making a good-faith effort to balance a
number of competing interests. These include protection of
personal data privacy, encouragement of HK's development as
an Internet service provider (ISP) hub, and maintenance of a
business environment conducive to creative industry. The
HKG's ultimate amendments to the CO -- expected to be enacted
into law by summer 2009 -- will not entirely please any of
the three primary interest groups affected by the CO (i.e.
ISPs, content providers, and content users). However, the
amendments will both modernize the CO and better synchronize
it with similar statutes enacted by Hong Kong's major trading
partners. The final legislation should clarify the legal
framework that governs the electronic conversion and
distribution of copyrighted materials by all concerned
parties. End comment.

============================================= =========
HKG Collects Public Comments on Proposed CO Amendments
============================================= =========


3. (U) In December 2006, the HKG's Commerce and Economic
Development Bureau (CEDB) solicited public suggestions about
the best means by which to strengthen Hong Kong's CO. The
public consultation period ended in April 2007, with the CEDB
receiving over 600 submissions from individual content users,
copyright owners (including several intellectual property
industry groups) and ISPs. Based on this feedback, in April
2008 the CEDB presented seven preliminary proposals to
strengthen the CO. The CEDB requested public comments on
their proposals by August 31, 2008, with an eye toward
introducing legislative amendments to the CO by summer 2009.
In formulating its proposals, the CEDB attempted to better
synchronize its IPR protection framework with those of Hong
Kong's major trading partners, including the United States,
UK, Singapore, Australia, and Korea.


4. (C) Four leading, globally active intellectual property
representative organizations gave us their individual written
comments, as submitted to the CEDB in August 2008. The Hong
Kong offices of the four entities -- the American Chamber of
Commerce (AmCham),the International Federation of the
Phonographic Industry (IFPI),the Motion Picture Association
(MPA),and the Entertainment Software Association (ESA) --
praised the HKG for its efforts to strengthen IPR protection
and enforcement, and improve the compatibility of the CO with
the IPR statutes of HK's largest trading partners. However,
the four industry organizations (hereafter collectively
referred to as the "content provider representatives") sought
material modifications to most of the CEDB's proposals.

==========================================
Broader IPR Protection; Criminal Penalties
==========================================


5. (U) The CEDB proposals would broaden copyright protection
to cover all modes of electronic transmission. The desire to
make HK's copyright statutes "technology neutral" stems from
the rapid evolution of the means of electronic transmission.
All future electronic methods of transmission would become
automatically covered under the revised intellectual property
right (IPR) protection framework.

HONG KONG 00001775 002 OF 004




6. (SBU) In addition, the CEDB proposes to enact criminal
sanctions for electronic distribution of copyrighted
materials (as opposed to the current civil penalty regime),
whenever the infringing activity is done either for profit or
in the ordinary course of business. (Note: Other IPR
infringement activities already carry criminal penalties.
Several new amendments to the CO came into effect on July 11,
2008, including a provision to hold company directors and
partners criminally liable for using pirated software, even
if the company officers were unaware of the software's use.
Company officials were encouraged to implement procedures to
ensure that only licensed software was installed on company
computers, and to educate managers and staff about the
importance of using only properly licensed software. HK's
chief IPR enforcement official, Ben Ho from the Customs and
Excise Department (CED),told EconOff on August 28 that such
preventative measures by a company could be used under the
law to exculpate accused company officers, if the CED found
pirated software on a company's computers. End note.) The
new criminal penalties for electronic transmission of
copyrighted materials would also apply, even if the infringer
is not motivated by financial gain. In such not-for-profit
cases, however, the CEDB proposes to limit criminal penalties
to those involved with illegally "streaming" copyrighted
content over the Internet (i.e. content that is consumed by
the end user but not stored by the user for future use or
sharing).


7. (C) The CEDB explicitly stated it does not wish to
criminalize unauthorized downloading and peer-to-peer (P2P)
file-sharing activities. Users of copyrighted materials
agreed with the CEDB, pointing out that infringing material
on the Internet is difficult to distinguish from legally
authorized content, and that several of HK's major trading
partners (e.g. Australia, Canada and the UK) have not
criminalized downloading of copyrighted materials. Content
provider representatives, on the other hand, expressed
disappointment. They requested the CEDB to criminalize all
downloading and P2P infringements that are intentional and
committed for financial gain, and/or whenever they occur on a
commercial scale.

===========================================
Allow ISPs to "Cache" Copyrighted Materials
===========================================


8. (U) The CEDB proposes to introduce an exemption for
temporary storage of copyrighted works by ISPs. The CO
currently prohibits this activity that enables ISPs to
shorten the download times of copyrighted works, whenever a
user requests them through the Internet. To ensure the HKG's
compliance with the World Trade Organization's Agreement on
Trade-Related Aspects of Intellectual Property Rights
(TRIPS),the CEDB proposes that the exemption be limited as
follows: it will apply only to communication of works that
are not infringing; it will be subject to express
prohibitions imposed by copyright owners on the use of their
materials; and the ISP will not be permitted to modify the
content contained in the original version during the
reproduction process.


9. (C) While ISPs generally support the proposal, claiming it
will clarify their legal position, enable them to save
bandwidth, and speed transmission of user-requested content,
content provider representatives feel this amendment to the
CO is unnecessary. AmCham members, for example, prefer
instead a limitation of liability regime for ISPs based on
that enacted under the U.S. Digital Millennium Copyright Act
of 1998 (DCMA). A central feature of the DCMA is its "notice
and takedown" procedure, through which content providers are
provided with a quick and inexpensive method of ensuring that
infringing material is taken down. Under this mechanism,
ISPs enjoy the benefits of immunity for acting on takedown
notices in good faith, as well as limited liability in
respect of their customers' infringements. In its written
comments to the CEDB, AmCham stated that such a limitation of
liability approach to address the issue of caching by ISPs
would also be consistent with legislation enacted in
Australia, New Zealand and Singapore.

===================================
Voluntary Code of Practice for ISPs
===================================


10. (U) The CEDB wishes to avoid "unnecessary regulation" of
ISPs. It has therefore established a tripartite forum
composed of representatives from ISPs, copyright owners and

HONG KONG 00001775 003 OF 004


content users to establish a voluntary code of practice for
ISPs. To provide incentives for ISPs to comply with the code
of practice, the CEDB proposes to amend the CO to make
compliance with the voluntary code a factor to be considered
by the court, when determining whether an ISP has authorized
an infringement committed on its service platform.


11. (SBU) Content provider representatives prefer enactment
of a limited liability legal framework that clearly outlines
the kinds of steps that an ISP would be obliged to take, in
order to qualify for a limited safe harbor. They state that
enactment of legal provisions, as opposed to the CEDB's
proposed voluntary code of practice, would set the basic
foundations upon which voluntary efforts could flourish. In
addition, they point out that Australia, Singapore, New
Zealand and the PRC have all dismissed voluntary codes of
conduct in favor of legislated limitation of liability
frameworks.


12. (C) EconOff obtained the minutes from the first
tripartite forum meeting held on July 16, 2008. A senior
CEDB official who chaired the meeting stated that the forum
should be used to draft a voluntary code of practice for ISPs
by March-June 2009, in order to "tie in with the legislative
timetable" for the broader proposals to amend the CO. He
also explained that the HKG intends to make the ultimately
agreed upon voluntary code of conduct legally binding on all
ISPs, regardless of whether they participated in the
tripartite forum. A second meeting of the tripartite forum
was to be convened in early October 2008.

=========================================
Continued Reliance on "Norwich Pharmacal"
=========================================


13. (SBU) The CEDB proposes to continue its reliance on
"Norwich Pharmacal" procedures to identify infringers. Under
this mechanism, copyright owners must obtain a court order
that forces an ISP to disclose the identity of a user who is
believed to have committed a copyright infringement. Content
providers in HK claim that a Norwich Pharmacal proceeding is
slow and costly, and few copyright owners have sought to rely
on it. They informed the CEDB that they prefer introduction
of a U.S.-style system, whereby a copyright owner can request
a court clerk to issue a subpoena to an ISP that requires the
ISP to identify an alleged infringer with no court scrutiny.
Although this is relatively cheap and simple, compared to the
current framework, the CEDB and the HKG's Privacy
Commissioner for Personal Data believe such a system could
invade users' data privacy. The CEDB stated, "We are yet to
be convinced that the difficulties experienced (by content
providers) are such as to warrant putting in place an
alternative infringer identity disclosure mechanism that
bypasses judicial scrutiny." The CEDB said it "stands ready
to explore other ways" to facilitate the copyright owners in
taking civil actions against online infringements.


14. (C) The CEO of the International Federation of the
Phonographic Industry in Hong Kong, Ricky Fung, told Econoff
on August 28 that continued reliance on Norwich Pharmacal
procedures represents "an impossible situation." He said
sales of music recordings in Hong Kong have declined from US$
346 million (HK$ 2.7 billion) in 1989 to only US$ 51 million
(HK$ 400 million) in 2007. Fung believes the CEDB's
proposals to strengthen Hong Kong's CO "will not help the
record industry here."

====================================
No Introduction of Statutory Damages
====================================


15. (SBU) Under the current CO, a copyright owner may receive
only compensatory damages for losses suffered through
copyright infringement. A plaintiff must prove his losses to
the court. This has often resulted in small damage awards,
due to the plaintiff's inability to prove the full extent of
his losses. Content provider representatives point out that
other jurisdictions such as the PRC, United States, Canada
and Singapore have enacted statutory damages in their
copyright legislation. They say the introduction of
statutory damages would have a greater deterrent effect on
potential infringers, who would know their likely (material)
liability. Significant statutory damages would also
encourage infringers to settle at an earlier stage in court
proceedings. The HKG is not prepared to introduce statutory
damages for copyright infringement, stating such action
"could have far-reaching implications" on other civil
proceedings that have no provisions for statutory damages.

HONG KONG 00001775 004 OF 004


The CEDB also pointed out that the UK and Australia have no
provisions for statutory damages.


16. (U) The CEDB instead proposes to identify three factors
which will help a court reach a fair assessment of the
relevant damages to be awarded in each case: the conduct of
the defendant after the act constituting infringement (e.g.
attempts to hide or disguise infringements or to take other
action prejudicial to the copyright owner); the possible
widespread circulation of the infringing copy via digital
transmission in the case of Internet piracy; and the need to
deter similar copyright infringements.

============================================= =====
Allow Limited Copying for Personal and Private Use
============================================= =====


17. (SBU) The CEDB proposes to create an exception in the CO
that would allow owners of "certain types" (unspecified by
CEDB) of copyrighted materials to make a copy for personal
and private use. This often involves "media shifting" (e.g.
copying material from one type of source, such as a compact
disc, onto another media type such as an IPOD). The CEDB
noted that copyright legislation in Australia permits such
use, and similar legislative proposal is under review by New
Zealand's parliament. The HKG says it will ensure that any
such exceptions would be TRIPS-compliant and subject to
pre-conditions, such as ownership of a legitimate copy,
limits on the permitted number of copies, and restrictions on
file-sharing. Not surprisingly, Hong Kong's content provider
representatives oppose this CEDB proposal, stating that such
an exception would be open to abuse. They point out that
such exceptions in Australia and New Zealand only apply to
specific types of copyrighted works and do not apply to
software, computer games and digital copies of films.

=================================
HKG Serious About IPR Enforcement
=================================


18. (C) The Head of the Intellectual Property Investigation
Bureau at Hong Kong's CED, Ben Ho, recently told EconOff that
his bureau employs seven full-time officers in its
Anti-Internet Piracy Team. That team represents only a
fraction of CED teams focused on the non-electronic
distribution of counterfeit goods (including pharmaceuticals,
handbags, CDs, DVDs and software). Ho described several
cases under investigation by the CED. On September 19, the
CED arrested a 14-year-old boy suspected of placing 2,000
Chinese-language pop songs on an Internet site for free
downloading. On September 4, the CED arrested seven
individuals, including the proprietor of a cyber-cafe and two
directors of a travel agency, after their companies were
found using pirated software. The CED seized 72 computers in
its raids. The CED has made arrests in seven corporate
piracy cases thus far in 2007, compared with five such cases
in all of 2007.
DONOVAN