Parallel imported goods are genuine goods with copyright subsisting therein, originally produced for a market other than Hong Kong, but are imported into Hong Kong without the consent of the copyright owner or the exclusive licensee in Hong Kong. Copyright infringement by parallel imports falls within secondary infringement. Under s. 103 of the Copyright Ordinance, an “exclusive licence” means “a licence in writing signed by or on behalf of the copyright owner” that authorises the licensee exclusively to exercise rights which would otherwise be exclusive to the copyright owner only.   What constitutes Infringement?   Import or export of an infringing copy of a work is classed as secondary infringement under the Copyright Ordinance. According to s. 30, infringement by parallel import is where:   a person who imports into Hong Kong; without the licence of the copyright owner; a copy of the work which he knows (or has reason to believe) to be an infringing copy; and which is not for his own private or domestic use.   Not only the importer may attract liability under this ordinance. Under s. 31, a person who knows or has reason to believe that the goods in his possession are infringing copies of copyright-protected work, and who:    possesses the goods in the course of or for the purpose of trade or business; sells lets the goods for hire; exhibits in public or distributes the goods, in the course of or in connection to any trade or business; or otherwise distributes the goods to the extent that is prejudicial to the interests of the copyright owner;is infringing the copyright in that work in question under the Copyright Ordinance.   Under s. 35(3), an “infringing copy” of a work can also be one that has been or is proposed to be imported into Hong Kong, and that the making of which is either (1) an act of infringement in Hong Kong or (2) a breach of an exclusive licence agreement in relation to the work in question.   Copyright (Amendment) Ordinance 2007 – changes to civil and criminal liability   The law regarding parallel imports has been updated by way of the Copyright (Amendment) Ordinance 2007 which came into force on 6 July 2007. Under s.35B of the Copyright Ordinance, the amendments relaxed some of the previous restrictions as follows:   i)          Civil and criminal liability have been abolished for the usage of parallel imported goods as an end-user in business, but (1) dealing in the imported copies of copyright works for example books, motion pictures and sound recordings (except computer software which is excluded by s.35A of the Copyright Ordinance) and (2) showing or playing parallel imported copies of motion pictures or sound recordings in public are still prohibited and can attract civil or even criminal liability.  ii)         Educational establishments and their libraries are now allowed to possess, use, and even show in public imported copies of copyright work for educational purpose (s.35B (3)). However, dealing in such copies for profit is still prohibited. iii)         Dealing in parallel imported copies of any copyright works (except computer software); or importing parallel imported copies for the purpose of dealing in such copies; or importing or possessing parallel imported copies of copyright works for the purpose of playing or showing in public would constitute a criminal offence, unless 15 months has elapsed since the first publication of the work anywhere in the world (s.35 (4)) where the infringer would only be subject to civil liability.    The time period for criminal sanction has been reduced from 18 months to 15 months by way of the amendment.   The amendment does not affect the unrestricted rights to use parallel imported copies of works for personal use, and to use parallel imported copies of software for business purpose as an end-user, as enjoyed under the previous version of the legislation.   Liability For Infringement   There can be civil and criminal liability for copyright infringement.   A copyright owner can apply to the court to enforce his or her rights against a person who has infringed those rights. These include obtaining an injunction restraining the infringer from further infringing the copyright, and an order demanding the infringer to deliver to him all infringing materials. It is also possible for the copyright owner to claim compensation from the infringer in an amount equivalent to the loss he suffered and/or the profits made by the infringer.   The Customs and Excise Department is responsible for criminal investigation of copyright infringement. However, the Department usually only prosecutes copyright infringing activities of a large scale and serious nature. Upon conviction on indictment, the copyright infringer is liable to imprisonment for 4 years and to a fine of HK$50,000 in respect of each infringing copy (s.119).   Defences   (i) “Innocence” as a defence?   In general, the owner of the copyright has an absolute cause of action against the copyright infringer, whether or not the infringement was intentional. So for primary infringement, innocence is not a defence to liability.   However, there is a major difference between primary and secondary infringement of copyright, in that the latter requires the element of knowledge of infringement, whether actual or constructive.   To be liable under sections 30 and 31 of the Ordinance for secondary infringement, a person must have knowledge that the goods in question are infringing copies of copyright-protected work. Knowledge is prescribed under the Ordinance as “know or have reason to believe”, which is defined under s. 36 as outlined below.   Under s. 36, the defendant in a case for secondary infringement can prove that he or she did not have reason to believe that the work in question, which was lawfully made in its place of origin, was an infringing copy by virtue only of s. 35(3), if it can be established that:   a)         he had made reasonable enquiries sufficient to satisfy himself that the copy of the work imported or proposed to be imported into Hong Kong was not an infringing copy of the work; b)         he had reasonable grounds to be satisfied in the circumstances of the case that the copy was not an infringing copy; and c)         there were no other circumstances which would have led him reasonably to suspect that the copy was an infringing copy.   The court may take the following into consideration in determining whether the defendant has proved that he did not have reason to believe that the copy was an infringing copy:   a)         whether he had made enquiries with a relevant trade body in respect of that category of work; b)         whether he had given any notice drawing attention of the copyright owner or exclusive licensee to his interest to import and to sell the copy of the work; c)         whether he had complied with any code of practice that may exist in respect of the supply of that category of work; d)         whether the response, if any, to those enquiries made by the defendant was reasonable and timely; e)         whether he was provided with the name, address and contact details of the copyright owner or exclusive licensee (as the case may be); f)          whether he was provided with the date of first day of publication of the work; g)         whether he was provided with proof of any relevant exclusive licence.   Lack of knowledge under s. 36 is a defence to both civil and criminal actions against secondary infringement.   (ii) Unconscionable behaviour by the copyright owner   S. 36 also provides a statutory defence for unconscionable behaviour by the copyright holder, but this defence is limited to civil actions only – in other words, unconscionable behaviour would not obviate the copyright infringer from criminal liability. Unconsionable behaviour by the copyright owner is established provided the defendant can prove that:   a)         he had placed an order with the copyright owner or the exclusive licensee, as the case may be, for the supply of copies of the work; b)         the person with whom he placed the order had acted unconscionably by either withholding supply on unreasonable grounds or by agreeing to supply on unreasonable terms; and c)         the import took place after that unconscionable act by the copyright owner or exclusive licensee and after the expiration of 15 months beginning on the first day of publication of the work in Hong Kong or elsewhere.   The court adopts a flexible approach when determining whether the copyright owner has behaved unconscionably as alleged by the defendant. The court will consider a number of factors, including the established practices of the particular trade for the orderly distribution of copies of that category of work and more importantly, whether its decision will conflict with the normal exploitation of the work by the copyright owner (or exclusive licensee), or would unreasonably prejudice the legitimate interests of the copyright owner (or exclusive licensee).   As regards whether a copyright owner is withholding supply of goods on an unreasonable ground, s. 36(5) provides that:   In determining whether supply is withheld on "unreasonable grounds" or whether the agreement to supply is on "unreasonable terms" the court shall have regard to the reasonable requirements of the particular trade or particular public, including but not limited to price and delivery times, the practice of the trade with existing stocks in Hong Kong, the practice of the trade generally for the product in its particular medium, category or language, the size of the order, enquiries made and whether or not any person has previously had unfulfilled orders with the particular supplier.   Bar to damages   Although by no means a defence to liability for primary infringement, lack of knowledge can be a bar to a claim of damages under s. 108. Nevertheless, it does not preclude the copyright owner from other forms of remedy or orders e.g. injunctions.   However, it should be noted that the provision under s. 108 is not available to a person who, while knowing or suspecting that copyright exists, claims that the lack of authority to use the copyright was through mistake. For example the defendant, having mistaken the identity of the copyright owner, obtains consent under that mistake to publish or otherwise exercise the rights from a person who is not in fact the owner of the copyright. Similarly, an honest lack of knowledge of copyright subsistence in the work because of a mistaken view of the law is not a ground under this section.   To successfully plead a case of “not knowing and having no reason to suspect copyright subsistence”, the defendant would have to at least make reasonable inquiry as to the source from which the work from derived.   Conclusion   As discussed above, the position for parallel imports in Hong Kong can be summarised as follows:   parallel import of genuine copyright-protected work into Hong Kong within 15 months of its first publication anywhere in the world can attract both civil and criminal liability; parallel import of genuine goods after the lapse of 15 months may still attract civil liability;  lack of knowledge is not a defence to primary infringement, whether civil or criminal;  lack of knowledge can be a defence to both civil and criminal actions for secondary infringement; lack of knowledge can preclude the copyright owner from a claim for damages against the copyright infringer, although other remedies are still available; unconscionable behaviour on part of the copyright owner is a defence to civil actions only.

IMPORTANT: Without knowledge of the background/facts of the individual matter, we do not intend for the above summary to deal with every important topic or to cover every aspect of the topics with which it deals.  Such summary is for general information purposes only and is not intended to provide legal advice.

For enquiries: Please contact members of our Intellectual Property Practice Group:

Ludwig Ng Senior Partner, Head of Intellectual Property & Technology Practice Group +(852) 2107 0315 ludwig.ng@onc.hk

Derek Lau Associate +(852) 2107 0329 derek.lau@onc.hk

Published by ONC Lawyers © 2008