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Parallel Importation of Trademark and Copyright Goods

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The following is an overview of the law of parallel importation in Hong Kong, as it relates to Trade Mark goods and Copyright articles. It is for general reference only and should not be referred to as an exhaustive summary on the law in this area.

Parallel importation has been a big issue over the last few years, and has obtained a lot of media attention. But why are so many people concerned about it, and what effect will the new laws have on Hong Kong?


Before we can delve into an analysis of the laws of parallel importation in Hong Kong, you must first understand what is meant by trade mark and copyright, which are two types intellectual property.


What is intellectual property?

Intellectual property is the name given to a group of separate intangible property rights. These include patents, copyright, designs, trade mark and trade secrets. The protection of copyright is automatic and requires no formalities. The protection of trade marks and patents, on the other hand, requires registration.


What is copyright?

Copyright is a way of protecting a printed product from being copied or published without the creator's consent. When you see the word "copyright" or the "© " symbol, it means that the person who created the product does not want anyone to copy it or publish it without his permission.


But even if the product does not contain the overt word or symbol, the creator can still enforce his copyright against the copier by taking legal action to stop it from being published, or seeking compensation if he has already suffered as a result of it being copied. In other words, the copyright is automatic.


What is trade mark?

A trade mark is used to identify a manufacturer's or trader's goods and services, and it enables the public to distinguish them from the goods and services of other manufacturers or traders. It is usually a sign containing words, names, letters, colours or pictures, or any combination thereof.


The manufacturer or trader must register the trade mark in order to protect it from being copied or used by someone else. In other words, the ownership of a trade mark is not automatic.


For more detailed information on intellectual property, trademarks and copyright please refer to the Intellectual Property Law Explained Section.


What are parallel imports?

Parallel imports are products that are legitimately produced and marketed abroad with the consent of the owner of the intellectual property rights, but are then imported into a country or territory without the agreement of that owner or of the exclusive licensee in the place of importation. They are not the same thing as pirated or counterfeit goods.


The issue is whether these legitimate products should be allowed to be imported into Hong Kong without the consent of the intellectual property rights owner in the country of origin, or the exclusive licensee in Hong Kong.


Does parallel importation affect me? How?

Although the media has focused on high profile products such as compact discs, videos and computer software, parallel importation actually affects all products imported into Hong Kong. Consequently, it affects anyone involved in the business of importing and exporting goods into and out of Hong Kong, as well as consumers.


Parallel importation usually arises where there is an exclusive licensee or supplier of a particular product in Hong Kong and the price of the product is set relatively high. Naturally, this leads to a desire for others to sell the product in Hong Kong at a lower price, thus competing with the exclusive licensee, and to import goods not readily available in Hong Kong under the exclusive licence arrangement, thus making them more available to the public. The impact of parallel importation for consumers, therefore, is greater access to goods, more consumer choice, competition in the market and lower prices.


The impact of parallel importation on intellectual property owners and exclusive licensees is not so rosy, however. They see parallel importation as "parallel piracy", and argue that it abrogates their rights, threatens artistic integrity and actually undermines a free market. For instance, the Music Publishers Association argues:


"...to allow the importation of products infringing the licence of a copyright owner abroad (and the rights of that owner's local licensee) would be in effect to render Hong Kong, in the international community, a parasite - feeding off but not contributing to the very system which supports it..."


(Representations of the Music Publishers Association on the Draft Copyright Bill, Music Publishers Association of Hong Kong Limited, 2 December 1996)


THE LAW

The Copyright Ordinance



Copyright law protects the interests of the authors of copyright articles, as well as the licensees who own the rights to import and distribute such articles. At the same time, it tries to ensure that consumers have a sufficient supply of goods.


The new Copyright Ordinance came into effect on 30th June 1997. It regulates the importation, exportation, possession, hiring and sale of goods by persons who do not hold the copyright to those goods, an activity commonly referred to as copyright infringement.


(i)   copyright infringement

Sections 30 and 31 of the Copyright Ordinance provide:

The copyright in a work is infringed by a person who, without the licence of the copyright owner, imports into Hong Kong or exports from Hong Kong, otherwise than for his private and domestic use, a copy of the work which is and which he knows or has reason to believe to be, an infringing copy of the work.


The copyright in a work is infringed by a person who, without the licence of the copyright owner -


(a) possesses for the purpose of trade or business; (b) sells or lets for hire, or offers or exposes for sale or hire; (c) for the purpose of trade or business, exhibits in public or distributes; or (d) distributes otherwise than for the purpose of trade or business to such an extent as to affect prejudicially the owner of the copyright, a copy of a work which is, and which he knows or has reason to believe to be, an infringing copy of the work.


As you can see, the Copyright Ordinance is broadly worded so as to catch many activities as potentially infringing copyright.



(ii)   parallel importation

Under the old law, parallel importation was a criminal offence. The Hong Kong government sought to decriminalize it so as to allow free parallel importation of copyright articles, lower prices, and thereby encourage competition in the market.

After extensive lobbying by trade organizations, retailers, licensed distributors and consumer groups, the government finally agreed to a "half way measure". It is now a criminal and a civil offence to import goods which infringe a copyright for the first 18 months of the existence of the copyright. The reasoning behind this is that the exploitation of a copyright work is most damaging immediately after the work is first released on the market.



(iii) criminal sanction

Anyone who is criminally prosecuted for parallel importation may be liable on conviction to a fine of up to HK$50,000 for each copyright infringement, as well as imprisonment for up to four years.

It is a defence against criminal prosecution for the parallel importer to say that he did not know and had no reason to believe that the goods infringed any copyright. Naturally, he is under various duties of making reasonable enquiries with relevant trade organizations, and monitoring the response to those queries.


It is a defence against civil action for the parallel importer to prove that the copyright owner or exclusive licensee acted in bad faith, for instance by unreasonably withholding supply of the product.



The Trade Marks Ordinance



The current version of this Ordinance also came into effect on 30 June 1997.


(i)   trade mark infringement

Under section 27, where a trade mark has been registered, the owner has the exclusive right to use of the trade mark in relation to those goods. This right is infringed if:

...any person who, not being the proprietor of the trade mark or a registered user thereof using by way of permitted use, uses in the course of trade a mark identical with or nearly resembling it, in relation to any goods in respect of which it is registered, or in relation to goods of the same description where such use would result in a likelihood of confusion, and in such manner as to render the use of the mark likely to be taken...as being used as a trade mark relating to goods...


As you can see, the Trade Mark Ordinance is broadly worded so as to protect registered trade mark owners from other people using a similar mark to assist them in trading their goods.



(ii)   parallel importation

Under the Trade Mark Ordinance, parallel importation of goods bearing trade marks may be considered a trade mark infringement. However, the rule is that if genuine products have been manufactured abroad with the consent of the trade mark owner, and the trade mark owner has consented to the use of the Hong Kong trade mark, then the goods may be imported into Hong Kong.

A parallel importer can usually protect himself from penalty if he can satisfy one of the following conditions:


(i.) the trade mark was used in the course of trade with the trade mark owner;

(ii.) the trade mark owner has applied the trade mark to the goods and has not subsequently removed it; or,

(iii.) the trade mark owner has at any time expressly or impliedly consented to the use of the Hong Kong trade mark.



The Trade Marks Bill



This Bill has not yet come into effect as it is still being debated in Leg. Co.


Clause 19 of the Bill provides that the rights of an intellectual property owner become exhausted once his goods have been put on the market anywhere in the world with his consent. In other words, this clause decriminalizes parallel importation by removing any rights the intellectual property owner previously had over the goods once they are put on the market. This is known as international exhaustion.


There are exceptions to this principle. The trade mark owner can prevent parallel importation where the goods have been changed or impaired after being put on the market, or where importing the goods into Hong Kong would damage the reputation or distinctiveness of the trade mark.


International Law

So far, there is no international standard on the issue of parallel importation. This means that Hong Kong is free to legislate its own policies.


What is the law in other countries?

Other common law jurisdictions such as England, Australia and the United States favour parallel importation on the basis that it encourages competition and free trade and keeps prices down.


So what is all the controversy about?


(a) Parallel importation of copyright goods

Naturally, copyright owners and licensed distributors object to any legislation which threatens their copyright ownership. They want to retain the protection, and often monopoly, granted by their copyrights. The new Copyright Ordinance accomplishes this with its criminal and civil sanctions against parallel importers, albeit for a limited time.

Unfortunately the law has the effect of preventing competition and keeping prices up. Retailers and consumers support free parallel importation of goods so as to encourage competition in the market and keep prices down. Although the new law was intended as a compromise, retailers, importers and consumers are particularly unhappy about it, as they are limited in the range of goods they can import, which reduces consumer choice and hurts business.


One example of a business suffering from the new copyright law is KPS, the former chain of video stores in Hong Kong which went into liquidation in 1998. KPS lobbied strongly in support of parallel importation, so as to keep up with consumer demand for a wide selection of videos at reasonable prices. Because of the restrictions put in place by the Copyright Ordinance, KPS was unable to accomplish this, and found itself competing with pirated videos, which are produced illegally and sold at competitive prices. Needless to say, other retailers may follow the unfortunate path of KPS.



(b) Parallel importation of trade mark goods

Naturally, the Trade Marks Bill, along with the principle of international exhaustion, are strongly supported by trade and industry. These groups argue that free trade and open markets are the key to economic growth in Hong Kong, and that traders should be able to source their goods without barriers. They further argue that a free market will encourage investment in Hong Kong, thereby boosting employment and the economy in general.

The Bill is also supported by consumers, who are concerned that without parallel importation there will be limited choices of products and prices will be kept high. With the liberalization of parallel imports of trade mark goods, consumers will pay less for essentially the same goods, and will have a far greater choice of goods.


On the other hand, the Bill is strongly opposed by trade mark owners and exclusive licensees. Naturally, they want to protect their investments in their trade marks, and don't want parallel importers to benefit from their efforts. Trade groups have rebutted this argument on the grounds that the function of trade mark is to indicate the origin of the goods, not to prevent distribution.


The debate over parallel importation continues. The government has tried to find a compromise between the opposing interest groups, but has so far not been successful. It is now up to the largest interest group, the consumers, to express their views on parallel importation, in order for the Hong Kong legislation to truly reflect public opinion, and best serve the interests of the public at large.

 

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