Recently the issue that U.S. government using bogus figures on piracy has caused wide public concern in China. Some IPR experts in China raised the query on the U.S. Intellectual Property policy which were supported by the figures cannot be substantiated. And the estimates served as evidence to illustrate the gravity of counterfeiting that often cited in intellectual property negotiations with other nations can not stand up in court any more.

Some widely cited estimates sourced to U.S. agencies cannot be substantiated

In October 2008, Congress passed the Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP Act), to improve the effectiveness of U.S. government efforts on copyrights, patents and trademarks. The act also directed GAO to provide information on the quantification of the impacts of counterfeit and pirated goods. GAO took a close look at efforts to quantify the economic effects of counterfeit and pirated goods on consumer, industry, government and the U.S.'s economy, and examined all the data and consulting with numerous experts from government, industry and association, non-governmental organizations and academic institutions. After its year-long investigation, GAO released the report in April 2010.The three widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated or traced back to an underlying data source or methodology, as the GAO indicated.

Expert Comments

Li Mingde, Director, IPR Center of China Academy of Social Sciences

The report of the GAO involves the role of IP in economy development and China's IP protection. The fundamental standpoint is that IP protection exerts a favorable role in economy development, and some trade partner's improper IP protection has affected the U.S. economy. The figures come from industry and relevant groups in the U.S., which sways relevant government agencies like FBI and Federal Trade Commission. The U.S. IP policies targeting China and other developing countries would then be made after the figures were submitted to the U.S. agencies and the congress. So in this sense, it is doubtful that the policy is correct when the figures is unsubstantiated.

Tao Xinliang, Dean, Intellectual Property Institute of Tongji University

According to GAO, the three figures were done by Stephen Siwek, who used assumptions to compensate for the lack of data on economic losses. The report forces us to think the followings: First, U.S. government agencies and its allies would no longer use the figures any more. Second, do not attempt to assert impact of piracy on the economy as a whole, just as the GAO said in the report, "despite significant efforts, it is difficult, if not impossible, to quantify the economy-wide impacts of counterfeiting and piracy on the economy as a whole"; Third, government should systematically collect data and perform analysis on the impacts of counterfeiting and piracy on the nation economy.

Li Shunde, Director, Law and IPR Research Institute of China Academy of Sciences

The 3 figures found by GAO produced negative image of the U.S government because they used to be important resources for policy making. Meanwhile, it is ironic that they were frequently used as a powerful weapon by the government to point finger at other countries in IP negotiations.

On the other hand, GAO's action of releasing the report to the public also shows the accountability of the U.S. government, which would generate some pluses. In parallel, GAO made fulfilling its duty to investigate the date formulated by other agencies, which could help them correct their errors.

Private's measure of computing loss being questioned

GAO also sets its sight on several private industry reports, including Business Software Alliance (BSA) and Motion Picture Association of America (MPAA). "Some industries use assumptions including the assumption of a one-to-one rate of substitution and questions on how the results from the surveyed countries are extrapolated to non-surveyed countries", according to the report of GAO.

Expert Comments

Li Shunde：

Combating piracy, not just between China and the U.S. is an ever-lasting international focus.  So is argument over the methods of calculating losses resulted from priacy. The assumption of a one-to-one rate of substitution exaggerated the losses from piracy. GAO is quite right to challenge the figures in the report.

Li Mingde：

According to a report of the U.S.'s International Intellectual Property Alliance (IIPA), China's piracy rate was in the high neighborhood between 86% and 90%, while a similar SIPO report  (outsourced to Internet Laboratory) showed that merely stood at 40%. SIPO officials confronted IIPA with their calculating method and wished the Alliance make SIPO's method public as well.  IIPA, however, took the ostrich approach instead and outright declined that request. Interestingly, IIPA, would drop its rate after the issuance of the SIPO figures. This definitely makes their credibility look questionable.

Tao Xinliang：

Software and audio-video piracy has been priorities of IP negotiations between China and the U.S. in recent years. Rampant piracy, counterfeiting and infringement do not happen only in China, but in many parts of the world. The negotiations between the two countries are much more than IP issues.  They are about power struggle over interests and market. IP has become an important means of competition and weapons between the countries and their companies. It also has become major resource and tool of many other countries and companies in the world. China's measures shall be: combat infringement, piracy and counterfeiting on the one hand, and crack down on monopoly, abuse and profiteering on the other hand.

The meaning of seeking true loss

The GAO concluded that "it is difficult, if not impossible, to quantify economy-wide impacts". Although GAO says that piracy and counterfeiting are truly real problems, it also points out just how much bad date is used to produce these studies. Actual dollar figures and job loss numbers should be handled with extreme care and a good bit of skepticism.

Expert Comment

Tao Xinliang：

The GAO "study of quantitative counterfeiting and pirated goods impact on the U.S. economy" may mean: on the one hand, it will promote balance, coordination and accuracy of the intellectual property system arrangement and policy design in the U.S.; on the other hand, U.S. diplomats may prefer not to advertise the above cooked data any more, leading to less IP power play and even false claims to other countries. Implementation of the Chinese national IP strategy and negotiations with the U.S. might accordingly be more comfortable for China.

Li Mingde：

It is fact that counterfeiting and piracy do exist in some countries, which would naturally impact the U.S. economy, but the data issued by industry groups shall be taken very closer look in the future. China's strong IP protection is a contribution to the world economy, and the good IP protection environment attracts foreign companies come to China to set up plants and engaged in R&D, and they also have gained the great dividends from IP protection in China. Some industry groups, however, are quite reserved in providing this type of data, in constrast with their never-ending torrid efforts in bringing up data of privacy and counterfeiting. According to preliminary estimates, 90% to 95% of their Chinese market profits of some corporations are resulted from brands, copyrights and patents.

Li Shunde：

The GAO made the judgments depend on some study and data from relevant departments, so this conclusion still has some scientific basis. The U.S. government should reflect they could not judge the other countries' IP issues by some lack of underlying data in foreign IP negotiations. However, this does not mean the problem of piracy and counterfeiting is not serious. Countries in the world have an obligation in accordance with the provisions of international conventions on IP to strengthen IP protection, further sanction IP violations and promote economic development with the IP system. Today's post-financial-crisis world is in particular need of leveraging the IP system for economic development.

(China IP News)