February 1, 2012 3:14 pm

Hong Kong steps up file-sharing scrutiny

The Hong Kong government is stepping up its scrutiny of local internet businesses after US authorities led a high-profile crackdown on Megaupload, the file-sharing website accused of copyright theft, which was set up in the Chinese territory in 2005.

Hong Kong Customs, which has been working with the Federal Bureau of Investigation on the Megaupload case for more than a year, said that it would set up an electronic crime investigation centre later this year.

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Media companies have called on the territory, which is also home to Filesonic - another “cyberlocker” site that allow users to upload their digital files to be saved in the internet cloud - to increase its focus on potential copyright infringers following the Megaupload case.

Megaupload was allowed to grow its controversial business for six years but the company blocked its site to users in Hong Kong. This could have helped ward off attention from local regulators, said Benjamin Bai, head of Allen & Overy’s intellectual property practice in China.

“Hong Kong authorities had no vested interest in doing any enforcement,” Mr Bai said.

However, he pointed out that there was case law in Hong Kong demonstrating that the courts could take action against local companies accused of infringing copyright elsewhere.

“I am surprised there has been no co-ordinated effort taken against [Megaupload] in Hong Kong before,” he added.

Hong Kong’s Commerce and Economic Development Bureau denied that local officials had been reluctant to investigate Megaupload. The fact that the services were unavailable in the territory would not be a barrier to an investigation by the law enforcement agency, it said.

Hong Kong customs officials have identified and frozen about HK$330m ($42.5m) of Megaupload’s funds which are sitting in Hong Kong either as bank savings or investment in securities, as well as seizing assets including servers which were found in the company’s hotel suite at the Grand Hyatt.

Kim Dotcom, Megaupload’s founder, described Hong Kong as “an awesome place to do business” and said “people there leave you alone and they are happy for your success” in a December interview with Torrentfreak.com, a website for file sharers.

Mr Dotcom holds a Hong Kong residency permit, but was living in New Zealand when he was arrested last month.

Cable and Satellite Broadcasters Association of Asia, which represents companies such as News Corp and Warner Brothers, hopes regulators have learnt from the Megaupload case.

Hong Kong is deemed an attractive place to establish a business because of its efficiency, low taxes and lack of restrictions on capital flows.

“Hong Kong is a good business destination and it is the kind of place that would attract increasingly sophisticated and ruthless operations which are costing our industry billions of dollars a year,” said Simon Twiston Davies, head of Casbaa. “Regulators of all stripes should be aware of that.”

Filesonic, which immediately suspended its file-sharing service upon the arrest of Mr Dotcom, said it has a zero tolerance approach to pirated content. It has not been accused of wrongdoing.

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