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U.S. Government Study: Counterfeiting and Piracy Data Unreliable

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Wednesday April 14, 2010
For several years, I have written about the lack of reliability of data on counterfeiting.  The RCMP cited data without any factual basis, while other groups regularly made claims without support, such as reports from the Ontario Chamber of Commerce and the Conference Board of Canada.  Of course, this phenomenon was not limited to Canada.  The US Patent and Trademark Office relied on the same data to claim 7 - 8 % of world trade is counterfeit, while a report from the first Global Congress on Counterfeiting, which led to ACTA, pointed to FBI data it said showed counterfeiting at US$200 - 250 billion per year.

This week a report from the U.S. Government Accountability Office concludes that estimates such as these are not reliable and cannot be substantiated to a data source.  The U.S. GAO was required by Congress to try to quantify the impact of counterfeit and pirated goods.  While concluding that counterfeiting exists and is a problem, the GAO could not find reliable data.  Its review of commonly cited claims:

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.

While the report is unlikely to stem the tide of unsubstantiated claims, it is important to recognize that independent analysis from the U.S. government has now concluded what many have been maintaining for some time - the case against counterfeiting continues to suffer from an absence of hard, reliable data.
Comments (24)add comment

Anon said:

...
2002 sure was a big year for big claims. One can't help wonder this represents a successful attempt to manipulate some of the most powerful organizations in the world.
April 14, 2010

Laurel L. Russwurrm said:

What the other hand does
The US government is pushing ACTA on the basis if unsubstantiated claims. The UK government was just suckered into passing the Digital Economy Bill (on the eve of an election, no less) on the basis of unsubstantiated claims.
April 14, 2010

Eric L. said:

Up next...
I have determined from "special sources" that counterfeiting causes 200,000 cases of constipation per year. This is more evidence that ACTA absolutely needs to be passed totally in secret without any questioning or usage of common sense.
April 14, 2010

Anonyme said:

Ah so ...
The figures used to accuse Canada of being a country full of piracy is ... well ... biological refuses?
Nice to know.
Unfortunatly we have McSlaves at our gouvernements, and i'm sure they will be the first to sign ACTA regardless of content(even if it would transform Canada intro the 52's state of the US).
April 14, 2010

. said:

The bottom line
"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."
April 14, 2010

Ed in Calgary said:

Possible positive side-effects of Piracy
The report also cited that there are positive effects of piracy as you are more likely to spend that money on a different items, like GOING to a movie you want to see, concert tickets, a digital MP3/video player. My MBA paper also proved that piracy was also a good thing for developing nations as it's free viral marketing for all companies.

My research also found that piracy claims were not only unsubstantiated, but just plain incorrect. How can a company claim losses on sales that really don't exist? If the person couldn't get it free, would they even buy it? I surveyed college students with respect to movies and music and found that most spend actually quite a bit on going to movies and buying music, as well as downloading pirated movies and music. The more they downloaded, the more they actually spent on music and movies. I'm still doing more research in the area.
April 14, 2010

Anon-K said:

@Ed in Calgary
Regarding claiming losses on sales due to piracy... Don't forget that the folks that are pushing that idea aren't all that interested in facts; the numbers make really good headlines, and given how many in the media these days actually examine the claims made (I attribute this to a combination of shorter deadlines and media company owners "influencing" the editorial direction)... It isn't about presenting facts to the people; it is about affecting their emotions. Its marketing.

@".": I don't think that anyone is disputing that copyright infringement and counterfeiting occurs. The big issue is the claims as to the size of the problem... The GAO has effectively said that the numbers quoted have been generated based on assumptions pulled out of a southern bodily cavity (although the assumptions may have been published). Then those numbers have been quoted as elsewhere fact rather than as a WAG and they take on a life of their own.
April 14, 2010

crade said:

@ "."

lol, so after he tries his best to data to back up any of the claims, he goes and says we don't need no stinkin data to back up the claims! Awesome.
April 14, 2010

pat donovan said:

grunt
next it'll be 'the big lie' time... think of the children, you nazis!

plus a few red flag incidents, even if they have to load the srevers themselves.
lots of unemployed people who front for them, too.
packrat
April 14, 2010

Anonymous #21.2 said:

"Hollywood" accounting at it's finest.
http://en.wikipedia.org/wiki/Hollywood_accounting
April 14, 2010

Evan said:

Best possible data I found
Even though its based upon estimates provided by industry groups and the media, I think these guys are doing an interesting job in keeping track of estimated losses.

First, by country:

http://www.havocscope.com/activities/counterfeit-markets-by-countries/

Then, by products:

http://www.havocscope.com/activities/counterfeit-and-piracy/

At the very least, it keeps all the random estimates in one place.
April 14, 2010

btrussell said:

The one with the period said
"...many U.S. industries are leaders in the creation of intellectual property."

If IP is a right, why is everyone infringing on the originator of the right rights. You can't claim it, only the first can.
April 15, 2010

Anon-K said:

@Anonymous #21.2
Not exactly news. The same occurs, in a different form, elsewhere. One company I used to work for had a percentage of the revenue paid to the parent company in the form of "management services" (if I remember, the amount was somewhere between 5% and 10%, even though we had all of our own financial, etc, folks).
April 15, 2010

Mr Butt said:

@Laurel L. Russwurrm
but... but... but, Laurel, German based digiproject (who is going to open in the UK) and ACS Law have teamed up now in the UK.

They said, "economics firm TERA Consultants, estimated that the UK's creative industries experienced losses of £1.2bn in 2008 due to piracy."

And even if they nail the wrong people, they said:
"You have to regard the damages that are caused by illegal file-sharing. The ones who are traumatised are the content providers".

"Our rights holder clients prefer the methods we adopt, together with the positive and direct benefits they derive from them,"

see: http://news.bbc.co.uk/2/hi/technology/8619407.stm

Laurel, if £1.2bn is lost in sales to the industry in the UK and the right holders want this, then I guess it has to happen. You can't have kids, teenagers, tweenagers copying music. That's a crime and they have to be punished per offense.

Also, imagine how much homegrown companies, like Bell Canada, loses! Think what happens when you record a TV show and if you maybe pass it on to someone who doesn't have Bell TV! That is sales lost from Bell Canada and you should be sued.

Also, if you download it and give it to your brother or friend to watch, that is sales lost in bandwidth to Bell Canada. You should be sued.

The economic turmoil is devastating to our country. Enough is Enough! People have to pay! No? The free ride has to end. We need this in Canada. It will save our economy due to all these lost sales.

The sooner Minister Moore, Minister Clement and the Harper government give us a copyright bill that punishes people the better we will all be off.

From what I understand the liberals will do this as well if elected (in case the Harper gov falls due to torture cover-ups, as reported). So no matter what, it will happen anyhow. Even the Liberals know this and need to put a stop to these type economic crimes and home-grown economic terrorism.
April 16, 2010

oldguy said:

@Mr Butt
Although those UK "numbers" sound big, are they based on the same level of reliability that the US GAO has found with the US numbers? Until I see a detailed analysis, and the methodology used to gather the numbers, I will remain a cynic of these "numbers".

You said: "The sooner Minister Moore, Minister Clement and the Harper government give us a copyright bill that punishes people the better we will all be off."

When all of the teenagers, twenty and thirty somethings are impoverished or in jail, who will be left to buy the content? Who will pay the taxes to support the welfare and prisons? The content industries? I doubt it. Keep in mind "Hollywood accounting" procedures.
When you set out to criminalize all your customers, the more successful you are, the more of your business you lose. That is a bigger "economic fact" that anything hurting you right now.

The political "playing field" is due to shake up fairly soon. There are members of the NDP, the Liberals, the Conservatives, and even the Bloc that know this. They see the writing on the wall. Yes, the "Pirate Party" seems a lot like a single platform party at the moment, but it has also captured the imagination of many of our younger voters (under 40), ones that have never voted before. The seeds are planted, for the first time in their life, a lot of these younger voters finally have something to vote for. It may not be the smartest vote to make, it is definitely a valid vote against everything else. When members of the existing parties join the Pirate Party, they will bring a balance and more diversity to the party platform. And that's when the world turns upside down.

Nearly everybody will agree that copyright has it's purpose and should exist, but it needs to be updated and brought back into balance with society. The alternative is a worldwide technological underground, with a million to one advantage in members. Again, this would be economic ruin for the content industries. And that underground has a bigger, and better, technical talent pool than anything money can buy, freely offered.

Technically the copyright lobby cannot win at all. In the long run, they cannot win politically. Sometimes the only way to survive is to negotiate. Do it now, and the content industries can survive, do it later and their interests will be irrelevant. That's also good economics, and I don't have to pull numbers from a hat to know this.

The bottom line is if your efforts succeed in getting stronger copyright laws and penalties passed, you will have sealed the doom of your industry. It's a shame that you will have dragged all the artists and creators down with you. The backlash will insure it. Put the lobbying power behind negotiating a more balanced and modern set of copyright laws, and everybody wins.

April 16, 2010

Captain Hook said:

sarcasm
oldguy. You missed it!
April 16, 2010

Exerna said:

Yeesh.
How dense do you have to be not to realize "# of times pirated" is NOT equal to "# of sales that would have happened had pirating not been an option"?

Wonderful what you can convince the mindless flocks of eh? Lack of education is the biggest freaking problem humanity has.
April 16, 2010

oldguy said:

sarcasm

Yeah.. Sorry about that..

There are times when because of a bad day or too tired or whatever I shouldn't even read this stuff.

April 16, 2010

Mr Butt said:

...
Don't be sorry. :)
April 16, 2010

end user said:

...
Well money I save on piracy is spent on other things like more clothes for my kids, more gas for my gas guzzling Bronco, which means more tax money for the government AND I can still get tons of really good Creative Commons licensed music for free and even have money to donate to those CC artists. Now I have been living in a box for the last 5 years by buying all my music for $2 per CD a pawn shops but this week I discovered a couple of great CC sites http://www.jamendo.com/en/ and http://www.ektoplazm.com A lot of the music on there is excellent and on par or surpasses commercial crap. Unfortunately I had to adjust from hearing music on the radio or from friends first and now I have to listen to discover first. Not too bad as it's forced me to discover other styles I would have overlooked, like the stuff on Ektoplazm.
April 18, 2010

oldguy said:

And now a European version
Same general idea, not as well researched.
http://www.computerworlduk.com...&blogid=14
April 19, 2010

a.martin said:

note of interest
There is a Indie film called Ink. When they released the film their DVD sales where terrible. So they put it on the Torrent sites, and the effect... Their sales shot threw the roof! :) how about them apples.
http://www.imdb.com/title/tt1071804/
April 22, 2010

Maksimov32Grigorij said:

ответ
Отличный прокат автомобилей и аренда автомобилей в Киеве
October 08, 2010

vedhz said:

...
Interesting read. I didnt see it in this angle. http://rd3.ca
February 05, 2011

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