IP in business transactions: Hong Kong overview
A guide to intellectual property law in Hong Kong. The IP in Business Transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.
To compare answers across multiple jurisdictions, visit the IP in business transactions: Country Q&A tool.
This Q&A is part of the global guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-guide.
Overview of main IPRs
Patents are registered rights and applications can be filed with the Patents Registry, Intellectual Property Department of Hong Kong.
There are two types of patents:
Standard patents are granted through a two-stage procedure by filing:
a request to record the designated patent application (that is, Chinese, EP(UK) (an application filed under the European Patent Convention 1973 (EPC) which designates the UK as a country in which protection is sought) or UK published patent application);
a request for registration and grant after the designated patent has been granted.
•Short-term patents are granted based on a search report from an international searching authority or the Chinese, European or UK Patent Office.
Registered trade marks:
Protection can be obtained by filing with the Trade Marks Registry, Intellectual Property Department.
A trade mark can consist of words (including personal names), indications, designs, letters, characters, numerals, figurative elements, colours, sounds, smells, the shape of the goods or their packaging or any combination of these.
Unregistered trade marks:
Unregistered trade marks are protected in Hong Kong under the tort of passing off.
The trade mark owner has to prove:
substantial goodwill subsists in the trade mark;
misrepresentation caused to the public;
There is no system for copyright registration in Hong Kong.
Copyright automatically subsists in a work which is original in that skill, judgment, labour and effort has been expended in its creation.
Works are original
literary, dramatic musical or artistic works;
sound recordings, films, broadcasts or cable programmes;
typographical arrangement of published editions
Moral rights are not infringed unless they are asserted. Moral rights are not assignable but can be waived by an instrument in writing.
Designs can be filed with the Designs Registry, Intellectual Property Department. Design registration can protect the shape, configuration, pattern and/or ornament of an article, which appeal to and are judged by the eye. To be registrable, a design must be new and not be contrary to public order or morality.
Trade secrets and confidential information
Confidential information is protected where a party is under an obligation of confidence by contract or by operation of equity. There is also a proprietary interest in confidential information and the courts of Hong Kong have the jurisdiction to preserve such interest and/or award compensation for the harm done. Apart from the contract, three elements are normally required in an action of breach of confidence:
Information must have the necessary quality of confidence.
Information must have been imparted in circumstances importing an obligation of confidence.
There must be a misuse of the information to the detriment of the party communicating it.
Hong Kong Internet Registration Corporation Limited (HKIRC) is responsible for the administration of ".hk" and ".香港'' domain names, which are the designated internet country code top-level domains of Hong Kong. These two domain names are registered on a first come, first served basis.
Original layout-design of an integrated circuit
Protection is automatic and there is no system of registration.
Original layout-design of an integrated circuit is protected under the Layout-design (Topography) of Integrated Circuits Ordinance. A qualified owner has the right to reproduce all or part of its protected layout-design (topography) or commercially exploit its protected layout-design (topography), whether by incorporation into an integrated circuit or otherwise.
Plant variety rights
Plant breeders' right are protected under the Plant Varieties Protection Ordinance. Applications can be filed with the Office of the Registrar of Plant Variety Rights. Protectable plants cover all plants and their varieties, including spores and seeds and other hybrid, clone, line and stock (except botanical varieties), and algae and fungi (except the inedible ones). The plant breeder has the exclusive rights to:
Produce reproductive material of the protected variety for the purpose of commercial marketing.
Sell or offer for sale reproductive material of the protected varieties.
Import or export reproductive varieties for the purposes of the commercial production of fruit or flowers of that variety.
Authorise, by licence or otherwise, any other person or persons to exercise the exclusive rights of owner.
Application of plant variety rights must be filed by either the owner of the variety or the agent of the owner.
For further information about the main IPRs, see Patents, trade marks, copyright and designs in Hong Kong ( www.practicallaw.com/3-501-8022)
Search and information facilities
The Intellectual Property Department is responsible for maintaining the database of registered patents, trade marks and registered designs rights. Records of IPRs can be searched online at the following websites.
Trade marks: www.ipsearch.ipd.gov.hk/trademark/jsp/index.html
Design rights: www.ipsearch.ipd.gov.hk/design/index.html
Domain names: ''Whois'' searches (database search) on ".hk" and ".??" domain names can be performed at HKIRC's Online Search System (www.hkirc.hk/whois/whois.jsp).
Plant variety rights: the Agriculture, Fisheries and Conservation Department is responsible for maintaining the Register of Plant Variety Rights in Hong Kong. Records can be searched at www.afcd.gov.hk/.
Maintenance of main IPRs
Maintenance fees should be paid on time for a registered IPR, to avoid abandonment
Standard patents are valid for 20 years from the date of filing at a Designated Patent Office, subject to payment of a renewal fee every year from the third year after its grant.
A short-term patent is valid for eight years from the application date, subject to payment of renewal fees every year from the fifth year onwards.
Once a standard patent is granted, it should be worked in Hong Kong to avoid compulsory licences being granted. At any time after the expiry of three years from the date of grant, any person can apply to court for a compulsory licence to be granted.
The article or product should be marked with the patent number because infringers may not be liable for the payment of damages or account of profits if they were not aware and had no reasonable grounds to believe that the patent existed.
If a registered trade mark has not been genuinely used by the owner or with his consent in relation to the goods or services registered for a continuous period of at least three years, and there are no valid reasons for non-use (such as import restrictions or other governmental requirements), it is vulnerable to cancellation for non-use, on application by a third party.
To avoid this, the registered trade mark should be put used in relation to the goods or services registered.
Further, care should be exercised in using the registered trade mark, to prevent the trade mark from becoming customary in the current language or deceptive.
As copyright is not registrable in Hong Kong, and in particular designing the work is a process, it is necessary to keep all the original works to show their development. The date of creation should be indicated on the works and the author who created the works should immediately sign the works after creation. If a work or design is created with the help of a computer, care should be taken to ensure that the original draft is not erased and that the draft is printed, dated and signed by the author.
Patents, trade marks and designs
Before launching a product, using a trade mark or entering a market, clearance searches should be conducted to assess the risk of infringement.
Generally, to monitor whether a competitor is infringing a party's IPRs, a party should closely monitor the activities of its competitors, including their activities at major international trade fair and exhibitions, and their websites. Private investigators can be engaged to conduct periodic market surveys or periodic checks on online shopping platforms (such as Taobao) and report any infringing activities.
As there is no registration system for copyright in Hong Kong, there is no official registry to conduct copyright searches. Businesses should ensure that they own the copyright in their products and/or have obtained the relevant licence. It is also advisable to check the competitor's products to ensure that their own product designs are not substantial copies of those of competitors. Businesses should also keep documentary records as evidence of their independent creation of the work (if any).
Trade secrets and confidential information
When a party receives confidential information, it should ensure that the information is obtained with proper authorisation, and consider whether the information is disclosed in circumstances importing an obligation of confidence.
Businesses should limit disclosure of confidential information by keeping the information secure. Non-disclosure agreements are useful to impose a contractual duty on the information recipients (restricting its use against unauthorised purposes).
Monitoring breach of confidential information may be difficult in the case of ex-employees or licensees. If an ex-employee engages in competitive businesses, it may be advisable to monitor the businesses, to check if there is any unauthorised use of the confidential information.
An IP audit should include the following checks:-
A list of IPRs owned.
Ownership of IPRs.
Whether IPRs are registered or not and duration [##of protection].
List of licences granted/obtained and their duration.
List of security interests granted.
Enforcement action taken in respect of IPRs.
Enforcement action taken by other parties.
Agreements with other parties (such as co-existence agreements).
The checklist should be periodically reviewed to determine if additional protection is required for the portfolio, or if any IPRs become obsolete.
Scope of assignment
Both standard and short term patents can be assigned as personal property. Assignment can be partial, for example, limited to certain rights in the patent.
A registered trade mark or an application for registration can be transferred by assignment, in connection with the goodwill of a business or independently. An assignment can be partial, for example, in relation to some but not all of the goods or services, or use in a particular manner or locality.
Copyright is can be transferred by assignment as personal property. Assignment can be partial, for example, limited to certain rights of the copyright owner, or to part of the period for which the copyright subsists. It can also cover future rights.
A registered design or an application for registration can be transferred by assignment.
Formalities for assignment
An assignment of patent or patent application must be in writing and signed by, or on Assignments of patents:
Must be in writing and signed by or on behalf of, the assignor.
Should be registered at the Patent Registry. Failure to register renders the assignment ineffective against a person that subsequently acquires a conflicting interest in the patent or patent application, without knowledge of the earlier assignment. Until the particulars of the assignment are registered, the assignee is not entitled to damages or an account of profits for infringements (unless the application for registration is made within six months of the assignment).
Assignments of trade marks:
Must be in writing and signed by the assignor.
Must be registered with the Trade Marks Registry, otherwise the transaction is ineffective against a person acquiring a conflicting interest in or under the registered trade mark, without knowledge of the transaction.
Registration should be done within six months of the assignment, so that the assignee is entitled to damages or an account of profits for an infringement of the trade mark occurring after the date of assignment and before registration.
Assignments of copyright must be in writing and signed by or on behalf of, the assignor.
Assignments of design rights:
Must be in writing and signed by or on behalf of, the assignor.
Must be registered with the Designs Registry, or else the transaction is ineffective against a person acquiring a conflicting interest in or under the registered trade mark without knowledge of the transaction.
Registration should be procured within six months of the assignment, so that the assignee is entitled to damages or an account of profits for an infringement of the trade mark occurring after the date of assignment and before registration.
Main terms for assignments
Scope of licensing
Formalities for licensing
It is highly recommended (although not formally required) to create the licence in writing and register it with the Patents Registry, for the following reasons:
An unregistered licence is not effective against anyone that subsequently acquires a conflicting interest in the patent or patent application without knowledge of the licence.
An exclusive licensee who can bring infringement proceedings is not entitled to damages or an account of profits for an infringement of the patent occurring after the date of the licence until the licence is registered (unless the application for registration of the particulars of the licence is made within six months).
If the application for registration of a licence is signed by, or on behalf of, the licensor, it is not necessary to file documentary evidence to establish the licence.
If the application for registration of a licence is filed by the licensee without the signature of the licensor, documentary evidence to establish the licence, for example, a copy of the licence, must be filed.
See above, Patents.
Exclusive licences must be granted in writing and signed by, or on behalf of, the copyright owner. Although these requirements do not apply to non-exclusive licences, it is strongly advisable to have them in writing.
See above, Patents.
It is highly recommended (although not formally required) to have the licence to use confidential information in writing to define the scope of the information involved and the respective obligations of the parties.
Main terms for licences
Typical terms in IP licences include:
Rights granted (exclusive, sole or non-exclusive, or sub-licence).
Duration of the licence.
Account reporting and audit rights.
Infringements of IPRs.
Warranties and/or indemnities.
Termination of the agreement and effects of termination.
Governing law and jurisdiction.
Security interests are commonly taken over other assets of a business rather than IPRs, although there are now increasing instances of creating security over IPRs alone.
Security over registered IPRs generally provides better protection for the lender's interest for the following reasons:
The validity and particulars of registered IPRs can be easily verified through the record of the corresponding registries.
Security interests over registered IPRs can be registered to give notice to third parties of their existence.
Charges over IPRs (registered or unregistered) of a company should also be registered with the Companies Registry, to give notice of the charge over the borrower company's assets.
Common problems in valuing secured IPRs and enforcing the security include:
The validity and value of unregistrable IPRs may be difficult to verify.
Value of IPRs may change over time with the advancement of technology.
Registered IPRs can still be challenged and successfully cancelled by third parties.
The main types of security interests over IPRs are:
A grant of a security interest is void unless it is in writing and signed by the mortgagor.
An assignment by way of security must be in writing and signed by the chargor.
A security interest over copyright cannot be registered, except for registration of the charge with the Registrar of Companies under the Companies Ordinance if the grantor is a limited company.
A legal mortgage of copyright involves an assignment of the legal title. As an assignment of copyright must be in writing, a mortgage of copyright must also be in writing and signed by, or on behalf of, the assignor.
A grant of a security interest is void unless it is in writing and signed by the mortgagor.
Failure to record a security interest will render the security ineffective against a party claiming under a later transaction, who did not know of the earlier security interest.
Full due diligence in respect of IPRs in a share sale and an asset sale should be conducted, and should include the following:
Identification of all IPRs (registered and unregistered).
Obtaining records relating to obtaining registration of the IPRs.
Validity of the IPRs.
All agreements relating to the IPRs.
Pending claims, litigation, opposition and revocation proceedings.
Revenue streams or payment obligations associated with each licence.
Security interests, liens or encumbrances affecting the IPRs.
Restrictions and limitations on use of any IPRs.
Common IP-related warranties and/or indemnities include:
. Ownership of IPRs.
Validity and subsistence of IPRs.
IPRs not being infringed or attacked or opposed.
Third party rights.
Licences under IPRs.
No claims or applications, notifications, and circumstances are known to the seller, which would affect the accuracy of the warranties.
Transfer of IPRs
It is common for companies to set up joint ventures in Hong Kong to develop projects that heavily involve IPRs, through joint venture agreements. The main IP-related provisions normally included in the joint venture agreement are as follows:
Any background IPRs contributed by the parties.
Ownership of the newly developed IPRs.
Party responsible for registration and its costs, and for maintenance of newly created IPRs.
Party enforcing and bearing the costs of enforcement of the newly developed IPRs.
What happens to newly developed IPRs on termination.
Main provisions and common issues
As the Competition Ordinance came into force on 14 December 2015, it is yet to be seen what the common issues arising from exploitation of the main IPRs under it may be.
However, provisions in the context of licensing IPRs, such as exclusivity, non-competition, and price-fixing, may give rise to potential competition law issues.
The following are not considered to be anti-competitive agreements:
Agreements that enhance overall economic efficiency.
Conduct involving two or more entities, if the relevant entities are part of the same undertaking (single economic unit).
Restrictions imposed in a distribution agreement on the distributor, if they relate to contracts concluded on the supplier's behalf.
Employees and consultants
Generally, in the absence of an agreement to the contrary, IPRs created by an employee in the course of his/her employment belong to the employer.
Patents. An invention made by an employee belongs to an employer if either:
•It is made in the course of his/her normal duties or in the course of duties outside normal duties which are specifically assigned to the employee, and in either case an invention might reasonably be expected to result.
It is made in the course of the employee's duties and the employee had a special obligation to further the interests of the employer's undertaking at the time of making the invention because of the nature of the duties and the particular responsibilities involved.'
Any other invention made by an employee belongs to the employee.
Copyright. In general, the employer is the first owner of copyright in a literary, dramatic, musical or artistic work, or a film made by an employee in the course of his or her employment, subject to agreement to the contrary.
Registered designs. The employer is generally the original owner of the design if it is created by an employee in the course of his or her employment, subject to agreement to the contrary.
Patents. On application by an employee a court can award the employee compensation, if the court considers it just to make such an award.
Compensation can be equivalent to a fair share of the benefit which the employer has derived or may reasonably expect to derive from the patent, if either of the following is shown:
The patent is of outstanding benefit to the employer.
The benefit derived by the employee from assigning or granting an exclusive licensee to the employer is inadequate, in relation to the benefit derived by the employer.
Copyright. Where the employee's work is exploited by his/her employer or by someone else with the employer's permission, in a way that could not have been reasonably contemplated by the employer and the employee at the time of making the work, the employer must pay an award to the employee in respect of the exploitation. The amount of the award can be determined by the Copyright Tribunal, in the absence of agreement.
To ensure that IPRs created by employees during the course of employment belong to employers, employers should state clearly in the employment contract the duties of the employee, and that any IPRs created by employees belong to the employer.
In the absence of any agreement to the contrary, where an external consultant creates an IPR, the consultant owns the IPR.
It is important for a business retaining the consultant to enter into a written agreement with the consultant, to ensure that the IPRs created by the consultant for the purposes of the retainer are vested in the business. Further, it is advisable that parties execute an assignment/confirmatory assignment of the IPR from the consultant (the assignor) to the business (the assignee).
Profit tax is charged, based on the territorial source principle. Royalty income received from the licensing of IPRs by a company or person carrying on business in Hong Kong (whether resident or non-resident) is subject to profits tax, if it is Hong Kong sourced income. The typical rate of profits tax is 16.5% for corporations and 15% for unincorporated businesses.
Royalty income received by an individual carrying on any trade, profession or business in Hong Kong is chargeable to profit tax at 15%.
A gain from the sale of IPRs made by a company or person carrying on business in Hong Kong (whether resident or non-resident) is subject to Hong Kong profits tax, if it is Hong Kong sourced income. The typical rate of profits tax is 16.5% for corporations and 15% for unincorporated businesses.
Hong Kong sourced income from a gain made on the sale of IPRs received by individuals is not subject to income tax, but if the individual carries on any trade, profession or business in Hong Kong, the gain is chargeable to profit tax at 15%.
The main intellectual property conventions applicable to Hong Kong by the People's Republic of China are the:
Paris Convention for the Protection of Industrial Property.
Berne Convention for the Protection of Literary and Artistic Works.
Universal Copyright Convention.
Nice Agreement concerning the International Classification of Goods and Services for the purposes of the Registration of Marks.
Geneva Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms.
Patent Cooperation Treaty.
Convention establishing the World Intellectual Property Organisation (WIPO).
WIPO Copyright Treaty.
WIPO Performances and Phonograms Treaty.
A detailed list of treaties can be found at http://www.wipo.int/wipolex/en/profile.jsp?code=HK.
Foreign patents are not enforceable in Hong Kong, as patents are territorial rights. However, there is no restriction in the Patents Ordinance on foreigners applying for patents in Hong Kong.
Trade marks are territorial rights, so it is recommended to register a trade mark in Hong Kong to enjoy statutory protection.
Foreign trade marks not registered in Hong Kong can be protected by the tort of passing off or the statutory provision enforcing the Paris Convention, if the trade mark is a well-known trade mark.
There is no restriction in the Trade Marks Ordinance on foreign persons applying for trade mark registrations in Hong Kong.
As there is an open system of copyright entitlement (see Question 1), a work qualifies for copyright protection, irrespective of the place of domicile or residence or country of incorporation of the author, or the place of first publication.
Foreign registered designs are not enforceable in Hong Kong, as registered designs are territorial rights. However, such designs may be protected under copyright law.
There is no restriction in the Registered Designs Ordinance on foreign persons applying for registered designs in Hong Kong.
The Patents (Amendment) Ordinance 2016, gazetted on 10 June 2016, will come into force on a day appointed by the Secretary for Commerce and Economic Development, by notice published in the Gazette (Hong Kong Government Gazette). This would introduce, among other things, an original grant patent system for direct filing of standard patent applications, and a substantive examination procedure for short-term patents.
After the failure to pass the Copyright (Amendment) Bill 2014, which aims at updating the existing copyright regime, the Government has yet to launch further consultation or publish another bill in this area.
The Government launched a consultation in 2014 on the application of the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol) to Hong Kong.
The consultation received 21 submissions, in which most respondents support the application of the Madrid Protocol to Hong Kong. The results of the consultation were reported in the Legislative Council Panel on Commerce and Industry on 19 May 2015..
Intellectual Property Department of Hong Kong Special Administrative Region (SAR)
Description. Official website of the Intellectual Property Department of Hong Kong Special Administrative Region (SAR).
Department of Justice: Bilingual Laws Information System
Description. The Bilingual Laws Information System (BLIS) is an electronic database of the legislation of Hong Kong established and updated by the Department of Justice. BLIS contains official English and Chinese texts of Ordinances and subsidiary legislation in force on or after 30 June 1997
Mena Lo, Partner
Wilkinson & Grist
T +852 2524 6011
F +852 2527 9041
Professional qualifications. Hong Kong 1990
Areas of practice. Intellectual property.
Languages. English, Mandarin, Cantonese
Professional associations/memberships. Member of Marques Intellectual Asset Management Team and Country Guides Project Team, International Trademark Association.
•Involved in developing a guidebook and provided workshops to train IP Managers under the IP Managers Scheme launched by the Intellectual Property Development of the HKSAR Government.
•Assisted a client in the music industry to formulate a new licensing structure, to counter-act against use of pirated copies of the client's work in Hong Kong and Macau.