1.1 The Consumer Council welcomes the opportunity given by the Government to put views forward on the Consultation Paper 'Combating Intellectual Property Rights Infringement in the Hong Kong Special Administrative Region: Possible Additional Legal Tools'.
1.2 At the outset, the Consumer Council wishes to make it clear that it supports any worthwhile initiatives that assist in safeguarding intellectual property rights, due to the benefits that these rights bring to economic and social well being. Moreover, it strongly emphasizes that it does not condone behavior where consumers knowingly purchase infringing articles.
1.3 There are a number of options in the paper that serve a worthwhile purpose in strengthening the regulatory philosophy of the current intellectual property rights regulatory scheme. Moreover, the Council is willing to work with the Government in whatever way it can to assist with its objectives of safeguarding intellectual property rights. However, the Council is concerned, from the perspective of a consumer advocate that some of the options being put forward in the Consultation Paper could, if implemented, drastically change the current regulatory focus and would be onerous insofar as they impinge on consumers rights. In addition, the Council is concerned that the effect of the options if they are put into effect, will also have undesirable economic consequences.
2. Council Focus
2.1 The Government raises a number of options dealing with issues such as organized crime, confiscation of proceeds, mandatory offences, closure orders and banning recording equipment in cinemas. In this submission the Council chooses not to address those particular options. As a consumer advocate it is devoting its resources to focus attention on Option 8 in the Consultation Paper - 'Imposing Consumer Liability', particularly Options 8(a) and 8(b), while at the same time addressing related issues concerned with intellectual property rights.
2.2 The options that the Council focuses on are expressed in the Consultation Paper as follows:
Option 8(a) : Fixed penalty for possession of infringing articles
Under this formula, it would be an offence to possess -
- any goods to which a forged trade mark has been applied in or outside Hong Kong; or
- a work which infringes copyright by having been made, in Hong Kong or elsewhere, without the license of the copyright owner. (This would exclude works made with the owner's license but imported without his license.)
Option 8(b): Create a Smuggling Offence at the Border in Respect of Import or Export of Infringing Articles.
An alternative option is to repeal the exceptions to criminal liability which now affects the import and export of infringing articles if they are for private and domestic use. Customs officers would have the power to seize suspected infringing articles. Serious offences would be prosecuted. Again, a strict liability would be created, i.e., an offence is committed as long as the articles are infringing.
2.3 The Consultation Paper indicates that the motives behind these options are in answer to some interested parties who have argued for making consumers of infringing criminally liable in cases of copyright and trademark infringement so as -
" - to remove the anomalous situation in which the person who sells infringing goods is deemed to be a criminal while the person who procures such a sale is not;
- to compel the public to actively consider the nature of the goods they are purchasing and to change the public mind-set so that the public actively avoid buying from obviously dubious retail outlets; and
- to stifle the market for infringing goods, thus removing a major source of smuggling offences and cutting off the flow of funds to criminals."
2.4 The Council acknowledges that Options 8(a) & (b) are only being put forward as options without a preconceived view by Government. In fact the Consultation Paper lists 'pros and cons' in regard to the options. Nevertheless, the Government has invited members of the public to forward their views on these options. It has also stated that the strength of public support for an option will be an important factor to be taken into account when considering whether and how it should be further taken forward. The Council considers it has a commitment to the consumers of Hong Kong to state its views on Options 8(a) & (b) and to raise for wider discussion, other related issues. Accordingly, the Council approaches its submission on this matter by:
- examining the policy approach implicit in Options 8(a) & (b) ;
- discussing the problems with identifying infringing articles and treating all consumers the same; and
- stressing that while it recognizes there are difficulties in identifying infringing articles it does not condone consumers knowingly purchasing infringing articles;
- acknowledging that there are other worthwhile initiatives as alternatives, such as educating the public as to the seriousness of intellectual property right infringement. In this regard the Council recognizes the efforts undertaken by the Government and will do all it can to assist in furthering those efforts.
2.5 Second, the paper addresses other issues. For example, how enforcement of the existing law can be improved, the existing avenues for industry action, emerging issues in intellectual property and the economic consequences if Options 8(a) & (b) were to be implemented.
3. Regulatory Policy
3.1 The Council queries the policy approach that is implicit in Options 8(a) & (b). The Council understands that imposing strict liability for mere possession of infringing articles is virtually unprecedented compared to the laws applying in other jurisdictions that are major trading partners of Hong Kong. In addition, there is also an argument that the laws of Hong Kong relating to protection of intellectual property rights are at least equal to if not stronger than those existing in the region, the United States and the United Kingdom. 1
3.2 It is a general obligation of Government that it protect consumers; a fact which is enshrined in existing legislation. For example, provisions in the Sale of Goods Ordinance that offer a degree of assistance to consumers entering into transactions, that imply a warranty that goods are free of any charge or encumbrance, and similar provisions as to implied title in the Conveyancing and Property Ordinance .
3.3 The Council considers that a radical change in regulatory philosophy, that extends the reach of law on protection of intellectual property, from the business of trade to that of private or domestic use, demands that the change be clearly justified. Particularly when the definition and identification of infringing articles is problematic, and the consequences for consumers can be so onerous.
4. The difficulty in identifying infringing articles
4.1. The Consultation Paper notes that one of the motives behind imposing liability against consumers is to remove what is claimed to be an anomalous situation in which the person who sells infringing goods is deemed to be a criminal, while the person who procures such a sale is not. The Council disagrees with this approach. This approach assumes that all consumers, in the course of what may simply be taking advantage of a shopping opportunity to secure a bargain, have the intent and knowledge of the wrongfulness of their act in committing an offence.
4.2 The first point the Council wishes to make is that the question as to what is an infringing article, is a complex question of law. The law does not prevent copying per se , but only illegal copying. Given that it is difficult to both understand what is illegal copying, and to detect that there has been illegal copying, the Consumer Council would pose the question - how is a consumer to know what is an infringing copy?
4.3 There may be circumstances where some consumers have a reasonable belief that they are purchasing infringing articles and they actively procure the sale of infringing articles. However, it cannot be assumed that this is the case in all circumstances. It is unlikely that any trader publicly advertises or proclaims that articles for sale are infringing intellectual property rights. In addition, infringing articles are not confined to the types of goods that often receive the most publicity, such as VCDs, where a law abiding consumer might be especially cautious. In circumstances where an article is not readily perceived as a possible infringing article, and the consumer in all innocence is not aware that it is an infringing article, he/she may in fact be a victim of deception.
4.4 For example, where articles for sale are indistinguishable from legitimate articles and a trader who knows the articles infringe intellectual property rights does not declare that the articles are not legitimate, the trader may be engaging in misleading and deceptive conduct by omitting a material fact. A consumer in these circumstances, where there is a reasonable belief that the articles are genuine, would be a victim of an unfair trading practice. In other jurisdictions there are general consumer protection laws prohibiting misleading and deceptive conduct where consumers have rights to protect themselves from such unscrupulous behavior. In Hong Kong, there is no general legislative prohibition against misleading and deceptive conduct, and consumers have to rely on specific legislative provisions that are enforced by the Commissioner of Customs and Excise 2 and are not as comprehensive for consumer protection as found in other jurisdictions. 3 If Option 8(a) is introduced, consumers in Hong Kong would, paradoxically, not only be at a disadvantage in regard to such behavior, but be considered to have committed an offence.
4.5 In some circumstances both the trader and the consumer might be unaware that a product being offered for sale is an infringing article. For example, where the infringement is not immediately apparent because it is not a replica of a well known product (and immediately under suspicion and relatively easily verifiable through close examination) but has a trademark that can easily be used through the grant of license to a manufacturer. The article may have been purchased by a trader who is either unfamiliar with all the details of how intellectual property rights can be infringed, or is not in a position to demand a guarantee that the item has been properly licensed and is therefore not an infringing article. A consumer who purchases the item also would not be in a position to verify the legitimacy of the product and (if Option 8(a) is accepted) be guilty of an offence.
4.6 Even where a trader is ostensibly making no secret of the fact that articles for sale are infringing intellectual property right laws, particular groups of consumers could be at risk of unwittingly committing an offence. Due to their vulnerability arising from an inability to read, or to fully comprehend the language being used to sell the article, persons such as the elderly, or tourists may also be both victims of unscrupulous traders (who take advantage of their vulnerability) and at the same time, due to the strict liability that arises, committing an offence.
4.7 Even where articles for sale appear to be legitimate and have in fact been produced by a manufacturer licensed by the intellectual property right holder, infringement might arise through a manufacturer producing articles in excess of the contracted number. In these circumstances neither a trader nor a consumer would be able to ascertain that they were in fact purchasing infringing articles and thereby committing an offence.
4.8 Given the above, the Council believes it would be totally unreasonable to impose strict liability on consumers. In addition, because not all consumers would be aware that they are purchasing infringing articles and that deception could also be an element in an infringement of intellectual property rights matter, the Government could take this opportunity to explore improved ways to protect consumers from unfair trading practices.
4.9 Having said this, the Council reiterates that the above should not be taken as condoning behavior where consumers knowingly purchase infringing articles.
5. Educating the public
5.1 As noted above, the Council recognizes that some consumers may be willing accomplices to the trade in infringing articles. Punishment is one way to deter criminal behavior, and this would no doubt have some effect on the shopping behavior of Hong Kong consumers. However, apart from the negative social implications of this approach (and economic implications that are discussed further in this paper) there are also resource implications.
5.2 The administrative costs implicit in enforcing laws which punish consumers, who in all expectations would be more numerous than sellers, suggests that the resource demand on appropriate authorities, from officers of the Customs and Excise Department to officers in the Court system, where the matters may be progressed, could be substantial.
5.3 The Council considers that there is a viable alternative to the punitive approach in bringing about change in consumer behavior. That approach is to focus on appealing to the good sense of Hong Kong citizens, who might knowingly purchase infringing articles, that it is not in their long term interests to support the trade in infringing articles. Such an educative approach is not unprecedented and is more appropriate for correcting behavior that is not immediately apparent to many Hong Kong consumers as infringing on intellectual property rights of other people. The Council notes that the Intellectual Property Department has taken the initiative on promoting consumer education and produced a teaching kit for school children aimed at raising their awareness of protecting personal creativity and respecting intellectual property. The Council is prepared to assist Government in whatever ways it can to reinforce the message that infringement of intellectual property rights is not in the long term interests of Hong Kong.
6. Industry action
6.1 Property right holders already ensure that their rights under existing law are not being infringed through various means. For example, individually or as a group they monitor the marketplace, collect information, and take action against traders who infringe intellectual property rights. The holders of these rights could be encouraged to increase this private monitoring activity to protect their rights.
6.2 In addition, many of the concerns with regard to intellectual property right infringement relate to digitized information products. The information technology industry is currently developing varied means of copy control technology by which unauthorized copying can be prevented. In this regard the Council suggests the Government could consider how to support initiatives in furthering the development of technological solutions, while at the same time progressing the growth of a local information technology industry
6.3 The effectiveness of existing laws, in that they currently target traders, can also be improved through the use of appropriate self-regulatory initiatives. For example, codes of practice by retail association members could require members to trade ethically by not selling infringing articles, and to display a logo indicating compliance with the relevant code. This would be similar to the scheme currently operated by the Intellectual Property Department whereby it persuades traders to join in its scheme to display a logo informing consumers that the trader does not sell infringing articles.
6.4 For its part, the Consumer Council has begun a program of encouraging industry associations, in drawing up or reviewing their codes of practice, to ensure that they not only promote fair trading practices, but that conduct that could be considered as anti-competitive should be subject to scrutiny. It must be noted in this respect, that industry self regulation schemes as suggested above, or that operated by the Intellectual Property Department, are not a complete answer. Not all traders may be able to meet the costs of accreditation, and the entry requirements could serve as an anti-competitive barrier to entry in the market.
6.5 Policing compliance of an industry association obligation not to sell infringing articles would also be costly, and the costs to industry would eventually be recovered through increased prices for articles. Nevertheless, the appeal of such a scheme is that the measures would be directly borne by the industry, and the costs and efficiency of the measures would be determined in direct correlation to the benefits which traders and the holders of property rights expect from the scheme.
7. Emerging issues in intellectual property law
7.1 As noted earlier, the Council supports any worthwhile initiatives that assist in safeguarding intellectual property rights, due to the benefits that these rights bring to economic and social well being. However, the options in the Consultation Paper has not taken into account emerging problems that are equally if not more important than what is occurring in the retail sector.
7.2 For example, there is an emerging problem with electronic dissemination of protected work over the Internet, and the liability risks posed to Internet Service Providers and users of the Internet, through existing provisions of intellectual property right laws. In the absence of a clear legal position on this issue, market development could be impeded if Internet Service Providers are challenged for unwittingly transmitting material that infringes intellectual property rights. In view of the Government's policy of developing a 'Cyberport' in Hong Kong, these issues should be addressed as a matter of extreme importance. For example, a law similar to that introduced in the United States that creates certain 'safe harbors' for specified Internet Service Provider activity, should also be considered for Hong Kong.
8. Enforcement of existing laws
8.1 The Government should be aware that if either of Options 8(a) & (b) are proceeded with, a consequence could be that consumers will be viewed as scapegoats (and in some cases innocent scapegoats) for the proliferation of infringing articles. In fact it would be incongruous for the Government to be arguing that because of a difficulty in enforcing a law that currently targets sellers (with the implication that there are difficulties in locating and closing down outlets) consumers should also be targeted. If enforcement officers are able to locate consumers caught "red handed" (as it is termed in the Consultation Paper) they would necessarily be in a position to catch the sellers and take appropriate action against them.
8.2 If the problem has to do with resources available for enforcement of existing laws, there may be some initiatives that can be taken to make administration and enforcement more efficient. While the Government may already be considering this as an option, the Council suggests that the possibility of using police to assist in the enforcement of laws against sellers could be pursued. There has been some suggestion of organized crime involvement in the trading of infringing articles. In these circumstances use of the police to assist in enforcement would appear to be appropriate.
8.3 At the very least, government officers who regularly patrol retail areas (particularly those that the Consultation Paper describes as obviously dubious) such as police officers and hawker control officers could be asked to relay information to the Customs and Excise Department on the location of suspected traders. Taking a proactive role in these circumstances, and publicly announcing that they would assume such a role, would serve two purposes. First, the officers would be acting as useful agents for Customs officers to assist them in enforcing the laws. Second, they would also serve as a constant reminder to those who are suspected of selling infringing articles that they are under surveillance, and their conduct is not condoned. The active involvement of police and hawker control officers in these circumstances could also serve as an adjunct to the educational work suggested above, to reinforce the message in the wider community that infringement of intellectual property right laws is not in Hong Kong's interests.
9. Economic consequences
9.1 The Council is also concerned at the implications of what is proposed in Options 8(a) & (b) for the marketplace. Particularly markets in the retail and tourist sector.
The Tourist Industry
9.2. The Consultation Paper proposes that a criminal conviction will not be recorded for possessing infringing articles, i.e. where consumers are caught "red handed" at premises - Option 8(a). However, it is not made clear whether a criminal conviction will be recorded, if an alternative option of targeting the import and export of infringing articles - Option 8(b) is chosen.
9.3 Criminal liability applies now where persons are found to have brought infringing articles across the border, except where the goods are for 'private and domestic use'. Option 8(b) proposes, as an alternative to a fixed penalty for possession, to remove the defense of 'private and domestic use' for the import and export of infringing articles. If criminal convictions will be recorded in these circumstances, the option is proposing that persons should be stigmatized as criminals in circumstances where they have (consciously or unconsciously) bought infringing articles in other countries or in territories, but not if they have purchased them in Hong Kong.
9.4 It appears to the Council that if Option 8(b) is chosen, tourists who are not sure whether articles they have in their possession are infringing articles or not, could be unwittingly trapped. For example, articles that may have been purchased elsewhere in the belief that they were legitimate, would be placed under closer scrutiny when crossing the border into Hong Kong and could be found to be infringing intellectual property rights. In these circumstances tourists may well find themselves to have not only been duped into believing they were legitimate, by the seller of the infringing articles, but also to be guilty of a criminal offence when they unwittingly bring them into Hong Kong.
9.5 Moreover, the fact that tourists' belongings may be closely examined for the purpose of ascertaining whether or not they are carrying infringing articles, and the inconvenience this would cause to tourists in clearing border control, may be a deterrent even for those tourists who are certain they are not carrying infringing articles.
Effect on the Retail Market
9.6 Among the stated purposes of the approach in imposing strict liability provisions is a statement to the following effect:
'to compel the public to actively consider the nature of the goods they are purchasing and to change the public mind-set so that the public actively avoid buying from obviously dubious retail outlets'
9.7 The Council has no doubt that a consequence of imposing strict liability for mere possession of infringing articles will compel the public to actively consider the nature of goods they are buying. It could be expected that the shopping patterns of large numbers of Hong Kong consumers, who wish to be law abiding, will be significantly altered if there is a risk they will be committing an offence through the simple act of 'getting a bargain'.
9.8 However, the Council is concerned that this approach could be damaging to the competitive position of small businesses who could be inadvertently suspected of trading in infringing articles, and thereby avoided by consumers who wish to minimize their risk of committing an offence. It could also have a distorting effect on price competition in the retail market, because a low price could easily carry a perception that the article on offer is infringing intellectual property rights.
9.9 In most cases infringing articles would look exactly the same as legitimate articles. It is also assumed that infringing articles will not only be sold in street stalls but they will be sold in leased premises. Hence, the proposed options in the Consultation Paper directed at the commercial leasing market. For consumers to lessen the risk of committing an offence when they are purchasing goods that may be infringing articles, they would have to apply some benchmarks to govern their purchasing decisions. Those benchmarks would revolve around selecting the premises from which goods are being purchased, and the price for goods.
9.10 It can be assumed that infringing articles are sold in a variety of locations. In terms of what premises infringing articles are likely to be purchased, a consumer would need to make an objective assessment of which premises it would be safe to shop at without being at risk of purchasing infringing articles, and thereby committing an offence. Presumably some ranking would be given to premises, beginning with (most likely) a high risk factor to unlicensed street stalls and finishing with a low risk factor to major department stores. A difficulty immediately arises with the position that small licensed stalls and small businesses operating from low cost premises will be placed.
9.11 It follows from this that because consumers will have to choose an outlet they feel comfortable with, to avoid being caught buying infringing articles, and the Government does not want consumers to avoid obviously legitimate premises, enforcement officers may not visit major department stores to enforce the law. If enforcement officers were to visit these stores it would carry a presumption that the stores are "obviously dubious". Moreover, if these stores were found to be selling infringing articles, consumers could justifiably query what is a safe haven for them to make purchases without the risk of falling foul of the law.
9.12 The overall effect on consumer shopping habits will no doubt result in a benefit to the larger retail outlets. For those smaller retail outlets that could be perceived as 'dubious', the reduction in patronage could well be the difference between survival in the market or a quick exit.
9.13 In addition to making an assessment of the outward appearance of a seller's premises and the seller's reputation, in order to avoid committing an offence, another means available to consumers in lessening risk is to assess the price on offer. Again, for a consumer to gauge the level of risk through making a purchase, some ranking will need to be given to the price, in comparison to what has been observed elsewhere.
9.14 Using the above premises assessment model for low risk as a benchmark, it can be assumed that a price in a major department store will be the correct price for a legitimate good. It would follow that the greater the discount from that price, the greater the risk of committing an offence. For consumers to avoid committing an offence therefore, while patronizing stores that are not at the top end of retail premises, the safest course would be to purchase goods as close as possible to the price charged by the larger establishments.
9.15 In order to justify the risk in purchasing a good significantly cheaper than that found in a major department store, a consumer would need to take into account whether the supposed lower operation costs of the bottom end retailer, justifies the bargain price.
9.16 The overall effect of this change to consumer buying habits would most likely be a contraction in the level of discounts that can be found in the current shopping environment.
10.1 As noted at the beginning of this submission, the Consumer Council wishes to make it clear that it supports any worthwhile initiatives that assist in safeguarding intellectual property rights, due to the benefits that these rights bring to economic and social well being. Moreover, the Council emphasizes that it does not condone the behavior of consumers knowingly purchasing infringing articles. The Council is willing to work with the Government in whatever way it can to assist with its objectives. However, for the reasons stated in this submission, the Council urges the Government to reject Options 8(a) & (b) in its Consultation Paper and to focus its attention on those matters identified in this paper that would help to reinforce existing laws, and provide protection to consumers. In summary, those matters, and the Council's recommendations are as follows.
- Recommendation 1.
Consider more efficient means of enforcing current laws against sellers of infringing articles. For example request that police and other government officials who patrol retail areas, such as the hawker control teams, relay information to customs officials on the location of suspected traders. This would serve the function of not only assisting in the enforcement of existing laws, but also put suspected traders on notice that they are under surveillance and illegal conduct will not be condoned.
- Recommendation 2.
Assist industry with developing technological solutions to prevent the infringement of intellectual property rights, and at the same time progress the construction of a local information technology industry.
- Recommendation 3.
Proactively address issues in the field of intellectual property rights in emerging industries where a lack of 'safe harbors' for market participants in the provision of online services could impede market development. For example, alleviating the liability risks posed to Internet Service Providers and users of the Internet, through existing provisions of intellectual property right laws, by the unwitting transmission of material that infringes intellectual property rights.
- Recommendation 4.
Recognize that intellectual property right infringement can also be an issue of misleading and deceptive conduct. In this respect the Government could take the opportunity to consider ways of improving laws that protect consumers against unethical trading, for example by introducing general misleading and deceptive conduct legislation.
- Recommendation 5.
Assess other options to influence consumer behavior. For example, continue to strengthen its education efforts by appealing to the good sense of Hong Kong citizens that it is not in their long term interests to support the trade in infringing articles. The Consumer Council will do all it can to help educate consumers.
1. Pendleton, Garland & Margolis, 'The Law of Intellectual and Industrial Property in Hong Kong' Butterworths Volume 1, 1998, Preface to the Second Edition.
2. Section 7, Trade Descriptions Ordinance, Cap 362.
3. See for example, Section 52 of the Australian Trade Practices Act 1974, and Section 4(1) of the UK Control of Misleading Advertisements Regulations 1988.