Bogus bullsh*t on the costs of copy and counterfeit

Written By: - Date published: 8:00 am, April 19th, 2010 - 9 comments
Categories: copyright - Tags: , , ,

Over the last decade or two there have been some extraordinary claims about the cost of copying and counterfeiting on businesses and economies. However there has been little information that hasn’t had some pretty major and almost certainly incorrect assumptions.

The US Government Accountability Office (GAO) has released a report (PDF) done on under the provisions of the PRO-IP law. It doesn’t sound too promising at being able to get any kind of even moderately accurate measures.

According to experts we spoke with and literature we reviewed, estimating the economic impact of IP infringements is extremely difficult, and assumptions must be used due to the absence of data. Assumptions, such as the rate at which consumers would substitute counterfeit goods  for legitimate products, can have enormous impacts on the resulting estimates and heighten the importance of transparency

Commerce and FBI officials told us they rely on industry statistics on counterfeit and pirated goods and do not conduct any original data gathering to assess the economic impact of counterfeit and pirated goods on the U.S. economy or domestic industries. However, according to experts and government officials, industry associations do not always disclose their proprietary data sources and methods, making it difficult to verify their estimates.

The US government really doesn’t appear to have done much work on the issue. When the study looked for the sources.. Well you’d have to read this and weep…

Three commonly cited estimates of U.S. industry losses due to counterfeiting have been sourced to U.S. agencies, but cannot be substantiated or traced back to an underlying data source or methodology.

First, a number of industry, media, and government publications have cited an FBI estimate that U.S. businesses lose $200-$250 billion to counterfeiting on an annual basis. This estimate was contained in a 2002 FBI press release, but FBI officials told us that it has no record of source data or methodology for generating the estimate and that it cannot be corroborated.

Second, a 2002 CBP press release contained an estimate that U.S. businesses and industries lose $200 billion a year in revenue and 750,000 jobs due to counterfeits of merchandise. However, a CBP official stated that these figures are of uncertain origin, have been discredited, and are no longer used by CBP. A March 2009 CBP internal memo was circulated to inform staff not to use the figures. However, another entity within DHS continues to use them.

Third, the Motor and Equipment Manufacturers Association reported an estimate that the U.S. automotive parts industry has lost $3 billion in sales due to counterfeit goods and attributed the figure to the Federal Trade Commission (FTC). The OECD has also referenced this estimate in its report on counterfeiting and piracy, citing the association report that is sourced to the FTC. However, when we contacted FTC officials to substantiate the estimate, they were unable to locate any record or source of this estimate within its reports or archives, and officials could not recall the agency ever developing or using this estimate.

These estimates attributed to FBI, CBP, and FTC continue to be referenced by various industry and government sources as evidence of the significance of the counterfeiting and piracy problem to the U.S. economy.

The GAO looked at a rather large number of surveys and estimates by various bodies and people. They didn’t sound too happy with the methodology of any of them.

While experts and literature we reviewed provided different examples of effects on the U.S. economy, most observed that despite significant efforts, it is difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole. For example, as previously discussed, OECD attempted to develop an estimate of the economic impact of counterfeiting and concluded that an acceptable overall estimate of counterfeit goods could not be developed. OECD further stated that information that can be obtained, such as data on enforcement and information developed through surveys, ‘has significant limitations, however, and falls far short of what is needed to develop a robust overall estimate.’ One expert characterized the attempt to quantify the overall economic impact of counterfeiting as ‘fruitless,’ while another stated that any estimate is highly suspect since this is covert trade and the numbers are all ‘guesstimates.’

Reading the report was fascinating with a strongly discernible sense of frustration by the GAO. It is only 41 pages and quite legible for the layperson. It gives a better idea about the current state of the duplication debates than anything else I’ve seen.

ars technicia, one of my favorite technology sites reviewed the report with the appropriate title of “US government finally admits most piracy estimates are bogus“.

Why is the government even looking into this issue? It’s all due to the PRO-IP Act, which passed under President Bush and has led President Obama to appoint an Intellectual Property Enforcement Coordinator within the White House. Part of the IPEC’s duties include gathering data on piracy and counterfeiting, and current IPEC Victoria Espinel is now rounding up that data. The GAO report is part of this process, and it certainly doesn’t make industry estimates look compelling.

This is ironic for a bill that was backed by the big rightsholders; even its acronym, the PRO-IP Act, shows what it was supposed to do. But, by hauling the black art of “piracy surveys” into the light, the PRO-IP Act is forcing rightsholders to tone down some of their more specific and alarmist rhetoric.

None of this is to say that piracy and counterfeiting aren’t real problems. The GAO accepts that the problem is “sizeable,” but it also points out just how much bad data is used to produce these studies. Actual dollar figures and job loss numbers should be handled with extreme care and a good bit of skepticism; the GAO also noted that numerous experts told it that “there were positive effects [from piracy on the economy] and they should be assessed as well.”

This is a helpful, level-headed review from the GAO, one that (hopefully) brings some of the debates over digital infringement into saner territory.

Unfortunately these bogus studies and numbers have been framing the debate leading up to the current ACTA talks. Quite simply no-one appears to have even a remote handle on the scale and costs of various types of violations of copyright, trademark, and patent.

The only thing that you can be sure of is that if someone starts putting numbers to the costs, then they’re almost certainly wrong, and probably wrong by orders of magnitude. It is likely that they will quote from one of the studies looked at in this report or using a methodology derived from it. Quite simply, those studies are probably all pretty bogus. This means that treaties and law based on these false numbers are probably as likely to do economic harm as they are to do good.

Lawmakers should really be looking at overhauling the basis of intellectual property from the ground up based on the current and probable future technologies. They shouldn’t be swayed by the protestations of lobbyists waving their latest surveys full of questionable numbers and assumptions.

In the end result, in my opinion, most businesses affected by counterfeiting and copying need to look at their business models to find out how to satisfy the consumers of their product more effectively. The costs of duplication, distribution, and even marketing are reducing as the information age takes hold. Generally this is not being reflected in the prices of many products because of inadequate and increasingly obsolete business models. This leaves a significant differential that the counterfeiters exploit. That is the problem that needs to be addressed.

I’d suggest that people have a read of the body of work that Clare Curran has been writing at Red Alert on copyright and ACTA.

hat-tip: Draco T Bastard in comments and Quoth The Raven in comments at Red Alert

9 comments on “Bogus bullsh*t on the costs of copy and counterfeit”

  1. Quoth the Raven 1

    I linked to this one a while back, but it’s relevant here: Yet Another (Yes, Another) Study Shows File Sharers Buy More

    Pretty much every single non-industry-backed study has shown this same thing, but just for the record, here’s yet another study showing that those who engage in unauthorized file sharing end up buying more media. The study, looking at the UK (home of the new proposal to kick people off the internet), wasn’t even close. Those who engaged in unauthorized file sharing tended to spend £77 on media per year, while those who did not spent about £44. And yet file sharers are the enemy? And the industry wants to kick them offline so they discover less new content? How will that help?

    • lprent 1.1

      That has been the case with me. I’ll frequently get some music on some media given to me by a friend, play it a few times, dig some more off youtube, and then buy 6 albums from Amazon. When the lumps of plastic arrive here, they will get stripped on to my linux workstation and then the plastic is filed with all of the other useless plastic that I have to cart around and store for the benefit of some dick-arse music company.

      The music will get backed up onto my linux laptop with an extra copy on the external HDD. If it is really lucky it may earn a place of honour on my iphone.

      Quite simply I want to pay for the content and download it. I’m uninterested in paying for the plastic and packaging. I’m uninterested in playing around with DRM because it is obnoxious crap that gets in my way and seldom ever works, especially on linux, or when I shift motherboards. I don’t mind paying for music, but i really can’t stand the crap and inflated prices for stuff I don’t use, need, or want.

      Which reminds me. Does anyone have an alternative to that pile of software bloat called iTunes? Using it to load music to the iPhone is an exercise in futility. It really doesn’t seem to understand the idea that I have a lot of computers and all I want it to do is store a playlist of a thousand or so tracks at a time on the iPhone.

      • Draco T Bastard 1.1.1

        AFAIK, iTunes (which I refuse to use because it’s bloody horrible) is a proprietary piece of software and copying it’s functions will land you in court. This will cost you a large chunk of money and there’s no guarantee that you’ll be able to market your software. Actually, I’d go so far as to say that it would be almost impossible for you to market your software.

        End result: Bloody horrible software that can’t be improved through competition due to the monopolistic restrictions placed upon it by capitalism.

        There’s a reason why I keep saying that government should set standards*. Once set, nobody creating to that standard can be taken to court. This would actually bring about the benefits of competition that are presently being actively repressed by the capitalist model.

        * Please not: I said set standards not create them. They would also need to be international standards.

      • Rich 1.1.2

        Sell your iPhone and get a Nexus One.

        Mind you, it’s over a grand, isn’t as slick as Appl€ product and mine hasn’t arrived yet, but when it does, I’ll be able to write programs and distribute them without a veto from Apple.

      • Quoth the Raven 1.1.3

        I stay away from Apple altogether.

  2. ropata 2

    The venerable Winamp has the ability to sync an iPod, dunno about an iPhone. Used it for yonks.
    Then I used Songbird for a while, it’s quite a nice open source iTunes imitation with some great features but it feels bloated too.
    (I gave up and went back to iTunes, it’s annoying but good for finding podcasts and free stuff)
    (4000+ songs on my iPod Classic, mostly CD rips, honest! 🙂

    • lprent 2.1

      Tried Songbird. From memory it’d do an iPod, but not an iPhone (which was kind of weird).

      Winamp, I’ll bet doesn’t have a linux version. I used to use MediaMonkey when I booted in windoze to fill an iPod.

      The other problem with iTunes is that it doesn’t run well under WINE, and so to use it on any of my machines apart from the mac mini that is powering the TV, I have to start up a virtualbox with bloody iTunes sucking the life out of it.

  3. felix 3

    Nah, winamp is strictly windoze (the clue is in the name) but it’s supposed to run pretty good under WINE.

    Tried this one? XMMS I haven’t but apparently it’s based on winamp. Don’t know about ipod/iphone support.

  4. Descendant Of Smith 4

    Copyright infringement estimates are also not the same thing as lost revenue.

    If a 10 year old kid has several thousand songs on his PC that he has taken off the internet that hardly represents less sales. The ten year old kid (most likely) didn’t have the income to buy them in the first place.

    If I convert my purchased DVD to Divx so I can stream it over my home network via my Xbox it’s quite clear I was never going to go and buy a Divx copy even if it was available – which it’s not.

    If I convert my unavailable punk rock records from the 70’s to MP3 I can now presumably do this under the current law which allows for format shifting.

    There was a Q&A around format shifting at the time.

    The big hypocrisy was always when Apple sold Ipods all over the world which allowed you to copy your music to them and were sold for that purpose without any legal protection for people to do this in most countries they were sold in.

    Didn’t see Sony or any other record company threatening to take Apple to court for providing the means to pirate their music.

    Format Shifting

    Why is there a format shifting provision and why is it limited to sound recordings?

    The new format shifting provision responds to the concern that people want to transfer music they have legitimately bought onto different devices to take advantage of new technology. It also recognises this has been common practice for a long time.

    The markets for audio visual works and music are evolving, they are different. There are numerous business models for audiovisual works that do not apply to music. Theatrical release, commercial rental (both physical and online models), free-to-air TV and pay TV do not have counterparts of any significant extent for music. It is also unlikely that consumption of audio visual works “on the move” using mp3 players and the like will ever be as ubiquitous as for music. It is not, therefore, possible to simply apply the conclusions reached about music to audio visual works.

    Does the Act specify any special conditions that must be adhered to when format shifting?

    Yes, you may only copy music that has been lawfully acquired for your personal use or the personal use of a member of the same household where you live. You can only make one copy for each music playing device that you own (that is your CD player, your iPod etc), Furthermore, you must retain both the original copy of the music from which the format shift copy was made and the copy you make under the format shifting provision.

    The changes to the Act do not legitimise the copying of music for friends or online file-sharing; both actions remain an infringement of copyright.

    Can the copyright owner specify any conditions for format shifting?

    Yes, the default position under copyright law allows copyright owners and users to contract out of the format shifting exception. If music is bought subject to conditions, for example, the number of copies that can be made for personal use, then those conditions will override the format shifting exemption in the Act.

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