Who does this affect?

Directors and partners of body corporates and partnerships in Hong Kong.

What do you need to do?

Ensure that your organisation adopts solid corporate practices for guarding against business end-user piracy.

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Simon Milne  (苗世明)
Partner
T +852 3443 1023

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Hong Kong
Nicola Wakefield Evans
(韋雅凡)

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Certain new provisions concerning potential criminal liability for directors and partners in relation to business end-user piracy recently came into effect in Hong Kong.

The provisions are part of the Copyright (Amendment) Ordinance 2007 (Amendment Ordinance) which amends certain sections of the Copyright Ordinance (Cap 528) (Copyright Ordinance).

What is business end-user piracy and which activities attract criminal liability?

Generally, under the Copyright Ordinance, the unauthorised use of material protected by copyright may attract civil and/or criminal liabilities. Business end-user piracy is a term used to refer to copyright infringement by a body corporate or partnership in a business context.

Section 118 of the Copyright Ordinance specifically identifies the following business end-user piracy activities which may attract criminal liability:

• those relating to computer programs, movies, television dramas and musical (sound or visual) recordings, and
• possession of an illegal copy of a copyright work for use in business without the copyright owner’s authorisation.

The Amendment Ordinance provides a further type of business end-user piracy, which is expected to come into effect later this year. This relates to books, newspapers, magazines and periodicals, and involves:

• making an infringing copy of a copyright work for distribution for the purpose or in the course of any trade or business, or
• distributing an illegal copy for the purpose or in the course of any trade or business, when this is done without the copyright owner’s authorisation and the act results in financial loss to the relevant copyright owners.

What are the responsibilities of directors and partners?

Under the new provisions, if a body corporate or a partnership has committed an infringement that attracts criminal liability, its directors or partners may be personally liable if they were responsible for the internal management of the body corporate or the partnership at the time of the violation.

The underlying principle of responsibility is that the senior personnel should be regarded as having the overall responsibility for managing the use of copyright works in business even if they delegate the matters to other staff.

What are the potential consequences?

Under section 119 of the Copyright Ordinance, a person who commits a business end-user piracy offence under section 118 of the Copyright Ordinance is liable to be fined HK$50,000 for each infringing copy and can face up to 4 years’ imprisonment. The penalty for the second type of business end-user piracy offence coming into effect later this year will be the same.

Applicability of the new provisions

A body corporate or a partnership that possesses an infringing copy in Hong Kong will be liable under the Copyright Ordinance regardless of the location of its registered office or principal place of business. Therefore, directors, partners or other responsible personnel of an overseas body corporate or partnership may also be liable under the new Hong Kong provisions.

However, only those directors and partners “responsible for the internal management” of the infringing organisation may be liable. Given the normal high level of responsibility of directors for the internal management of the entities they serve, the meaning of this is, as yet, unclear. However, see below for the defences available which may throw some light on this issue.

Note that complex jurisdictional issues may arise with respect to potential copyright infringements on the internet by a Hong Kong incorporated company operating a website hosted in, and offering content tailored for residents of, another country.

Could directors’ and officers’ insurance policy cover this potential liability?

According to section 165 of the Companies Ordinance (Cap 32), companies may purchase and maintain insurance coverage for officers of the company for liabilities incurred in relation to the officer’s duties, in particular:

• liability to the company or third parties in respect of any negligence, default, breach of duty or breach of trust (but not for fraud), and
• a liability incurred in defending civil or criminal proceedings taken against the officer for negligence, default, breach of duty or breach of trust (including fraud).

While coverage under the first condition would obviously only relate to civil liability, coverage of the legal fees under the second would be a helpful assistance in case of a criminal trial to which the director might be subject. Companies should therefore ensure that the scope of their directors’ and officers’ insurance policy covers potential liabilities and legal fees relating to infringements of the Copyright Ordinance.

What defences are available to directors and partners?

Directors and partners may be exempted from liability if they produce sufficient evidence to show that they did not authorise the act to be done and the contrary is not proved by the prosecution beyond reasonable doubt. Note that once liability is established the burden of proof shifts to the directors to prove innocence. However, the defence will be established if the court is satisfied that:

• the director/partner has caused the body corporate or partnership to set aside financial resources and has directed the use of those resources for buying a sufficient number of genuine copies of the copyright works involved or appropriate licences for use by the organisation, or
• the organisation has actually incurred the expenditure for buying a sufficient number of genuine copies of the copyright works involved for use by the organisation.

The court may take other relevant factors into account, such as whether the director/partner has introduced policies or practices aimed at preventing copyright infringement in the organisation.

What do directors and partners need to do?

Directors and partners should ensure that their organisation adopts good compliance practices for guarding against business end-user piracy such as:

• clearly setting out a policy on use of non-infringing copies of copyright works and preventing unauthorised making and distribution of copies of copyright works,
• keeping a record of purchase of, and the allocation of funds for purchase of, genuine copies and the relevant licenses (including shrink wrap licenses), and
• putting in place a system of periodic checks to detect and prevent use of any infringing copies within the organisation.