VZCZCXRO4415
OO RUEHCN
DE RUEHHK #0715/01 0530427
ZNR UUUUU ZZH
O 220427Z FEB 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5012
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 04 HONG KONG 000715 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB/IPE CLACROSSE, EB/TPP EFELSING, AND EAP/CM 
KBENNETT 
STATE PLS PASS TO USTR JCHOE-GROVES 
COMMERCE FOR JBOGER 
COMMERCE PLS PASS TO USPTO JURBAN AND LOC STEPP 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD EIND HK
SUBJECT: Special 301 Recommendation for Hong Kong 
 
Refs: A) 05 Hong Kong 3574, B) 05 Hong Kong 4657, C) 05 Hong 
 
Kong 4894 
 
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Summary and Recommendation for Hong Kong 
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¶1. (SBU) Post recommends that, based on its overall 
performance, Hong Kong not be placed on any Special 301 lists 
or be referred to as a country of special concern ("Special 
Mention") at this time.  We note that if the legislature enacts 
revisions that significantly weaken Hong Kong's Copyright 
Ordinance, Special Mention status may well become appropriate. 
 
¶2. (SBU) Summary:  In 2005, the Hong Kong Government (HKG) 
continued to maintain an effective IPR protection regime but 
showed signs of complacency in several ongoing areas of 
concern.  The Commerce, Industry and Technology Bureau's (CITB) 
current attempt to liberalize the Copyright Amendment may lead 
to a weakening of the overall IPR protection environment in 
Hong Kong.  The Copyright Amendment draft contains many issues 
of primary concern to U.S. firms, especially clauses dealing 
with software end-user piracy, fair use and "safe harbor" 
provisions for end use of copyrighted works, and the reduction 
of the criminal liability period for parallel imports.  Hong 
Kong's judicial system supports enforcement efforts by 
sentencing those convicted of copyright and trademark 
violations to jail time but still does not hand down tough 
sentences to convicted vendors of counterfeit medicines.  The 
Hong Kong Customs and Excise Department (CE) is dedicated and 
effective in its enforcement fforts and has achieved notable 
successes this yar in combating online piracy (Ref C). 
Counterfeit pharmaceuticals have become an issue of priority 
concern to U.S. firms along with the continued maketing of 
patent-infringing pharmaceuticals.  Crss-border shipments of 
infringing products from ainland China remained a significant 
issue despite notable CED efforts at greater cross-border 
surveillance.  End Summary. 
 
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Strong Education and Enforcement Efforts 
---------------------------------------- 
 
¶3. (SBU) The HKG's Intellectual Property Department (IPD) 
conducted a range of public education efforts to encourage 
respect for intellectual property rights in 2005 and has also 
pledged significant resources for outreach in 2006.  In 2005 
the IPD continued its "I Pledge" campaign (in which consumers 
promise not to buy infringing products and are given 
preferential access to "I Pledge" concerts and shows) and its 
"No Fakes" campaign (in which local retailers pledge to not 
sell counterfeit or pirated wares and in return are featured in 
promotional material issued by tourist and business chambers). 
In addition, the IPD started an IP Tutor program for schools, 
in which certain teachers are given intensive IPR training and 
then hold special IPR awareness classes for intermediate 
students throughout Hong Kong.  One particularly innovative 
outreach being planned by CED for 2006 is the Anti-Internet 
Piracy Youth Alliance, a program that will organize 200,000 
youths to search for IPR violating content online and report 
violations to a special CED website. IPD conducts an annual 
survey of IPR awareness in Hong Kong.  Awareness levels of Hong 
Kong's IPR laws have risen from 55.2 percent in 1999 to 84.7 
percent in 2005.  In addition to IPD, CED, which is responsible 
for IPR enforcement, regularly publicizes news of enforcement 
actions against infringers. 
 
¶4. (SBU) CED has continued aggressive raids at the retail 
level.  In 2005, there were 953 arrests for piracy related to 
optical disks.  Between January and October, there were 53 
counterfeit-related arrests.  During the same period, the 
judiciary handed down 1,292 copyright and trademark 
convictions, the majority of which led to prison sentences of 
six to twelve months.  CED intelligence operations and raids on 
underground production facilities have closed most large-scale 
pirate manufacturing operations, prompting many optical disk 
pirates to switch to computers or CD burners to produce illicit 
copies and forcing retailers to rely increasingly on smuggled 
products.  In July 2005, CED scored its biggest single haul of 
counterfeit items to date, seizing 157,000 pieces of 
counterfeit clothing and leather goods valued at USD 8 million 
(Ref A).  Despite the crackdown on large-scale illicit 
manufacturing, there is still concern about Hong Kong's 817 
licensed optical disk production lines, which give the 
territory a huge overcapacity that must be carefully monitored. 
 
HONG KONG 00000715  002 OF 004 
 
 
The volume of openly marketed pirated disks found in retail 
shopping arcades has decreased significantly but more dispersed 
sales of infringing products remain a problem. 
 
--------------- 
Internet Piracy 
--------------- 
 
¶5. (SBU) Hong Kong achieved some significant advances in its 
efforts to combat online piracy.  A Hong Kong magistrate in 
November of 2005 sentenced a man to three months in jail for 
distributing three Hollywood films using the popular BitTorrent 
peer-to-peer (P2P) file-sharing software, the first conviction 
of its kind anywhere.  Although the convicted man immediately 
appealed the decision, HKG officials said that the case still 
had a large deterrent effect upon online piracy in Hong Kong as 
the volume of copyrighted materials shared on BitTorrent in 
Hong Kong dropped 80% in the period immediately following the 
conviction (Ref C). 
 
¶6. (SBU) In January 2006, a Hong Kong court ordered four 
Internet Service Providers to release the names, addresses, and 
identity card numbers of 22 people who had uploaded music onto 
the now defunct P2P file-sharing service WinMX.  Industry 
representatives said that downloads of infringing music files 
had dropped in the period after the decision but noted that 
this round of legal action had cost the Hong Kong recording 
industry HKD 1.5 million.  Nevertheless, industry 
representatives were hopeful that the case was precedent 
setting and would make future P2P cases easier to pursue.  The 
Hong Kong music industry blames illegal online file-sharing for 
pushing down sales of music CDs in Hong Kong by 32 percent 
between 2000 and 2004.  We will continue to support the HKG's 
enforcement actions against on-line pirates and urge the HKG to 
ensure that its laws do not leave loopholes that can be 
exploited in the digital environment. 
 
---------------------------- 
Copyright Amendment Concerns 
---------------------------- 
 
¶7. (SBU) The Copyright Ordinance is up for renewal by June 
¶2006.  CITB is currently drafting proposals for revision aimed 
in part at liberalizing and otherwise weakening legislative 
measures governing the enforcement of copyright regulations. 
Post is particularly concerned about revisions regarding 
business software end-use piracy, the introduction of fair use 
and safe harbor provisions for copyrighted works, and the 
reduction of parallel import periods.  Post is closely 
monitoring the amendment process and continues to urge the HKG 
to ensure effective eterrence against end-use piracy. 
 
¶8. (SBU) Busiess Software End-Use Piracy:  In 2005, Hong Kongcontinued to have 
one o the highest rates of busiess software 
end-use piracy in the region with a 2% piracy rate resulting 
in economic losses of HD 650 million (according to a 2004 
study commissoned by the Business Software Alliance).  Despite 
this high piracy rate and the HKG's continued inability to win 
any contested convictions for software end-use piracy, CITBproposes to further 
protect ompany employees who are forced to 
knowingly use infringing software or who are unaware that they 
are using infringing software. Post feels that this express 
employee protection is unnecessary given the existing 
difficulty of prosecuting these cases and the fact that the 
Copyright Ordinance already allows for individuals to defend 
themselves by claiming ignorance of infringement.  Although the 
current draft text of the Copyright Amendment also includes a 
clause stating that directors or partners of businesses found 
using unlicensed software are criminally liable for the 
infringement, industry sources indicate that strong Legco 
opposition, particularly from the Liberal Party, will force the 
CITB to drop the directors/partners liability clause from the 
draft text. Industry representatives also point out that 
unclear evidentiary standards on how to determine the 
legitimacy of installed software present another hurdle against 
successful prosecutions of business software end-use piracy. 
 
¶9. (SBU) Fair Use/Safe Harbor Provisions:  Industry 
representatives are pleased that the CITB is now proposing to 
extend criminal liability for the copying and distribution of 
copyright infringing printed works.  However, Post is concerned 
about flaws in CITB's attempt to introduce thresholds under 
which business end-user copying of printed works would not be 
considered criminal.  The proposed threshold for newspapers, 
magazines, and periodicals is 1,000 copies within any 14-day 
 
HONG KONG 00000715  003 OF 004 
 
 
period.  The proposed threshold for books is the production of 
copies with a total retail value of under HKD 8,000 within a 
180-day period.  U.S. copyright laws have a threshold for 
criminal liability of USD 1,000, but U.S. law additionally 
states that any willful copyright infringement "for purpose of 
commercial advantage or private financial gain" is subject to 
criminal prosecution regardless of the value of the copyrighted 
works - a distinction that the CITB does not acknowledge and 
that may open the door to further infringements.  An additional 
concern is that the CITB plans to propose a blanket exclusion 
on the fair use of copyrighted works by educational 
institutions and public administration for all types of media, 
printed and digital.  This is a particular concern because 
under Hong Kong law certain commercial enterprises can be 
categorized as educational institutions.  Post notes, however, 
that CED continues to aggressively raid illegal copyshops that 
produce infringing copies of copyrighted works.  In February 
2006, CED officers raided seven copyshops, seized seven 
photocopiers, seven book-binding machines, and 1,200 
photocopies of books worth about HKD 140,000, and arrested the 
seven copyshop operators. 
 
¶10. (SBU) Parallel Imports:  Despite initial statements to the 
contrary, the CITB is now proposing to reduce the period during 
which parallel imports can attract criminal liability from 18 
months to 9 months after initial public release of the 
copyrighted work.  Movie industry representatives in particular 
point out that since the start of the parallel import 
criminally liable period is determined by the date of the first 
public release of a copyrighted work anywhere in the world, 
this often means that movies are only in theaters for a short 
time in Hong Kong before parallel import DVDs arrive in stores. 
This problem is compounded by the growing trend of studios 
choosing to release movies first in mainland China to fight 
against widespread piracy in that territory.  Movie industry 
representatives say that if the parallel import period is 
shortened any further, movie theater operators could find 
themselves competing with legitimate and extremely inexpensive 
DVDs parallel imported from mainland China. 
 
--------------------------------------------- - 
Pharmaceutical Counterfeits and Patent Linkage 
--------------------------------------------- - 
 
¶11. (SBU) The results of market observations and analysis 
performed by industry as well as raids conducted by CED 
suggests that counterfeit drugs may now be present in the 
general Hong Kong pharmaceutical market.  Although the legal 
system provides for sufficiently serious penalties for drug 
counterfeiting, the light penalties that are in reality levied 
by judges -- who possess wide leeway in sentencing -- are an 
insufficient deterrent.  Pharmaceutical industry 
representatives are quick to point out, however, their 
excellent operational relationship with CED and are optimistic 
that continued cooperative efforts can address the counterfeit 
problem in the short term.  A potentially longer-term problem 
is the new issue of traditional Chinese medicine manufacturers 
using the active pharmaceutical ingredients of western 
pharmaceuticals in their products.  Post will continue to 
monitor both of these disturbing new trends. 
 
¶12. (SBU) U.S. pharmaceutical companies are upset that the HKG 
Department of Health continues to issue marketing authorization 
for patent-infringing pharmaceuticals.  The local industry 
association (which represents a number of U.S. and other 
international firms) submitted a proposal to the HKG in June 
2004 that, if enacted, would give patent-owners an opportunity 
to commence legal action against infringing generics before 
their marketing authorization applications are processed by the 
Department of Health.  However, the Department of Health has 
indicated it cannot adopt this proposal without amending the 
pharmaceutical ordinance.  As a result, patent-infringing 
generics remain legally available on the market until patent- 
owners can identify and successfully sue the infringers.  The 
HKG has yet to show any sign of taking meaningful steps to 
address this problem.  Meetings involving Post, industry 
representatives, the CITB, and the Poisons and Pharmacy Board 
(PPB) resulted in the PPB verbally agreeing to revise the 
wording of their approval certificate, but some HKG officials 
recently admitted that the Department of Health probably did 
not see this issue as a high priority. 
 
---------------------- 
Cross-border Shipments 
---------------------- 
 
HONG KONG 00000715  004 OF 004 
 
 
 
¶13. (SBU) A number of U.S. firms have identified as a growing 
concern the growing flood of IPR-infringing products from 
mainland China that either are sold in Hong Kong or pass 
through on the way to other markets.  At points of entry, CED 
has in fact seized a number of shipments containing pirated or 
counterfeit goods.  In the first 10 months of 2005, CED seized 
325,874 pirated optical disks, worth HKD 7.6 million, at its 
various control points.  During the same period, an additional 
2.6 million miscellaneous counterfeit goods were seized. 
 
SAKAUE