VZCZCXRO7574
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #0382/01 0620834
ZNR UUUUU ZZH
R 030834Z MAR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7002
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 06 HONG KONG 000382 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IPE/TMCGOWAN, JURBAN 
STATE FOR EAP/CM 
DEPT PASS USTR FOR LEE, RAGLAND 
DEPT PASS USPTO FOR TBROWNING 
BEIJING FOR COHEN/GUANGZHOU FOR WONG 
 
E.O. 12958: N/A 
TAGS: KIPR PGOV ETRD EFIN EINV CH HK
SUBJECT: 2009 SPECIAL 301 RECOMMENDATION FOR HONG KONG 
 
REF: A. STATE 8410 
     ¶B. 08 HONG KONG 1775 
     ¶C. 08 HONG KONG 2121 
 
Post Recommendation and Summary 
------------------------------- 
 
¶1. (SBU) Post recommends that Hong Kong be excluded from the 
2009 Special 301 list (ref A).  Hong Kong authorities with 
specific responsibility for intellectual property rights 
(IPR) administration, education and enforcement are generally 
responsive to rights-holders' concerns and are active and 
effective partners in efforts to protect intellectual 
property.  The Hong Kong Government (HKG) effectively combats 
online piracy and trade fair infringement, and acts on 
industry information about counterfeit goods.  While Hong 
Kong in many ways remains a model for IPR protection, the 
government needs to do more to combat transshipment of 
counterfeit goods, create a system for copyright registration 
verification, do a better job of protecting patented 
pharmaceuticals, streamline its system for handling trademark 
infringements, and stiffen sentences for convicted IP 
infringers. 
 
¶2. (SBU) Summary:  The HKG continues to maintain an effective 
IPR protection regime.  Several useful amendments to the 
Copyright Ordinance were enacted in 2007 and took effect in 
July 2008.  The amendments addressed industry concerns about 
circumvention of technical protection measures and 
established criminal liability for directors of companies 
using infringing products in business.  The HKG announced in 
late 2008 its intent to enact key fair use and safe harbor 
provisions in 2009 legislation.  In August 2008, the HKG 
Commerce and Economic Development Bureau (CEDB) concluded its 
consultations regarding follow-on statutory amendments to 
address "Copyright Protection in the Digital Environment." 
U.S. industry representatives criticized the CEDB's proposed 
amendments with regard to penalty levels for uploading and 
downloading of infringing works, Internet Service Provider 
(ISP) identification of copyright-infringing subscribers, 
statutory damages for copyright claims, and secondary 
liability of ISPs (ref B).  In July 2008, the CEDB 
established a Tri-Partite Forum among ISPs, content providers 
and content users designed to facilitate implementation of a 
voluntary framework for digital IPR protection.  Pending the 
outcome of Tri-Partite Forum discussions, the HKG postponed 
enactment of statutory amendments governing IPR protection in 
the digital realm (ref C). 
 
¶3.  (SBU) Summary Cont'd:  The sale and shipment through Hong 
Kong of counterfeit pharmaceuticals remains a pressing 
concern for U.S. firms, as does the continued marketing of 
patent-infringing pharmaceuticals.  Transshipment of other 
infringing products from mainland China is also increasing, 
despite notable HKG efforts at greater surveillance and 
interdiction.  Immediate measures are needed to close 
loopholes that allow "shadow companies" to register under the 
Hong Kong Companies Registry.  Most prosecutions of IP crimes 
result in convictions, but sentences are typically light and 
are not strong deterrents to illegal activity.  End Summary. 
 
Background 
---------- 
 
¶4. (SBU) The HKG's Intellectual Property Department (IPD), 
which includes the Trademarks and Patents Registries, is the 
focal point for the development of Hong Kong's intellectual 
property regime.  The Customs and Excise Department (CED) is 
the principal IPR enforcement agency.  CED officers are armed 
and hold police powers to search and arrest suspected IPR 
infringers. 
 
Copyright Law Amendments Boost IPR Protection 
--------------------------------------------- 
 
¶5. (SBU) The passage of long-awaited amendments to the 
Copyright Ordinance in June 2007 was a significant step 
forward for IP protection in Hong Kong.  The amendments took 
effect in July 2008.  The government addressed industry 
concerns about the circumvention of technical protection 
measures (TPMs), included provisions for Director Liability, 
and reached a compromise with industry on the issue of 
parallel imports.  Businesses providing circumvention of 
technical prevention measures as part of their business can 
now be held criminally liable.  Any person circumventing 
 
HONG KONG 00000382  002 OF 006 
 
 
technical protection measures can be held civilly liable 
under the amended law.  While exceptions are allowed, 
industry does not believe these are so broad as to undermine 
the effectiveness of the law.  Directors and partners can be 
held criminally liable for the infringing activities of their 
companies, but the new law allows them to escape liability if 
they can show they did not authorize and took steps to 
prevent such activities. The amendments relaxed restrictions 
on parallel imports, reducing the period in which parallel 
imports are prohibited from 18 to 15 months.  This was a 
compromise with industry; the original draft bill called for 
the prohibited period to be cut to nine months. 
 
¶6. (SBU) Exclusions for Education: Industry representatives 
are pleased that the HKG proposed extending criminal 
liability for the copying and distribution of copyright 
infringing printed works.  CED continues to raid illegal copy 
shops that produce infringing copies of copyrighted works 
(most recently, at the beginning of Fall 2008 and Winter 2009 
semesters).  Industry stakeholders remain concerned about the 
scanning of printed copyrighted material and its subsequent 
distribution by email in university and school settings. Some 
Hong Kong universities have begun to publicize university 
honor codes prohibiting students from engaging in copyright 
infringing activities.  Industry groups are conducting IPR 
outreach programs on university campuses, but universities 
continue to be centers for IP infringement. 
 
¶7. (SBU) Fair Use/Safe Harbor Provisions: Fair use provisions 
have been criticized by industry as too broad and open to 
abuse by for-profit educational institutions (numerous in 
Hong Kong).  In December 2008, the HKG announced its 
intention to enact amendments governing the maximum allowable 
safe harbor quantities and dollar values of physically 
reproduced copyrighted materials.  Industry observers will 
comment on specific provisions in the HKG's safe harbor 
amendments, as they move toward LegCo debate and possible 
enactment in 2009.  Exceptions to the fair use and safe 
harbor provisions will likely be included for 
government-supported schools and non-profit educational 
establishments. 
 
¶8. (SBU) Technological Protection Measures: Industry 
continues to voice concerns about full protection of all 
access controls used in connection with the copyright of a 
work, and the scope of the "further exceptions by notice" 
within the final Copyright Ordinance legislation.  The pace 
of technology and market practices requires industry to 
consult with government on each proposed exception for the 
law to effectively protect IP.  Post will continue to monitor 
implementation of this provision. 
 
¶9. (SBU) Parallel Imports: The Copyright Ordinance amendments 
shorQned the period during which parallel imports can 
attract criminal liability from 18 months to 15 months.  The 
amendments included provisions on presumptions and affidavit 
evidence to facilitate criminal enforcement.  The HKG 
continues to suggest its intent to fully liberalize the use 
of parallel imports of copyrighted works in future 
legislation. 
 
Further Amendments to Protect Digital IP 
---------------------------------------- 
 
¶10. (SBU) In December 2006, the government released a 
consultation paper to seek public views on more effective 
copyright protection in the digital environment.  The HKG 
sought comments on the following measures: legal liability 
for unauthorized downloading and uploading activities; 
protection of copyright works transmitted via all forms of 
communication technology; the role of the ISP in combating 
Internet piracy; facilitation of copyright owners in civil 
action against online infringement; statutory damages for 
copyright infringement; and copyright exemption for temporary 
reproduction of copyright works.  Based on over 600 comment 
submissions from ISPs, content users and copyright owners, 
the CEDB in April 2008 presented seven specific proposals to 
strengthen the Copyright Ordinance.  During the ensuing 
public comment period that ended on August 31, 2008, U.S. 
industry representatives cited several perceived weaknesses 
in CEDB's proposals.  Specifically, the CEDB proposals: do 
not criminalize unauthorized downloading and peer-to-peer 
(P2P) file-sharing activities; allow an exemption (using 
TRIPS-compliant criteria) for temporary storage of 
copyrighted works by ISPs; envision continued reliance on 
 
HONG KONG 00000382  003 OF 006 
 
 
expensive, court-ordered "Norwich Pharmacal" procedures to 
force ISPs to identify alleged infringers; and do not include 
statutory damages for copyright infringements. 
 
¶11. (SBU) In July 2008, the CEDB established a Tri-Partite 
Forum (including ISPs, content providers, and content users) 
tasked with creating a voluntary code of conduct governing 
the electronic copying and transmission of copyrighted 
materials.  Pending the outcome of efforts to create a 
voluntary framework of digital IPR protection through the 
Tri-Partite Forum, the HKG has delayed LegCo consideration of 
its proposed statutory amendments to the Copyright Ordinance. 
 U.S. industry representatives voiced concern that a 
voluntary code of conduct would prove unenforceable, even if 
agreed upon during 2009.  Post continues to monitor the 
Tri-Partite Forum process and urge the HKG and legislators to 
further reinforce - not weaken - Hong Kong's strong IP regime. 
 
Business Software End-Use Piracy 
-------------------------------- 
 
¶12. (SBU) According to the Business Software Alliance's (BSA) 
global piracy study, Hong Kong continued to have a high rate 
(51 percent) of illicit business software end-use in 2007, 
with industry claiming losses of USD 224 million that year 
(the latest figures available).  This rate remains quite high 
for a developed economy like Hong Kong, with comparable 
regional economies (Singapore, Taiwan and South Korea) having 
rates 8-14 percentage points lower.  Hong Kong's business 
software piracy rate declined slightly in 2007, in part 
related to efforts by Hong Kong's Intellectual Property 
Department (IPD) to redirect its educational outreach program 
toward Small and Medium Enterprises (SMEs). 
 
¶13.  (SBU) In October 2006, IPD teamed up with BSA to set up 
the "Genuine Business Software Campaign", with the aim of 
educating businesses on the value of Software Asset 
Management (SAM) and combating corporate software piracy in 
Hong Kong.  The first year's success, combined with the 
impending implementation of director liability provisions, 
spurred the October 2007 launch of the "Software Asset 
Management (SAM) Consultancy Programme" to provide free 
on-site consulting to SMEs and non-profits for effective 
management, control and protection of business software 
assets.  Information can be found at: www.samhelp.hk.  During 
the ten months ended July 31, 2008, the BSA and IPD 
approached over 50,000 companies to provide education about 
the program.  648 companies joined the program and educated 
their personnel in detail about SAM.  In September 2008, the 
BSA presented a senior IPD official with an award for 
"Government Best Practices, Asia Pacific" related to the 
HKG's efforts to combat business software piracy.  Director 
liability provisions went into effect in Summer 2008. 
Industry observers anticipate further improvement in Hong 
Kong's business software piracy rate, as Hong Kong Customs 
enforces Copyright Ordinance amendments that hold company 
directors criminally liable for pirated software use in their 
firms, and as the benefits of the Genuine Business Software 
Campaign accrue. 
 
Pharmaceutical Counterfeits and Patent Linkage 
--------------------------------------------- - 
 
¶14. (SBU) Industry surveys and recent CED raids on pharmacies 
suggest that counterfeit pharmaceuticals continue to be a 
serious problem in Hong Kong.  Judges - who possess wide 
leeway in sentencing - often levy light penalties against 
infringing pharmaceutical retailers.  The maximum penalties 
for selling counterfeit drugs are no different than those for 
any other retail product (a fine of up to USD 64,000 and 5 
years imprisonment).  Most retail cases are settled on the 
magistrate level, resulting in suspended jail terms and 
minimal fines.  CED and IPD claim that strict separation 
between the judiciary and the government administration makes 
it difficult for the HKG to urge judges to issue stronger 
penalties, although government is conducting educational 
campaigns on fake drugs to build awareness of the health 
dangers of the problem. 
 
¶15. (SBU) According to industry representatives, counterfeit 
pharmaceuticals from other countries (particularly within the 
Asia-Pacific region) are being imported in increasing 
quantities into Hong Kong.  Counterfeit pharmaceuticals are 
then re-packaged to appear similar to legitimate 
pharmaceuticals registered in Hong Kong.  The industry has a 
 
HONG KONG 00000382  004 OF 006 
 
 
mechanism to share intelligence with CED, but complains that 
CED does not always reciprocate by sharing intelligence with 
industry on the status of specific cases.  Nonetheless, CED's 
continued raids on pharmacies and arrests of vendors indicate 
CED's commitment to combat fake pharmaceuticals.  In 
addition, customs officials partnered in 2008 with four Hong 
Kong Internet Service Providers (ISPs) to prevent the sale of 
counterfeit pharmaceuticals and other infringing products on 
Internet auction sites.  Pharmaceutical industry 
representatives note that their relationship with CED 
remained strong in 2008. 
 
¶16. (SBU) In 2008 CED investigated a total of 46 cases 
involving retail sale of counterfeit pharmaceuticals and 
seized USD 43,226 worth of infringing products in retail 
stores, compared with 27 cases and seizures totaling USD 2.6 
million in 2007 (Note: USD 2.5 million of the 2007 total was 
seized in a single case).  CED scored its largest success of 
2008 with the break-up of a syndicate that imported 
counterfeit pharmaceuticals from Mainland China into Hong 
Kong.  In July 2008 the CED raided the Hong Kong apartment 
where the fake pharmaceuticals were repackaged for sale to 
local pharmacies.  The CED seized over 60,000 tablets with a 
street value of approximately USD 348,000.  The CED arrested 
a 67-year-old man in the apartment who subsequently pleaded 
guilty and was sentenced to 20 months imprisonment. 
 
¶17. (SBU) U.S. pharmaceutical companies remain concerned over 
a loophole in the HKG's Department of Health (DH) drug 
approval process that enables generic pharmaceuticals to be 
sold legally in violation of patent-owners' rights.  The DH 
issues marketing approvals for generic drugs without 
verifying the status of the patent.  The DH states that 
intellectual property concerns are the responsibility of 
other HKG agencies.  IPD complains it has no role in the drug 
approval process.  Although patent-holders can seek redress 
through legal action after a drug is approved, the DH should 
take measures to better protect the rights of patent-holders 
before it approves new products for the marketplace.  A local 
industry association representing American and international 
firms continues to lobby the HKG to allow patent owners to 
begin legal action against infringing generics before the DH 
authorizes an application to sell a generic drug in Hong 
Kong.  However, the HKG has shown no willingness to address 
this problem as no Department accepts jurisdictional 
responsibility. 
 
Transshipments 
-------------- 
 
¶18. (SBU) U.S. firms indicate that significant quantities of 
IPR-infringing products -- particularly pharmaceuticals, 
watches and pirated optical discs, primarily from mainland 
China -- move through Hong Kong on their way to other 
markets.  In 2008 CED made six seizures of shipments 
transiting Hong Kong containing pirated or counterfeit goods; 
the seized shipments' aggregate market value was USD 382,000. 
 Most seizures are based on industry-provided intelligence 
directing CED to specific shipments, not from random 
searches.  When possible, CED informs customs agencies in 
other countries if it possesses intelligence that infringing 
products transited Hong Kong and are destined for that 
country, but does not inform rightsholders about the status 
of on-going investigations. 
 
Company Registry and "Shadow Companies" 
--------------------------------------- 
 
¶19. (SBU) International and local companies remain critical 
of the HKG for registering new companies under names which 
infringe well-known trademarks.  "Shadow companies" are 
typically shell companies that register with the Hong Kong 
Companies Registry under names that are designed to be 
confused with well-known registered trademarks.  A complete 
revision of the Hong Kong Companies Ordinance is expected by 
2012; however, immediate measures are needed to close 
loopholes that allow "shadow companies" to register 
international brand names as part of their own name (i.e., 
Hong Kong Coca Cola International, Ltd).  Currently, the 
Registry does not conduct a trademark or registration check 
before accepting a company registration; the only recourse 
for victims is through lengthy court action to force a name 
change by the infringing companies.  The Registry stated in 
October 2008 that it intends to examine the mandatory use of 
one or more independent arbitration companies, as a means to 
 
HONG KONG 00000382  005 OF 006 
 
 
resolve shadow company disputes outside the court system. 
 
Education 
--------- 
 
¶20. (SBU) The HKG's Intellectual Property Department (IPD) 
conducts a wide range of public education efforts to 
encourage respect for intellectual property rights, including 
seminars, exhibitions and public lectures.  In 2008, IPD 
continued its "I Pledge" and "No Fakes" campaigns.  In the 
former, consumers promise not to buy infringing products and, 
in turn, receive preferential access to local concerts and 
shows.  In the latter, local retailers pledge to not sell 
counterfeit goods and, in return, they can display a "No 
Fakes" sign in their shop windows and tourist and business 
chambers feature them in promotional material.  IPD also 
continued its IP Tutor program for schools, providing IPR 
training to teachers, who then conduct IPR awareness classes 
for intermediate school students.  IPD intensified its IPR 
protection cooperation with officials in Guangdong Province, 
and with mainland China's State Intellectual Property Office 
(SIPO).  By the end of 2008, the "No Fakes" campaign had been 
introduced in eight Guangdong cities.  Further details 
concerning these cooperative efforts can be found at: 
http://www.ipd.gov.hk/eng/ip cooperation corner.htm. 
 
¶21. (SBU) IPD and CED also continued their "Youth Ambassadors 
Against Internet Piracy" program involving an estimated 
200,000 children and teenagers who search for online IPR 
violations and report them to a special CED website (1,652 
violations reported to date).  In addition, in 2007, CED 
opened the "IPR Enforcement Museum," a HKD 2 million, 
235-sq.km facility for public education.  CED also regularly 
publicizes news of enforcement actions, raids, and the 
judicial punishments levied against infringers.  As a result, 
awareness levels of Hong Kong's IPR laws rose to 91.6 percent 
in 2008 from just 55.2 percent in 1999, while 96.3 percent of 
respondents considered it necessary to protect IP rights in 
Hong Kong, according to IPD's bi-annual survey. 
 
Enforcement 
----------- 
 
¶22. (SBU) CED launched a "Lineament Monitoring System" in 
March 2007 to conduct round-the-clock monitoring of online 
BitTorrent (BT) infringement activities.  Only one new case 
of infringement activity in Hong Kong using BT technology was 
detected in 2008.  The "Fast Action Scheme" was initiated in 
2006 for IPR enforcement at large-scale exhibitions and trade 
shows.  CED arrested five individuals in 2008 at the jewelry, 
toy and electronic shows.  The Department established two 
"Anti-Internet Piracy Teams" in 2000 and 2004 respectively, 
which in 2008 detected 31 Internet infringement cases, up 
from 27 cases in 2007. 
 
¶23. (SBU) CED continued aggressively raiding retail level 
shops for counterfeit and pirated goods.  In 2008, CED 
reported handling 9,505 copyright infringement cases, 
including 7,679 piracy cases (mostly related to optical 
discs) and 1,826 cases of trademark counterfeiting.  A total 
of 1,841 persons were arrested, with goods seized worth over 
USD 32.3 million (including almost 2.2 million pirated 
optical discs).  CED estimates that the number of shops 
selling pirated optical discs has fallen to approximately 25 
establishments, but dispersed sales of infringing products by 
street vendors and illegal immigrants remain a problem.  An 
April 2008 raid by CED of an underground production facility 
resulted in the seizure of 110 DVD writers, 27,000 optical 
discs, and the convictions of two defendants; they each 
received 24 month prison terms.  In June 2008, following a 
year-long investigation, CED raided 17 locations in Hong Kong 
and seized over 12,000 pirated optical discs that had been 
smuggled in from Mainland China.  CED arrested 22 individuals 
and seized cash, jewelry and two cars worth USD 800,000 
during the operation. 
 
¶24. (SBU) In September 2008, CED arrested seven individuals 
at a cyber caf and travel agency, after the companies were 
identified as using pirated business software.  Under Hong 
Kong's newly enforceable amendments to the Copyright 
Ordinance, the companies' directors and partners face a 
maximum penalty of four years in jail and a USD 6,500 fine 
for each infringing software copy identified by CED. 
 
Judicial System Results 
 
HONG KONG 00000382  006 OF 006 
 
 
----------------------- 
 
¶25. (SBU) During 2008, the judiciary handed down 525 
convictions in 671 cases involving violations of trade 
description laws -- a conviction rate of over 78 percent. 
One hundred twenty-five of these individuals received prison 
sentences (almost all under one year), and 358 were assessed 
fines (almost all less than USD 6,500).  The judiciary handed 
down 910 convictions in 989 copyright cases -- a 92 percent 
conviction rate. These cases resulted in 672 prison sentences 
(almost all under one year), and 93 fines (almost all less 
than USD 6,500).  Post supports the HKG's enforcement actions 
against trademark infringements and copyright piracy and 
urges the HKG to consider tougher sentencing that will serve 
as a deterrent to intellectual property violators. 
 
Compliance With International Agreements 
---------------------------------------- 
 
¶26. (U) Hong Kong has filed its notice of compliance with the 
trade-related intellectual property (TRIPs) requirements of 
the World Trade Organization.  Hong Kong has acceded to the 
Paris Convention for the Protection of Intellectual Property, 
the Bern Convention for the Protection of Literary and 
Artistic Works, and the Geneva and Paris Universal Copyright 
Conventions.  Hong Kong also continues to participate in the 
World Intellectual Property Organization as part of Mainland 
China's delegation.  The World Intellectual Property 
Organization Copyright Treaty (WCT) and WIPO Performances and 
Phonograms Treaty (WPPT) apply to the Hong Kong Special 
Administrative Region with effect from October 1, 2008.  The 
HKG states its copyright legislation is currently in full 
compliance with the international standards contained in the 
two treaties. 
DONOVAN