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Seminar hosted by the Hong Kong Association in New York, USA

3 October 2000

Intellectual Property Rights Protection in Hong Kong

Ladies and Gentlemen, 

It is my great pleasure to have the opportunity of sharing with you the latest situation concerning intellectual property rights protection in Hong Kong. I have been listening carefully to the presentations made by the other two speakers. They have raised a number of interesting points. I intend to add a few more based on the Hong Kong experience before we proceed to discussion.


Customs is the leading law enforcement agency in Hong Kong dealing with intellectual property rights protection, and we are ever conscious of our overbearing responsibility. Curbing the rampant piracy of intellectual property rights has been high on my agenda. It will continue until we have seen the very small backside of the pirate sailing away from Hong Kong. It will continue until Hong Kong has established a solid platform for innovation and creativity, not just in science and technology, but also in the arts and consumer products. It will continue until creators and innovators are confident that their exclusive designs would be cherished and protected here. It will continue until the time when consumers are totally assured that the products they buy in Hong Kong would go with them the guarantee of quality. 

Piracy under Control

I am very happy to tell you right off the bat that the piracy situation in Hong Kong is now fully under control. In fact, this illicit market has been shrinking rapidly under our tightened grip. We have done that with the largest dedicated professional enforcement unit in the world, comprising some 400 strong officers. That underlines our strongest possible commitment in eradicating piracy in Hong Kong. Our success is no fluke. It is the result of endless, tedious and hard work. And we would like to share this experience with you today. 

First I would like to present a couple of statistical snapshots which capture the essence of our success in Hong Kong to highlight the difference we have made in the past year. At the time when I assumed the post of Commissioner of Customs and Excise a year and a half ago, there were over 1,000 retail outlets of pirated CDs, each carrying on average some 5,000 CDs and operating over 12 hours a day. This translates into a market with the availability of some five million CDs at any one time. I am using CD here as a shorthand for all forms of intellectual property stored in the disc format. A snapshot today would reveal a market of fewer than 100 retail outlets, each carrying on average fewer than 1,000 CDs and operating fewer than three hours a day. This translates into a market with the availability of 100,000 pirated CDs. The reduction in CDs in circulation is an astonishing 98%.

I shall leave the interpretation of these figures for you to decipher, but clearly the shrinkage using whatever parameter is substantial. To achieve this, tactically, we have been taking a two pronged enforcement strategy directed at the supply side as well as the retail end of the pirated CD business in our community. 


In a bid to clamp down on the core of the illicit business, priority is given to attacking piracy at the production and wholesale distribution level, which is, in fact, where we have reaped the bulk of our plentiful harvests. With the enactment of the Prevention of Copyright Piracy Ordinance in August 1998, we are well guarded against the manufacturing of pirated CDs in our local factories. CD factories can only operate under licence from Customs, and our officers are authorized to carry out inspections in these premises any time of the day and we have, indeed, carried out most of our inspections during off-business hours. This is an effective way for us to ensure that our licensed factories are not conducting any illicit business under the disguise of legitimate operation.

While ensuring the legitimacy of our licensed factories, our investigation teams concentrate their energy on underground production plants. We have, since September 1998, crushed 16 underground CD factories and seized 24 production lines worth over HK$120 millions. Without a local source, supply of pirated CDs to the Hong Kong market now comes mainly from the nearby area.


With the establishment of the 185 strong Special Task Force in June last year, we were able to employ repeated enforcement action in the notorious black spots and that strategy has proved its effectiveness. Applying the "Break Even Enforcement Theory", a formula which we devised to calculate the resources required in terms of the number of successful raids to make the pirates' business unprofitable, we have now broken the back of the pirates operating their illicit business in the popular areas. Vendors of pirated CDs have been forced out of their mainstream bases to operate, if at all, underground. 

Some pirates have resorted to very short term leases in vacated premises, and some have been driven to operate as mobile hawkers. Those few that still dare to run their business in shopping centres now only operate at intervals and display a very small selection of pirated CDs to minimize loss. They have further adopted new tactics of operating some sort of self help retail shops without any attendant, providing only a cash box at the entrance for the customers who have selected their items to drop in their money before leaving the premises. Some would take orders with cash paid in advance and send the CDs to customers through the mail. To these pirates, Hong Kong is no longer the haven that it was. 


Customs is not alone in the battle against piracy. Our courts also consider that the protection of intellectual property rights is critical to the advancement of our society, and they have handed down heavy sentences to underline their resolve. Record sentences reached as high as 39 months of imprisonment and HK$1.04 million of fine. The recent judgement of the Court of Appeal that immediate custodial sentences should be imposed for copyright offence has gone a long way in highlighting our seriousness in the enforcement of our law. As the enforcement Department, Customs is encouraged by the Court's judgement and hopes that this will continue to set a powerful deterrence against prospective offenders.


We have done even more on the legislative side to enhance our enforcement as well. We have enacted earlier this year new amendments to the copyright law to make unauthorized recordings in cinemas an offence, and broaden the definition of infringing activities to go beyond the remit of trade and business only. Corporate piracy will be caught under the new provisions, and we are working together with the Business Software Alliance to draw out an education programme for the business sector before the amendment becomes operational. We have also successfully sought to incorporate copyright and counterfeiting offences into the Organized and Serious Crimes Ordinance for the purposes of attracting heavier penalties and forfeiture of the proceeds from such illegal activities. There are a few other more controversial amendments we are actively considering for enactment in the coming legislative sessions to help facilitate our enforcement efforts. 


We must not, of course, neglect the role played by the industry in the protection of intellectual property rights. Our success relies on the commitment of the industry. While we are the leading enforcement agency for the statutory offences, the primary responsibility for the protection of these rights rests invariably with the rights owners who can take civil action against unauthorized exploitation of their rights. We take our enforcement role seriously, but the owners themselves, must, too, exercise diligence in guarding their rights jealously against abuse and theft.

It is also obligatory for rights owners to render necessary support to our enforcement action. On that, we maintain a close working relationship with the industry. We have been running an Anti-Piracy Reward Scheme funded by the industry. Substantial amounts of reward money have been paid out for information leading to successful seizure and prosecution. The industry, with the exception of a few small firms, has been very supportive in helping us verify the authenticity of the seized CDs and providing the necessary evidential support in criminal prosecutions. 

Amidst our strenuous effort in tackling the problem, I am, however, a bit disappointed to see that some of the copyright associations have withdrawn their establishments from Hong Kong realizing that the piracy situation has been much improved. This is extremely short-sighted. We must join hands to fight this sustained war until the problem is completely eradicated.

Cyber Crimes

In the wake of the rapid technology advancement, I am sure you will agree that the biggest challenge to us ahead is the possibilities posed by the advent of the internet. The digital technology today has made it possible for a much wider range of copyright works, be it music, software or film, to reach a much wider user community in a much shorter period of time than ever before, but it has also provided a convenient avenue for piracy. While the internet world has greatly accelerated the development of information technology, it has also helped facilitate the exploitation of intellectual property rights. These are serious issues that do not come with a ready set of solutions, but it does not mean that we should simply abandon the technology just to avoid piracy. We must confront them with new initiatives and commitments.

In anticipation of the developments in the cyber environment, we set up in Hong Kong an Anti-Internet Piracy Team last year to deal with criminal activities in this area. To help us stay tuned to the latest technology, we have called upon the assistance of the industry, which is much closer to the leading edge of the business. This partnership is crucial not only in helping to raise our awareness of the piracy trend and the availability of the leading technology, but also to facilitate our investigation and prosecution. So far, the team has effected four piracy cases on the internet covering different modalities of application.

It is also gratifying to note that cooperation within the industry is progressing. Technology-wise there have been talks of developing common electronic safety devices for encoding to guard against illegal activities. No matter how technology can help guard against theft, the best way is still to eliminate the desire to steal. Setting out authorized websites where copyright products can be legally downloaded at reasonable prices will, I believe, reduce the temptation of piracy. The industries must seek to establish new business models that would serve to protect on the one hand their intellectual property rights but also offer true value to consumers while allowing them to choose and use copyright products on the computer to a reasonable extent.

I have also called upon the members of the information technology sector to stay alert against accepting suspicious patronage, and to report to us any suspected piracy activities on their websites. I appeal to them for their cooperation with us to provide information that would assist us in the investigation of internet piracy and on our request, close down websites that are connected with piracy offences. In the cyber world, the Internet Service Providers are the community's watchdogs. 

To combat cyber piracy, we must also expand our vigilance to the regional as well as the international level. I understand that the G8 has been working for some time on a model of cooperation. This is positive indeed, but this will take time and will require a great deal of effort to reach down to the less developed countries narrowing the technology divide. Unfortunately, like all multilateral agreements, the G8 product will likely take on the lowest common denominator, which might not be good enough. Moreover, in the real world, it would be unrealistic to assume that we can impose an international penal code tomorrow, while we need to secure today cooperation from our counterparts around the world so that we can trace criminals and collect the evidence in real time. 

Instead of waiting for a satisfactory, supranational solution, I have urged the industry to adopt a regional approach making use of their excellent worldwide sales network to facilitate the investigation and prosecution of internet piracy cases. Cyber criminals can surf across customs boundaries unobstructed and undetected, hiding behind countless links and leaving no trace. They can easily conceal their evidence in "data havens" where their acts are not considered to be criminal. They can also arbitrage between administrations exploiting those, which are lacking in legislation, resources and expertise to track them down. What we need is a modernized framework for assistance and cooperation, and the industry would be in the best position to spearhead their effort in facilitating the establishment of such a network. 


Undeniably, the piracy problem cannot be uprooted by mere stringent enforcement alone. Incessant demand from the public will sustain the illicit trade, thereby nullifying the enforcement effort. The long-term solution, therefore, rests with education in changing people's mentality, and in raising respect for intellectual property. The Intellectual Property Department in Hong Kong is helping us in this regard, and we are hopeful of the success of their publicity and education campaigns targeting the general public.

Having been assured that we are operating in a near pirate-free zone, we now have even greater confidence in promoting the setting up of high-tech platforms for innovation and creativity in Hong Kong. The Cyberport is one idea, which will come to fruition before long. The Science Park is another. We are committed to intellectual property rights protection in Hong Kong. We will take a pro-active strategy and do everything we can to distinguish ourselves as the beacon for the safeguard of intellectual property rights.

Thank you.

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