The Reform of Copyright Protection in the Networked Environment: A Hong Kong Perspective

• DOI: http://doi.org/10.1111/j.1747-1796.2008.00352.x
• Date: 01 November 2008
• Published date: 01 November 2008
• Author: Charn Wing Wan

The Reform of Copyright Protection in the

Networked Environment: A Hong Kong

Perspective

Charn Wing Wan

School of Law of the City University of Hong Kong

On 15 April 2008, the Hong Kong government released its preliminary proposals on Copyright

Protection in the Digital Environment, which cover the civil and criminal liabilities of online

infringers and the role of online service providers (OSPs) in combating internet piracy. The

preliminary proposals favor OSPs and users more than copyright owners. The government

proposes that the OSPs, the content industries and users should voluntarily create a code of

practice which defines the role and scope of OSPs in the fight against online piracy. The OSPs

oppose any rules making themliable for copyright infringement and thesafe harbor provisions.

The content industries, in contrast, insist that, in line with international norms, both OSP

liability and safe harbor provisions be written into the code of practice. I argue that, in the

absence of any assignment of legal right to any party, the Coase theorem predicts that

negotiations will fail. Thekey issue is which party shouldbear the transactioncosts of copyright

enforcement, because thereare millions of online infringers; however,if the transaction costsof

enforcing copyright in the networked environment are prohibitively high, the credibility of the

copyright system will be undermined and online piracy will become commonplace.

Keywords copyright; law and economics; peer-to-peer; piracy

On 19 December 2006, the Hong Kong government issued a consultation paper on

‘‘Copyright Protection in the Digital Environment’’ (the Public Consultation). The

proposed enactment of a digital copyright law would bring Hong Kong copyright

law in line with international norms and standards in the networked environment.

One of the main objectives of the Public Consultation was to consider ‘‘whether

and if so how protection for copyright should be further strengthened to facilitate

the sustainable development of our creative industries in the digital era’’. The

administration was mindful of the need to balance the adverse effect ‘‘on the

dissemination of information, protection of personal privacy in relation to indivi-

duals’ activities on the Internet, and the development of Hong Kong as an Internet

service hub’’ (Public Consultation, 2006, p. ii). In short, it signaled to the commu-

nity that it cares about the ‘‘well-being of the Internet service providers’’ and about

‘‘privacy versus piracy’’ (Public Consultation, 2006, p. i).

It is apparent that Hong Kong copyright policy is still committed to promoting

Hong Kong’s creative industries. Because of the public goods nature of non-rival

and non-excludable characters of the copyright, it is difficult to exclude anybody

from consuming the goods if the cost of copying and of imitation is very low

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doi: 10.1111/j.1747-1796.2008.00352.x

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(Watt, 2000). Although creativity is valuable to society, there is no incentive to

invest if people can easily take a free-ride. The free-ride problem undermines the

incentive to create, disclose and commercialize new information.

To avoid market failure, society has created a copyright system that allows right

owners to have monopolistic control over how and when to exploit their rights. The key

concern is how much of the exclusive rights should be included in the copyright, as the

underlying information leading to the expression of ideas comes from the undepleted

commons of prior knowledge. The policy encourages disclosing information to the

public to foster the creation of additional new knowledge. There must be a balance

between the rights of creators and the needs of public access, provided always that the

creator is adequately rewarded for his or her creativity.

Copyright is an important economic institution. From an economic perspective,

static efficiency, which requires wide access to users at marginal social cost, is quite low

for the creators of copyrighted works to recoup their sunk cost of development

(Maskus, 2000). Any policy of maintaining Hong Kong as a centre of creativity (the

film and recording industries) on the basis of static efficiency, which may be best for the

current market situation, is suboptimal in the long run. The reality is that a very weak

copyright protection regime ‘‘satisfies the static goal but suffers the dynamic distortion

of insufficient incentives to create intellectual property’’. However, ‘‘excessively strong

intellectual property rights favor the dynamic goal but generate the static distortion of

insufficient access’’ (Maskus, 2000). With a weak intellectual property rights protection

regime, the holders of new knowledge will rely upon the protection of trade secrets to

reduce informational leakage. This forecloses any dissemination of such new informa-

tion (Antonelli, 2004, p. 427).

The Public Consultation suggested that Hong Kong should draw from the

experience of other jurisdictions such as the United Kingdom, the United States,

Singapore and Australia when formulating a solution. Hong Kong may either

emulate an existing overseas model or create its own that best suits Hong Kong’s

needs (Public Consultation, 2006, p. v).

Issues such as internet service provider (ISP) liability, the criminalization of online

infringers and online piracy have been the subjects of heated debate in other leading

jurisdictions such as the United States,

1

Australia,

2

New Zealand,

3

the European

Union (EU)

4

and the United Kingdom.

5

The concerns are certainly not static but

dynamic, because they are evolving in response to technological change. It is not a

simple question of determining societal needs based on public choice, but rather of

cultural, economic and social policies.

On 15 April 2008, the Hong Kong government presented its Preliminary

Proposals for the Strengthening Copyright Protection in the Digital Environment

(the Preliminary Proposals) to the Legislative Council Panel on Commerce and

Industry. Under its proposals, the

government is committed to upholding a robust copyright protection

regime. This helps provide an environment conducive to the sustainable

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The Journal of World Intellectual Property (2009) Vol. 11, nos. 5/6 499

The Reform of Copyright Protection in the Networked Environment Charn Wing Wan