[A2k] Incisive Ars report on dodgy piracy statistics

[Jeffrey A. Williams]

Parnesh and all,

  Yes I have for years had serious questions that remain unanswered
regarding where these numbers actually came from and how they
were collected.  I on several occasions ask Susan Schwab at
USTR if the had any raw data that supported these broadly stated
figures that could be independently reviewed and researched.  She
never returned my inquiry to this day.  As such our members have
determined that one cannot take such figures seriously.

  This said, piracy is a problem and a growing one, but the recent
legislation PRO-IP, will do little to curb the problem in it's current
form as it assumes mostly the wrong avenues by which much of
the piracy originates.  Secondly this legislation does nothing to
direct large IP interests to do their own due diligence, protect
their own products, and get control of their own distribution
channels effectively by mandate.

Pranesh Prakash wrote:

> --
> [ Picked text/plain from multipart/alternative ]
> >From Ars Technica:
> http://arstechnica.com/articles/culture/dodgy-digits-behind-the-war-on-pi=
racy.ars
>
> 750,000 lost jobs? The dodgy digits behind the war on piracy
>
> By Julian Sanchez <http://arstechnica.com/authors.ars/juliansanchez> |
> Published: October 07, 2008 - 11:30PM CT
> A 20-year game of Telephone
>
> If you pay any attention to the endless debates over intellectual propert=
y
> policy in the United States, you'll hear two numbers invoked over and ove=
r
> again, like the stuttering chorus of some Philip Glass opera: 750,000 and
> $200 to $250 billion. The first is the number of U.S. jobs supposedly los=
t
> to intellectual property theft; the second is the annual dollar cost of I=
P
> infringement to the U.S. economy. These statistics are brandished like a
> talisman each time Congress is asked to step up enforcement to protect th=
e
> ever-beleaguered U.S. content industry. And both, as far as an extended
> investigation by Ars Technica has been able to determine, are utterly bog=
us.
>
> "I have said it thrice," wrote Lewis Carroll in his poem *The Hunting of =
the
> Snark*, "what I tell you three times is true." And by that standard, the
> Pythagorean Theorem is but schoolyard gossip compared with our hoary
> figures. As our colleagues at *Wired *noted earlier this
> week<http://blog.wired.com/27bstroke6/2008/10/fiction-or-fict.html>,
> the 750,000 jobs figure can be found cited by the U.S. Department of
> Commerce, Customs and Border Patrol, and the U.S. Chamber of Commerce, am=
ong
> others. Both feature prominently on
> TheTrueCosts.org<http://www.thetruecosts.org/portal/truecosts/default>,
> an industry site devoted to trumpeting the harms of piracy. They're
> invoked<http://www.edn.com/index.asp?layout=3Darticle&articleid=3DCA64885=
01>by
> the deputy director of the U.S. Patent and Trademark Office. And, of
> course, they're a staple of indignant press
> releases<http://leahy.senate.gov/press/200807/072408a.html>from the
> congressional sponsors of tough-on-piracy legislation.
>
> By more conventional standards of empirical verification, however, the
> numbers fare less well. Try to follow the thread of citations to their
> source, and you encounter a fractal tangle of recursive reference that
> resembles nothing so much as the children's game known, in less-PC times,=
 as
> "Chinese whispers," and these days more often called "Telephone." Usually=
,
> the most respectable-sounding authority to cite for the numbers (the FBI =
for
> the dollar amount, Customs for the jobs figure) is also the most
> prevalent=E2=80=94but in each case, that authoritative "source" proves to=
 be a mere
> waystation on a long and tortuous journey. So what is the secret origin o=
f
> these ubiquitous statistics? What doomed planet's desperate alien
> statisticians rocketed them to Kansas? Ars did its best to find the
> fountainhead. Here's what we discovered.
> Looking for lost jobs
>
> First, the estimate of 750,000 jobs lost. (Is that supposed to be per yea=
r?
> A cumulative total over some undefined span? Those who cite the figure
> seldom say.) Customs is most often given as the source for this, and inde=
ed,
> you can find press releases from as recently as
> 2002<http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/legacy/20=
02/52002/05292002.xml>giving
> that figure as a U.S. Customs and Border Patrol estimate. Eureka! But
> when we contacted CBP to determine how they had arrived at that imposing
> figure, we were informed that it was, in essence, a goof. The figure,
> Customs assured us, came from somewhere else, and was mistakenly describe=
d
> as the agency's own. This should come as no great surprise: CBP is an
> enforcement agency, whereas calculating the total loss of jobs from IP
> infringement would require some terrifyingly complex counterfactual model=
ing
> by trained economists. Similar claims have appeared in Customs releases
> dating back at least to 1993, but a CBP spokesperson assured us that the
> agency has never been in the business of developing such estimates in-hou=
se.
>
> With Customs a dead end, we dove into press archives, hoping to find the
> earliest public mention of the elusive 750,000 jobs number. And we found =
it
> in=E2=80=94this is not a typo=E2=80=941986. Yes, back in the days when "P=
apa Don't Preach"
> and "You Give Love a Bad Name" topped the charts, *The Christian Science
> Monitor* quoted then-Commerce Secretary Malcom Baldridge, trumpeting Rona=
ld
> Reagan's own precursor to the recently passed PRO-IP
> bill<http://arstechnica.com/news.ars/post/20080926-ip-bill-passes-senate-=
no-civil-enforcement-power-for-doj.html>.
> Baldridge estimated the number of jobs lost to the counterfeiting of U.S.
> goods at "anywhere from 130,000 to 750,000."
>
> Where did that preposterously broad range come from? As with the number o=
f
> licks needed to denude a Tootsie Pop, the world may never know. Ars
> submitted a Freedom of Information Act request to the Department of Comme=
rce
> this summer, hoping to uncover the basis of Baldridge's claim=E2=80=94or =
any other
> Commerce Department estimates of job losses to piracy=E2=80=94but came up=
 empty. So
> whatever marvelous proof the late secretary discovered was not to be foun=
d
> in the margins of any document in the government's vaults. But no matter:=
 By
> 1987, that Brobdignagian statistical span had been reduced, as far as the
> press were concerned, to "as many as 750,000" jobs. Subsequent reportage
> dropped the qualifier. The 750,000 figure was still being bandied about t=
his
> summer in support of the aforementioned PRO-IP bill.
> $250 billion? What's that in real money?
>
>  What, then, of that $200 to $250 billion range? Often, it's attributed t=
o
> the Federal Bureau of Investigation, and indeed, the Bureau routinely
> cites<http://www.fbi.gov/page2/dec03/ip122103.htm>those numbers.
> According to FBI spokesperson Catherine Milhoan, the figure
> "was derived through our coordination with industry, trade associations,
> rights holders, and other law enforcement agencies" at a 2002 anti-piracy
> confab. But neither the Bureau nor the National Intellectual Property Rig=
hts
> Coordination Center, which assembled the inter-agency powwow, could find =
any
> record of how that number was computed.
>
> At this point, it's necessary to get a little speculative. As with Custom=
s,
> the FBI is not in the habit of doing sophisticated economic analysis
> in-house. And the last time the government conducted any sort of verifiab=
ly
> rigorous study of the costs of IP theft=E2=80=94about which more presentl=
y=E2=80=94it was a
> protracted undertaking that involved sending detailed questionnaires to
> hundreds of businesses, which government economists concluded was still
> insufficient to produce a reliable figure for the economy as a whole.
> However, $250 billion is about the number you come up with if you start w=
ith
> $200 billion in 1993 dollars and adjust for inflation to 2002. And that
> lower end of the range, $200 billion, happens to date back to 1993.
>
> Another group that routinely uses the $200 to $250 billion figure is
> the International
> Anti-Counterfeiting
> Coalition<http://www.iacc.org/counterfeiting/counterfeiting.php>,
> which (along with the FBI) is often given as the source of the number. Th=
at
> organization's white papers <http://iacc.org/resources/IACC_WhitePaper.pd=
f>,
> as recently as 2005, footnote the figure to 1995 congressional testimony
> urging passage of what became the Anticounterfeiting Consumer Protection =
Act
> of 1996. So Ars dug into the archives at the Library of Congress to disco=
ver
> where the witnesses before the House and Senate Judiciary Committees got
> their data.
>
> Several of the witnesses were conspicuously vague about their sources. An
> IACC factsheet submitted for the hearings said the group itself "estimate=
s
> the economic cost due to product counterfeiting to exceed $200 billion ea=
ch
> year," a number repeated <http://judiciary.house.gov/Legacy/477.htm> by t=
he
> group's then-president, John Bliss. Congressman Bob Goodlatte (R-VA) gave
> the same figure without sourcing.  But several witnesses pointed to
> *Forbes*magazine as the source of the number. Rep. John Conyers (D-MI)
> noted that
> the International Trade Commission had placed the size of the counterfeit
> market at $60 billion in 1988 and that "a more recent estimate by *Forbes
> Magazine* says that American businesses are losing over $200 billion each
> year as a result of illegal counterfeiting." Finally, Charlotte Simmons-G=
ill
> of the International Trademark Association was kind enough to give a prec=
ise
> citation <http://judiciary.house.gov/Legacy/475.htm>: the October 25, 199=
3
> issue of *Forbes*.
>
> Ars eagerly hunted down that issue and found a short article on
> counterfeiting, in which the reader is informed that "counterfeit
> merchandise" is "a $200 billion enterprise worldwide and growing faster t=
han
> many of the industries it's preying on." No further source is given.
>
> Quite possibly, the authors of the article called up an industry group li=
ke
> the IACC and got a ballpark guess. At any rate, there is nothing to indic=
ate
> that *Forbes* itself had produced the estimate, Mr. Conyers' assertion
> notwithstanding. What is very clear, however, is that even assuming the
> figure is accurate, it is *not* an estimate of the cost to the U.S. econo=
my
> of IP piracy. It's an estimate of the size of the entire global market in
> counterfeit goods. Despite the efforts of several witnesses to equate the=
m,
> it is plainly not on par with the earlier calculation by the ITC that man=
y
> had also cited.
>
> But here, at last, we have a solid number to sink our claws into, right?
> Sure, it's 20 years old, but the U.S. International Trade Commission at
> least produced a reputable study yielding a definite figure for the cost =
of
> piracy to the U.S. economy: $60 billion annually.
>
> Well, not quite.
> "Biased & self-serving"
>
>  The number the ITC actually came up with, based on a survey of several
> hundred business selected for their likely reliance on IP for revenue, wa=
s
> $23.8 billion=E2=80=94the estimated losses to their respondents. That num=
ber was
> based on industry estimates that the authors of the study noted "could
> admittedly be biased and self-serving," since the firms had every incenti=
ve
> to paint the situation in the most dire terms as a means of spurring
> government action. But the figures at least appeared to be consistent and
> reasonable, both internally and across sectors.
>
> The $60 billion number comes from a two-page appendix, in which the autho=
rs
> note that it's impossible to extrapolate from a self-selecting group of
> IP-heavy respondents to the economy as a whole. But taking a wild stab an=
d
> assuming that firms outside their sample experienced losses totaling a
> quarter to half those of their respondents, the ITC guessed that the
> aggregate losses to the economy might be on the order of "$43 billion to =
$61
> billion."
>
> The survey also, incidentally, asked respondents to estimate the number o=
f
> job losses they could attribute to inadequate intellectual property
> protection. The number they came up with was 5,374. If we assume, very
> crudely, that job losses are proportionate to dollar losses, then the ITC=
's
> high-end estimate of $61 billion in total economic costs would correspond=
 to
> a loss of not 750,000 jobs, but 13,774.
>
> If we want to be very precise, however, we should note that the ITC was n=
ot
> calculating losses from IP "theft," but rather "inadequate protection" of
> intellectual property. And "inadequate protection" was interpreted to mea=
n
> protection falling short of the level provided by U.S. law. The protectio=
n
> provided by a foreign country might be deemed "inadequate," the study
> explained, if "exceptions to exclusive rights are overly broad"=E2=80=94f=
or example,
> if a country's law contained "broad exceptions for public performances in
> hotels or film clips" or "too broad exceptions for educational
> photocopying." A legal regime could be "inadequate" because "terms of
> protection are too short" or because of "inadequate" civil or criminal
> remedies, meaning monetary damages or criminal penalties for infringers w=
ere
> not high enough.
> Calculating the net cost of piracy to the economy
>
> One final, slightly theoretical point deserves emphasis here. All the
> projections we've discussed, the rigorous and the suspect alike, calculat=
e
> losses in sales or royalties to U.S. firms. This is often conflated with =
the
> net "cost to the U.S. economy." But those numbers=E2=80=94whatever they m=
ight be=E2=80=94are
> almost certainly not the same. When someone torrents a $12 album that the=
y
> would have otherwise purchased, the record industry loses $12, to be sure=
.
> But that doesn't mean that $12 has magically vanished from the economy. O=
n
> the contrary: someone has gotten the value of the album and still has $12=
 to
> spend somewhere else.
>
>  In economic jargon, charging *anything* for pure IP=E2=80=94which has a =
marginal
> cost approaching zero once it has been produced=E2=80=94creates a deadwei=
ght
> economic loss, at least in static terms. The actual net loss of IP
> infringement is an *allocative* loss that only appears in a dynamic
> analysis. Simply put, when people pirate IP, the market is not accurately
> signaling how highly people value the effort that was put into
> *creating*it, which leads to underproduction of new IP. To calculate
> the
> *net *loss to the economy over the long run, you'd need to figure out the
> value of the lost innovation in which IP owners would have invested the
> marginal dollar lost to piracy, and subtract from that the value of the
> second-best allocation=E2=80=94which is to say, whatever the consumer of =
the pirated
> good spent his money on instead=E2=80=94and the value of the deadweight l=
oss (free
> music or software is a net economic benefit to someone) incurred by prici=
ng
> IP at all.
>
> If that sounds incredibly complicated, it is. And in fact, it's more
> complicated than that, because as Yochai Benkler has argued
> persuasively<http://cyber.law.harvard.edu/wealth_of_networks/Main_Page>,
> IP is an input to innovation as well as the product of innovation. So und=
er
> certain very specific conditions, "piracy" can produce net gains. While i=
t
> seems extremely unlikely that this is the case in the aggregate=E2=80=94I=
P theft
> almost certainly does impose net economic costs=E2=80=94*simply* calculat=
ing lost
> sales and licensing fees, assuming someone could produce a credible figur=
e,
> would not provide a complete picture of the economic impact of IP
> infringement. It would give us, at most, one side of the ledger.
> Conclusions
>
> But enough theory and speculation; here is what we can say for certain: t=
he
> two numbers that are invariably invoked whenever Congress considers the n=
eed
> for more stringent IP enforcement are, at best, highly dubious. They are
> phantoms. We have no good reason to think that either is remotely reliabl=
e.
>
> Perhaps more importantly, both numbers are seemingly decades old, gaining=
 a
> patina of currency and credibility by virtue of having been laundered
> through a relay race of respectable sources, even as their origin recedes
> into the mists.  That's especially significant, because these numbers are
> always invoked as proof that the piracy problem is still dire=E2=80=94tha=
t
> everything we've done to step up international enforcement of intellectua=
l
> property laws has been in vain. But of course, if you simply recycle the
> same numbers from 15 and 20 years ago=E2=80=94remember that IACC's
> *2005*publications<http://iacc.org/resources/IACC_WhitePaper.pdf>still
> cite that 1995 congressional testimony, from which it seems safe to
> infer that they have no more recent source=E2=80=94then it will necessari=
ly seem as
> though no ground has been gained.
>
> Neither figure is terribly plausible on its face. As *Wired*
> noted<http://blog.wired.com/27bstroke6/2008/10/fiction-or-fict.html>earli=
er
> this week, 750,000 jobs is fully 8 percent of the current number of
> unemployed in the United States. And $250 billion is more than the *combi=
ned
> * 2005 gross domestic revenues of the movie, music, software, and video g=
ame
> industries.
>
> Still, anything is possible: The figures *could* happen to be more or les=
s
> accurate. But given the shady provenance of the data, the one thing we kn=
ow
> for certain is that we don't know for certain. And we're making policy on
> the basis of our ignorance.
> _______________________________________________
> A2k mailing list
> A2k@lists.essential.org
> http://lists.essential.org/mailman/listinfo/a2k

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