Kenneth Ho

This work is the dissertation written by Kenneth Ho for the degree of Master of Sciences in Analysis and Management of Information Systems at the London School of Economics and Political Science. The contents of this dissertation are the copyright of Kenneth Ho, 1995 and are published on the WWW Page of the Intellectual Property Department, Hong Kong Government, with his permission.

The views expressed in this dissertation are Mr Ho's own views, and do not necessarily reflect the views of the Hong Kong Government. They are published here in the interest of research and the dissemination of knowledge, news and views on the World Wide Web.

Correspondence relating to this publication can be addressed directly to Kenneth Ho at hopkw@mail.bogo.co.uk

Table of Contents

Acknowledgement

Introduction

Chapter 1 Copyright Laws in Hong Kong and China

1.1 Copyright Laws in Hong Kong
1.2 Copyright Laws in China
1.3 Overview of the Copyright Laws of Hong Kong and China

Chapter 2 Factors affecting Software Piracy in China and Hong Kong

2.1 The Chinese Culture
2.2 Public Awareness
2.3 Education
2.4 Government Policies
2.5 Demand for Counterfeit Software
2.6 Attitudes of Software Manufacturers
2.7 Lack of Localised Software Industry

Chapter 3 The Problems in Enforcement of Copyright Laws

3.1 Geographical Difficulties
3.2 Legal Obstacles
3.3 Problems in co-ordination

Chapter 4 Fighting Software Piracy in Hong Kong and China

4.1 Remedial Measures
4.2 International Agreements

Conclusion

Appendix 1 Chinese Agreements with United States, signed 26 February 1995

Appendix 2 Business Software Alliance 1994 Software Piracy Estimates

Bibliography

Content

Acknowledgement

I would like to acknowledge the invaluable assistance from Mr. Peter K. F. Cheung and Mr. Robin Bridge in the completion of this dissertation.

Peter K. F. Cheung, Assistant Director of Intellectual Property, 25/F., Wu Chung House, 213 Queen's Road East, Hong Kong

Robin Bridge, Robin Bridge & John Liu Solicitors, Hong Kong.

Introduction

Software piracy is the illegal reproduction of copyrighted computer software, whether for commercial or personal purposes. There is no doubt that software piracy has numerous negative effects - it dissuades creativity from software manufacturers, damages any hope of developing a computer software industry, denies the programmers and others involved in the production of computer software their just reward, and robs the government of its tax revenue. So why do such rampant activities still persist?

Most notoriously in China the piracy rate is estimated to be 98%, with estimated losses totalling more than US$500,000,000 [Source: Business Software Alliance.] in 1994. 750,000 personal computers were estimated to have been sold in China in 1993 and 1994, with only about one million U.S. dollars worth of business-application software being legally purchased in China during the first three quarters of 1994 [Source: Computer Reseller News, 27 February 1995] thus equating to little more than US$1 spent on legitimate business-application software for each personal computer sold during 199 3 and 1994. The estimated losses are calculated on the basis that for each pirated copy, there would be loss in the sale of a legitimate copy, thus the figures quoted are certainly inflated and a little tenuous, as it seems unlikely that purchasers of cheap counterfeit software would pay upwards of 100 times the amount to buy legitimate copies. Nonetheless, the accumulation of such massive numbers are certainly cause for concern.

Perhaps a more serious consequence is the export of illegally produced computer software in China. Some 26 factories are responsible for the production of 75 million compact discs each year even though the local market can only absorb 5 million [Source: The China Business Review, November-December 1994] and much of what is produced are pirated computer software. These copies have been known to travel to places as far as Latin America and Europe, but most notably, these copies are smuggled across the border into Hong Kong, where the real effect can be seen. Hong Kong itself has an estimated software piracy rate of 62% and losses upwards of US$100,000,000 [Source: Business Software Alliance] . Although the situation in Hong Kong is less serious than many of its Asian neighbours, the amount of pirated computer software available is a worrying aspect not to be taken lightly. Pirated software, whether on floppy discs or on compact disc, are readily available throughout various locations in Hong Kong, the most infamous being the Golden Arcade, and copies of computer software are being sold for little more than what it would cost to purchase the necessary blank floppy discs in the West. Copies of Microsoft Office, available on compact disc, can be purchased from as little as HK$50.

The purpose of this dissertation is to examine the various factors which affect software piracy in Hong Kong and China, with the aim of hoping to understand the reasons behind such activities, and attempts to suggest ways of tackling the problem. It is universally accepted that computer software is protected by copyright laws, therefore the relevant legislation are to be studied to determine if there are any shortcomings, and also the other underlying factors which contribute to this phenomenon of software piracy in Hong Kong and China are investigated before any conclusions are to be drawn. The basis of this research is formed via two interviews, upon material found in various journals and publications, and from first hand experience in personal visits to areas of Hong Kong where pirated software are being openly sold. The two interviews were conducted in Hong Kong with Mr. Peter Cheung, Assistant Director of the Intellectual Property Department of the Hong Kong government, and Mr. Robin Bridge, a solicitor specialising in intellectual property and a member of the sub-committee appointed by the Law Reform Commission of Hong Kong for the purpose of reviewing the law of copyright.

Chapter 1 is divided into three parts, the first of which examines the copyright laws in Hong Kong and the second the equivalent legislation in China. The areas of the law which specifically applies to computer software are closely looked into, and the types of legal remedies on offer are mentioned. The third part gives an overview of the legislation and a discussion of the adequacy of such measures. Chapter 2 discusses the various other factors which affect software piracy. In this and remaining chapters , the cases for Hong Kong and China are not split into separate arguments because, as opposed to the laws of the two areas, much of what is relevant are similar and thus overlapping. Chapter 3 discusses the various areas which affects the efficient enforcement of the legislation, and explores the reasons why policing of copyright laws are so problematic. Chapter 4 attempts to provide solutions to tackling this problem of software piracy, during which the international agreements, in particular trade agree ments with America, would be discussed.

Chapter 1 Copyright Laws in Hong Kong and China

1.1 Copyright Laws in Hong Kong

Hong Kong's law on copyright is to be found in the United Kingdom Copyright Act 1956, which was extended to Hong Kong by the Copyright (Hong Kong) Orders 1972 to 1990. The 1956 Act does not specifically deal with the protection of computer software but this was clarified when the Copyright (Computer Software) Amendment Act 1985 was passed by the U.K. government and was extended to Hong Kong effective from 1 February 1988 by the Copyright (Computer Software) (Extension to Territories) Order 1987. This esta blished that computer software is to be protected by copyright legislation, and being regarded as literary works, is in line with the Berne Convention, of which Hong Kong is a member.

However, the U.K. 1988 Copyright, Designs and Patents Act, which succeeded the 1956 Act as the legislation for the protection of copyright in computer software, has not been extended to Hong Kong. In light of such changes in the United Kingdom, as well as realising the fact that the Copyright (Computer Software) (Amendment) Act 1985 was only introduced to act as an intermediate measure to enable a full review of the copyright laws, the Hong Kong Law Reform Commission was asked by the Hong Kong government to review the copyright law of Hong Kong, with their recommendations published in the form of the "Report on Reform of the Law relating to Copyright". The Report contains recommendations into more specific areas such as the extent of protection, making back-up copies and loading and using a computer program, and authorship and ownership of computer software. These recommendations are likely to form the basis of future changes, bringing the legislation more into line with international standards, but the present copyright protection in Hong Kong is still governed by the 1956 and 1985 Acts.

To combat infringement of copyright on computer software, civil legal action can be sought against anyone violating such rights, with the use of Anton Pillar Orders and interlocutory and Mareva injunctions. There is also a Copyright Ordinance (Cap 39) which specifies the criminal remedies, and in August 1989, the enforcement of Hong Kong's Copyright Law was passed to the Investigation Bureau of the Customs & Excise Department. A copyright Investigation Group has since been formed, and customs officers hav e been granted wide powers of search, seizure and arrest and use them as the principal weapons against software piracy. The latest amendment to the Copyright Ordinance, which came into force on the 26 May 1995, has set severe penalties for infringement of copyright, with a maximum fine of HK$50,000 per copy and imprisonment of 4 years. It also showed their commitment to stifle software piracy in its entirety by criminalising those who have given consent to such activities as well as the principal offender.

1.2 Copyright Laws in China

The legal system for the protection of intellectual property rights in the People's Republic of China were not set up before 1982 when the Law of Trademarks was promulgated, and the first legislation introduced for the protection of copyright did not come into effect until 1 June 1991. Article 3 of the Law of Copyright lists computer software as a type of protected work. This is accompanied by the Computer Software Protection Regulations, which came into effect as of 10 October 1991, and in Article 2, defined computer software to cover "computer programs" and as being comprised of "source code programs" and "object code programs" and further states that the "source code text" of a work and the "object code text" shall be regarded as the same work. Although there are areas of the law which are ambiguous and thus open to wide interpretations, it nonetheless established the first signs of the recognition of the importance of copyright protection for computer software.

In an effort to lead to greater conformity in copyright protection with its foreign counterparts, China acceded to the Berne and Universal Copyright Conventions in September/October 1992. Therefore China, as a member of the Berne Convention, must now regard the protection of computer software as literary works and also that works of nationals of signatory states to the Berne and UCC are to be recognised to be protected by copyright. Furthermore, regulations were issued which reaffirmed Article 142 of the General Principles of the Civil Law, which provides that treaty obligations are to prevail in the event that they conflict with municipal law. And on 15 October 1993, an important proviso in the Copyright Law was removed. This proviso had given Chinese nationals the continued use of works which had not previously been protected by copyright, providing that this would not "unreasonably prejudice" the rights of the foreign copyright owner. Through the removal of this proviso, it strengthened China's position in its attempt to provide a universally acceptable system of copyright legislation.

Copyright Law Implementing Regulations, which came into force on 1 June 1991 delegates the National Copyright Administration (NCA) the responsibility for the administrative enforcement of copyright throughout China. The NCA is empowered to order the offender to cease any infringing activities and pay compensation to the owners of copyright for loss sustained. This is supplemented by the introduction of criminal sanctions, under the Regulations on Punishment for Crimes against the Law of Copyright, effective as of 1 July 1994, enabling the confiscation of the infringers' illegal profits and any items, materials and tools involved in piracy. Persons convicted of manufacturing or distributing infringing copies for commercial purposes are now facing fines and a maximum prison sentence of 7 years.

To tackle the problem of the export of pirated software, the Chinese Customs have been empowered, effective as to 15 September 1994, to refuse the import or export of infringing items, and as an attempt to establish the protection of intellectual property rights through the judicial means, specialised intellectual property tribunals were set up in 1993 to various regional centres such as Beijing, Shanghai, Guangzhou and Shenzhen. Interim orders for freezing of assets and detention of property are available, as are orders for search and seizure of infringing items.

1.3 Overview of the Copyright Laws of Hong Kong and China

As a whole, copyright laws in Hong Kong and China are adequate for the prevention of software piracy, and as both are members of international conventions, their level of protection must at least conform to international standards. The criminalisation of piracy activities and the increasingly severe penalties are signs of the commitment to curb such behaviour. For Hong Kong in particular, software protection certainly meets the standards of most Western countries, with the only criticism being that it needs to be updated to keep abreast of new technological developments. Pun (1994) pointed out six prominent shortcomings to the present software protection system in Hong Kong:-

2.1 The Chinese Culture

The widespread resistance to proper adherence to the copyright laws of Hong Kong and China can certainly be partly attributed to historical events and cultural differences. Tracing back 2,500 years to the influences of Confucianism, it had strong emphasis on learning by copying applied to all aspects of life in China, thus "the copying of works of almost any kind has for centuries been regarded as honourable and necessary" (Wingrove, 1995). To a lesser extent in Hong Kong, the ethics of Confucianism is still a powerful force in Chinese life today, and it certainly played a most important part in the shaping of the modern Chinese societies. Also, in the West, copying is usually perceived as a form of inferior imitation, but for the Chinese, but it is in fact the opposite. It is regarded as a compliment if a student can faultlessly reproduces a teachers work, and as noted by Wingrove (1995), it is no wonder that much of the ancient and modern Chinese paintings look alike to untrained Westerners as they adhere closely to certain traditional basic principles and techniques. Thus it is perhaps best summarised by Swinyard (1990) that "in many Asian nations the highest compliment one can be paid is to be copied".

The notion of sharing creative works and ideas also stemmed from Confucian beliefs, but perhaps more relevant to the situation in China today, sharing has been the mandate for over forty years in this Communist state. Wealth and property, whether private or industrial, were for much of the period since the formulation of the People's Republic of China, belonged to the state. Thus there would be little resistance in the demand for the creative ideas and expressions to be part of the state property and be used without the need of authorisation for the good of the country. On the contrary, implementation of copyright and other intellectual property rights would contravene one of the most fundamental beliefs in a Communist state, and it would be a tough process for many of the Chinese to attune to the moral concepts of protection of intellectual property. Perhaps another reason for the non-compliance of the copyright laws lies in the idea that the protection of intellectual property is a pre-dominantly Western concept and thus have no place in an Asian society. In the Western societies and in particular the United States, individual freedom and benefits are emphasised over benefits for the society.

However, the converse is true of a Chinese society, in particular with the Communist regime in China, hence copyright laws acknowledging the importance of individual creativity and original works have been long established and widely accepted in the Western world, but not so in China. As Altback (1988) has said, Asian nations "traditionally believe that copyright is a Western concept created to maintain a monopoly over the distribution and production of knowledge and knowledge-based products".

2.2 Public Awareness

The sheer size of China and its 1.2 billion population are major obstacles in achieving the goal of establishing a proper awareness of the various legislation and developments of the country. The notion of intellectual property has only been introduced little more than 12 years ago, and the law of copyright was not promulgated until the 1990's, thus it would not be surprising to find that much of the population are unaware of such legislation, even though economic developments have been advancing at break neck speed. Also, amendments and new laws are being introduced regularly, and thus it would be understandable that some may not be able to keep abreast of the latest developments. As noted by Tan (1994), "given the low level of legal knowledge in China, the infringer may be unaware that its activities violate Chinese intellectual property laws".

Research by Reid (1994) have shown that of those questioned in his survey conducted in America, most people perceived that the copying of software will not cause very much harm to anyone, regarded piracy as not necessarily an evil act and assumed that the probability that the act of copying software will cause harm is low. Thus it shows that even in America, where copyright protection has been in existence for a long time, such misconceptions to the effects of software piracy are still very much in evidence. Hence it would be a much more difficult task for the people from developing countries like China and emerging economies like Hong Kong to acknowledge the true negative effects of software piracy. It is also very difficult for the Chinese to understand the notion of intangible asset, for example brands and copyrighted material, including computer software, as much of the advances in the use of information technology in the Asian societies occurred when there were no guidelines, no codes of ethics and certainly no codes of accepted behaviour. The idea that monetary values can be placed on intangible items is new to many Chinese people, and the thought of having to pay for expressions of ideas is certainly very difficult for them to comprehend.

In China, there has been a lack of what Alford (1995) terms as a "rights consciousness", which is a "belief that individuals are endowed with rights that they are entitled to assert even with respect to those in positions of authority". Therefore many of the Chinese people are unaware that they are entitled to copyright protection, which can be attributed in part to explain the liberal views which they take with regards to copyright protection of foreign software.

2.3 Education

As noted by Wingrove (1995), "the entire Chinese education system was based on the principle of the rote learning of the works of established literary masters", and for more than 2.000 years of imperial China, attainment of the highest academic qualification is demonstrated by faultless reproduction of the classical works of the past. Anyone who can meticulously recite the hundreds of works could lead to a life of wealth and power in the government. These principles are still very much alive nowadays and are the main source of influence upon the present system of education in both China and Hong Kong.

In Hong Kong, the education system is very much based upon a force-fed environment, with the children being ingrained with a plenitude of information at a very early age. It is no wonder that such methods of teaching obstructs original thinking, as instead of encouraging the pupils to think creatively in solving problems, they are taught from an early age the "right" and "wrong" answers, rather than, so to speak, to think on their feet.

The results of such an education system are filtered through many aspects of life in Hong Kong and China. From engineering to the musical industry, the low level of originality is worrying, and it leads to widespread "copying" activities as local entrepreneurs attempt to extrapolate ideas from their Western counterparts to be used in their own products, rather than developing their own ideas and creative thoughts. One interesting aspect is that the type of software used by those in China are mainly in Chinese, thus it would seem that most of the software developed by the West would seem to be of little use in China. However, this is not the case, as much of the pirated copies are translation of foreign works and it once again highlights the need for original thoughts and original talent.

2.4 Government Policies

American trade officials estimated that there are over 20 plants in China that are pirating compact discs, pressing 75million pirated compact discs per year, and that many of these plants are state-owned [Source: Economist, 7 January 1995]. Thus the production of pirated computer software on compact discs can partly be attributed to the "support" of the Chinese government. These actions, as well as other counterfeiting operations such as the illegitimate duplication of computer software, are usually owned or run by Chinese businessmen who are well connected to the regional or city governments which, ironically, are the ones who are supposedly to be monitoring pirating activities. Officials who either own such factories or are responsible for permitting these activities to take place, would receive in return monetary gains, and thus they would have little incentive in closing down these factories and production lines. This is further complicated by the plants operating as legitimate businesses. They produce compact discs and computer software for foreign buyers, but without asking too many questions on the legitimacy of the production or on the possible violation of copyright.

At a macro level, China still maintains layers of testing and licensing procedures that seem designed for protectionist purposes [Source: Chief Executive, April 1995] , and remains a difficult marketplace for foreign products, including computer software, to establish a presence in. One such example is the People's Republic of China's Measures for the Registration of Copyright in Computer Software, which came into force on 18 April 1992. Although this piece of legislation allows foreign copyright owners the option of whether or not to register their copyright, in the event of seeking for administrative or judicial enforcement of their rights, they must provide key proprietary data to the Ministry of Electronics Industry for registration "that is far more exacting than that of many nations, particularly in view of the regulations' liberal invocation of the national interest" (Alford, 1995). As Gregg Mastel, a senior fellow at the Economic Strategy Institute in Washington and a specialist on trade with China, said "everyone realised that piracy is not just a problem, it is a fundamentally ingrained part of China's economic plan" [Source: New York Times, 27 February 1995] .

The situation in Hong Kong is very much different in this area. With the pirated compact discs being produced in China, the position of Hong Kong is very much as an "outlet", whereby the distribution and sale of these smuggled counterfeit software are controlled by local gangs, or triads. The government is undertaking its best efforts in attempting to counter triad activities, but there is another worrying area in which the government should look into. As a prime example of a capitalist economy, the Hong Kong government has long established a policy of non-intervention which can be attributed to much of the colony's success. However, in similar vein, the push for advancements in original research and development is also left in the private sector. This has left little scope for the development of original work, a very low level of creativity and much "borrowing" from foreign products, including computer software, because, quoting Saw Ken Wye, deputy director of the Japan-Singapore Artificial Intelligence Centre, "government involvement is always necessary in the absence of giant multinationals able to fund their own research" [Source: Research-Technology Management, November 1993] .

Although positive steps have been taken by the government to establish a more suitable environment for research and development by the recent formation of the City University of Hong Kong and the University of Science and Technology, their effects are still largely unclear, and it would not be surprising to find that many of the graduates produced by these two institutions to be suffering from the same problems as those in other tertiary education in Hong Kong - a lack of creative talent and the inability to think by themselves.

2.5 Demand for Counterfeit Computer Software

A major factor in the continued widespread levels of piracy in China and Hong Kong is the wide accessibility of counterfeit computer software. Vendors of pirated copies of computer software make no secret of their locations, and areas where counterfeit software can be purchased are common knowledge to the computer-literate populations of China and Hong Kong. Pirated software can be bought in various well-known shopping arcades throughout Hong Kong, with the Golden Arcade being the most infamous, and the low prices which they are sold at certainly fuels their demand. Many of the branded software, such as those developed by Microsoft and Lotus, are being sold at a fraction of the price of their legitimate copies, sometimes as much as 100 times cheaper. From personal visits, pirated CD-ROM versions of well-known software, whether business applications or leisure software, were available at HK$100 for three, and versions sold on floppy disks were selling at around HK$100 per copy - little more than what the blank disks would cost. Therefore it seems that those who are responsible for distributing and selling the software are exploiting the alarmingly low costs of production in China and using it to satisfy demand of cheap computer software in Hong Kong.

China is largely what is termed a "one-copy" country in which a single copy is legitimately purchased and would be used and duplicated thousands of times. However, as noted by Gargan (1995) in his article in the New York Times, "what sets Hong Kong apart from China and other developing countries is the pervasiveness of pirated material throughout all segments of society here, from the back alleys of Kowloon to the executive suites of major companies, according to the police and industry associations". Thus it seems that the problems of piracy in Hong Kong is not solely due to those responsible for selling and counterfeiting, but it is a much more deep-rooted problem existing in all layers of society.

Another interesting fact is that much of what is on sale are actually generated by huge foreign demand as well as by local needs. As noted in the interview with Mr. Peter Cheung, it is not uncommon for Westerners from places such as America and Canada to come to Hong Kong specifically for the purchase of cheap counterfeit computer software which are actually pirated copies of mostly American products. Any trip to one of the more prominent shopping arcades where pirated software are on sale, and it would not be an unusual sight to see Americans with a huge catalogue of software to be purchased, and this is not surprising considering that the difference in the total price of counterfeit software and the price of legitimate software would probably be sufficient to cover the cost of the trip.

The wide-range variety of software available is a further reason why pirated software are so much in demand. Not only are these vendors easily accessible, the range of software which are sold certainly far outstrips many of the outlets which sell legitimate software. Without the need to obtain licenses to sell the pirated copies, many of the shops can accumulate a vast stock of pirated software, ranging from business applications to computer games to educational software to name but 3 categories. Also different versions are available, the prime example being that one can purchase older versions of Microsoft Windows, as well as the beta version of Windows 95 before its official launch. Some of these versions include modifications and improvements as compared to the original copies, and are thus more tailored to the needs of the Hong Kong people..

2.6 Attitudes of Software Manufacturers

Two interesting, albeit controversial, points of interest about the situation in Hong Kong came across during the interview with Mr. Peter Cheung. The first concerns the marketing strategy of software manufacturers and the second concerns the pricing of the software.

As mentioned in the earlier parts of this dissertation, in the calculation of the estimated losses incurred by the software manufacturers through software piracy, the accuracy of such figures were put into question as it assumed that those who purchased pirated copies would have purchased legitimate copies had the illegal versions not been available. It may be that the software manufacturers have realised that such assumptions are certainly unrealistic and have devised their marketing strategy with those very thoughts in mind. What this implies is that, even if all pirated copies were non-existent, some software manufacturers may realise that they may not gain a significant amount of business as a result, therefore for the time-being, they may wish not to pursue actions to attempt to combat piracy, and instead deliberately allow such activities to take place, in the hope that their software may become widely used and establishes as industry standard, preferably becoming a necessity in many organisations. When such a time do arrive, the software manufacturers would then intervene to help to stop piracy, and as the users have became so ingrained with the software, they are then reliant on the legitimate vendors for any future developments and revisions.

The second point concerns the pricing policies of the software manufacturers. As noted by Mr. Cheung, it is quite obvious from browsing through many of the American computing magazine that legitimate copies of the same software are retailing in America at prices around 20% cheaper than what it would cost to purchase them in Hong Kong. Thus the people of Hong Kong are paying a premium in order to obtain legitimate copies of software because the software manufacturers have decided, for various reasons, to sell their products significantly more expensive than they would in America. The rationale for such policies are unclear, but what is certain is that the effect of selling legitimate software at inflated prices coupled with the low prices of pirated copies does not conform to the best environment for combating piracy.

2.7 Lack of Localised Software Industry

There are basically two types of software that are being used in Hong Kong. The first is imported packaged software which originates mostly from America and Taiwan. The second is proprietary software with commercial applications, which are written by software houses/consultancies and tailored to the specific needs of the companies and industries concerned. Therefore Hong Kong do not possess a software producing industry whereby packaged software are produced and sold locally.

This creates the problem in that there is little incentive for many Hong Kong people to take notice of, and act positively to, such issues, as they are not the ones who would suffer as a result of software piracy. It could also lead to the disregard of the copyright legislation concerned with computer software as the people would not be affected by it. It is perhaps useful to draw a comparison with the music industry in Hong Kong. Hong Kong has a very prosperous records industry in which millions of locally produced compact discs by local Chinese pop stars, termed Canto-pop, are sold each year. However, since the influx of counterfeit compact discs began flooding in from China, it has become a major talking point and resulted in many of the local record companies using various publicity stunts, such as vigorous advertising campaigns, in order to raise awareness, and became united in their fight against piracy of Canto-pop. Although it is difficult to quantify the results of such actions, it is quite obvio us that the sale of pirated computer software is much more rampant than that of pirated musical compact discs.

In China, the software industry is very much at its infancy, which is why there has not been too much resistance from local manufacturers concerning the levels of piracy. Nonetheless, it is a growing industry and continued piracy would only harm the development of the industry. However, there is increasing signs that piracy is not limited solely to foreign produced software, as the Business Software Alliance reported that Chinese officials have recently rounded up 700 illegal CD-ROMs in a series of raids, and the contents were made up of software of Chinese as well as American origins.

Chapter 3 The Problems in Enforcement of the Copyright Laws

3.1 Geographical Difficulties

Pirating activities in Hong Kong are concentrated in specific areas, and given the size of Hong Kong, these areas are relatively close to each other and makes the task of enforcement much easier. However, China tells a much more different story. Given its vastness in size and being the most populated country in the world, it would be an awesome task to police pirating activities throughout the entire country, therefore, like in the United States, enforcement are to take place locally rather than to be con ducted from Beijing.

In 1993, the Chinese government established special courts in the major cities in China to specifically handle intellectual property matters and intellectual property divisions have been set up in provincial and municipal courts throughout the country to adjudicate on intellectual property disputes [Source: The China Business Review, November-December 1994]. This is a step towards the provision of a proper system of protection for copyrighted material, but despite being a positive move, the effectiveness of such measures are still to be questioned. There are two reasons for this. Firstly, these courts and the legislation are both relatively new, and the courts are not experienced in the implementation of the intellectual-property related laws and they are thus subject to wide interpretations. Secondly, there is a shortage of manpower in dealing with intellectual property disputes, and some judges have been assigned to these courts without the necessary pre-requisite knowledge in intellectual property cases*.

Another problem lies in the fact that China have effectively de-centralised much of its economic powers to reduce the level of bureaucracy and empowers the provinces with a higher degree of autonomy. In terms of enforcement of copyright laws, it has several drawbacks. Firstly, much of the de-centralisation has resulted in Beijing surrendering some of its control over the provinces to guarantee that appropriate measures against piracy would take place, and secondly, as Beijing possesses insufficient control to monitor all the pirating activities in the provinces, any attempt to impose a national policy of proper enforcement would be extremely costly and troublesome in comparison to the low level of funding available for use.

3.2 Legal Obstacles

The Law of Entrapment in Hong Kong has proved to be at times a hindrance for the customs officers in carrying out their enforcement activities. To avoid being prosecuted, shops which sell pirated software do not place the actual items on sale in the shop, ready to be bought and used. Instead, with software sold on floppy disks, customers are required to search through the catalogues and place orders for the specific software they wish to purchase, and are told to collect the pirated copies through the presentation of the "official receipt" 15 minutes later. Similarly with CD-ROM products, all that is placed on the shelves in the shops are empty boxes, with the actual stock hidden in another location. If the customs officers go into the shops and places an order for a CD-ROM and await for its delivery, it is entrapment and the law prohibits such activities.

This implies that the customs are relying on raids on warehouses where the pirated software are kept, but this is a task more problematic than perceived. As noted in the interview with Mr. Peter Cheung, the shops employ "look-outs" to spot any customs officers preparing for raids, and the customs and excise department are having to introduce on a regular basis new faces as their officers become recognisable to the software pirates.

Perhaps a surprising element which emerged from the interview with Mr. Robin Bridge is that there have been virtually no cases of infringement of copyright in Hong Kong, considering that there are such rampant piracy activities occurring in the territory. One reason which was noted was that the high costs of pursuing legal action deterred many right owners from seeking legal remedies, and there is also the fear that court action may not adequately compensate for all the losses and troubles incurred.

In China, reports of the small amounts of compensation awarded to those who successfully pursued legal action hardly act as an effective deterrent in the fight against software piracy. Both Disney and Microsoft have prevailed in taking legal actions against trademark infringements, but the awards for compensation were only US$91 and US$2,600 respectively, even though Microsoft claimed it lost US$20-30 million through unauthorised production of over 650,000 copies of Microsoft's trademark hologram [Source: The China Business Review, May 1994], thus highlighting the unjust compensation that may arise if actions were taken via legal means.

There is also the worry that any action taken to the Chinese intellectual property courts would take too long for any significant effect to take place. As Tan (1994) pointed out, "simple infringement cases may take months before they are finally resolved; larger scale, massive violations can take years". This is noted by Valerie Colbourn, Microsoft's Hong Kong-based attorney, when she commented lawsuits copyright-infringement lawsuits filed by Microsoft in 1994 in China's Intellectual Property Tribunal of the Beijing Intermediate People's Court have "crawled along at a snail's pace" [Source: Business Week, 27 February 1995].

3.3 Problems in Co-ordination

Undertaking investigative work in China can be a difficult task, as the details of the suspected companies are often hard to trace, and other shortcomings such as poor telecommunications, inadequate infrastructure and the sheer size of the country further compounds the investigators' problems. The counterfeit goods may not necessarily be located at specific sites - it is not uncommon, for Hong Kong as well as for China, for the pirated material to be moved around several areas in attempts to stay one step ahead of the enforcement officials.

Also in China, in order to organise a successful raid in attempting to catch the offenders red-handed, the intellectual property owner, the investigative agency, the representative agents and lawyers and the Chinese enforcement officials are needed to work together [Source: The China Business Review, November-December 1994]. The situation in Hong Kong tells a similar story, with the rights owner having to work co-operatively with the customs and intellectual property department for any enforcement actions to be successful. Therefore there definitely is a problem in that the co-ordination of enforcement activities are often difficult to manage as it inevitably involves several parties. Furthermore, the flagrant piracy activities are mostly concerned with the duplication of foreign software, hence there is the problem of getting the rights owners from abroad to co-operate.

The National Copyright Administration in China, which is the body responsible for the administrative of copyright throughout China, is severely under-resourced and is reportedly only employing as few as five members of staff to tackle the tasks [Source: Managing Intellectual Property, November 1994] . It has also been reported that, in an effort to pursue enforcement actions, some rights owners are having to provide various items such as mode of transport as well as having to meet all the costs that might be incurred in carrying out such actions.