GAO Report Says Economic Effects Piracy of Goods and Files Can't Be Measured

The Government Accountability Office issued a report yesterday that will likely shock the content industry.  The report is called Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods (GAO-10-423).  The shock comes from two points in the report.  One is that because piracy of goods is illegal, the actual costs to industry are hard to measure.  There is no doubt that industry suffers when someone buys a counterfeit expensive watch.  The circumstances of that transaction, however, have some effect on how much industry would suffer.  For example, if the fake Rolex is sold at a pittance of the cost of the real thing and the consumer knows it is a fake, it's not likely industry should count that as a lost sale opportunity.  The problem is that industry tends to do exactly that when compiling sales statistics for the government. 

A lot of mis-information has found its way into industry documents that were handed to Congress and executive agencies, who then use that information depending on what the agenda happened to be.  GAO did the study as mandated by the PRO-IP Act passed in 2008, and attempted to find real figures.  The problem was so complex that the GAO basically said the economy-wide impact of counterfeiting and piracy is unknown.  The office reviewed past studies, examined their assumptions, talked to agencies and departments who cited data, and industry sources.  The GAO found that studies conflicted with each other regularly, that agencies (though not all) abandoned using bogus figures derived from industry sources for lack of verification, and that even industry sources couldn't verify the figures.  Whether true or an act of kindness, the GAO said that some industry participants were reluctant to talk about the problem for fear of identifying how big it actually was.  I'll just respond to that by suggesting these same participants seem not to have difficulty with scope and numbers when trying to influence legislation.

The second shock came when the report identified some positive aspects of piracy.  Sometimes, a pirated movie, for example, creates a buzz for the real thing and may spur sales of tickets or DVDs.  Some industries benefit because certain aspects of piracy spur demand.  The study suggested that ISPs and equipment manufacturers would get more business due to a need for larger and faster digital download opportunities.  While that may not soothe those who run the RIAA and the MPAA, it may explain some of the reluctance of AT&T and some of the other telecoms to perform deep packet inspection of content over the wires or send along infringement letters to customers on behalf of content creators.  If one of the complaints against Google is that it makes money from piracy by displaying ads against books it has scanned, what about the connections that content travels over?  I don't think that is the message some industry members want to hear.

There were even notes of positive effects on consumers.  One industry concern was the loss of intellectual property more than sales.  An offending party may actually improve on the counterfeit goods and compete legitimately in the after market. 

The report is candid in the how it described the effort to pin down the costs of counterfeit goods and digital piracy.  copies are available here.  Anyone interested in how the content and consumer goods industries represents themselves in efforts to get governments to aid them against illegal goods will find the report fascinating.  A copy of it is here.  Bill Gates reportedly said this ""Although about three million computers get sold every year in China, people don't pay for the software,  Someday they will, though. And as long as they're going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade."  Maybe Bill was on to something.  [MG]