Face to Face with Andrew Liao GBS SC JP

Andrew Liao GBS SC JP discusses a number of Government-led initiatives relating to intellectual property aimed to develop Hong Kong into a knowledge-based economy and regional innovation hub, including the recently passed amendments to Hong Kong’s patent law.

“Intellectual property could be called the Cinderella of the new economy. A drab but useful servant, consigned to the dusty and uneventful offices of corporate legal departments until the princes of globalization and technological innovation – revealing her true value – swept her to prominence and gave her an enticing new allure,” wrote Dr. Kamil Idris, former Director General of the World Intellectual Property Organization (“WIPO”), in Intellectual Property: A Power Tool for Economic Growth(a practical guide to using intellectual property (“IP”) as a tool for economic growth and wealth creation).

In many of his speeches, Mr. Liao has referenced this oft quoted passage to describe the important role of IP in new millennium knowledge-driven economies. It not only exemplifies his sentiment and hope that IP can drive economic growth in Hong Kong, it also reflects that of the Government, who has, since the late 1990s, indicated its intentions to turn Hong Kong into an innovation and technology hub.

According to “The Global Competitiveness Report 2016–2017” published by World Economic Forum on 28 September 2016, Hong Kong ranks 9th out of 138 economies, down two places for the first time in 10 years. It reports that innovation remains the second weakest aspect of Hong Kong’s performance (ranked 27th), and that “[t]he challenge for Hong Kong is to evolve from one of the world’s foremost financial hubs to become an innovative powerhouse”. This Report comes at a time when the Government is putting innovation and technology at the top of its policy agenda.

Among its various efforts, the Government established the Innovation and Technology Bureau (“ITB”) in November 2015 to ensure key policy initiatives are further developed and vigorously pursued. The ITB oversees the operation of the Innovation and Technology Commission and the Office of the Government Chief Information Officer.

Recent initiatives undertaken by the Government further its plan to enhance Hong Kong’s IP protection regime and support IP creation and exploitation, two strategic areas that underpin the Government’s mission to transform Hong Kong into a knowledge-driven and technology-intensive economy.

Enhancing IP Protection Regime

As explained in the IP Trading Working Group’s 2013 Report (the “2013 Report”), “[a] robust IP protection regime can encourage innovation, technological development and creativity, and is a prerequisite to any aspiration or credible bid to promote IP trading in the competitive environment of the global economy.”

To enhance Hong Kong’s IP protection regime, the Government has introduced amendments to the current patent legislation to reform and update Hong Kong’s patent filing system. The Government has also pledged to keep other components of Hong Kong’s IP regime (copyright, trade marks, registered design, etc) under constant review to ensure the system follows international norms (on par with those in other advanced economies) and is conducive to IP trading.

Patents (Amendment) Ordinance 2016

In early June 2016, the Legislative Council passed the Patents (Amendment) Ordinance, concluding a five-year review of Hong Kong’s patent law. Some of the significant changes introduced by the amendments are, among other things, the introduction of:

  • an “original grant” patent (“OGP”) system;
  • substantive examination procedures for short-term patents, as well as allowing up to two independent claims to be included in a short term patent; and
  • an interim regulatory measure for local patent practitioners prohibiting the use of certain specific titles.

The Government hopes to implement the new OGP system by early 2018.

Introduction of an OGP

The most significant change outlined in the amendments is the introduction of an OGP system for standard patents, Mr.Liao explained. The new OGP system will run in parallel with the current re-registration system.

Under the existing re-registration system, an applicant can obtain a standard patent for 20 years after completing a two stage process. The first stage involves filing a request to record with the Hong Kong Patents Registry (the ”Patents Registry”) based upon a pending application filed in a designated patent office (ie, in the UK, Europe or China). The first stage application must be filed within six months of the publication of the corresponding designated patent application. Once the corresponding designated patent application has proceeded to grant, an application for registration and grant must be filed in Hong Kong within six months of the grant of the corresponding designated patent. As a re-registration system, no substantive examination is conducted.

Under the new OGP system, applicants will be able to file for a standard patent directly with the Patents Registry, without first having to obtain a patent in a designated patent office. The application will be subjected to a substantive examination process before it will be allowed to proceed to grant. As the Patents Registry currently lacks the necessary expertise to run the OGP system, substantive examination will be outsourced, initially to the Chinese State Intellectual Property Office (“SIPO”). However, the Government intends to develop its own patent examination capacity in the future.

It is hoped that the new OGP system running in parallel with the existing re-registration system will encourage quality filings from local, Mainland and overseas applicants, Mr. Liao explained. The OGP system will be especially meaningful to companies, particularly to small to medium-sized enterprises (“SMEs”) and start-ups, that view Hong Kong as an important strategic research and development (“R&D”) and marketing location. For IP-intensive companies in Hong Kong that usually target business beyond Asia, it will also provide another strategic option, in terms of where they ultimately decide to first file their patent.

The Government also hopes the OGP system will reduce the costs patent applicants incur to obtain patent protection in Hong Kong, encourage innovation and attract enterprises to set up their R&D operations here.

Impact of Amendments

The reform of Hong Kong’s patent system is seen as one of the key components of the next stage of Hong Kong’s technological economic development, as it bears strategic significance in facilitating the development of Hong Kong into a regional innovation and technology hub, as well as a premier IP trading hub.

Mr. Liao noted that other developed economies such Israel, Singapore, Sweden and Switzerland, with similar population sizes to Hong Kong, have an OGP system in place.

Mr. Liao also spoke about the Government’s plans to explore the medium-to-long term development of indigenous capability in conducting substantive examination in niche areas where Hong Kong should have the expertise to do so. He explained that this will tie in with Hong Kong’s edge in selected R&D areas and help align public resources and priorities to maximise impact. Currently, the Government has set up five R&D centres to drive and coordinate applied R&D in automotive parts and accessory systems; information and communications technologies; logistics and supply chain management enabling technologies; nanotechnology and advanced materials; and textiles and clothing. Local universities are further engaged in different fields of advanced research and development.

Regional IP Trading Hub

With the growing importance of IP and its commercialisation, Mr. Liao believes that Hong Kong, as an international trading and financial centre with all of its attendant strengths, has unique and unrivalled edges to develop into a premier IP trading hub.

For those unfamiliar with the term, IP trading generally refers to transactions involving IP rights (eg, patents, copyright, industrial design, trade marks, integrated circuit layout-designs, trade secrets and even plant varieties), and it can take a variety of forms (eg, sales and acquisitions, licensing, franchising, etc).

Global Trends and Initiatives

Mr. Liao observed that in recent years, there have been many new initiatives in IP trading in the region. “From conventional mode of transactions by way of buying and selling and licensing IPRs, tech transfer, character merchandising, franchising, trading (related to IP) has extended to transactions (related to IP) through M&A, joint R&D, technical support and so forth, involving not only the buy and sell side, but intermediaries bridging the two sides facilitating the transactions, including (technology) brokers, licensing agents, high-end cross-sector business and professional services including technical due diligence, valuation, financing, investment, insurance, consultancy, management, law and dispute resolution,” he said.

In the past, except where a licensing programme was known to the user, IP trading was under-developed and not transparent. The IP owner and user (eg, the potential seller and buyer) could not readily find each other, and mostly would have to come to know each other through hostile infringement litigation. Mr. Liao explained that this mode of operation in IP trading can no longer satisfy the demands of the modern market, rather centralised or clustered IP trading platforms, marketplaces, centres or hubs are needed.

He pointed to a variety of initiatives that have in recent years been launched to meet global demand, including:

  • a large number of IP exchanges and centres have been set up in various places in Mainland China, providing business matching and professional support services for building a country-wide IP trading market;
  • the Danish Patent & Trademark Office has set up an IP Marketplace;
  • Private firms offering online IP trading platforms and supporting services;
  • IP auction (eg, Ocean Tomo); and
  • IP Indexes and Exchanges (eg, Ocean Tomo 300 Patent Index, US China IP 200 Index, HKTDC’s Asia IP Exchange, WIPO GREEN a marketplace for green technologies).

Even with these new initiatives, trends indicate many more global IP trading opportunities remain untapped, especially in Asia. Mr. Liao is optimistic that Hong Kong will be able to take advantage of these opportunities, similarly to the way it has excelled in providing trading, finance, legal and related services.

Potential Benefits of IP Trading

There are immeasurable benefits Hong Kong can reap if it can transform into a regional IP trading hub. For instance, it would upgrade Hong Kong’s economy, as well as create jobs in various high-end business sectors.

Mr. Liao noted that IP trading could also enhance Hong Kong’s local R&D capacity and facilitate technology transfer. It could also help drive the development of the creative economy by making the most of the creative contents in the commercial world.

IP trading can also unlock opportunities for Hong Kong businesses, including SMEs. Intangible IP assets can be just as valuable as tangible assets, if not more. Businesses may look for innovative ways to build, manage, value and leverage them strategically to drive growth.

What’s more is that if the Government successfully executes its plans, IP trading will create an increasing need for high value-added intermediary services (eg, IP agency, IP management, IP consulting, legal services, dispute resolution, such as arbitration and mediation, accounting, valuation, financing, insurance, among many others) and boost the development of these various service sectors, Mr. Liao remarked.

As for benefits that will accrue to the younger generation, the growing demand for IP talents will create career openings, as well as encourage local education and training providers to tailor and expand their offerings.

Hong Kong’s Advantages

Despite naysayers, Mr. Liao believes that Hong Kong is uniquely positioned to thrive as a regional IP trading hub. He first noted that Hong Kong’s favourable treatment under China’s 13th Five-Year Plan will reinforce and upgrade Hong Kong’s position as an international trading centre and support development of innovation and technology, as well as cultural and creative industries.

Even more promising to Mr. Liao is China’s rise as a major IP creator and consumer. Of all the patent offices worldwide, SIPO received the most patent applications in 2014, posting double digit growth of 12.5 percent (see World Intellectual Property Indicators 2015). Also noteworthy, is the recent economic growth in China’s consumer market – according to the HKTDC, the country’s licensed merchandise market was worth about US$5.5 billion in 2013, accounting for some 29 percent of the entire Asian market, following Japan. According to the Government, this signals that there are enormous opportunities for IP professionals from overseas and Hong Kong to provide intermediary services for the expanding IP market in Mainland China (see 2013 Report).

Other attractive features Mr. Liao highlighted include Hong Kong’s long tradition of upholding the rule of law and its IP rights protection regime, which is in full compliance with international IP treaties requirements. Hong Kong also has a simple and low tax regime and a pool of bi-literate and tri-lingual professionals that possess China and international perspectives. All of this in conjunction with Hong Kong’s experience in areas such as R&D, design, trading and business services in support of industrial production, put the City on solid footing to develop into a regional IP trading hub (see 2013).

Regional IP Dispute Resolution Hub

One final point Mr. Liao addressed was Hong Kong’s role as a regional dispute resolution hub and how it can bolster Hong Kong’s IP trading hub status.

IP dispute resolution is an important component of and goes hand-in-hand with IP trading; increased IP transactions bring about a higher chance of dispute. These disputes often involve many companies from various countries and regions, which can make it very time consuming, costly or otherwise unattractive to settle disputes through litigation in a foreign court system. Given the recent surge in IP transactions and disputes, especially those involving China, Mr. Liao noted that many countries are examining how to better facilitate the resolution of such disputes through ADR.

In Hong Kong, the Department of Justice (“DoJ“) has been making continuous efforts to improve the legal framework and set up necessary infrastructure for speedy and effective resolution of disputes. For instance, the DoJ is currently preparing to introduce an amendment to the Arbitration Ordinance (Cap. 609) into the Legislative Council, to make it clear that disputes over IP rights are capable of resolution by arbitration and that it would not be contrary to public policy to enforce an arbitral award solely because the award is in respect of a dispute or matter which relates to IP rights. Also worth noting is the Hong Kong International Arbitration Centre’s launch of a new Panel of Arbitrators for IP disputes. The Hong Kong courts also support the use of ADR, and have encouraged its greater use through the Civil Justice Reform in 2009.

Champion of IP Reforms

Throughout his 40 years of practice as a barrister in Hong Kong, Mr. Liao has been instrumental and active in assisting the Government in pursuing its IP reform initiatives. As a member of the Law Reform Commission and its Copyright Sub-Committee, he was actively and closely involved in the reform of the copyright law, leading to the enactment of the Copyright Ordinance in 1997. He was the first Chairman of the Copyright Tribunal and Convenor of the Hong Kong Bar’s Task Force on IP. In 2001, he was awarded the Silver Bauhinia Star by the Government for his contribution to the reform of Hong Kong IP laws. Mr. Liao was also Vice-Chairman of the Working Group on IP Trading and Chairman of the Steering Committee on Review of IP Issues on the Innovation and Technology Sector. Presently, he is Chairman of the Advisory Committee on Review of the Patent System, Member of the Economic Development Commission, and Member of the Advisory Committee on Promotion of Arbitration. He is also Contributing Editor of the High Court Patent Rules under Order 103 of the Hong Kong Civil Procedure.

Mr. Liao also actively promotes IP, IP trading, IP arbitration and mediation, cultural and creative industries, innovation and technology in Hong Kong, and was the founder and organiser of the BIP (Business of IP) Forum, as a part of Business of Design Week in Hong Kong from 2007 to 2011.

Jurisdictions: 

Editor, Hong Kong Lawyer
Legal Media Group
Thomson Reuters
cynthia.claytor@thomsonreuters.com