software parallel universe

23 June 2001

Rob Deans

The Hong Kong Government's much-publicised drive to criminalise the use of pirated software by businesses has taken an unexpected turn.

Before the introduction in April of an ordinance making the possession of pirated software by Hong Kong businesses a criminal offence, the Government engaged in a protracted publicity drive to inform all concerned of the new legislation.

Not surprisingly, this resulted in a surge in purchases of genuine software and, for a short time in late March and early April, stocks of genuine software ran short.

What has been surprising, however, apart from the substantial amendments the government is making to reduce the scope of the new legislation, is the Government's reaction to the temporary shortage of licensed software. This has been to push for the legalisation of parallel imported software to increase the supply of cheap software to businesses affected by the new legislation, particularly small- and medium-sized enterprises (SMEs).

The issue of whether parallel imports should be legalised has been hotly debated in Hong Kong and overseas for many years. In simple terms, the debate comes down to a conflict between consumers wanting to obtain goods at the lowest possible price and local distributors wanting to protect themselves from being undercut by overseas businesses with lower operating costs.

The issue in relation to mass-produced software is less contentious than in other categories of copyright works, such as recorded music and films, because many software suppliers have universal pricing policies. The Government's move to legalise the parallel importation of software but not other copyright works has been considered before.

The Law Reform Commission, on whose recommendations Hong Kong's Copyright Ordinance is based, considered this issue in relation to software and books and advised that "no such special treatment should be introduced for software and books without undertaking an in-depth study of the pricing situation in question" and conducting other research which makes a clear case for allowing parallel imports in relation to those sectors and not others.

More than three years of debate followed the recommendations made by the Law Reform Commission and, after an unprecedented lobbying effort from industry groups (particularly from the film and video industries), the Government enacted legislation just before the handover in 1997, which effectively made it a criminal offence to parallel import copyright works into Hong Kong.

Interestingly, the Government has since enacted legislation which legalises parallel importation of trade marked goods into Hong Kong, although this legislation is not expected to come into force until next year. It is hard not to cynical about the timing of the Government's move to legalise the parallel importation of It cheap software into Hong Kong when it faces criticism it has introduced legislation that places an undue burden on SMEs.

The software industry is a fairly soft target in this respect, with the big players within the Business Software Alliance professing to be ambivalent on the decriminalisation of parallel imports. However, those who have most to lose from deregulation are local distributors and resellers who have much less of a public voice.

The Government has conducted a swift public consultation exercise on the question of legalising the parallel importation of software, which was completed last week.

It will be interesting to learn of the response to this consultation exercise, particularly from local distributors and resellers.

Also, should the Government decide to follow this consultation exercise by introducing into Legco legislation seeking to legalise the parallel importation of software, it would be interesting to see the reaction from other industry sectors.

It seems it will only be a matter of time before the call comes to deregulate parallel imports in other areas - such as books, magazines, music and films - and opposition would be much more vocal.

What has started out as a quiet push to deregulate software could easily develop into a real political hot-potato.

First published in South China Morning Post in June 2001.