US government report: counterfeiting, illegal copying difficult to quantify

The U.S. Government Accountability Office (GAO), "the investigative arm of Congress"has released a report, Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods, saying we don't have decent empirical evidence to quantify the effect of counterfeiting and piracy.

"According to experts and literature GAO reviewed, counterfeiting and piracy have produced a wide range of effects on consumers, industry, government, and the economy as a whole, depending on the type of infringements involved and other factors. Consumers are particularly likely to experience negative effects when they purchase counterfeit products they believe are genuine, such as pharmaceuticals. Negative effects on U.S. industry may include lost sales, lost brand value, and reduced incentives to innovate; however, industry effects vary widely among sectors and companies. The U.S. government may lose tax revenue, incur IP enforcement expenses, and face risks of counterfeits entering supply chains with national security or civilian safety implications. The U.S. economy as a whole may grow more slowly because of reduced innovation and loss of trade revenue. Some experts and literature also identified some potential positive effects of counterfeiting and piracy. Some consumers may knowingly purchase counterfeits that are less expensive than the genuine goods and experience positive effects (consumer surplus), although the longer-term impact is unclear due to reduced incentives for research and development, among other factors.
Three widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies. Generally, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult, so assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates. Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates. Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts. Nonetheless, research in specific industries suggest that the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property...

Quantifying the economic impact of counterfeit and pirated goods on the U.S. economy is challenging primarily because of the lack of available data on the extent and value of counterfeit trade. Counterfeiting and piracy are illicit activities, which makes data on them inherently difficult to obtain. In discussing their own effort to develop a global estimate on the scale of counterfeit trade, OECD officials told us that obtaining reliable data is the most important and difficult part of any attempt to quantify the economic impact of counterfeiting and piracy. OECD’s 2008 report, The Economic Impact of Counterfeiting and Piracy, further states that available information on the scope and magnitude of counterfeiting and piracy provides only a crude indication of how widespread they may be, and that neither governments nor industry were able to provide solid assessments of their respective situations. The report stated that one of the key problems is that data have not been systematically collected or evaluated and, in many cases, assessments “rely excessively on fragmentary and anecdotal information; where data are lacking, unsubstantiated opinions are often treated as facts.”...

Because of the lack of data on illicit trade, methods for calculating estimates of economic losses must involve certain assumptions, and the resulting economic loss estimates are highly sensitive to the assumptions used. Two experts told us that the selection and weighting of these assumptions and variables are critical to the results of counterfeit estimates, and the assumptions should, therefore, be identified and evaluated. Transparency in how these estimates are developed is essential for assessing the usefulness of an estimate. Two key assumptions that typically are required in calculating a loss estimate from counterfeit goods include the substitution rate used by consumers and the value of counterfeit goods...

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.

There is no single methodology to collect and analyze data that can be applied across industries to estimate the effects of counterfeiting and piracy on the U.S. economy or industry sectors... Nonetheless, the studies and experts we spoke with suggested that counterfeiting and piracy is a sizeable problem, which affects consumer behavior and firms’ incentives to innovate...

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."

Very interesting, very readable report.  Recommended and probably essential reading for IP geeks. Kudos due to Loren Yager, Director of International Affairs and Trade at the GAO.

Virtual Revolution wins Digital Emmy

I've just learned from one of our dedicated internal marketeers, who was checking on the academic advisors involved, that the Open University & BBC's co-produced series, The Virtual Revolution, has won a Digital Emmy Award for non fiction.  There are lots of self congratulatory pats on the backs all round for the team that put the series together.

Does the DEA have ISP get-out clauses?

AAISP has an interesting analysis of the Digital Economy Act which suggests that the politicians and music industry lobbyists, currently walking around with smug grins about the passage of the Act through the parliamentary wash up process, will soon be complaining that ISPs are using 'legal technicalities' to "avoid their obligations" under the act.

"Whilst the Act covers some other aspects such as Channel 4 television and some of the role of OFCOM, the relevant bits to us are the way it affects ISPs. The reasons for the Act in the first place are very questionable and are driven by the music and media industries. They are apparently claiming that they are losing millions to illegal file sharing and copying of their copyright material. They have apparently insisted something must be done and there is plenty of speculation about political party donations that may have driven the governments rail road approach to pushing this Act through. Just to prove a point, the BPI's own web site reports record sales of singles in 2009 so clearly file-sharing is not damaging the industry that much.

The first problem is that the music industry is not losing millions. It is simply not logical. Yes, if many of the people downloading and sharing music paid for it then they would make millions, but that is clearly not going to happen. There are simply not millions lying around to give to the music industry. Even if there was, it simply means some other industry suddenly and unexpectedly loses out to the tune of millions and lots of jobs are lost - maybe in the fast food industry or clothing, or other entertainment industries. The Act can only serve to either stop people downloading music (rather than paying more) and possibly buy even less music as a result (because they are no longer in to music as much), or it will drive the file sharing to anonymous encrypted communications (already in use) which cannot be stopped. Before the Act the Copyright, Designs & Patents Act allows them to take civil cases against people. If the file sharing is driven underground they will not be able to trace people to do that, even.
One of the other problems is that this supposedly illegal file sharing is, for the most part, a simple civil wrong (possibly unlawful is a better phrase). There are existing processes to take civil actions for damages via the county courts. If these processes are not fit for purpose they need improving. The music industry is not special in this respect. There is no way the music industry should have received special powers and not everyone else that also finds the civil action process time consuming and costly...

16 Interpretation and consquential provision

This is basically all of the definitions and leads to come interesting loopholes.

• The copyright owner can appoint an agent - fair enough. What is not clear is how an ISP knows the report they get is in fact from or on behalf of the real copyright holder.
• An internet access service is one that is provided to a subscriber - so if our customers are somehow not a subscriber then its not an internet access service they get.
• An internet access service includes allocation of IP address or addresses. So if we do not allocate addresses then it is not an internet access service. On top of this we have the fact that allocated is in fact a specific term in connection with IPs. IP addresses are allocated to a local internet registry, and then assigned to end users (not allocated). So using the definition in the industry none of our services are an internet access service anyway.
• An internet service provider is someone that provides internet access service, so if either of the above apply to all of our connections then we are not an internet service provider and most of the Act does not apply to us.
• A subscriber has to have an agreement with the provider of the service. So it is the person with the agreement that is the subscriber. If that agreement changes to someone else, the original person is no longer a subscriber even if they use the service."

So if ISPs do not provide internet access services and customers are not subscribers then they are potentially both off the hook and the music industry has to go crying to government again about identifying "thieves" and "suspending" their internet access.  Hee hee.  Even if a judge did buy that argument, and even though one ISP has declared an intention to fight the DEA in court it is by no means a certain winner, it would likely only be a temporary victory.  Such a decision would rapidly induce further lobbying and the subsequent inevitable tweaks to the law to close the loopholes.  Mind you, what are the odds on a minister understanding the difference between assigning and allocating an IP address when he doesn't even know what an IP address is?

The web blocking provisions define 'service provider' differently, as any person providing an infromation society service.  This time the ISP, as a 'sevice provider', is on the hook, being required to block access to a "location" (website, webpage, newgroup, p2p services, warehouse, country?) from which a substantial amount of material has been, is being, or is likely to be obtained by, or made available in infringement of copyright. They also have to block any location that 'facilitates access to' such a location. So if you link or are suspected of linking expect to have your site blocked.  The trouble is that the meaning of 'location' is unclear as it doesn't seem to be defined anywhere.  And how many levels of separation are we talking about in relation to links here?  Is a link to a site that links to the suspected dodgy site a 'facilitation of access to'?  How about a link to a link to a site that links to the suspect 'location'?  And where does this leave search engines and libraries whose business is access to information?

I haven't had enough time on the detail of the final text to make a decent guess but it seems that the dangerous downloaders act is going to come back to bite its supporters and detractors.  It really is important to subject these things to proper scrutiny even if only to make sure your 'service providers' responsible for throwing suspect 'subscribers' off the Net are indeed the ISPs who assign IP addresses to their customers.

UK Elections Neither Free Nor Fair

Craig Murray, the UK's former Ambassador to Uzbekistan (withdrawn in 2004 after exposing appalling human rights abuses in that country), believes that the UK electoral process doesn't stack up too well against that of the average banana republic. It's a damning analysis.

"Against international standards, British elections leave a great deal to be desired. The first crucial failing is the lack of an independent administration of the elections. In each constituency, the election is not run by the Electoral Commission, but by the local authority. The national Electoral Commission has only an advisory role and cannot even monitor or instruct local returning officers. The returning officer is almost always the chief executive officer of the local authority.
The problem is that, de facto, those chief executives are party-political appointments. Particularly in the long-term New Labour rotten boroughs of the north, local government appointments are a New Labour nexus... Reciprocal agreements between New Labour councils to provide full-time party staff – at the council taxpayer's expense – are not uncommon...

The polling booth is the vital question here. Those bits of board that prevent anyone from seeing how you vote, are an essential element of the secret ballot. New Labour has, in effect, deliberately removed it. Any vote made at home is a vote that may be filled in under the coercive eye of an individual able to enter your home and intimidate you – something nobody can do in the polling booth...

The regulations have been designed specifically to prevent the exposure of postal ballot fraud. By law, the postal ballots have to be mixed undetectably with the polling booth ballots before they are counted. Therefore, there is no way to prove if, as I suspect happened in Blackburn, a candidate received 25% of secret ballots but 80% of postal ballots...

But there is a still more fundamental point, which raises doubts about the democratic validity of Britain's elections – and that is the question of whether a real choice is being presented to the voters.
International electoral monitoring bodies pay a great deal of attention to this. For example, in December's parliamentary elections in Uzbekistan, it was the lack of real choice between five official parties, all supporting President Karimov's programme, on which the OSCE focused its criticism...

A traditional feature of British elections is the electoral communication, under which each candidate can send out a copy of their electoral address, delivered to every voter free by Royal Mail. Under another bit of Kafka-esque New Labour legislation, the Royal Mail now vets the content of every electoral address. The text must be seen and approved by a central Post Office unit before the leaflet can be printed and prepared for delivery...

Now, we come to the most fundamentally undemocratic aspect of British elections: the electoral system. It delivers massively disproportionate results with minority parties virtually unrepresented in parliament. At the last election, it delivered a good majority to an unpopular Tony Blair, even though New Labour received only 36% of votes cast – which represented just 22% of those entitled to vote.
But it does not favour the big parties evenly. New Labour can get a working majority with 34% of votes cast, while the Tories need 39%. If New Labour and the Tories both got 36%, New Labour would probably have almost 50 more seats. The Lib Dems could get 34%, yet win under half the seats that New Labour would get with the same percentage."

Craig Murray was unhappy with the Guardian's treatment of his article and I hope he won't mind me reproducing a large chunk of it here.  Most of what he writes about has been common knowledge amongst electoral system geeks for some time but he does summarise some of the key issues quite succinctly and the whole article is definitely worth a read.  However, I must admit that the process of the Royal Mail becoming the official censors of election leaflets had completley passed me by. How the heck did I miss that one and was it just me or did it bypass the usual anti-liberty regulation detection networks too?