GAO Report Debunks Claims that Piracy is a Major Threat to U.S. Economy

Victor Cohen (portrait)

Our legal intern Victor Cohen noticed a curious juxtaposition recently:

 

At the same as the copyright industry was saying unauthorized copying is more of a threat than ever to economic health, the U.S. government was saying... it's not. Or at least, that there's no convincing evidence it is. Thanks to Victor for writing up this analysis, and, along the way, for calling out the GAO on their confusion of counterfeiting and unauthorized copying — a frequent problem with the U.S. government and one we've noted before.

 


 

A couple of months ago, a collection of seven entertainment industry groups including the RIAA, the MPAA, and the Screen Actor's Guild submitted a filing in response to the Intellectual Property Enforcement Coordinator's request for comments on its upcoming "Joint Strategic Plan" to carry out its enforcement duties. Their main concern is that digital piracy "undermines our economy, steals our jobs and threatens our national interest." [1] As a remedy, the industry puts forward a breathtakingly draconian wishlist of enforcement measures, including:

  • ISP-level monitoring and filtering of files or traffic, website blocking and redirection, bandwidth throttling, and monitoring software installed on individual users' computers to check for copyright infringement. [2]

  • Bypassing the Digital Millennium Copyright Act's notice-and-takedown procedure by allowing copyright owners to create databases of works or digital files and force ISPs — in order to qualify for the DMCA § 512 safe harbor — to automatically take down any matching content uploaded to their network and to prevent matching content from being uploaded or linked to at all. [3]

  • Making the Department of Justice and the Department of Homeland Security follow the industry's schedule by coordinating piracy interdiction efforts with new releases of blockbuster movies. [4]

In order to argue for such a staggering array of privacy invasions, network neutrality violations, ISP-burdening expansions of the DMCA, and reallocations of federal agents away from preventing more life-threatening crimes, the industry groups that made this filing must have a solid mountain of evidence that piracy poses a major threat to the American economy and the very existence of the entertainment industry, right?

Unfortunately they don't, says the U. S. Government Accountability Office. On April 12, the GAO released a report entitled "Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods" that closely examined the data and research methodologies that have been used to argue and formulate government policy on exactly this issue. The report's conclusion is vastly different from that of the industry: "Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts [of piracy and counterfeiting]." [5] Though it did call piracy a "sizeable" problem, it cast serious doubt on the three main studies that the industry has used to make its case: a 2002 FBI economic impact study had "no record of source data or methodology," a 2002 DHS Customs and Border Protection division estimate of lost revenue and jobs had been discredited, and the FTC was unable to locate any record of making a lost sales estimate that is attributed to it. [6]

The GAO went on to highlight weaknesses it found in the Business Software Alliance's 2009 piracy estimates and a similar study published by the MPAA's international counterpart, the Motion Picture Association. It was important to consider, noted the GAO, that there is not necessarily a one-to-one rate of substitution between pirated works and lost sales. In other words, not every pirated album equates to a lost sale, since consumers sometimes like a song or an album enough to download it for free, but not enough to purchase it. Also, piracy estimates made in one country are not necessarily easily extrapolated to another. [7] In addition, studies that use a set of multipliers known as the RIMS-II multipliers to show how capital changes in one industry affect another generally do not take into account the effect of the extra disposable income that downloaders will have available to spend in other parts of the economy as a result of not having paid for the content. [8] In a nutshell, this money does not vanish into thin air, it is spent in other ways so that there is no net loss to the economy as a whole.

Finally, the GAO lamented the lack of data showing the positive effects that piracy can have on the economy. These include the benefit to consumers of having lower-priced goods available and the ability of consumers to sample music or other copyrighted works before they purchase them as a means of encouraging further sales. [9]

While the industry's wishlist is just a set of recommendations at the moment, proposals as extreme as the ones listed above can easily find their way into other forms of regulation. Right now, the U.S. is in the middle of negotiations for the Anti-Counterfeiting Trade Agreement, which even in its current draft form discusses an enhanced, global version of the Digital Millennium Copyright Act as well as ISP filtering and three-strikes policies for copyright infringers. The United Kingdom has already become the victim of bad figures, when they helped pass the Digital Economy Act on April 12th. France's highly unpopular HADOPI law, which incorporates a three-strikes disconnection policy, has been in place since October, 2009.

The industry groups' proposals are drastic, broad, and devastating to the internet, to privacy, and to free expression online. Before the IPEC or any government body considers them, it should heed GAO's warnings and demand better evidence that piracy is indeed as much of a threat to the economy as the industry claims. We must be vigilant that our own treaty negotiations, agency rulemakings, and legislation are based on solid data that takes into account all the effects, positive and negative, that piracy can have on our economy.

References:

[1] Comments of Creative Community Organizations, pp. 2, March 24, 2010: http://www.dga.org/news/pr-images/2010/Joint-submission-re-IPEC.pdf; last accessed 04/25/2010. [2] Id at 10. [3] Id at 17. [4] Id at 12-13. [5] United States Government Accountability Office, Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods, (this page is not numbered, please see the page titled "Highlights"), April 12, 2010: http://www.gao.gov/products/GAO-10-423; last accessed 04/25/2010. [6] Id at 18-19. I must note GAO's confusing language here: it refers to the studies individually as pertaining to counterfeiting, which is a separate issue from piracy, but then collectively as "referenced by various industry and government sources as evidence of the significance of the counterfeiting and piracy problem to the U.S. economy." [7] Id at 22 [8] Id at 23 [9] Id at 14-15

17 Comments

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Even if piracy did not negatively affect economies as a whole, does it make it right to steal from copyright owners? I guess it is ok to steal from certain people and contribute to their failure because you think it will benefit society. I do not understand your thinking. Do you really think this will benefit society? Or, do you have some other agenda that would bring you economic success at the cost of others?

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Copyright violation is not theft.  Review Dowling v. United States.  It may be illegal, which is unfortunate, but it's still not theft.  Further, being that those of us who regularly engage in copyright violation don't wear eye patches or have peg legs, please don't call us pirates either.  Calling copyright violaters pirates is an attempt to emotionally cloud the issue rather that actually address whether or not a temporary monopoly granted by the state is in fact in the national interest. 

Harry Buckles

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

I probably think the best way to go is-lets all people [artists, musicians, actors etc] that have some right to protect get off the internet. An as they are leaving I probably think they should also go away with their products...and lets see how they survive. What is really fuelling all the phenomenal box-office taking is all the cheap publicity they get online [social media, ppc, viral marketing, video marketing etc. To be so rash is at least to be irrational...my take is that until they make a real case about how its all crippling their lives...they have no case.


 

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Anyone who is involved with illegal activities does not want to be branded wrongly, not only does the wrong branding eventually lead to harsher prosecution, it also tarnishes the perpetrators reputation beyond what they themselves deem necessary. It is basic fact that 'copyright violation is not theft' derives from nothing more than clever lawyers picking loopholes in the law and the 'word' of the law, the same way plea bargaining does, the very same way a skilled lawyer would defend a 'killer' and have him or her plead guilty to manslaughter as opposed to murder to reduce his or her sentence.

It is all just a play on words for criminals and lawyers.

Copyright is a law, violation of any law is a crime, commit a crime and you become a criminal. Copyright violation is a minor crime in comparison to the example mentioned above, but nevertheless, at present IT IS a crime, and those who pursue violation are criminals.

If you do not like being branded a thief or a pirate, just ask to be branded correctly as a criminal and be done with it.

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Those supreme court justices would be glad to know that an anonymous internet poster has referred to them as "clever lawyers".  Yes they are clever lawyers; they were appointed to the Supreme Court.


I, in fact, did say that I violate copyright law, so I don't mind if you call me a criminal.  I also occasionally drive five miles over the speed limit.  Martin Luther King and Gandhi were also criminals.  I wouldn't claim that copyright restrictions are quite the moral wrong they dismantled via criminal behaivor, but the principal is the same. 

As a citizen of New Jersey I am also a criminal because once I pumped my own gas and have slurped my soup.  Your insistance on labeling us as criminals, which I don't mind so much since it's meaningless, is further distraction from dealing with the issue of whether or not a temporary monopoly is actually a sound economic policy.  I, and many of the readers of this site, say it isn't.  I think you say it is, but then fail to use even an iota of logic to defend your point. 


Harry Buckles

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

An iota of logic would be the fact that I pointed out that a 'clever lawyer' (appointed to the Supreme Court or not) pointed out the difference between copyright violation and theft by scrutinizing the definition of the word theft (read "the 'word' of the law" in my initial comment above).

If you consider anyone labelled as a criminal for breaking the law 'meaningless', just don't call any authorities when any crime is committed against you or any of your family, just take it for granted that it's for the good of a sound economic policy, and not for the good of the 'monopoly'.

If the New Jersey Police Department went on a 'monopolizing' rampage to curb traffic offences, you would probably post on a Website such as questionnewjerseyspeed.org just to get your point of view across, there, as here, your point of view would be disregarded (no matter what your intentions were) as useless because it has no bearing on current law.

Barry Huckles (anyone can post any name as anonymous).

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Everyone becomes a criminal eventually.  It is inevitible that you will jay-walk, drink under-age, drive faster than the speed limit, cross a railroad track blocks from the nearest crossing, ACT LIKE A HUMAN BEING.  Aren't we all criminals?  Yes.  Do we all deserve to be criminals?  No.  

How does my use of knowledge acquired infringe on your property rights?  It does not.  Knowledge cannot be property because property must be scarce as to create a conflict between parties over the occupation/use of said property. 

Break into my house - you get shot.  Copy my song and we sing together.       

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

  • Calling copyright violaters pirates is an attempt to emotionally cloud the issue rather that actually address whether or not a temporary monopoly granted by the state is in fact in the national interest.

"Temporary"?

"Temporary", you say?

When 900 years old Disney reaches, look as temporary copyright will not!

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

I would start here to get a wider perspective (and it's free!): http://mises.org/books/against.pdf


I like the example of the first cave-dweller who built a house... if only he would have been smart enough to reserve his right as first occupier.  Fortunately for all of us - he was fairly stupid and we (for the most part) have roofs over our heads. 

Ideas and patterns are not property - keep that in your head for a little while until some day when you'll have to pay my fee for remembering what I've written here.     

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Media is very affordable on the internet, it does not have to be free. Netflix offers unlimited movies for online viewing, and one hard copy sent at a time for $8.95 per month; that is very reasonable. Pandora.com offers free personalized radio stations, and sells songs for $.99, that is cheap. Mobile devices are bringing these services to the masses at a very reasonable price. Why do people have to have these things for free? There is no such thing as Utopia. Do they actually believe people will be motivated by anything other than money? Are they trying to sell the Venus project here? Are these people affiliated with the Zeitgeist movement? Like that won't cost money. I would like to see anyone build a modern city without money.

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

Actually, I don't think it's about the Venus project here.  It's about making information available for copy and derivative work.  The whole thing about this site is to question the copyright regime as it is now; and even abolish said regime.  Everyone can still make money on media without copyright attached.  Even copy such media or create derivative work.

So, I'm sure that such media doesn't have to be free.  This is about the use of media and not about acquiring media.

Re: GAO Report Debunks Claims that Piracy is a Major Threat ...

I wonder if one can make the case that Copyright, as it stands now, HURTS the economy rather than helps it.  On my Blog, I have an article which showcases two videos that makes this case.  One out of Canada for fair Copyrights, and one that interviews two professors from Washington University in Saint Louis on how they feel that Copyright hurts our economy (it used not to, but there you go).

http://elton-atlantis.blogspot.com/2010/06/copyright-law-hurts-economy.html


I most certainly believe that it does, especially in the face of the internet.  I'd love to see Copyright reformed in the United States in the User's favor; in favor of free enterprise, and in favor of the economy. If this can't be done to anyone's satisfaction, I favor abolishment.