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.


[1] Comments of Creative Community Organizations, pp. 2, March 24, 2010:; 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:; 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 on "GAO Report Debunks Claims that Piracy is a Major Threat to U.S. Economy"

  1. But just how much weight does this report really hold? 

    Will the RIAA and MPAA take this serious or just fluff it off?

  2. 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?

    1. I would start here to get a wider perspective (and it’s free!):

      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.     

  3. I do believe it will be a waste of resources for the Government to crack down on internet piracy.  What the RIAA and the MPAA really want to do is maintain a mindset.  Obviously, the Internet is a clear threat to them.  It’s been proved countless times. 

  4. 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. 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.

  5. 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.

  6. The thing is copyright is not property, it’s a goverment granted monopoly.

    Do you really think it’s fair to grant distributers of near infinate goods exceptions to the free market system as opposed to just letting them fail like every other bad business model has to?

    1. 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

  7. 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).

    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.