5 Tips for Starting A SexTech Business in Hong Kong

sextech

Legal professionals’ advice for venturing into the murky realm of SexTech

The fledgling field of sex-related technological development is one that few companies try to tackle. Although there is little regulation specifically tackling SexTech, it lies at the intersection of several tricky zones, including healthcare and privacy.

This means that founders need to adhere to the highest standards of product quality and make sure that they’re meeting requirements across the board, while also establishing a brand strategy in an industry where consumers and marketers are fairly squeamish about the subject matter.

Whether you are planning to launch a new class of haptic technology, or have a new idea for a dating app, here are five tips for anyone who is planning to start a SexTech business in Hong Kong.

1. Do your licensing check – Businesses, including SexTech startups, often think that having a Business Registration (BR) Certificate from the Inland Revenue Department (IRD) is all that’s necessary in order to commence business operation in Hong Kong. This is not the case if your business also requires other governmental or business licenses.

In Hong Kong, there are many government licenses, permits, certificates, and approvals which are required for different types of business. It is crucial to check the Support and Consultation Centre for SMEs (SUCCESS)’s ‘Business Licence Information Service’ webpage to ensure you have acquired the correct license.

2. Do your privacy diligence – This is becoming more and more relevant nowadays in the SexTech industry, as ecommerce online adult stores, dating apps, and adult content online subscription services are in one way or another collecting personal data from their users.

Having an adequate data protection policy and performing regular data risk impact assessments (DRIA) are absolutely crucial to protecting your business from data and cybersecurity breaches.

Make sure your SexTech product(s) or service(s) comply with the Personal Data (Privacy) Ordinance (Cap. 486) (PDPO), and keep up to date with its relevant guidelines. If your sextech products are also available in the EU market, make sure your service is in compliance with the EU’s General Data Protection Regulation (GDPR).

The best option is to hire a privacy engineer who can assist your product design team in meeting the privacy requirements and policies associated with your product. This will help to minimize any unnecessary redesign or rebuild costs due to possible non-compliance with the PDPO and GDPR.

3. Do your product & business operation compliance check – Hong Kong is known for its heavy regulatory compliance requirements. Even worse, many of these legal requirements aren’t immediately obvious. It is important that you carefully examine each part of your business operations and see if any additional legal provisions are required.

For example, if you are running an ecommerce adult online store, you may want to familiarize yourself with the requirements under s.32 of the Post Office Ordinance (Cap. 98), which states that no person should be allowed to send any kind of postal packet that is ‘obscene, immoral [or] indecent’. Though the Post Office Ordinance may seem unrelated to your business, ignoring it could have a severe impact on business operations in the future.

Similar to your licensing check, you should go through the product design and business operations with your team to make sure your business and product are in compliance with Hong Kong laws.

4. Do your tenancy terms check – This item is often neglected by startups, but the following Hong Kong Lands Tribunal case demonstrates the point:

In J&F Garments Factory Limited v. 虛境世界有限公司 [2019] HKLdT 36, a landlord tried to recover rented premises from the tenant on the grounds that the tenant breached the ‘use’ clause by operating a virtual reality (VR) pornographic video center in premises meant for ‘industrial’ use.

Although the landlord did not win the case due to technical reasons, the court did note that the tenant was in breach of the terms of the tenancy agreement.

The case illustrates the importance of making sure that your SexTech business does not fall foul of any tenancy terms. Although the court rightfully did not comment on the licensing aspect of this new type of VR porn business, the J&F Garments Factory Limited case could have shut down the business based on the tenancy breach.

It should also be noted that any similar stores operating in Hong Kong should have age warning notices set up on their premises as required by the Control of Obscene and Indecent Articles Ordinance (Cap. 390) (COIAO) as follows:

“警告 : 本內容及相關物品可能令人反感,不可將其內容及物品派發、傳閱、出售、出租、交給或出借予年齡未滿18歲的人士或將其內容及物品向該等人士出示、播放或放映。

WARNING: THIS ARTICLE CONTAINS MATERIAL WHICH MAY OFFEND AND MAY NOT BE DISTRIBUTED, CIRCULATED, SOLD, HIRED, GIVEN, LENT, SHOWN, PLAYED OR PROJECTED TO A PERSON UNDER THE AGE OF 18 YEARS.”

5. Breaking the Stigma – Sex still carries stigma in Southeast Asia and is still very much a taboo topic at the dinner table. SexTech startups do face challenges, and many do fail prematurely. However, with better information and technology, and with a concerted effort to liberate and expand LGBTQ rights in Asia, we believe SexTech will one day become a mainstream market product/service.

Like many other areas of tech regulation, the laws related to SexTech are evolving at a rapid pace. It is important to keep up to date with business and legal requirements in Hong Kong, and check in with your lawyer or business consultant whenever you are unsure about launching a new product or solution. Careful and thorough observation of regulations is the first step to seeing a SexTech business to success.

About the Authors

Leslie is the Director and Co-Founder of Aurum (Data Governance) Consultants Limited, and a data scientist specialising in RegTech, AI & Machine Learning technologies in the banking & tech start-up sectors in Hong Kong.

Arthur is an Independent Legal Professional based in Hong Kong. He specialises in data protection & privacy law (including PDPO & GDPR), technology law and commercial litigation. He is a member of the PCPD’s Data Protection Officers’ Club (DPOC).

Header image by Tomas Sobek on Unsplash.

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