Intellectual Property in Hong Kong

17 November 2008

Ai-leen Lim, Ricky Leung

This article looks at intellectual property legislative developments and proposed legislative developments in Hong Kong since 2007.


Shadow companies

An issue which is of increasing concern to brand owners in relation to trademark protection in Hong Kong is the issue of “shadow companies”. Such companies are incorporated in Hong Kong with names which are identical or very similar to existing and established trademarks of other companies. They frequently do not carry on active business in Hong Kong and may pose themselves as representatives of owners of such trademarks when contracting with manufacturers in Mainland China or elsewhere in an attempt to “legitimise” the production of counterfeit products bearing such trademarks.

Currently, trademark owners can only obtain court orders to direct a company to change its name in a legal action for trademark infringement or passing off against a shadow company. But the Registrar of Companies (the "Registrar") has only very limited powers in changing company names and he has no authority under the current law to take any enforcement action even if such court order is presented before him. The Hong Kong government announced on April 2, 2008 a series of public consultations on the Companies Ordinance rewrite, a part of which attempts to tackle the problems of “shadow companies”.

The proposal of the consultation document is to empower the Registrar to act on a court order that directs a “shadow company” to change its name, and if the “shadow company” does not comply with the court order, then the Registrar may substitute the infringing name with its company registration number.

It is also proposed that the Registrar be granted the power to reject registration of any company name which is the same as an infringing name which the Registrar has previously directed a company to change and which is the subject of a court order. However, the legislation is only expected to be passed after 2010.


The Copyright (Amendment) Ordinance 2007

The new Copyright (Amendment) Ordinance 2007 (the “Amendment Ordinance”) was passed on June 27, 2007 with some aspects of it becoming effective on July 6, 2007 and on April 25, 2008 while other parts are yet to come into operation. The following are some of the highlights of the Amendment Ordinance (the effective date of these highlights is July 6, 2007 unless otherwise stated).

1. Dealing in circumvention tools or the provision of circumvention devices constitutes a criminal offence 

Any person who carries out any of the following activities may be subject to civil and criminal liabilities:

  • Making circumvention devices for sale or hire;
  • Importing or exporting circumvention devices for sale or hire;
  • Dealing in circumvention devices (including selling, letting, exhibiting in public or distributing in the course of trade or business); and
  • Providing a commercial circumvention service which enables customers to circumvent technological measures used to protect copyright works.

Any person who commits these offences may be liable to a fine of US$500,000 and to imprisonment for up to four years. They may also be subject to civil claims from copyright owners.

This Section came into force on April 25, 2008, and the Hong Kong Customs has since raided merchants operating within computer malls who sold modified game consoles which contained circumvention devices enabling the playing of pirated video games.

2. Restrictions on the parallel importation of certain copyrighted works have been relaxed

Parallel import in the context of the Copyright Ordinance means copies of copyright works which are made with the authorisation of the copyright owner in the place of manufacture and destined for a market outside Hong Kong but are then imported into Hong Kong without consent of the copyright owner in Hong Kong. Under the Amendment Ordinance, importation or possession of parallel-imported copies of copyright work is liability-free, even for use in business, if it does not involve commercial dealing or public playing.

3. Provisions on business end-user criminal liability

The date when this Section will come into force is not yet designate, although it is understood that the target effective date for this offence has been set for the second half of 2008. It will be an offence, when the relevant Section comes into force, to make copies for distribution or distribute copies of copyright works in newspapers, magazines, periodicals and books, in the course of trade or business without license if:

  1. The number of copies made/distributed exceeds the numeric limits (“safe harbour”) as prescribed by the Secretary for Commerce and Economic Development;
  2. The acts are done on a regular or frequent basis; and
  3. Financial loss is caused to the copyright owner.

The scope of this offence covers the distribution of digital copies as well as physical copies.

Statutory defences are available where the defendant has taken reasonable and adequate steps to obtain a license but failed to do so because the owner is unknown or he failed to give a timely response or reasonable commercial terms.

The Section applies to employees unless the employee commits the offence in the course of employment and in accordance with the instructions given to him by his employer.

When a body corporate has infringed the Section, any of its directors or partners or any person in such authority (if there is no such director or partner) will be presumed to have done the same (and be personally liable as well) unless he can raise a reasonable doubt as to whether he authorised the act. It may need to be shown that the body corporate has set aside resources or incurred expenditure for the purpose of obtaining a license or sufficient genuine copies.

Any person who commits this offence is liable upon conviction to a fine at level 5 (which is currently set at US$50,000) in respect of each infringing copy and to imprisonment for four years.

4. A new rental right for films and comic books has been created

The unauthorised commercial rental of films, music and comic books will be prohibited and infringement thereof will attract civil liability.

The meaning of “rental” extends to “making copies of the work available for on the spot reference use subject to direct or indirect payment” in relation to the rental of comic books. Therefore comic book cafes or any businesses which lend or share comic books for commercial purposes will be liable. Existing stocks of movies and comic books that rental shop operators have acquired before the Section came into force (April 25, 2008) will not be affected.

5. Fair dealing and other exemptions

The scope of fair dealing in relation to educational activities has been extended. Teachers and students are allowed to use or deal with or copy copyrighted works (including those stored in electronic format) for teaching and learning purposes. The audience before whom copyrighted works could be performed or played in the course of educational activities now includes parents, guardians or any other persons directly connected to such activities. To qualify as “fair dealing”, the purpose and character, nature of the work, amount of the portion dealt with in relation to the work as a whole and the effect of the dealing upon the potential market for the value of the work, will be taken into account. 

If a person is visually impaired or physically unable to manipulate a book or focus or move his eyes, he may make a single accessible copy for his personal use without liability if the master copy is a genuine one and he has made reasonable enquiries to satisfy himself that he cannot access a specially adapted copy (e.g. one in Braille format) at a reasonable commercial price.

Public consultation for strengthening copyright protection in the digital environment

In 2007, the Hong Kong Government conducted a round of public consultations on “copyright protection in the digital environment”, which stated aim was to solicit the publicfs view on whether, and if so how, the existing legislative framework should be revised to provide for more effective copyright protection in the digital environment. On the basis of feedback from the public consultation, as well as drawing upon the relevant experience of jurisdictions overseas such as the United Kingdom, United States, Australia and Singapore, the Government released its preliminary proposals in April 2008 for strengthening copyright protection in the digital environment for further public consultation, which period runs up to August 31, 2008.

Set out below is a summary of the key legislative proposals put forth by the Government:

1. Introduction of an all-embracing right of communication

The current Copyright Ordinance prohibits the unauthorised transmission of copyright works through certain specific digital means, including making them available to the public on the Internet, broadcasting, and including copyright works in a cable programme. Civil remedies are available against any person who infringes such rights.

The development of digital technology and the convergence of different media have, however, opened up new means for copyright owners to exploit their works. Against this background, copyright owners are concerned that new means of transmission may emerge and the current legal regime may not afford adequate protection to their work in the digital environment.

In view of the above, the Government proposes to introduce a right of communication covering all modes of electronic transmission for copyright works, whereby the breach of which would attract civil liability. In addition, related criminal sanctions are also proposed to be introduced against acts of making or initiating unauthorised communication to the public in circumstances where communication is made for the purpose or in the course of business, or otherwise where the communication is made by “streaming” the copyright work to the recipients and the communication is made to such an extent as to affect prejudicially the copyright owners.

2. Introduction of an exemption for temporary reproduction by Online Service Providers (OSPs)

In the preliminary proposals, the Government seeks to introduce a new copyright exemption for the temporary reproduction of copyright work by OSPs, which is transient or incidental in nature and is technically required for (or enables) the transmission process to function efficiently. This proposed exemption is primarily intended to cover the caching activities undertaken by OSPs, which help save bandwidth and are indispensable for efficient transmission of information on the Internet. Under the proposal, this exemption would be subject to the following qualifications:

  • The proposed exemption is only applicable to communication that is not infringing;
  • The proposed exemption should be subject to any express prohibitions imposed by copyright owners or licences in the form of any commonly available or Intellectual property in Hong Kong adopted measures (i.e. the copyright owners could opt out); and
  • For the exemption to apply, the content as contained in the original version should not be modified during the reproduction process.

3. Providing for additional factors to assist the Court in considering the award of additional damages in lien of statutory damages for copyright infringement actions

Under the Copyright Ordinance, a copyright owner in an infringement action may seek, among other things, damages to compensate the loss he has suffered, which is subject to proof by the copyright owner that the loss he has suffered and that the infringement in question is the effective cause of the loss. In addition to compensatory damages, the Court may grant additional damages if it considers that it is fair to do so on the facts of the case. In making such an additional award, the Court would take into account all the circumstances of the case, in particular:

  1. The flagrancy of the infringement;
  2. The benefit accruing to the defendant by reason of the infringement; and
  3. The completeness, adequacy and reliability of the defendant’s business accounts and records.

In this connection, it is proposed that additional factors be prescribed in the law to assist in the Court’s effective determination on the issue of quantum of additional damages.
These factors may include:

  • The conduct of the defendant after the act constituting infringement. For example, attempts to hide or disguise infringement 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 infringement of copyright.

Concluding remarks

“Shadow companies” have proved to be a major problem facing IP owners in Hong Kong, which can often be time-consuming and expensive to tackle within the confines of the existing laws. The legislative solution as currently proposed by the Government is certainly a welcome move. However, the proposals, which form part of the efforts to rewrite the Companies Ordinance, are not expected to be enacted into law before 2010. In the meantime, the Government is encouraged to consider introducing appropriate interim amendments to the Companies Ordinance towards addressing IP ownersf concerns with respect to the evident abuse of the company names registration system.

On the other hand, active legislative efforts continue to be seen in bringing Hong Kong’s copyright laws in line with the latest international standards. The Amendment Ordinance introduces provisions which have strengthened copyright protection, whilst affirming users’ need for fair and reasonable use of copyright works. Legislative proposals in relation to digital copyright issues have also been drawn up by the Government in light of the widely perceived need to better protect copyright owners’ interests in the digital environment. Active and constructive participation by IP owners in the public consultation will certainly assist in shaping an adequate and fair copyright protection regime in the digital context within the territory.