Is digital piracy harmful to consumers?

By Dr Jeremy Malcolm September 3, 2013

While IP infringement may be unlawful and perhaps ethically wrong, it generally does not harm consumers
More harmful is what industry is doing in its war on piracy, catching innocent consumers in the crossfire

Digital Consumers by Dr Jeremy Malcolm

TOUGH intellectual property (IP) laws, such as those that the United States is seeking to introduce through the Trans-Pacific Partnership (TPP), are often justified as necessary to fight counterfeiting and piracy.

On the face of it, this seems like a fair call. Consumers should be entitled to assume that the products they purchase are authorised, original versions. As such, consumers are often the victims of counterfeiting just as much as the owners of the original trademarked products are.

Consumers have a right to safety (and often rely on trusted brands to guarantee this), and a right to information (i.e. not to be misled about the origin of a product), and counterfeiting often infringes these rights.

In this light, counterfeits are often harmful for consumers – but that doesn't mean that they are always harmful.

There are some so-called counterfeit goods that may infringe copyright or patent rights, but do not infringe trademarks, and therefore do not attempt to mislead anyone about their origin, nor are they necessarily any less safe.

A good example is digital products. Whilst I don't condone piracy, the trading of music and video files online often offers the consumer exactly the same experience as the original product, without misleading the consumer that it is the original product that they are getting.

So whilst copyright or patent infringement may be unlawful and (often but not always) ethically wrong, it generally does not harm consumers.

To emphasise the deadly potential of counterfeits, anti-counterfeiting lobbyists give nightmarish examples such as fake cosmetics that burn your skin, and fake brake pads made of grass. But this is misleading, for two reasons.

Firstly, these examples comprise a negligible proportion of anti-piracy and anti-counterfeiting campaigns on the ground, because the cosmetic and automotive industries are not the sources of funding for these campaigns. The main sources of funding are the pharmaceutical and entertainment lobbies.

It is no coincidence, then, that anti-counterfeiting laws tend to single out and focus on those industries – targeting optical disc duplication plants, and camcording in movie theatres, rather than cosmetics or brake pad factories.

Secondly, the talk of dangerous goods intentionally blurs the distinction between low quality products and counterfeit products. If the main reason to oppose counterfeits is to promote consumer health and safety, why not take a more direct and more comprehensive approach that targets substandard or tainted products that criminally threaten consumer safety, whether those products carry authentic brands or not?

If, on the other hand, the main reason to oppose counterfeits is to stop consumers from being misled about the origin of products by the falsification of labels, how does this count against online file sharing or roadside DVD sales, that are obviously not authentic?

This doesn't mean that there aren’t legitimate grounds to fight against counterfeiting and piracy. But anti-counterfeiting campaigns shouldn't be cloaked as consumer protection measures, when what they really come down to are protecting industry's copyright and patent rights, and the monopoly profits that they draw from those rights.

In cases where consumers are neither being misled nor being sold substandard merchandise, piracy is not really a consumer problem. This doesn’t mean that it is not a problem at all, but merely that it’s the industry’s problem – if anyone’s.

Can copying benefit industry?

There isn't even a clear-cut case to say that counterfeiting is always harmful for industry. Bill Gates once famously remarked that if Chinese computer users were pirating software, he wanted it to be Microsoft software that they pirated – because they would become the legitimate Microsoft users of the future.

Statistics back up Bill's intuition. A 2009 study showed that 46% of counterfeit-bag owners bought the equivalent authentic products within two and a half years. Similarly, a 2012 study showed that those who acquire pirated music also spend about 30% more money on legitimate content. In the long run, buyers of counterfeits are sometimes a brand’s best customers.

Unrestrained copying can also benefit entire industry sectors. Law professors Kal Raustiala and Christopher Sprigman published a book last year titled The Knockoff Economy (pic) that challenged the notion that innovation and growth require strong protections against copying or duplication. It shows that some of the most vibrant and competitive industries, such as fashion and cuisine (and some more obscure ones, like font designers), lack IP protection. This hasn’t resulted in a death of investment or innovation in these industries – on the contrary.

Some authors have gone even further. In their 2010 book Against Intellectual Monopoly, Michele Boldrin and David K. Levine argued for the abolition of the copyright and patent systems in their present forms, because not only are they unnecessary to spur innovation and creation, they create costly and dangerous private monopolies over ideas.

These monopolies, like any monopolies, are inevitably abused to harm the economic and social interests of consumers.

An example of such harm is the use of strict IP laws – such as those that the TPP would introduce – to stifle the free use of copyright materials in creative ways that don’t harm the rights-holder (such as fan translations). Another is the difficulty in accessing works whose copyright is no longer being commercially exploited, and whose owner might not even be known (‘orphan works’).

In the realm of patents, it is widely agreed even by software companies themselves that software patents, often granted over trivial features, do not foster innovation but impede it. (Apple’s ‘slide to unlock’ patent for example, which although invalidated in Europe, stands in the United States).

The idea that intellectual property protection is not always the best way to encourage innovation, and can even be harmful, has begun to achieve mainstream acceptance.

In the United Kingdom, the author of the Hargreaves Report on Intellectual Property and Growth of 2011, asked in the preface, “Could it be true that laws designed more than three centuries ago with the express purpose of creating economic incentives for innovation by protecting creators’ rights are today obstructing innovation and economic growth?”

Professor Harvgreaves’ answer was “yes.”

Counterfeiting and crime

A further argument that is sometimes rolled out in support of tough anti-counterfeiting laws is that there is somehow a link between counterfeiting and organised crime. But research has shown this to be a myth.

Internet file-sharing, along with the commodification of optical disc media, has driven the cost of pirated DVDs and CDs down to levels so low that there is no longer any significant profit in it, and certainly not enough to be any longer an attractive means of funding for organised crime.

A 2011 study concluded on this point, “We found no evidence of systematic links between media piracy and more serious forms of organised crime, much less, terrorism, in any of our country studies.”

Why, then, is piracy so prevalent in emerging economies like Malaysia? The study’s conclusion was very simple: The products are way over-priced.

Consider that for the cost of a single original Blu-Ray disc in Malaysia, you could purchase about 90 plates of Malaysia’s national dish, nasi lemak. So why wouldn’t a Malaysian purchase or download a pirated movie instead?

This is the root of the problem that industry needs to address; not ramping up enforcement.

One of the main anti-counterfeiting lobby groups is BASCAP, Business Action to stop Counterfeiting and Piracy, which was established by the International Chambers of Commerce in 2004. Amongst the 25 members of BASCAP are Philip Morris, British American Tobacco, Japan Tobacco, Pfizer, Eli Lilly, Nestlé, Universal Music, Vivendi, Microsoft, Sony and NBC Universal.

BASCAP has recently spoken out against the EU Tobacco Products Directive setting tougher labelling and packaging standards for cigarettes, arguing that this “risks undermining IP rights in the EU market.”

Apart from its support for tobacco marketing, BASCAP has also put forward some very problematic and troubling recommendations for Internet users, through the Global Congress Combating Counterfeiting and Piracy that it sponsors.

These have included recommendations to allow the seizure of domain names without a trial, which has already been taking place in the United States. In one case, the DaJaz1.com domain name owned by a hip-hop fan site was seized and held by United States authorities for more than one year without a hearing, before it was returned in an effective admission that the seizure had been wrongful.

Fair use is more important

Counterfeiting by a minority of criminals doesn’t justify tough IP laws that impact negatively on the rest of us. Sure, if everyone pirated then it would be bad, because it would damage the legitimate markets that consumers depend upon – but everyone doesn’t do so. When consumers have the opportunity to buy legitimate product in a convenient and cost-effective way, they do (look at the success of iTunes, Spotify, Netflix and so on).

Conversely, harsh IP laws do have victims – and they’re seldom professional pirates who have the expertise and equipment to evade such laws, but ordinary consumers. One of the ways in which IP law makes casualties of us all is the enforcement of regional IP monopolies, that make truly competitive global markets in digital content products impossible (which is why we can’t use Netflix or Google Play in Malaysia).

When combined with digital locks (digital rights management or DRM) on those products, this creates headaches for consumers such as your e-book reader delet ing your e-books when you cross a border.

That’s why the consumer movement supports the reform of digital content licensing practices, and the introduction of fair use, fair dealing or flexible use rights in copyright and patent law, that allow content and ideas to be reused in ways that don’t result in economic harm to the rights-holder.

These uses include fan art, mash-ups and remixes in the case of copyright, and open source software and hardware in the case of patents.

This idea is now taking root around the world, with new ‘fair use’-style copyright provisions having recently been adopted in Singapore (2006), Israel (2007), Taiwan (2007), Malaysia (2012) and South Korea (2013). New Zealand in fact has just passed a new Patents Bill that will effectively outlaw software patents.

Consumers International member CHOICE is currently campaigning for similar copyright reforms in Australia, with its campaign, Own what you download. The campaign points out that many fair and innocent consumer activities like copying purchased music onto multiple devices, remain technically illegal in Australia.

Is digital piracy harmful to consumers? In most cases, no, it isn’t, and even the harm to industry has been overstated. Much more harmful are the measures that industry has taken in its war on piracy, which has caught innocent consumers in the crossfire.

It’s time to redress the balance between creator and consumer rights. Let’s hope that the TPP won’t require us to sign away your country’s ability to strike that balance.

Dr Jeremy Malcolm is an Internet and Open Source lawyer, consumer advocate and geek. He is also a senior policy officer at Consumers International and can be found on Twitter and LinkedIn.

Previous Instalments of Digital Consumers:

DRM, the rights of the consumer ... and the UN

How the PRISM surveillance scandal affects Asia

Online advocacy, slacktivism and making a real difference