Piracy is not Counterfeiting: Updating IPRED

As promised, I append below a near-final draft of my response to the European Commission's consultation on IPRED. Once again, I urge you to submit something if you possible can - this is deeply wrong-headed stuff that needs fixing if openness...


As promised, I append below a near-final draft of my response to the European Commission's consultation on IPRED. Once again, I urge you to submit something if you possible can – this is deeply wrong-headed stuff that needs fixing if openness and freedom are to thrive online.

Submission to IPRED Consultation

As the Report from the European Commission to the European Parliament rightly says: "this initial evaluation of the effectiveness of the Directive comes at the right time." The world of digital content is evolving so quickly that the current form of IPRED is sadly out of date, and urgently needs to be re-thought in the light of new evidence in this field.

The Report goes on to make the following comment: "Several studies carried out by international organisations and industry have shown that infringements of intellectual property rights have reached a significant level, with certain of these goods posing a danger to consumers' health and safety." This statement requires closer analysis.

What those studies show is that certain physical counterfeits pose a danger to consumers. The first of the two studies referenced above, from the OECD (http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/OECD-FullReport.pdf) specifically says: "this sector report covers only physical piracy", while the report from TERA on the Digital Economy (http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Building%20a%20Digital%20Economy%20-%20TERA(1).pdf) doesn't address the issue of dangers to customers' health and safety, because there aren't any with digital artefacts, which exist in the world of abstractions, not physical objects.

This confusion between physical counterfeits and digital piracy is central to the discussion of IPRED and its future, for the justified concerns around counterfeit physical artefacts – medicines, aircraft parts etc. - are being transferred directly to the digital realm in order to call for Draconian measures there. But the two are completely different, and must be considered quite separately. Generalised statements about "counterfeiting and piracy" only serve to muddy the waters, and are unhelpful in this context. I will limit my comments here to the digital realm, since it is there that clarity is most needed – and is most lacking.

For example, the well-established connection between counterfeiting and criminal organisations is often invoked in relation to digital piracy. And yet there has been little detailed research into whether there is actually a connection. Fortunately, the 400-page SSRC report "Media Piracy in Emerging Economies" (http://piracy.ssrc.org/about-the-report/), the result of three years' field-work around the world, has addressed precisely this issue:

The study finds no systematic links between media piracy and organized crime or terrorism in any of the countries examined. Today, commercial pirates and transnational smugglers face the same dilemma as the legal industry: how to compete with free.

That is, digital piracy is actually reducing the amount of traditional counterfeiting that involves organised crime.

Since digital piracy does not have safety implications for the public, or proven links with criminal organisations, the question becomes one of economics. That is: what financial harm does digital piracy cause?

Several industry-sponsored studies have addressed this issue, including the TERA study mentioned above. But aside from questionable assumptions about the level of digital piracy, there is a fundamental flaw in all these studies: they talk about lost revenue and lost jobs as if these disappear from the economy. This is simply not the case; money saved through piracy is likely to be spent elsewhere in the economy – rather than placed in a bank, for example – creating jobs in other sectors. So while the content industries may suffer some losses, the overall economy is unlikely to.

But do the content industries really suffer from purely digital piracy – that is, leaving aside large-scale, analogue counterfeiting? There is growing evidence that digital piracy actually promotes sales, since it functions as free online marketing on a global scale.

Not surprisingly, the content industries have been reluctant to fund research exploring this interesting possibility, since it undermines their arguments for more repressive measures completely. Fortunately, a number of independent researchers have produced suggestive work in this area that seems to confirm that file sharing can and does act as a form of free marketing that actually drives sales of the content in question. Here are some representative examples from different sectors:

CDs – http://torrentfreak.com/piracy-boosts-cd-sales-071103/:

The researchers conclude that that people who download more music actually buy more CDs. They report: "We estimate that the effect of one additional P2P download per month is to increase music purchasing by 0.44 CDs per year."

DVDs – http://torrentfreak.com/internet-piracy-boosts-anime-sales-study-concludes-110203/:

A prestigious economics think-tank of the Japanese Government has published a study which concludes that online piracy of anime shows actually increases sales of DVDs.

Books – http://www.guardian.co.uk/media/organgrinder/2008/aug/04/novelistpaulcoelhofindsthe

Paulo Coelho certainly has nothing against selling books. He has sold an astounding 100m copies of his novels, writes Jeff Jarvis.

But he also believes in giving them away. He is a pirate. Coelho discovered the power of free when a fan posted a Russian translation of one of his novels online and book sales there climbed from 3,000 to 100,000 to 1m in three years. "This happened in English, in Norwegian, in Japanese and Serbian," he said. "Now when the book is released in hard copy, the sales are spectacular."

Comic books – http://torrentfreak.com/book-piracy-can-boost-book-sales-tremendously101023/

This week comic book writer Steve Lieber has shared his experiences with book piracy, proving that it also has its benefits. Lieber noticed that scanned copies of his graphic novel Underground were posted on 4Chan, but instead of putting his sales to a halt, they skyrocketed.

Lieber shared his findings in a blog entry, complete with fancy graphics which show that the 4Chan piracy resulted in a flood of new customers.

Although the content industries have dismissed this idea that unauthorised sharing might actually be beneficial, their own figures provide strong evidence that this is the case. After all, it is hard to square the constant Jeremiads put forth by music and film companies bemoaning the destructive effect of piracy on their industries with figures like these from the Motion Picture Association of America (http://www.mpaa.org/Resources/653b11ee-ee84-4b56-8ef1-3c17de30df1e.pdf):

Worldwide box office for all films released in each country around the world reached $31.8 billion in 2010, up 8% over 2009's total, boosted by box office increases in markets outside the U.S./Canada. International box office ($21.2 billion) made up 67% of the worldwide total, a slightly higher proportion than in previous years. International box office in U.S. dollars is up significantly over five years ago.

In fact, according to the MPAA's own numbers, box office takings worldwide have increased every year for the last four years, and in 2010 were 30% higher than in 2006 – hardly the sign of an industry being ripped apart by unauthorised sharing of its content.

The music industry is also thriving, as these figures from the UK indicate (http://torrentfreak.com/more-music-sold-than-ever-before-despite-piracy-110110/):

In 2010 the BPI reports hat there were 281.7 million units sold, which is an all-time record. Never in the history of recorded music have so many pieces of music been sold, but you wont hear the music industry shouting about that. In fact, the music industry is selling more music year after year and today's figure is up 27% compared to the 221.6 million copies sold in 2006.

This is important in the context of damages, about which the EC report writes:

The main aim of awarding damages is to place the rightholders in the same situation as they would have been in, in the absence of the infringement. Nowadays, however, infringers' profits (unjust enrichment) often appear to be substantially higher than the actual damage incurred by the rightholder. In such cases, it could be considered whether the courts should have the power to grant damages commensurate with the infringer's unjust enrichment, even if they exceed the actual damage incurred by the rightholder. Equally, there could be a case for making greater use of the possibility to award damages for other economic consequences and moral damages.

Such damages make no sense in a digital context if the sharing of digital files is actually increasing sales. Once again, the distinction between analogue counterfeiting and digital piracy proves crucial: "infringers' profits" are only relevant for the former, and should not be carried over into the digital realm through a careless confounding of the two domains. The is equally true in the context of the other measures being proposed to "reduce piracy", since what is needed, in fact, is a reduction in analogue counterfeiting.

For these reasons I urge the European Commission to draw a careful distinction between analogue counterfeits and digital piracy, and to remove the latter from IPRED completely. This will achieve two things: enable hard-pressed enforcement resources to be concentrated where they are most needed, and allow digital innovation and creativity to take flight in a way that is simply not possible with the current muddled approach.

Follow me @glynmoody on Twitter or identi.ca.

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