The illicit business of copying others' products and designs and selling them as cheaper, usually substandard look-a-likes is an underground industry worth billions each year. The victims are usually legitimate companies that invest huge sums into product development and marketing. The perpetrators are highly organised, shadowy outfits with no respect for the law. And their customers are often everyday consumers out for a bargain, but what they get rarely is.

Anyone who has ever bought a t-shirt from a questionable source - in the case of Hong Kong often an illegal hawker stall - almost certainly knows the sobering experience of it shrinking the first time it is washed. Worse still, some counterfeit products; toys for example, assembled with ill-fitting or substandard parts actually cause injury.

It wasn't so long ago that piracy was flourishing in Hong Kong: copy watches, copy CDs, copy handbags, copy toys etc were considered an alternative consumer choice, and their prolificness seemed almost to legitimise their existence. The problem of piracy got so bad that Hong Kong was placed under the United States Trade Representative's 'Special 301 List' in 1996.

Realising that Hong Kong's reputation as an international business centre was being undermined, the Government clamped down hard on the counterfeiters and introduced a series of new legislation in the late 1990s aimed at stamping out IP infringement. In 1997, new laws governing import and export were introduced. In 1998, the Prevention of Copy Right Piracy Ordinance required all factories manufacturing optical CDs to obtain licences from Customs.

In April 2001, the Intellectual Property (Miscellaneous Amendments) Ordinance made it an offence to possess a video camera in a cinema and illegal for companies to use pirated software in the course of trade or business.

In July 2002, the licence scheme for CD factories was further extended to cover stamper manufacturers who were required to obtain a licence from Customs to produce stampers in Hong Kong. IP legislation in Hong Kong has been so revised that it is now compliant with the WTO TRIPS agreement.

Bond Liu, director of the Federation's Design Protection Centre, says that Hong Kong now has a developed body of IP legislation that meets the highest international standards.

"Legislative measures, backed by enforcement have taken effect and the extent to which illicit goods are available in Hong Kong has declined sharply in recent years. In 1999, Hong Kong's progress was rewarded when it was removed from the 'Special 301 Watch List," he says.

That said, the counterfeiters have not disappeared altogether, anyone walking down Nathan Road could testify otherwise. They have; however, been forced underground and their business marginalized under the staunch enforcement of Hong Kong Customs.

Enforcement

The Customs and Excise Department is the sole agency responsible for investigating and prosecuting the infringement of IP in Hong Kong. Recent years have seen the Government inject significant resources into IP enforcement, and in 1999, a new IP task force was set up with 185 officers.

It is not however, lost on Customs that many counterfeit goods are manufactured in the Mainland. Something that is a particular headache for Hong Kong manufacturers with factories across the border that frequently find their products and designs infringed before they can get them to the shelves themselves.

However, with Hong Kong's tough stance most of these products are no longer destined for the local market, though many may now tranship through HKSAR's seaport, which is where Hong Kong Customs are waiting to strike.

In fact, Customs officers are stationed at the Hong Kong-China border, the airport and river and sea terminals. When they come across a suspect consignment, the first thing they do is summons the trademark owner so he can examine the goods and confirm whether or not they are counterfeit.

"If they are confirmed as such and the owner gives us proof of Trademark, then we will seize the goods and chase whoever is responsible for their importation," says William Chow, Assistant Commissioner, Customs and Excise Department.

In enforcing IP law, Customs adopts a two-pronged approach: on the supply side and at the retail end. "On the supply side we focus our efforts on fighting piracy at the import and export, manufacturing, wholesale and distribution levels. At the retail end we target known black spots with the aim of eradicating street level piracy activities," says Mr Chow.

He believes the cooperation of industry is integral to the successful protection of IP. Critical is that firms have proof that the infringed copyright or trademark design belongs to them. This could be by means of affidavit or legal document that provides clear evidence of ownership.

"While Customs stands ready to protect the legitimate interests of all rights owners; it is the right owners' responsibility to take the necessary steps to defend these IP rights by registering them first," he says.

On discovering that their copyright has been infringed, Customs advise the owner to take the following four steps:

1. Report the infringement activity immediately to the Intellectual Property Investigation Bureau, whether in person or through an authorised representative;
2. Provide evidence regarding the subsistence and ownership of the property right;
3. Provide proof of the alleged infringement of the property right, for example, a sample of the infringing copy with a genuine copy so that a distinction can be drawn between the two; and
4. Assist the Customs and Excise Department to identify the infringing goods seized and testify in court as prosecution witness, or in the case of copyright infringement, furnish the Customs and Excise Department with an affidavit affirming the copyright subsistence and ownership before giving evidence in a court hearing.

"It is important that complainants act quickly," says Mr Chow, who cites his experience from a toy exhibition held in Hong Kong.

"During the event complaints were received from exhibitors that identical products to theirs were on display and that their trademark had been infringed. However, because of the time taken for the complaint to be communicated and the paperwork to be produced proving ownership, the exhibition was over and the suspect manufacturer had disappeared before customs could act."

Design Protection Centre

Though the costs are high for counterfeiters if caught, the mark up and profits can be considerable, which is probably why despite significant progress in recent years, there still exists a lucrative trade in IP infringed goods. So what can designers and manufacturers do protect themselves?

IP encompasses a collection of separate intangible property rights, including trademarks, copyright, registered designs, patents, and layout design of integrated circuits. The Basic Law states that Hong Kong should develop appropriate policies and afford legal protection for IP rights.

"The HKSAR's legal framework actually makes it relatively straightforward and cheap to register a design or original creation," says Mr Liu. The Federation offers a one-stop shop for registration that includes application fee, taking photographs and placing an advertisement in the Government's gazette.

The Federation also offers manufacturers free advice on registering designs and a legal referral service for those who discover their goods are being copied.

"Hiring a good IP lawyer is very important in an infringement lawsuit as it will increase a company's chance of winning and can, in the long run, save legal costs," says Mr Liu, who notes that IP law is very specialised and not every lawyer has expertise in this area.

Typically one of three things has happened to manufacturers that find their IP infringed: an infringement of patent, of industrial design or of trademark.

"If businesses have registered their designs their rights can be protected, if not the law usually offers very little protection to them. Though they may still seek redress citing copyright protection, enforcement of copyright is notoriously time-consuming and expensive," says Mr Liu.

"It is a fact that even with so much publicity we still have manufacturers and designers who don't bother to register their new product designs and trademarks in the first instance, this is more often the case with SMEs," he says.

To communicate to manufacturers what their IP rights are, the Federation regularly organises seminars. "Our seminars have taken local manufacturers through the different facets of IP protection and registration, and shown how to tackle counterfeiting problems and clear up misconceptions surrounding IP - of which there are many," according to Mr Liu.

He gives as an example manufacturers who adopt a 'wait and see' approach to registering their designs: "Some believe the right approach is to introduce a new product to the market first to see whether or not it sells, and only if it does do they get the original design registered. Taking this approach offers little protection if the design is copied because the law is clear that you must file your new product design prior to market launch. Launching the product first to save a little money can prove costly.

"The Federation advises manufacturers to expect the worst and register their new products and clear all regulations and formalities well before product launch. This will mean they can take immediate action if IP infringement occurs.

They should also bear in mind that some areas of IP protection are domestic, meaning a design registered in Hong Kong might not be protected elsewhere. If a local manufacturer produces goods in China and sells in Europe, he must apply for three registration certificates - one for Hong Kong, one for China as the production base and one for the market.

"It remains a common misconception that now Hong Kong is reunited with China having goods registered here covers them in the Mainland. This is not the case; the Mainland, Macau and Hong Kong are all separate entities, and you must register your rights in each place if you want proper protection," concludes Mr Liu.