The Hong Kong .hk Domain Name Registration Regime

Hong Kong has a new domain name registration regime operated by the new Hong Kong Domain Name Registration Company Limited (HKDNR). Angus Forsyth discusses the setting up of the HKDNR, compares the old and new regimes and highlights potential problems under the new regime

Structure Model Before 1 June 2001

The existing Hong Kong regional domain name registry, the Hong Kong Network Information Centre (HKNIC), operated up to 1 June 2001 a somewhat arbitrary but generally neutral regime for the registration of Hong Kong domain names and on-line registration applications by the applicant or an agent, setting out the purpose of the domain name, a description of the applicant and the name applied.

HKNIC has done this under licence from the Internet Corporation for Assigned Names and Numbers (ICANN) as the .HK Country Code Top Level Domain (HKCCTLD) registrar. HKNIC is a co-operative creature of the Joint Universities Computer Centre (JUCC), a consortium of the seven government funded tertiary institutions in Hong Kong. Actual allocation and distribution of internet protocol addresses has been through the Asia Pacific Network Information Centre (APNIC) under block allocation from ICANN. The Hong Kong ISP members of APNIC obtain IP addresses from APNIC and distribute them to the end user market in Hong Kong - a structure that is currently proposed to continue in the future.

Erstwhile HKNIC Registration Regime, Dispute Resolution and Control

Perhaps more out of resigned acknowledgement of the inevitable than anything else, the HKNIC regime has been generally accepted in default of any vigorously proposed alternative model. Applicants have been required to execute a standard form of registration agreement with HKNIC. Only one name per applicant has been permitted and only Hong Kong corporate entities or registered Hong Kong branches of overseas companies have been accepted as eligible to be registered HKCCTLD domain name proprietors. Unincorporated individuals are not eligible domain name registrants. HKNIC has implemented its own dispute resolution procedure - itself representing an advance away from, although not excluding resort to, the previous exclusive remedy of court litigation with its attendant delays and high costs.

In this way, HKNIC has exercised a minimum control over the legal Hong Kong identity and the status of registered HKCCTLD domain name holders. JUCC administration through HKNIC has been effected through the domain name registration services database and server operated on behalf of JUCC by the Computer Services Centre of the Chinese University of Hong Kong.

Proposals for Change

In a major effort to bring about the greatest possible impartiality, self funded commercial regularity and transparent administration under a due process of the domain name regime in Hong Kong, a high level Hong Kong Government policy committee, the Information Infrastructure Advisory Committee (IIAC), set up a task force in October 1999 to review the administration and assignment of internet domain names and IP addresses in Hong Kong with a view to recommending a framework of arrangements which best suits Hong Kong's needs.

The Task Force drew up a list of proposals (the Task Force Proposals) which were submitted to the IIAC for review acceptance in May 2000. IIAC, in turn, accepted and authorised the Task Force Proposals to be published between June and July 2000 for public consultation and submission of comments to the Information Technology Services Department of the Information Technology and Broadcasting Bureau of the Hong Kong Government.

In reaction to the consultation responses, the Information Technology and Broadcasting Bureau consulted with JUCC. The setting up of a legislated statutory corporation was considered and dropped largely because of the needs of urgency and flexibility. This has accordingly led to the incorporation of the new Hong Kong Domain Name Registration Company Limited (HKDNR) as a private company limited by shares on 23 February 2001, with an authorised capital of HK$1,000.00 divided into two shares of HK$500.00 each.

The option of a statutory corporation has not been abandoned, just put into reserve as a future possibility in the light of experience with HKDNR. HKDNR put its basic programme and raison d'etre onto the internet on 26 April 2001 at www.hkdnr.net.hk/reg.dn. html. On 1 June 2001, HKDNR published on the internet an actual on-line application form and related procedures. The following paragraphs summarise the brave new world now established pursuant to these pronouncements.

Establishment of HKDNR

The Task Force Proposals envisaged that HKDNR would be a not for profit company and would have the exclusive administration of the HKCCTLD regime for Hong Kong. Its role would be to pay no dividends to its shareholders and to charge for domain name registrations in order to cover its operational costs. It is to register HKCCTLD domain name ownership on application and subsequent assignment or transfer of internet domain names ending with com.hk (a commercial entity), org.hk (a non-profit organisation), gov.hk (a bureau or department of the Hong Kong Government), edu. hk (an educational institution) and net.hk (an entity managing network infrastructure and services).

As a side note, it is not clear why the route of establishing a company limited by shares was taken over the normal not for profit corporate structure of a company limited by guarantee. This is perhaps even more legitimate a question in the light of the HKDNR website description of the company as 'a not for profit company, which means that it pays no dividends to its shareholders'.

This is all very well as a policy statement but policies can change and the vehicle of HKDNR as incorporated is definitively a for profit vehicle. If the Hong Kong Inland Revenue Department will, quite rightly, not accept, for certification under s 88 of the Inland Revenue Ordinance of charitable exemption from profits tax, a company with anything less than stringent constitutional safeguards on profit distribution to members, what are we all to make of the incorporation of HKDNR with this full membership profit distribution capacity and potential?

It is clear that the actual structure of HKDNR as incorporated is a corporate share held structure fully capable of declaration of dividends upon the two presently issued shares - or on any other shares issued in the future. It will be interesting to see how these dividends from what will clearly be a cash cow will be applied upon the level playing field that Hong Kong economic philosophy normally demands.

The HKDNR website also pronounces that HKDNR is assuming its .hk domain name stewardship functions before the future membership-based policy making and administrative body for Hong Kong Internet Domain Names is established. No more is said or promised about this phantom and obviously we shall all be watching this space. There may be those who comment in future on any such adventure being redundant and duplicative in both time and cost if a second vesting exercise is to be organised into a new registration body which at that time is still structured as a for profit organisation.

The former HKCCTLD registration regime handled and operated by JUCC has been assigned to HKDNR with effect from 1 June 2001. The HKDNR operation is now stated to be effective on a fully neutral first come, first served basis subject only to the right during the 'sunrise' period of eight days following 1 June 2001 for certain corporate applicants, with a registered Hong Kong trademark or duly lodged application therefore to have priority for domain name registration of their trademark.

HKDNR stated in its first announcement on 26 April 2001 that an important philosophy behind its domain name registration policies is the promotion of internet use, especially with regard to e-commerce. The declared new policy, at least for the immediate future, is that HKCCTLD domain names should be registered on a genuine commercial need basis and not form part of trading stock. HKDNR perceived that an element of corporate governance for the reassurance of the international community of internet users in e-commerce is for them to know that they are dealing with HKCCTLD registered proprietors as being fully established registered entities under the Hong Kong Business Registration Ordinance, with legitimate registered businesses and a physical presence in Hong Kong. The intention is to ensure elimination of a need to deal with virtual cyber squatters. Renewal of the domain name registration will accordingly be annually concurrent and co-terminous with the annual currency, expiry and mandatory renewal of business registration. The initial HKCCTLD domain name registration and each annual renewal fee is set at HK$200.00.

There is also a stated intent to bring in arrangements for allowing domain name registration by individuals after the full establishment of the operation of HKDNR - a new step for Hong Kong. As envisaged by the Task Force Proposals, these will likely be derived directly from the names appearing on the identity card which the long standing Registration of Persons Ordinance requires to be held and to be carried at all times by all individual residents of Hong Kong. It is interesting to note, however, that HKDNR on its website applies the term 'customers' to applicants for Hong Kong domain name registration and to registrants, while proposed transferees of Hong Kong domain names are referred to as 'transferees'. Somehow the terminology of purchase and sale where HKDNR purports to be the seller and a body corporate applicant for a registration is purported to be the buying customer does not entirely square with the authoritarian concept of validly instituted registrar status intended for, and adopted by, HKDNR in its entire operation of the new registration regime.

Old or New Agreement Election

All existing registered domain name holders registered before 19 February 2001 will be entitled to elect for either continued registration under the pre-19 February 2001 HKNIC form of agreement or for registration pursuant to the HKDNR New Agreement valid under the new regime, which is the only option for all registering a domain name on or after 19 February 2001.

Old and New Agreements Compared

The following summarises the basic difference between the Old Agreement and the New Agreement. For an annual renewal fee, those electing to be governed under the New Agreement will have greater flexibility in registering additional domain names, the ability to transfer registered domain names and the option of changing updated information on the Register without charge.

During the 'sunrise' period, a plurality of applicants for the same domain name will be postponed to the applicant holding, or already duly applying for, registration of a goods or service trademark in Hong Kong. In the event of more than one eligible applicant, HKDNR will decide by random selection.

All current holders of current .hk domain names registered with HKNIC will be required to re-register and update their registered information, unless they registered before 19 February 2001, and opt for continued registration under the Old Agreement. The re-registration application period opened on 14 May 2001 and closes on 31 May 2002. Failure to re-register may lead to termination of the existing domain name and revocation of its registration after a certain period. There is currently no charge for re-registration.

Dispute Resolution

In the event of disputes between an existing registrant and an applicant for registration as to a particular domain name, the Registration Agreement provides for mandatory reference of the dispute under the new Dispute Resolution Policy to the Hong Kong Arbitration Centre.

The grounds of dispute submission by the Complainant are that:

1. The registered domain name is identical or confusingly similar to a trademark or service mark in Hong Kong in which the Complainant has a right; and
2. The registrant has no right or legitimate interest in respect of the registered domain name; and
3. The registrant's domain name has been registered and is being used in bad faith.

It is necessary for the Complainant to prove the presence of all these three elements.

In what is evidently hoped to be a helpful framing exercise, any one or more of the following are provided to constitute evidence of bad faith:

1. Clear primary intent of dealing in the domain name registration rather than in goods or services utilising that name and for a value consideration in excess of the documented out-of-pocket costs directly related to the registration and maintenance of the domain names;
2. Registration is clearly to prevent the owner of a trademark or service mark from reflecting that mark in a corresponding domain name;
3. Registration is primarily for the purpose of disrupting the business of a competitor;
4. In use of the registered domain name the registrant intentionally attempts to attract for commercial gain internet users to the registrant's website or other on-line location by virtue of a likelihood of confusion with the trademark of the Complainant as to the source, sponsorship, affiliation and endorsement of the registrant's website.

Detailed rules of procedure are to be introduced and the remedies available to the Complainant under order of the Arbitration Panel are limited to requiring the cancellation of the registrant's domain name or transfer of the registrant's domain name registration to the Complainant. All decisions of the Arbitration Panel pursuant to the dispute resolution policy are final and binding including, without limitation, publication in full on the internet or other form of publication - except when an Arbitration Panel determines, in an exceptional case, to redact portions of its own decision. Detailed provisions as to the exact mechanics of such processes are to be introduced.

A Fair and Reasonable Regime

On the whole, apart from the indecent haste generated by the eight day sunrise period (in the same exercise in Canada, the equivalent of the sunrise period - for registered or unregistered trade marks - runs from 21 May to 9 July 2001), the principles encapsulated in the new regime, as now published on the HKDNR website and to be refined in the detailed regulations now being finalised, seem fair and reasonable. They represent a creditable first run demonstrated by Hong Kong to play its pro-active e-commerce role responsibly and sensibly on the world internet stage. Additionally, the adopted mechanism of HKDNR allows for amendment of any aspect of the regime which may be found prudent or necessary over time based upon experience in practice.

Some Problems

There are, however, some clear flaws, fallacies and inequities inherent in the new regime in the HKDNR.

Business Registration Not a Reliable Indicator of 'Hong Kongness'

It is wrong to think that Business Registration under the Business Registration Ordinance is an exclusively equitable - and therefore justifiable - identifier of the legitimate business 'Hong Kongness' of a corporate legal entity. At the present stage where HKCCTLD registration is exclusively preserved for bodies corporate, it is a fact that every Hong Kong body corporate must apply for business registration whether it is carrying on business or not - and even if it never carries on business.

The initial reason behind the Business Registration Ordinance of the Government keeping a tab of minimum details on business activity in Hong Kong was long ago subordinated to the much more important issue of cheaply collected revenue from bodies corporate of the business registration fees as an obligation simpliciter, regardless of business. It is therefore true that many Hong Kong incorporated companies do not in fact carry on business in Hong Kong. By the HKDNR declared yardstick they do not then have any prior or particular right to an HKCCTLD domain name over others who may carry on business here. All Hong Kong incorporated companies are obliged to take out and therefore possess current business registration. Why the criterion of business registration alone was chosen for Hong Kong bodies corporate is a mystery. The Certificate of Incorporation issued by the Registrar of Companies in Hong Kong is the definitive evidence of existence of a Hong Kong corporation and a current Business Registration Certificate does not in many cases add any authentic evidence of active business to it.

By the same token, there are many corporations incorporated outside Hong Kong which effectively carry on business in Hong Kong. They can be divided into two categories.

First, there are those who establish their own physical entity with dedicated employees in Hong Kong and an office here. Clearly such companies are obliged under the Companies Ordinance (Cap 32) to take out registration as branch offices leading to the issue by the Registrar of Companies in Hong Kong of a Certificate of Registration of an Overseas Company (Overseas Company Branch Certificate). The legal obligation is to apply for registration within one month after having established the place of business and not before. Following the issue of the Overseas Company Branch Certificate, the branch office entity is obliged by law to apply for and take out business registration. There is, however, an often lengthy period between the application for registration at the Companies Registry of a branch office, which has already started business and therefore already exists as a Hong Kong fact, and the issue by the Registrar of Companies of the Overseas Company Branch Certificate.

This lengthy period of processing by the Companies Registry renders the foreign corporate entity concerned vulnerable to a period which can be many months during which cyber squatters may apply to HKDNR under the new registration regime for registration of a HKCCTLD with the name - and even extending to the Hong Kong registered trademark - of the foreign company in circumstances where the foreign company, even though it has had an actual business for many months, is unable to take any action because of the wholly arbitrary HKDNR requirement that it should have the Overseas Company Branch Certificate, which it is not able to get. The damages are magnified in that the new registration regime places no limit on the number of HKCCTLDs that a single qualified applicant can apply for.

The second category is overseas incorporated companies which are long time holders of fully valid currently registered Hong Kong trademarks. They have no place of business in Hong Kong and do not intend to carry on business here. They do carry on substantial business in Hong Kong exploiting their Hong Kong registered trademarks to the maximum, but all this is done through Hong Kong agents and not by the overseas companies themselves. They therefore have no, and will never have any, Overseas Company Branch Certificate and Hong Kong Business Registration Certificate.

They do, however, have distinct, Hong Kong Government registered and commercially active performing assets in the form of the intellectual property in their Hong Kong registered trademark - a protective facility available to them under the Hong Kong Trade Marks Ordinance (Cap 43) representing the legislated participation commitment of the Hong Kong Government in the international treaties calling for World Trade Organisation membership equality of mutual trademark protection.

It is hard to fathom how HKDNR can arbitrarily intervene into the calm, traditional seas of Hong Kong legislated international responsiveness for trademark protection and enforce a system that permits cyber squatter registration of a HKCCTLD domain name only because the cyber squatter has a Hong Kong Business Registration Certificate, while the legitimate registered trademark owner overseas body corporate who does not carry on business here does not have such certificate but is nonetheless the legitimate owner of the Hong Kong registered trademark. It is, in fact, not fathomable and is likely to lead to substantive litigation. This is particularly the case in, for example, functions such as meta tagging of website addresses where the use of the domain name by a cyber squatter can bring clearly illegitimate advantages.

Whether or not an overseas body corporate - for fiscal, liability or other reasons of its own - wishes to carry on direct business in Hong Kong using its registered trademark through a Hong Kong incorporated subsidiary or a Hong Kong registered branch of itself, or only through a local agent, is not the business or dictate of HKDNR.

If such body corporate wishes to carry on its legitimate business through Hong Kong as a world-wide component of a universal market, then that choice and its use of a Hong Kong registered trademark in such business carried on through agents alone must receive, and fully deserves, due respect and protection from cyber squatting by HKDNR. Yet this is not available under the present HKCCTLD new domain name registration regime of HKDNR. Not only is it not available, it is expressly denied. In a printed answer on an Q & A sheet on the HKDNR website appears the statement: 'However, if your company has no registration in Hong Kong at all, but just wants to register a .hk domain name to "protect? (sic) your brand name, sorry, we cannot provide the service you want'.

Apparently, however, the provision of the offered 'service' to a Hong Kong corporate Business Registration Certificate holder as a cyber squatter is a function that HKDNR sees as legitimate, even if directly contrary to the commercial interest of a foreign owner of a validly registered Hong Kong trademark in actual use in Hong Kong through agents.

Exemption from Liability

Practicing lawyers will be interested to read the exemption of liability provision placed by HKDNR on its website. There is a statement that no warranty or guarantee is given to the accuracy or usefulness of the content hosted or referenced by the site. HKDNR accepts no liability for any loss or damages arising from or relating to the use of the contents of the site. No doubt the courts will be interested in these words. However, these words must be read together with the additional words that 'no claims, actions or legal proceedings in connection with this website brought by any customers or other persons having reference to the material on this website will be entertained by HKDNR'!

As the entire structure of HKDNR and its registration function is predicated upon policy utterances of JUCC at the instance of IIAC and the Information Technology and Broadcasting Bureau without any legislative authority or sanction, it is impossible to see how the curtain which such statements purport to drop may not be peered around by way of judicial review, if only to clarify that in Hong Kong society nobody, including HKDNR, is above the law. The HKDNR registration agreement itself is commendably proper in this respect by its express choice of Hong Kong law and submission to exclusive Hong Kong jurisdiction.

© Angus Forsyth
IT Practice Group
Stevenson, Wong & Co
www.sw-hk.com