The copyright conundrum
Shops stocked with pirated CDs, VCDs and CD-ROMs may be far less common on the streets of Hong Kong, given statistics from the Customs and Excise Department (CED) that point to a significant drop in their number. But a more clandestine trade in fake items may still be thriving.
Many of the items could be made right here, in the SAR. Customs officers, for instance, smashed a large-scale pirated disc syndicate at a remote factory in Lau Fau Shan, Yuen Long, in September, confiscating $48 million worth of discs. Among them were copies of Hollywood films not yet released in Hong Kong at the time, such as Lake Placid, Sixth Sense, Summer Of Sam and Mystery Men.
Lately Customs officers have spotted a new trend - pirated discs being distributed to local customers through mail-order or orders via shops on the Internet.
The SAR was struck off a US anti-piracy watchlist early last year as a result of increased anti-piracy measures here. The setting up of a special task force within the CED last year led to a doubling of the number of piracy cases detected over 1997. And last month, the Commissioner of Customs and Excise John Tsang Chun-wah told an International Federation of the Phonographic Industry (IFPI) gathering in London that the number of retail shops had plunged to about 100 from a high of 800 to 1,000 early last year.
With the success of the clamp-down on the retail front, more attention is being paid to manufacturers of pirated goods. And a proposal to include piracy offences under the Organised and Serious Crimes Ordinance (OSCO), due to be voted on by legislators tomorrow, will raise the stakes faced by manufacturers of pirated copies. They will be liable for heavier penalties, such as a maximum fine of $50,000 for each seized disc on top of a jail sentence, and confiscation of assets.
The legislation is certain to be passed. But will it solve the perennial problem? And, is it fair to legitimate manufacturers who find it difficult to verify the origin of their orders? There is no doubting Hong Kong's production capability in a lucrative industry that has experienced a rapid growth in the last few years. Total investment in the industry runs into billions of dollars, thanks largely to hi-tech production machines that are intended for 24-hour use.
Cut-throat competition means many in the industry are faced with a dilemma in the face of legislation that demands much greater exercise of 'due diligence' on their part.
Given the low production cost of optical discs that make VCDs, CDs and CD-ROMs (factories usually charge $1 for each one made), their manufacture is still a magnet for profit seekers.
And the heavy reliance on the mainland and other regional markets, where anti-piracy laws are far from strictly enforced, means manufacturers are often tempted to churn out copies even on dubious orders.
The number of optical disc manufacturing factories in Hong Kong has risen from under 10 in 1996 to more than 70 today, fuelled by the boom in the VCD market on the mainland.
It is not common though for manufacturers to verify whether the orders they receive are from authorised distributors or agents. General manager of one such factory in Kwai Chung, David Cheung, acknowledges he may have unknowingly made pirated copies. 'We are always taking a risk. Sometimes we are asked to have the goods ready the next day, so how can we have time to verify the orders?' Mr Cheung says usually about half the orders he receives are not verified.
With a dozen staff, his factory thrives on orders for the mainland and southeast Asian markets. It makes copies ranging from Indian movies, Vietnamese songs, soap operas and MTV discs originating from the mainland, among many others, with its production machines on 24 hours a day.
Mr Cheung once waited in vain for a week for a reply from IFPI over a request for verification. 'No reply ever came,' he said.
The 60-member Optical Disc Manufacturing and Technologies Association (ODMTA), formed in 1998 and comprising most small and medium-sized factories in Hong Kong, says the latest proposal will subject them to unfair risks. It insists there are few channels to check with copyright owners of most of the items they are asked to reproduce.
One member, trader Joe Cheung, whose factory has a monthly production capacity of three million discs, says he can only be sure about the authenticity of 20 per cent of his orders.
ODMTA chairman Thomas Lee Kwun-hang stresses the process of verification is complicated by the fact that often there are multiple distribution rights over mainland productions, with even the original producers being in the dark over who holds the copyright.
'The Customs Department says that it is our responsibility to exercise due diligence in verifying copyright, but how do we do that? There are just too many titles that cannot be verified.' He also raises concern about the negative impact the latest legislative change will have on the image of the industry: 'Everyone thinks CD manufacturers make pirated copies.' He warns that some factories may be forced out of business due to the increased risks and difficulties in obtaining credit from banks that have also become suspicious.
Mr Lee's association has called for the setting up of a central registry, supported by copyright owners. But this has been rejected by the CED and the other umbrella group in the industry, the Optical Disc Manufacturers' Association representing the few major manufacturers whose clients include established record labels, computer software and movie companies for whom verification of copyright is not a problem.
Chairman of that association, William Wan Kam-keung, agrees verification can be difficult, yet he stresses it is against international practice to give a private institution the registering role, and that no copyright owner should be required to prove ownership to a third party except a court of law.
A coalition of associations representing copyright owners, including Mr Wan's group, Business Software Alliance, the local branch of IFPI, Interactive Digital Software Association, Motion Picture Association, Motion Picture Industry Association and Software Publishers Association, has offered strong backing for the amendment, which they hope will force manufacturers to show concern for copyright and make the effort of checking the authenticity of their orders.
Manufacturers must implement a reliable copyright-checking system, they say. 'Under the Copyright Ordinance manufacturers have always had the responsibility of making sure they are not making pirated copies,' says a spokesman for Software Publishers Association. 'They are not being asked to shoulder extra responsibility.' Intelligence obtained by the CED shows that pirated discs made in Macau and Malaysia have infiltrated the local market, and similar, illegal manufacturing operations have emerged in Vietnam and Cambodia. Locally, there is no concrete evidence yet of strong triad involvement in piracy, but divisional commander of the CED's intellectual property investigation support, Ben Leung Lun-cheung, agrees the flow of pirated discs from Hong Kong into the mainland is a rising problem. In June and August last year, mainland Customs seized more than seven million VCDs smuggled from Hong Kong.
Still, there are words of sympathy for legitimate manufacturers who set up their businesses only in the past few years, and with limited customer base. Says Brian Bachner, an associate professor in intellectual property law at City University, who supports the change in the law: 'Perhaps the Government should step in and provide some sort of clearing house so Hong Kong manufacturers can obtain information about the works they are asked to make copies of. It is a matter of political will whether Hong Kong and [mainland] China are prepared to respond to this issue of helping local manufacturers identify the legitimate copyright owners.' Linda Yeung is a Post staff writer