After the opening plenary of the Global Congress Combating Counterfeiting and Piracy, the conference split into two simultaneous Boardroom Dialogue Sessions, including one on “Determining the Impact – the Importance of Measuring the Scope and Impact of Infringement.”  It was moderated by Jeffrey Hardy, Coordinator of the ICC’s Business Action to Stop Counterfeiting and Piracy (BASCAP).  He pointed out that every single speaker in the opening plenary cited faulty brake pads as an example of a dangerous counterfeit.  He takes this as a sign that people and organizations dedicated to fighting piracy are having trouble making their case, and they’re looking for a metaphor, or a great example.  To effectively tell the story, enforcement advocates need both real life examples, and solid data.  This panel would have two people with firsthand accounts, two people with empirical studies, and finally, a WIPO economist discussing methodology needed for solid empirical estimates.

David Cooper from Hewlett Packard gave a presentation titled “Scope and Magnitude of Counterfeiting: the Hewlett-Packard Perspective.”  In his company’s experience, 90% people who buy counterfeits are unaware, and they want to buy the real thing.  To fight counterfeits, HP works with the FBI, local police and other law enforcement bodies.  They also work with an internal team comprised of senior business leaders, product and packaging experts, and security experts. They review intelligence and use Envision and New Momentum (analytical technology) to interpret the data.  They reach out to customers and distributors, and a section of their website shows how to tell a real HP product from a counterfeit.  Outside of consumer goods, there are a number of counterfeit HP products they’ve found that could cause significant damage, including financial system hardware and hospital technologies.  In Fiscal Year 2010, HP launched 1272 investigations and 971 enforcement actions.  They seized 11.6 million counterfeit HP pieces.

Kofi Essuman, from the Ghanaian Coalition Against Counterfeits and Illicit Trade described counterfeiting in Ghana and other East African countries.  He showed figures that 10% of all medicines sold worldwide – and 30-40% of all meds in developing countries – are fake.  This exacerbates Africa’s problems with Malaria and other diseases. There is a cycle where a country is poor, so people’s incomes are low, so they look for cheaper drugs, but the cheap drugs don’t give any cure, and this hampers the growth of the whole country, keeping it poor.  Counterfeits are also bad for the local economy because it harms promising companies.  One example is the East African textile industry, which has a potential to bring in about $2 billion annually.  10 years ago it was rapidly growing and creating numerous jobs. But counterfeits have overtaken the market.  Employment in Nigierian textile mills fell from 200,000 in 1985 to 24,000 today.  Industrial towns all over Ghana and Nigeria are “ghost towns.”  And the production of counterfeit goods often takes place in unsafe, exploitative conditions.

Patrice Geoffron, Professor of Economics at Paris-Dauphine University presented a study done with TERA Consultants titled “Building a Digital Economy: the importance of saving jobs in the EU’s creative industries.” The study was first presented in March 2010, and its results have been endorsed by most of the industrial unions.  It shows that creative industries support 14.4 million jobs, which is 6.5% of EU employment.  The creative industries earned €862 billion  in 2008, which is 6.9% of EU value added.  The study “uses a more accurate and comprehensive definition of Europe’s creative industries that expands the EU definition of core creative industries and also encompasses the economic contribution of non-core creative industries.”  Losses suffered to piracy in Europe in 2008 were €10 billion, and piracy led to the loss of 186,600 jobs.  He then presented two different scenarios of losses by 2015.  If one assumes that P2P file sharing remains the main driver of piracy, then losses in 2015 will equal €32 billion and 611,300 jobs.  If one assumes that digital piracy growth will follow global consumer IP traffic, and will include online streaming activity as well as file sharing, then losses will total €56 billion in lost sales and 1.2 million jobs. Finally, he noted that these estimates do not take into account piracy related to mobile technologies.

David Benjamin presented on behalf of Damien O’Flaherty, Director of Frontier Economics Ltd., and the lead author of the BASCAP study “Estimating the Economic and Social Impacts of Counterfeiting and Piracy.” This study builds upon a 2008 OECD study that tried to objectively quantify the harm of counterfeiting and piracy, but that only looked at the value of trade goods that were traded internationally and that concluded that losses equaled $200 billion.  Additionally, OECD identified three other areas where counterfeiting and piracy harmed business and society at large – domestic production, digital piracy, and broader economy-wide effects – but they did not try to add this to their estimates. O’Flaherty updated OECD’s numbers for the year 2010, and explored these other three areas.  His findings were:

  • Monetary losses to companies are $455-$650 billion in 2008, and will be $1.22-1.77 trillion in 2015.
  • Employment losses are 2.5 million in 2008 and over 2.5 million in 2015 (in G20 countries alone).
  • Broader economy wide effects are $125 billion

Carsten Fink, Chief Economist of WIPO spoke on “Quantifying the Economic Effects of Counterfeiting and Piracy.”  He began by saying that IP enforcement is a matter of public policy.  The economic effects of IP infringements differ across different IP rights and industries, and in many countries, enforcement resources are scarce.  Many countries with scarce enforcement resources also face other serious problems for law enforcement to address, like human trafficking and terrorism.  Therefore, there is a need for governments to have real data upon which to base their enforcement priorities.  Policymakers want to know the scale of infringing activities. They want national and industry level data for factors like employment and wages, negative externalities, income of creative workers, and profits.

Fink asserted that we need to think of the elements that would go into an economic analysis of the effect of counterfeiting and piracy:

  • You should have a carefully set out counterfactual scenario including the level of illicit activities in the long run and changes in the levels of illicit activities in the short run.
  • You should choose the correct economic model – partial equilibrium for industry specific studies and general equilibrium for economy-wide studies
  • You should have two types of inputs – data on the price and quantity of genuine and fake goods and other relevant econ variables; as well as estimates of human behavioral parameters

When studying the effect on labor markets, consider that in the long run labor markets might approach full employment regardless of the counterfeiting scenario.  Theoretically, at least, those who lose their jobs eventually get other jobs.

Fink closed by addressing the challenge of getting decent measurements, which he acknowledged is a difficult, long term challenge.  Some data is currently available, such as customs and police data, as well as data reported by rights holders and some surveys.  But there are areas for improvement, such as the depth and comparability of statistics, and increased transparency of rights holders’ data and the methodology used to arrive at their estimates.