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Feds raise questions about big media's piracy claims

Piracy appears to be a drain on industry and tax revenue, but GAO says data unreliable. Report raises questions about film, music sectors' piracy claims.

After spending a year studying how piracy and illegal counterfeiting affects the United States, the Government Accountability Office says it still doesn't know for sure.

Congress tasked the GAO in April 2009 with reviewing the efforts to quantify the size and scope of piracy, including the impacts of Web piracy to the film and music industries. In a 32-page report issued Monday, the GAO said most of the published information, anecdotal evidence, and records show that piracy is a drag on the U.S. economy, tax revenue, and in some cases potentially threatens national security and public health. But the problem is, according to the GAO, the data used to quantify piracy isn't reliable.

"Some experts we interviewed and literature we reviewed identified potential positive economic effects of counterfeiting and piracy."
--GAO report

"Three widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies," the GAO said. "Each method (of measuring) has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts."

In what appears to be a setback for Hollywood and the recording industry, the government said that it sees problems with the methodology used in studies those sectors have long relied on to support claims that piracy was destructive to their businesses. The accountability office even noted the existence of data that shows piracy may benefit consumers in some cases.

"Some experts we interviewed and literature we reviewed identified potential positive economic effects of counterfeiting and piracy," The GAO wrote. "Some consumers may knowingly purchase a counterfeit or pirated product because it is less expensive than the genuine good or because the genuine good is unavailable, and they may experience positive effects from such purchases."

"Consumers may use pirated goods to 'sample' music, movies, software, or electronic games before purchasing legitimate copies," the GAO continued. "(This) may lead to increased sales of legitimate goods."

To be sure, the GAO found evidence that piracy is large and harmful. But if leaders of the media world were hoping for a government document that proved their many claims that piracy and counterfeiting cost it billions every year and cost the U.S. economy jobs and revenue, then they will be disappointed because this report wasn't that document.

The GAO did not say assertions by media companies were wrong, but it did point out what it considered weaknesses with how they measured piracy's impacts. At the very least, the GAO report hands file-sharing proponents some valuable ammo in their long-running debate with entertainment sector over file sharing.

"The GAO study confirms that piracy of all sorts is rampant," said a spokesman for the Motion Picture Association of America (MPAA). "Getting a firm handle on the problem in terms of dollar estimates is complicated."

"The U.S. government may lose tax revenue, incur (intellectual property) enforcement expenses, and face risks of counterfeits entering supply chains with national security or civilian safety implications."
--GAO report

What is most compelling about the report is where it comes from. The GAO is not known for being a radical free-content group. Once known as the General Accounting Office, it is the audit and investigative arm of Congress. In 2008, lawmakers were seeking ways to strengthen efforts to protect intellectual property, and tasked the GAO with conducting the study.

The review went far beyond digital music, movies, and software. Among the sectors the GAO reviewed were toys, clothing, automobile parts, and medicine.

The GAO said it examined "research on the effects of counterfeiting and piracy on consumers, industries, government, and the U.S. economy." The organization also wanted to learn about efforts to quantify piracy.

The GAO said it during the past year that it found most of the "information and views" on the subject focused on the negative effects of piracy.

"Americans are the world's leading innovators, and our ideas and intellectual property are a key ingredient to our competitiveness and prosperity," the GAO wrote. "Negative effects on U.S. industry (from piracy) may include lost sales, lost brand value, and reduced incentives to innovate. However, industry effects vary widely among sectors and companies. The U.S. government may lose tax revenue, incur (intellectual property) enforcement expenses, and face risks of counterfeits entering supply chains with national security or civilian safety implications.

"The U.S. economy as a whole may grow more slowly because of reduced innovation and loss of trade revenue," the report concluded.

Some media outlets have reported that counterfeit goods can be traced to organized crime and groups that support terrorism. Consumers may face danger when counterfeit and unsafe toys and medicine enter the marketplace. Fake airplane parts have also been discovered in the aviation industry, according to the GAO's report.

The GAO said most of the experts and literature available concluded that piracy caused more harm than good but after stating this, the GAO waded into a long explanation of why the problem of measuring piracy's impacts with any degree of accuracy may be impossible.

One example of this is how experts disagree over the potential impacts of piracy on jobs. One leader in the field told the GAO that piracy kills jobs, while another said "any effects are unclear" because job loss in one sector may result in a "rise in other industries as workers are hired to produce counterfeits."

When it came to previous studies or surveys on piracy, the GAO noted that it had questions and concerns with data produced by both the film and music industries to support financial loss claims. Jonathan Lamy, a spokesman for the Recording Industry Association of America, said he hadn't read the report and didn't know what studies the GAO referred to but said plenty of studies have reached the same conclusion.

"There's no doubt that the music industry has declined significantly over the last 10 years," Lamy said. "Countless studies have blamed this on the fact that millions of people have been getting their music for free online. That has translated to thousands of lost jobs in the industry and that's undeniable."

What Congress plans to do with this report is unclear.