US Government Told Piracy Losses Are Exaggerated

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At a hearing yesterday, several experts told the US International Trade Commission that many of the estimates of piracy losses touted by the entertainment industries were inflated or misleading. Others claimed that current enforcement methods aren't working and suggested they try something else.

The US International Trade Commission (USITC) describes itself as “an independent, quasijudicial Federal agency with broad investigative responsibilities on matters of trade”. It has been asked by the US Senate’s Finance Committee to investigate the effect of China’s ineffective intellectual property protection and enforcement on the US economy.

At a hearing on the topic yesterday, many of the witnesses were sceptical of the claims and assumptions made by the affected US industries, including the MPAA and RIAA-commissioned reports. Harvard Business School Professor Fritz Foley called the basic assumption behind the industry loss figures into doubt.

“It seems a bit crazy to me,” PC World quotes him telling the Commission on the first day of the hearing. “To assume that someone who would pay some low amount for a pirated product would be the type of customer who’d pay some amount that’s six or 10 [times] that amount for a real one.” While some companies, such as EA (at times), don’t follow this ‘a copy equals a lost sale’ system, the majority do.

“Be careful about using information the multinational [companies] provide you,” cautioned Foley. “I would imagine they have an incentive to make the losses seem very, very large.”

Professor Foley’s comments reiterate what the Government Accountability Office told US congress earlier this year. There is virtually no evidence for the claimed million dollar losses. “Lack of data hinders efforts to quantify impacts of counterfeiting and piracy,” was one of the main conclusions from their report. In fact, copyright infringements may also benefit the entertainment industries and third parties, it argued.

An Intellectual Properly law professor at Drake University had another perspective. Pointing out there are two sides to economics, Professor Peter Yu noted that companies counterfeiting products in China may employ US workers, and consume US-sourced raw materials, so it’s not a straight loss. It’s similar to how VHS tapes were not the straight loss the movie industry predicted and claimed in the late 70s and early 80s. Yu also noted that it’s useful in spreading Western ideas to China, although how well lobbying will go down is anyone’s guess.

One of the best suggestions so far, however, came from Ohio State University law professor Daniel Chow. When asked how the size of the problem can be identified and quantified, he suggested that the agency should push the affected industries for more data, presumably data that backs up their claims (there is little-to-none available at present).

Professor Chow also noted that current enforcement efforts are not working (as we have previously reported), and that companies should start thinking about the long-term. It’s advice that the industries would be wise to follow, as every past copyright conflict has, despite a short-term loss, provided massive long-term benefits and growth for the affected industries.


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