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Misleading RCMP Data Undermines Counterfeiting Claims

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Tuesday September 18, 2007
My weekly Law Bytes column (Toronto Star version, Ottawa Citizen version, homepage version) focuses on the growing attention paid to counterfeiting and the use of misleading data as part of the debate. The RCMP has been the single most prominent source for claims about the impact of counterfeiting in Canada since its 2005 Economic Crime Report pegged the counterfeiting cost at between $10 to 30 billion dollars annually. The $30 billion figure has assumed a life of its own with groups lobbying for tougher anti-counterfeiting measures regularly raising it as evidence of the dire need for Canadian action.  U.S. Ambassador to Canada David Wilkins cited the figure in a March 2007 speech critical of Canadian law, while the Canadian Anti-Counterfeiting Network, Canada's leading anti-counterfeiting lobby, reported in April that the "RCMP estimates that the cost to the Canadian economy from counterfeiting and piracy is in the billions."

Yet despite the reliance on this figure - the Industry Committee referenced it in its final report - a closer examination reveals that the RCMP data is fatally flawed.  Responding to an Access to Information Act request for the sources behind the $30 billion claim, Canada's national police force last week admitted that the figures were based on "open source documents found on the Internet." In other words, the RCMP did not conduct any independent research on the scope or impact of counterfeiting in Canada, but rather merely searched for news stories on the Internet and then stood silent while lobby groups trumpeted the figure before Parliament.

A careful examination of the documents relied upon by the RCMP reveal two sources in particular that appear responsible for the $30 billion claim.   First, a March 2005 CTV news story reported unsubstantiated claims by the International Anti-Counterfeiting Coalition, a global anti-counterfeiting lobby group made up predominantly of brand owners and law firms, that some of its members believe that 20 percent of the Canadian market is "pirate product."  That 20 percent figure - raised without the support of any evidence whatsoever - appears to have been used by IACC to peg the cost of counterfeiting in Canada at $20 billion per year.

Second, a 2005 powerpoint presentation by Jayson Myers, then the Chief Economist for the Canadian Manufacturing and Exporters, included a single bullet point that "estimated direct losses in Canada between $20 billion and $30 billion annually." The source for this claim?  According to Mr. Myers, it is simply 3 to 4 percent of the value of Canada's two-way trade.

Indeed, unsubstantiated and inflated counterfeiting numbers appear to be nothing new.  The International Chamber of Commerce has long maintained that counterfeiting represents 5 to 7 percent of global trade (those figures were also raised before the Canadian House of Commons committees).  However, a recent study by the independent U.S. Government Accountability Office found that of 287,000 randomly inspected shipments from 2000 to 2005, counterfeiting violations were only found in 0.06 percent - less than one tenth of one percent. Moreover, the GAO noted that despite increases in counterfeiting seizures, the value of those seizures in 2005 represented only 0.02 percent of the total value of imports of goods in product categories that are likely to involve intellectual property protection.

Similarly, this year the Organization for Economic Co-operation and Development (OECD), which counts most industrialized countries as members, issued a comprehensive report on counterfeiting that placed the global cost at $200 billion annually.  That analysis, which makes suggestions that Canadian counterfeiting costs $30 billion each year even more implausible, was less than a third of what some business groups had previously claimed.   

In fact, the OECD report concluded that while counterfeiting was an issue in all economies, it is most common in economies "where informal, open-air markets predominate." This suggests that far from being a hot-bed of counterfeiting, Canada is rarely the source of counterfeit products and it consumes far less than many other countries worldwide.

Before Ottawa embarks on further anti-counterfeiting legislative action, it first requires accurate, non-partisan data.  Not only has such information been missing from the Canadian debate, but it is the RCMP that has astonishingly been a primary source of unreliable, unsubstantiated data.  In doing so, it has undermined both its own credibility as well as that of the House of Commons committee counterfeiting reports.
Comments (25)add comment

stacy said:

...
Did you know that 78% of all statistics are made up on the spot? :-)
September 18, 2007

Mekki said:

Wow
Wow.

Just.

Wow.

I'm not sure what else to say.

A big congrats and thanks, Michael, for highlighting this issue. I'm at a loss of words for how this sort of misleading still manages to occur in Canada.
September 18, 2007

Thomas said:

...
It is not only occuring in Canada. All estimations of counterfeiting of the last 10 years are based on the same unfounded claim that counterfeiting represent 5 to 7% of world trade.

Black market is, by definition, difficult to estimate.

The upcoming OECD report on counterfeiting and piracy (which the full report should be published in the next weeks) should be very interesting on the matter of counterfeiting measurement.
September 18, 2007

Doug said:

...
The police are some of the best liars around and they wonder why they don't always have the public's sympathies. The recording industry is just plain fantasizing
their statistics. They count every copied disk as a lost sale at full retail price, which ignores any and all economic theories accepted today. If someone listens to a copied disk instead of buying the CD, it's because they didn't want to hear it bad enough to buy it. That isn't a lost sale, it's a sale that never would have been. In other words, disk copying probably doesn't cost the industry much at all because people aren't willing to pay what the industry wants for the products they are offering. No amount of copy protection legislation will make people buy music they don't really like.
September 18, 2007

Adrian said:

BC resident
The RCMP has shown a disturbing tendency to get involved in politics, ranging from a variety of politically motivated investigations, to allowing government agencies to abuse their positions of public trust (Ontario lottery). Finding them weighing in on the piracy debate on the side of such organizations as CRAA and RIAA using the same flawed stats and analysis, is sadly not surprising.
It's one thing for individual members to have opinions and views and express them how they want, but the organization has to be responsible with it's actions and for it's views. In the case of the RCMP that means applying the same level of scrutiny to the statements they make in this debate as they would in a crime going to trial, while avoiding political bias. If they should even weigh in at all.
September 18, 2007

Brad said:

re: 3 to 4 percent Canada\\s trade
I'll be sure to be on the lookout for counterfeit gas, bananas and electricity.
i.e. not everything traded is counterfietable.
September 18, 2007

a guest said:

...
Who they trying to kid. Has anyone looked at our money lately? Good luck trying to forge that. It's laughable...

Lies lies and damn lies. Tell the yanks to go home. We don't want there laws up here. Bet they have not even one counterfeit attempt at our new paper cash. It would be easier to forge US currency.
September 19, 2007

Bill Lambert said:

Some angry blogger
Why should anyone believe statistics cooked up by "brand owners and law firms" ? Isn't that the very definition of "conflict of interest" ?

Governments and law makers should be listening to their #1 client: citizens. I don't care what some rich guy in the USA thinks, I care what I think, and what my relatives, neighbors and coworkers think. Is counterfeiting a bad thing ? Maybe it is, maybe it ain't. Now the fact that certain products are so damned easy to counterfeit that any random Joe can make and sell them, to me that's a sign that the product wasn't very valuable in the first place. These "brand owners" are no better than the record and film industry, throwing around random numbers and abusing legal tactics to desperately protect their obsolete products and business models.
September 19, 2007

Billy Bob Thornton said:

...
I know a guy that, just by himself, has about $15 billion dollars worth of pirated illegal digital downloads. Obviously if he hadn't stolen these files, he would have bought them all. Each and every one. Obviously. Find another guy like him and there's yer $30B.

;-)
September 19, 2007

a guest said:

...
I will never trust our cops again. Ever.
September 19, 2007

Pete said:

CTO
Excellent article Michael!

Kudos for doing some critical thinking and research to expose the copyright lobby groups for what they are: Liars, Fearmongers and Illegal Monopolists.

It is especially refreshing to see you take to task the police, who try to hide behind their badges and 'reputation', for being on the payroll and under the influence of Big Copyright.

Bravo!
September 19, 2007

Thomas said:

...
I think some of you should make the difference between counterfeiting and piracy.

The issue in this article is the counterfeiting of goods (not the counterfeiting of money)

By the way, counterfeiting and piracy cost government tax revenues because most counterfeiting items are sold on the black market. Thus, citizens are losing as well because they have to put up those loss revenues.
September 19, 2007

James said:

re: Some angry blogger
"Governments and law makers should be listening to their #1 client: citizens" ??

I'm not sure where you've been, but I'm not sure how you are able to rank us lowly citizens as the # 1 client...if anything, we're only minor obstacles to the real clients...the corporations. It's certainly not as bad yet in Canada as in the US

"Is counterfeiting a bad thing ? Maybe it is, maybe it ain't."

The answer is that it *IS*. By definition, counterfeiting involves an attempt to deceive the end user that the product is legitimate. If I pay for a product i think is genuine, it had better be genuine. In addition, counterfeit products are not subject to regulation (obviously), I don't think you want a counterfeit seatbelt making its way into your car. Also, I think you may be confusing the term 'knock off' and 'counterfeit'. If I buy a pair of knock-off 'Nikke' shoes, I don't expect them to wear as well as my 'Nike' shoes (bad example, as I am not much enamored of Nike shoes to begin with, but you get the point)

Lastly, I'm not sure how you equate 'easy to counterfeit' as a sign that the product isn't very valuable...that's an enormous leap. And who ARE these average Joe's you speak of? These 'average Joes' you speak of have manufacturing expertise and factories with worker-slaves. Counterfeiting is very high tech and fast changing, ahem, 'industry'. If you are speaking about IP in general, say music or software, the only reason 'average Joes' can easily duplicate the products is because a 'non-average Joe' (read: a programmer smarter than you) created a product to ease said duplication.

Sorry I had to pick apart your post, since I agree with the end sentiment...corps and associations are indeed using litigation as a means of protecting outdated business models while they try to figure out how to protect their market of over-priced products that we've been paying through the nose for for years...
September 19, 2007

Jardinero1 said:

Pendejo
Regardless of the actual monetary value of the "counterfeited" goods, the relevant question is: who is harmed and who benefits? Most harm is done to manufacturers of high margin goods with low labor and capital inputs and high marketing and advertising inputs. Think Louis Vuitton and Gucci. The beneficiaries are consumers. Being a consumer and not a manufacturer I support the counterfeiting of these types of goods. It lowers the costs of these goods overall and it forces manufacturers to improve quality.
September 19, 2007

Bor said:

Beyond making up numbers
The last time I read a report from one of those "anti-piracy" outfits, besides the dubious numbers, it was clear that they had no understanding of economics economics. The methodology was so bad it was laughable. To give just one example, they essentially made the assumption that if software piracy reduced the market for software, all those laid off software salesfolk would be out of work in perpetuity.

I remember thinking at the time that if I'd written something as horrendously foolish as that report, I'd halfway expect the university to send someone around to repossess my diploma.
September 20, 2007

Vincent Clement said:

...
An article in today's Windsor Start about musician Duff McKagan has this little gem:

"With the recorded-music business in a tailspin, due largely to Internet piracy, bands have to be financially creative, McKagan said in a recent inteview".

Source: Windsor Star, September 20, 2007 - Dean Goodman, Reuters, Los Angeles.

The tailspin would have nothing to do with the insane competition for discretionary dollars. Kids today can spend their money on: recorded music, live concerts, cell phones, ring tones, accessories for their cell phone, handheld computer games such as PSP or Gameboys, console gaming units and games, movies in theatres, movies on DVD, clothing, food, transportation, school supplies, etc. But it's much easier to blame internet piracy.
September 20, 2007

a guest said:

...
RCMP - Are these the same cops that were disguised as violent protesters and pushing around that elderly gentleman at Montebello, Quebec? Or were they the Quebec police?
September 21, 2007

Kristal said:

...
Well done. Thank you, Mr. Geist.
September 21, 2007

Paul said:

Note to Future RCMP Officers
Citing "Teh Intarwebs" as a research source will not be enough.
September 21, 2007

Rebekah said:

Piracy vs Counterfeiting
Alright kiddies, let's keep in mind that the music/movie/etc industry is most upset by piracy these days. And piracy is not the same as counterfeiting. Piracy is just plain copying stuff ad infinitum, rather than buying it. No one thinks it's the real deal, everyone knows it's just a copy, and no money changes hands. With counterfeiting, someone somewhere is trying to sell an item for money with the claim it's the original. Counterfeiting of movies and music cd's does happen, but here in North America the biggest concern is all those kids who fileshare, not the folk burning discs and then ebaying them claiming they are the originals.
September 21, 2007

Ed said:

...
The RCMP (or Canada's keystone cops)actually look more and more foolish with each addtional major blunder that comes to light (and I can only imagine how many majors blunders never come to light) Setting Candians up for deportation to Syria by the CIA, embezzling from pension funds, erasing air india tapes, squabling with CSIS and heaven knows what other hijinks.
September 21, 2007

hiro81 said:

...
Thank you for once again bringing truth to bear on the corporate forces which would seek to limit our rights and obfuscate the truth with imaginary numbers and figures. I really wish you would run for office in the House of Commons Michael, we need more champions of individual liberties like yourself in our government!
September 21, 2007

Dave said:

...
I'd like to add my voice to the chorus thanking you for exposing the slipshod statistic and skewed information constantly thrown at the public by corporate interests. Bravo, as usual.
September 21, 2007

a guest said:

...
"Are these the same cops that were disguised as violent protesters and pushing around that elderly gentleman at Montebello?"

"The RCMP (or Canada's keystone cops)actually look more and more foolish with each addtional major blunder that comes to light (and I can only imagine how many majors blunders never come to light)"

Well, the Internet and YouTube are going to be the big expose-ers of all time.
Maybe they should start trying to shut down the internet or at least try to scare us into not using it for free speech.
September 25, 2007

nobodyspeshyl said:

what? i cant hear you!
rcmp are idiots and liars
i dont buy cd's or movies because i cant afford it $34.99 for a single cd? wtf is that i make $8/hr and pay $1400/month rent did anybody consider that?
December 15, 2007

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