Speeches and Articles by U.S. Consul General James B. Cunningham

Remarks by James B. Cunningham
U.S. Consul General, Hong Kong
At Intellectual Property Rights Conference
Sponsored by American Chamber of Commerce, Hong Kong

November 9, 2006

(As prepared for delivery)

Thank you for the opportunity to address the American Chamber of Commerce to discuss intellectual property rights. AmCham members are on the front lines in the battle against piracy and counterfeiting. You recognize the potential of the Asian Pacific market, but also understand the challenges of doing business here. IPR is one of those challenges.

A decade ago, Hong Kong was known as a place to buy fake clothing and pirated CD's. However, Hong Kong recognized that a sustainable modern economy depends on fostering innovation. Hong Kong was one of the first Asian economies to take the important step of cracking down on piracy on both the production and retail levels. Legco passed trademark laws that enabled Hong Kong Customs to strike at the heart of piracy – illegal factories producing fake goods. Hong Kong Customs developed dedicated IPR protection units to gather intelligence and conduct raids. This year alone, they seized over US$21 million dollars of goods. The Hong Kong experience demonstrates that a robust IPR regime can spur sales and tourism; we all know that mainland tourists, for example, come here to purchase brand name products because they know what they buy is genuine.

Hong Kong prosecutors have also begun to use organized crime ordinances against large-scale IP violators, a clear acknowledgement that piracy is tied to a gamut of underworld activities. This strong approach to combating IP violations and addressing potential intellectual property issues before they arise is an essential component of our growing trading relationship. As Hong Kong reviews new copyright legislation, I urge it to forge ahead by strengthening a robust IP regime that provides world-class protection for IPR and responds to the 21st century.

Intellectual Property protection, and enforcement of law and regulation, is a top priority for the United States. President Bush consistently raises IP with foreign leaders in critical markets, such as China, India and Russia. And, he has directed his Administration's representatives – from Washington, DC to Hong Kong – to address this issue actively, aggressively, and to get results.

America has been in the lead on IP enforcement for some time. Few issues are as important to the current and future economic strength of the United States as our ability to create and protect intellectual property. IP industries account for over half of all U.S. exports. They represent 40% of our economic growth and employ 18 million Americans. Clearly, IP creates jobs across America – as it does across the globe.

The theft of intellectual property strikes at the heart of one of America's greatest comparative advantages – its innovative capacity. We have developed one of the most dynamic economies the world has ever seen. U.S. scientists have invented medical devices that help the disabled realize their potential. The hardware and software that fuels our information industries are all IP products. Writers in Hollywood and on Broadway are on the cutting edge of culture. Intellectual property has set loose the imaginative power of entrepreneurs everywhere.

Recently, however, around the world people are becoming increasingly aware that the enforcement of intellectual property rights also carries great consequence for the health and safety of our citizens. The World Health Organization estimates that 10% of all pharmaceuticals available worldwide are counterfeit. People think they might be taking life-saving drugs, only to find out that pills they took were simply placebos or, worse yet, caused serious medical complications. We have seen counterfeit circuit breakers that overheat and explode, fake power cords that cause electric shock, and knock-off aircraft parts that put lives at risk. IPR is not just about selling fake designer clothes or pirated DVD's. IPR is becoming a pressing public health issue. IP theft is not innocuous; it is damaging and dangerous. But global IP thieves count on our indifference. In the 21st century, innovation, creativity, safety and product quality must be on the minds of citizens, consumer groups, legislators, and governments.

From the passage of its first federal copyright law in May 1790 to the present, the United States has continually refined its response to emerging IP challenges. The threat of using technology to reproduce and distribute fake goods on a mass scale is a relatively new one. But, we realized that strong IP protection is what helped create the technology boom and economic opportunity of the 1990's. To secure that potential, we reinforced our laws to provide strong disincentives for piracy through clear regulations, effective enforcement and adequate punishment. Those three elements are the key to a legal system that provides essential protection and holds abusers of IP accountable.

Hong Kong's legal system and transparent financial markets give it an edge among its neighbors. U.S. foreign direct investment (FDI) in Hong Kong has already reached US$38 billion. With over 1,100 U.S.-based firms present in Hong Kong, American companies employ approximately 10% of Hong Kong's workforce, making the U.S. one of the largest investors in Hong Kong. And there is still room to grow. Enhancing Hong Kong's intellectual property rights system is essential for Hong Kong to retain its competitive edge and to remain a prime choice for U.S. and other international investors. With strong joint action on intellectual property, together Hong Kong and the U.S. can help meet the challenges of the digital age.

Let me tell you a little about what my Consulate has done. The U.S. closely coordinates our IP outreach efforts here with the Hong Kong Customs and Excise, and Intellectual Property Departments. In May 2006, we held an IPR Workshop, entitled, "Creating A Stronger Deterrent" involving law enforcement officials and judges from throughout the region. Thanks to strong support from the Hong Kong Customs and Excise Department, including the participation of my friend, Hong Kong Customs Commissioner Timothy Tong, the workshop was a considerable success. Although we were disappointed that more of our Mainland invitees could not attend, we look forward to and encourage their participation at future events.

Through the U.S. Patent and Trademark Office, the U.S. organizes a study exchange program for Customs and Enforcement practitioners from around the globe to explore best practices on IP. Hong Kong professionals actively participate in this program both to share Hong Kong's successes and learn from others what else can be done to safeguard intellectual property.

Hong Kong Customs also coordinates with U.S. Customs and Border Protection to help identify and halt shipments of counterfeit items into the United States. Based on a tip from Hong Kong Customs, Customs and Border Protection officers in New York in May 2006 seized 488 cartons of fake Louis Vuitton and Coach bags. If presented to U.S. consumers as genuine products, the value of this shipment would have been US$18 million. With the billions of dollars worth of goods passing through Hong Kong, we depend on Hong Kong to help prevent the trade in fake goods.

The safety and welfare of the Hong Kong and American people also depend on such close coordination. Hong Kong Customs & Excise officers arrested a PRC national in September 2006 who is wanted in the United States on multiple counts of conspiracy, trafficking in counterfeit goods and smuggling goods. This man endangered the lives of many by shipping more than 28,000 tablets of counterfeit pharmaceuticals into the United States and was planning to ship 400,000 additional tablets worth over US$4.4 million. Thanks to the dedication and professionalism of Hong Kong Customs & Excise officers, we put a stop to this dangerous business.

However, effective regulation and enforcement includes carrots as well as sticks. Hong Kong has teamed up with the Business Software Alliance to launch the Genuine Business Software Campaign to help reduce business end-user piracy in Hong Kong. A recent BSA study indicated that over 54% of Hong Kong businesses engage in software piracy, a number well above the average of other developed economies. Under this innovative program, companies using infringing software could buy licenses to legalize their computer systems and avoid legal action. This program also provides free consulting to companies to learn the importance of using legal software and how best to manage their software assets. We applaud this joint effort with BSA to reduce software piracy and urge legislation that creates strong barriers to infringement with penalties harsh enough to deter business end-user piracy.

Hong Kong needs and deserves to be a leader in copyright protection to secure its role as China's most dynamic city. To do so, it needs to continue to pursue the three key elements: strong regulation, strong enforcement and adequate punishment. Hong Kong's efforts to update its Copyright Ordinance for the 21st century are important, and I would like to comment on a few sections of the proposed amendments.

Prevention of the circumvention of technical prevention measures (TPM's) is absolutely essential to protecting IP in the digital age. The amendments should close loopholes concerning criminal liability and the knowledge requirement. These loopholes are not necessary to protect consumers' rights to "Timeshift" or make a personal copy of a TV program to watch at a later time.

To put it simply, technical prevention measures are modern day locks that safeguard someone's property. Circumvention measures are not used by the average person, but by skilled thieves who make money through the mass reproduction and distribution of stolen digital property. They know what they are doing and we should make sure they don't get away with it.

The proposed amendments also change regulations regarding educational exemptions for copyrighted material. This is necessary, and the U.S. has exemptions too. But the U.S. benefits from years of jurisprudence and active outreach programs in libraries, schools, and universities to educate students, teachers, and copy shops of the need to protect intellectual property. As Hong Kong updates its laws, we hope that educational exemptions will be targeted to avoid abuse.

I applaud the efforts of both the Hong Kong government and stakeholders to promote public awareness programs to build respect for IP among youth and others with a thirst for knowledge, and we have worked together on this.

IP's importance to Hong Kong will only increase as the people of Hong Kong invest more energy and money into an environment that supports innovation and creativity. Hong Kong films, such as "Infernal Affairs," are gaining in popularity across the globe. This is good for everyone – Hong Kong, Mainland China and Hollywood. But, Hong Kong filmmakers are increasingly challenged by intellectual property theft, just like their counterparts in the United States. As Hong Kong revises its laws, we hope Hong Kong will not shorten the period of criminal liability for parallel imports, which would cause tremendous financial losses for rights holders, distributors, and legitimate retailers across Hong Kong.

As Hong Kong further integrates with the Pearl River Delta, it also should play a central role in promoting IP protection for Southern China as a whole. U.S. Customs reported in 2005 that mainland China was the number one source of counterfeit products seized at U.S. borders, accounting for 68% of all seizures. Hong Kong firms suffer from this trend with Mainland competitors stealing technological designs, artistic productions, and even brand names. Hong Kong with its transparent financial system and strong legal system can serve as a model for IP protection in the region. Hong Kong can close legal loopholes in company registration procedures that facilitate IP theft in the mainland. And, Hong Kong can help bring that spirit of innovation and entrepreneurship – essential components for sustainable growth – across all of China.

Finally, private citizens and businesses must do their part too. You are our eyes and ears on the ground. We want to hear your stories and use the data that you have collected in the region so we can all work together to propose practical solutions to safeguard intellectual property. The United States is committed to working with our regional partners to stop counterfeiting. And, we must take advantage of the opportunity to work together to better protect the knowledge industries of today so that we may continue to see the innovations of tomorrow. Thank you very much.

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