8.1 IPRs cannot succeed in their core economic function of incentivising innovation if rights are disregarded. Ineffective rights regimes are worse than no rights at all: they appear to offer certainty and support for reliable business models, but in practice send misleading signals. Widespread disregard for the law erodes the certainty that underpins consumer and investor con dence. In the most serious cases, it destroys the social solidarity which enables the law abiding majority to unite against a criminal minority. These are powerful reasons for supporting effective enforcement of IPRs.
8.2 Many responses to the Call for Evidence identi ed enforcement as the most serious weakness in the UK’s IP framework. Copyright owners especially put stronger Government action against online infringement as their top priority. In this chapter we deal with online copyright infringement and then much more brie y with counterfeit products and the costs of IP disputes.
Online Copyright Infringement
8.3 Some submissions from the creative industries expressed fears that online copyright infringement, or “piracy” threatens the very existence of their businesses, speaking of “catastrophic decline in future markets1 and “a mortal threat to the economic and creative processes which underpin our business, and consequently to economic growth in the UK.”2
8.4 Even in the pre-digital age, enforcement was not easy. Trading Standards Services and others had to monitor counterfeit products, such as illegal pressings of records supplied from countries with minimal IP safeguards, sold by street vendors and at car boot fairs. These problems persist, as the second part of this chapter indicates.
“IPR abuse is widespread and affects a broad swath of industries, from sportswear to pharmaceutical,
from creative industry products to everyday household goods. Infringement is the single biggest issue
affecting all types of IP rights.” CBI submission
Review of Intellectual Property and Growth 67
8.5 However, digital technology has made enforcement signi cantly more dif cult because of
the ease with which electronic copies can be made and the perceived anonymity of the online world. Copying and distribution costs have fallen to zero, and many consumers of online products, most notably music, cannot see why they should continue to pay prices based upon those which prevailed in the era of the compact disc. Most also cannot understand, or do not accept, that they are doing anything wrong by transferring a music le from a CD they have bought to an MP3 player, iPod or other device. A survey published by Consumer Focus in February 2010 found that 73 per cent of consumers do not know what they are allowed to copy or record.3 A Harris Interactive Poll for the BPI in 2010 found that 44 per cent of all peer-to-peer (P2P) users stated that they believed their actions to be lawful. The Strategic Advisory Board for Intellectual Property Policy (SABIP) concluded that: “There is also substantial evidence that many individuals do not perceive software piracy to be an ethical problem at all.”4
8.6 It is not surprising that consumers are confused. In a world where it is possible to listen to music free on the radio; free or by subscription through a computer or smartphone from a streaming service; or by continuing to put a purchased or borrowed CD in a player, the concept of “ownership” and “purchase” has itself been rede ned. Online music providers (and other publishers) operate a variety of business models including: free downloads supported by advertising; free downloads for light users, with premium charges for heavier or advanced use (the so called “freemium” model) and various subscription services, including storage services where consumers can keep “their” libraries. For the browsing consumer, it is not always obvious whether a music service is providing copyright material illegally - unless the supplier chooses to put the skull and crossbones on its mainsail, like Pirate Bay, the Swedish download service established in 2003, which today claims ve million users, in spite of the fact that its founders received jail sentences in 2009.
8.7 There is every chance that digital technology will continue to disrupt business models of makers of lms and TV programmes, books, newspapers and music.
8.8 The question is: in these circumstances, what does an effective enforcement regime look like? In order to provide a realistic answer to that question, we need to understand the nature, prevalence and dynamics of rights infringement. Only on a base of carefully evaluated evidence can a successful and sustainable enforcement approach be constructed.
the ease with which electronic copies can be made and the perceived anonymity of the online world. Copying and distribution costs have fallen to zero, and many consumers of online products, most notably music, cannot see why they should continue to pay prices based upon those which prevailed in the era of the compact disc. Most also cannot understand, or do not accept, that they are doing anything wrong by transferring a music le from a CD they have bought to an MP3 player, iPod or other device. A survey published by Consumer Focus in February 2010 found that 73 per cent of consumers do not know what they are allowed to copy or record.3 A Harris Interactive Poll for the BPI in 2010 found that 44 per cent of all peer-to-peer (P2P) users stated that they believed their actions to be lawful. The Strategic Advisory Board for Intellectual Property Policy (SABIP) concluded that: “There is also substantial evidence that many individuals do not perceive software piracy to be an ethical problem at all.”4
8.6 It is not surprising that consumers are confused. In a world where it is possible to listen to music free on the radio; free or by subscription through a computer or smartphone from a streaming service; or by continuing to put a purchased or borrowed CD in a player, the concept of “ownership” and “purchase” has itself been rede ned. Online music providers (and other publishers) operate a variety of business models including: free downloads supported by advertising; free downloads for light users, with premium charges for heavier or advanced use (the so called “freemium” model) and various subscription services, including storage services where consumers can keep “their” libraries. For the browsing consumer, it is not always obvious whether a music service is providing copyright material illegally - unless the supplier chooses to put the skull and crossbones on its mainsail, like Pirate Bay, the Swedish download service established in 2003, which today claims ve million users, in spite of the fact that its founders received jail sentences in 2009.
8.7 There is every chance that digital technology will continue to disrupt business models of makers of lms and TV programmes, books, newspapers and music.
8.8 The question is: in these circumstances, what does an effective enforcement regime look like? In order to provide a realistic answer to that question, we need to understand the nature, prevalence and dynamics of rights infringement. Only on a base of carefully evaluated evidence can a successful and sustainable enforcement approach be constructed.
Review of Intellectual Property and Growth 68
Prevalence of Piracy
8.9 Given its importance, you would think that we would have a very clear picture of the scale and dynamics of online piracy, but this is not so. There is no doubt that a great deal of piracy is taking place, but reliable data is surprisingly thin on the ground. There is no shortage of claims about levels of infringement, but in the Review’s four months of evidence gathering, we have failed to nd a single UK survey that is demonstrably statistically robust. For many surveys, methodology is not available for peer review.
8.10 Measurement of any area of unlawful activity presents statistical challenges: these are not new problems in the world of criminology, where policy analysts are used to drawing different lessons from surveys of victims of crime, general social surveys about crime and police recorded levels of crime. However, for online copyright infringement, there are further complications:
by comparing a claim made in the BPI’s Digital Music Nation report in 2010 that 65 per cent of music downloads are illegal to MidemNet’s 2010 Global Music Study gure of 13 per cent for the UK. Results divergence on this scale tends to con rm the impression of unstable research conditions. The following table illustrates the very wide range of gures provided from various sources.
8.9 Given its importance, you would think that we would have a very clear picture of the scale and dynamics of online piracy, but this is not so. There is no doubt that a great deal of piracy is taking place, but reliable data is surprisingly thin on the ground. There is no shortage of claims about levels of infringement, but in the Review’s four months of evidence gathering, we have failed to nd a single UK survey that is demonstrably statistically robust. For many surveys, methodology is not available for peer review.
8.10 Measurement of any area of unlawful activity presents statistical challenges: these are not new problems in the world of criminology, where policy analysts are used to drawing different lessons from surveys of victims of crime, general social surveys about crime and police recorded levels of crime. However, for online copyright infringement, there are further complications:
-
the offence leaves no physical trace;
-
surveys question respondents who have an imperfect understanding of what is within the
law in the rst place and may be motivated either to deny taking part in unlawful activity or to
exaggerate doing so;
-
free downloads are not necessarily illegal and paid for downloads are not necessarily
legitimate;
-
what is legal is one country may not be in another and the internet allows businesses and
consumers to trade across boundaries;
-
not all P2P le sharing is illegal and not all illegal activity is conducted via P2P (in fact P2P le
sharers appear to be moving to other means of accessing music including live streaming);5
-
studies that have attempted to measure piracy by measuring internet traf c are problematic
because other factors affect traf c levels including changes in volumes of spam and increases
in broadband speed, which permit much greater volumes of activity, and especially higher
density video les.xix
by comparing a claim made in the BPI’s Digital Music Nation report in 2010 that 65 per cent of music downloads are illegal to MidemNet’s 2010 Global Music Study gure of 13 per cent for the UK. Results divergence on this scale tends to con rm the impression of unstable research conditions. The following table illustrates the very wide range of gures provided from various sources.
xix
Adermon A and Liang C, October 2010, Piracy, Music, and Movies: A Natural Experiment. Adermon and Liang
connected a decrease in internet traf c of 18 per cent in Sweden with implementation of legislation that gave rights
holders the right to obtain identity details of infringing subscribers. They also claim that the drop in internet traf c led to
an increase in sales of physical music by 27 per cent and digital music by 48 per cent. It is unclear though how far the
increase was in fact Sweden’s share of an overall increase globally in music sales over the same period.
Review of Intellectual Property and Growth 69
Prevalence of piracy – estimates (UK data unless indicated)
|
Music
|
|
|
2010 - Harris Interactive/BPI Digital Music Survey
– 5,000 + surveyed, aged 16-54
|
29 per cent engaged in unauthorised music
downloading.
Films, TV programmes, software (non- gaming) and video games respectively were the next most popular downloads. 76 per cent of all music obtained online was unlicensed. |
|
2010 - Nielsen, The Hyper-Fragmented World
of Music survey, on behalf of Midem – 26,644
respondents across 53 markets
|
35 per cent worldwide admitted to
downloading music without paying for it
(potentially illegally).
|
|
2010 - Music Matters/Synovate/MidemNet Global
Survey of 8,500, aged 18+ in 13 countries
|
UK – 13 per cent admitted to le sharing (not
clear whether this is in response to the same question as below). USA – 15 per cent downloaded a song from the internet without paying for it. Globally – 29 per cent. China (the highest) – 68 per cent . S Korea (second highest) – 60 per cent. Spain (third highest) – 46 per cent. |
|
2010 - BPI, Digital Music Nation
|
65 per cent of music downloads are illegal.
|
|
2011 - International Federation of the
Phonographic Industry report does not aggregate
data but quotes the 2010 Nielsen survey
|
23 per cent across the top ve EU markets (of
active internet users) admitted to downloading without paying. 45 per cent in Brazil. 44 per cent in Spain. |
|
2009 - International Federation of the
Phonographic Industry report
Collating studies from 16 countries over four years |
2010 – 29.8 million frequent users of le
sharing services in the top ve EU markets.
2009 - 95 per cent of music downloads are
unauthorized.
2008 - over 40 billion unauthorised les shared – meaning that globally around 95 per cent of music tracks are downloaded without payment . 16 per cent of internet users in Europe regularly swap music on P2P networks (Jupiter Research). |
Review of Intellectual Property and Growth 70
|
2007 & 2009 - Brindley & Walker, The Leading
Question/Music Ally Speakerbox survey of 1000
music fans (aged 14-64)
|
Overall – per month:
2007 - 22 per cent le share (potentially illegally). 2009 – 17 per cent le-share. 14-18 year olds: 2007 – 42 per cent le share. 2009 – 26 per cent le share. |
|
2002-2008 - Sandvine Intelligent Broadband
Networks, Global Internet Phenomena Reports -
deep packet inspection of payloads on computer
networks
|
File sharing accounted for between 40 and 60
per cent of all bandwidth.
|
|
2006 - Birgitte Andersen and Marion Frenz, The
Impact of Music Downloads and P2P File-Sharing
on the Purchase of Music: A Study for Industry
Canada, Decima Research survey, Survey of
2,100 Canadian people, quota based random
sample to represent Canadian population as a
whole.
|
29 per cent download through P2P networks.
29.2 per cent rip from CDs. 20.5 per cent used friends to copy MP3s. 8.5 per cent downloaded from free sites. |
|
Feature lms/TV programmes
|
|
|
2010 – Harris Interactive
|
14 per cent of internet users download lms &
TV programmes from illegal P2P services. |
|
2008-09 - Wiggin Entertainment Media Research
|
Watch pirate DVDs of movies:
2008 – 29 per cent 2009 – 29 per cent. File sharing unauthorised lms/programmes: 2008 – 21 per cent 2009 – 21 per cent. |
|
Games/software
|
|
|
2008-09 - Wiggin Entertainment Media Research
|
File sharing unauthorised games/software:
2008 – 14 per cent.
2009 – 16 per cent. |
|
2008 - Nielsen, Video Gamers in Europe, Piracy
and Digital Downloading for the Interactive
Software Federation of Europe, Survey of 6,000
active gamers
|
Europe:
2007 – 40 per cent owned at least one pirate/ copied game. 2008 – 35 per cent owned at least one pirate/ copied game (14 per cent in UK). |
|
Business Software
|
|
|
2008-09 - British Software Alliance & International
Data Corporation
|
27 per cent of software installed in the UK in
that year was illegal.
|
Review of Intellectual Property and Growth 71
|
Books
|
|
|
Jan 2010 - Atttibutor (anti-piracy business)
|
10 per cent of the total United States book
sales were pirated.
|
|
Unauthorised Content Generally
|
|
|
April 2011- eBizMBA Rank Fifteen Most Popular
Torrent Websites
|
Over 45 million estimated unique monthly
visitors worldwide on 15 most popular sites.
|
|
Jan 2011 - USA, MarkMonitor, Traf c Report:
Online pirating and counterfeiting
|
10 media brands in study yielded 43 sites
classi ed as digital piracy & traf c generated by these sites was over 146 million visits per day or 53 billion per year. |
|
2010 - Tera Consultants/Business Action to Stop
Counterfeiting and Piracy
|
778 million digital piracy copyright
infringements per year.
|
|
2008-09 – IPOQUE
|
34 to 70 per cent of global internet traf c
taken up with le sharing depending on
region.
|
|
2008 - Forrester Research survey of 1,176
consumers
|
11.6 per cent of respondents admitted to
engaging in illegal le sharing. Scaled up to 16.3 per cent because of under reporting concern. This equates to 6.7 million people. |
8.12 Meanwhile individual businesses and artists are in no doubt that piracy is doing grave damage
to their interests.
“...the last album I released was illegally downloaded at least 50,000 times in the rst week following
release. During this time, combined sales of CDs and paid album downloads were less than 0.1% of
that amount...” Alastair Nicholson (owner of Son Records record label) submission
“This site has ‘lifted’ my pictures with full caption and copyright notice and used them in a high resolution format. Thus enabling other ‘Bloggers’ to subsequently follow suit. ...since the shoot in 2009 I have contacted several websites asking for their removal. With mixed results. Indeed some web sites have accused me of preventing them from freedom of expression and threatened legal action. As a result of these breaches I have lost income and the trust of my clients.” Wayne Starr (photographer) submission
“This site has ‘lifted’ my pictures with full caption and copyright notice and used them in a high resolution format. Thus enabling other ‘Bloggers’ to subsequently follow suit. ...since the shoot in 2009 I have contacted several websites asking for their removal. With mixed results. Indeed some web sites have accused me of preventing them from freedom of expression and threatened legal action. As a result of these breaches I have lost income and the trust of my clients.” Wayne Starr (photographer) submission
8.13 If the nature of this data on piracy makes it dif cult to draw conclusions about its overall
scale, it also makes it impossible to deduce reliably the balance between different sorts of unlawful le
sharing.6
The Impact of Piracy
8.14 There are potentially two distinct, though linked, impacts of copyright piracy: an effect on the UK’s economic growth, particularly within the creative industries sector, and an effect on the incentives for the creation of new works.
The Impact of Piracy
8.14 There are potentially two distinct, though linked, impacts of copyright piracy: an effect on the UK’s economic growth, particularly within the creative industries sector, and an effect on the incentives for the creation of new works.
Review of Intellectual Property and Growth 72
8.15 The uncertain and disputed nature of the prevalence data makes it dif cult to reach con dent
conclusions about the impact of copyright piracy on growth. This assessment is complicated further
by a number of other relevant points:
a supporting paper looks at the methodological strengths and weaknesses of this work. With the exception of the Industry Canada study, we have either not been able to examine the methodology of the studies or, where we have, we have discovered problems with the methodology. Consequently, we have not found either a gure for the prevalence and impact of piracy worldwide or for the UK in which we can place our con dence.7 Published estimates of piracy and infringement have also been questioned by the US Government Accountability Of ce:
“According to experts we spoke with and literature we reviewed, estimating the economic impact of
IP infringements is extremely dif cult, and assumptions must be used due to the absence of data.
Assumptions, such as the rate at which consumers would substitute counterfeit goods for legitimate products, can have enormous impacts on the resulting estimates and heighten the importance of transparency.....Most experts we spoke with and the literature we reviewed observed that despite signi cant efforts, it is dif cult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole.”8
8.17 In an attempt to sketch out a “worst case” assessment of the cost of copyright infringement to the economy, we have taken a number of estimates of the level of infringement cited by the business sectors affected and expressed the cost of this estimated infringement as a percentage of the relevant territory’s economy for the relevant year. The results are set out in the illustration below (Figure 8.1). On these numbers, copyright infringement appears to account for just under 0.1 per cent of economic activity, whether this concerns the UK, the EU or the whole world. The total cost of IP crime amounts to between 0.1 per cent and 0.5 per cent of economic activity. This suggests that the cost of IPR infringement is neither negligible nor overwhelming in economic scale, even if we work from industry’s own estimates of the problem.
-
not all illegal downloads are lost sales – the user may not have paid a higher price for a legal
copy absent cheap or free illegal versions;
-
money not spent on legal copies is not lost to the economy – it may be spent on other
purchases. This is of no comfort to the sector suffering losses, but the effects across the
economy will not necessarily be problematic;
-
even within the industry affected, purchases prompted by experience from an illegal copy (for
example, concert tickets or other merchandise) can offset losses;
-
in business software, piracy has promoted the lock-in effect for the legal provider’s software
and helped to make that software the global standard.xx
a supporting paper looks at the methodological strengths and weaknesses of this work. With the exception of the Industry Canada study, we have either not been able to examine the methodology of the studies or, where we have, we have discovered problems with the methodology. Consequently, we have not found either a gure for the prevalence and impact of piracy worldwide or for the UK in which we can place our con dence.7 Published estimates of piracy and infringement have also been questioned by the US Government Accountability Of ce:
“According to experts we spoke with and literature we reviewed, estimating the economic impact of
IP infringements is extremely dif cult, and assumptions must be used due to the absence of data.
Assumptions, such as the rate at which consumers would substitute counterfeit goods for legitimate products, can have enormous impacts on the resulting estimates and heighten the importance of transparency.....Most experts we spoke with and the literature we reviewed observed that despite signi cant efforts, it is dif cult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole.”8
8.17 In an attempt to sketch out a “worst case” assessment of the cost of copyright infringement to the economy, we have taken a number of estimates of the level of infringement cited by the business sectors affected and expressed the cost of this estimated infringement as a percentage of the relevant territory’s economy for the relevant year. The results are set out in the illustration below (Figure 8.1). On these numbers, copyright infringement appears to account for just under 0.1 per cent of economic activity, whether this concerns the UK, the EU or the whole world. The total cost of IP crime amounts to between 0.1 per cent and 0.5 per cent of economic activity. This suggests that the cost of IPR infringement is neither negligible nor overwhelming in economic scale, even if we work from industry’s own estimates of the problem.
xx
US Social Science Research Council, 2011, Media Piracy in Emerging Economies, p52-53: “Piracy, in effect, has
allowed the major vendors to dominate low-and middle-income markets ...... that they have little nancial incentive to
serve. ...... piracy acts as a barrier to entry for competition, especially “free” open-source alternatives that have no
upfront licensing costs. When these emerging markets begin to grow, as most did in the last decade, piracy ensures
they do so along paths shaped by the powerful network and lock-in effects associated with the market leaders ..... As
Microsoft executive Jeff Raikes obvserved: “In the long run the fundamental asset is the installed base of people who
are using our products. What you hope to do over time is convert them to licensing the software” (Mondok 2007).
Review of Intellectual Property and Growth 73
8.18 There are other questions to which we would like answers: how bad is piracy in the UK
compared with other countries? A number of surveys, including the 2010 Music Matters/Synovate/
MidemNet Global Survey, suggest that the UK has comparatively low levels: with illegal le-
sharing perhaps below 15 per cent, compared with China, where some estimates suggest a gure
approaching 70 per cent. What about the trend? Is online copyright infringement getting better or
worse? We simply don’t know with any precision.
Figure 8.1 Estimated cost of IPR infringement as per cent of GDP
Filesharing, NE 2009
Music (BPI), UK 2009
All copyright (Bascap, verifiable*), EU 2008
Physical & Digital copyright (MPA), world 2005
Films (BVA), UK 2010
-0.01%
0.02%
0.03% 0.04%
0.03% 0.04%
0.04%
Film&TV(BVA),UK2009.04%
Copyright infringemen
Counterfeiting
Aggregates of IPR issue
non‐IPR: Retail Crime
non‐IPR: Retail Crime
t
s
0
0.36%
All copyright (AAIPT), UK 2009
Installed Software (BSA), UK 2008
All copyright (Bascap), EU 2008
Installed Software (BSA), world 2008
Retail Crime (BRC), UK 2009
All IP Crime (HMG), UK 2007 Technology products (AGMA), world 2006 Piracy & counterfeiting (Bascap), G20 2008a Footwear & clothing (AAIPT), UK 2009 Piracy & counterfeiting (Bascap), G20 2008b lost tax & welfare cost (Bascap), UK 2009 Tangible products (OECD), world 2007 Tangible products (OECD), world 2007
-0.05%
Retail Crime (BRC), UK 2009
All IP Crime (HMG), UK 2007 Technology products (AGMA), world 2006 Piracy & counterfeiting (Bascap), G20 2008a Footwear & clothing (AAIPT), UK 2009 Piracy & counterfeiting (Bascap), G20 2008b lost tax & welfare cost (Bascap), UK 2009 Tangible products (OECD), world 2007 Tangible products (OECD), world 2007
-0.05%
0.05%
0.07%
0.08% 0.08%
0.08% 0.10%
0.08% 0.08%
0.08% 0.10%
0.05%
0.15%
0.25%
0.35%
0.45%
0.45%
0.20%
0.22%
0.27% 0.28%
0.29%
0.27% 0.28%
0.29%
Source: Supporting Document FF (Data Tables of Graphs Produced for the Review)
8.19 Another way of looking at economic impact of copyright infringement is to calculate it with
regard to the creative industries, rather than to the whole economy, in order to assess the sectoral
point of view. A study conducted for Business Action to Stop Counterfeiting and Piracy (BASCAP) puts
a value on losses from piracy equivalent to 1.24 per cent of the contribution that the core copyright
industries make to the UK economy.9 We have examined this frequently cited study and found a
number of methodological limitations, which together indicate likely overstatement of the extent and
impact of piracy.10 This suggests that the 1.24 per cent gure is also at the upper end of probability.
8.20 Where else can we look for evidence of the damage done by piracy and the current enforcement regime? Creative industry sales gures provide a clue. In the UK music industry, though some individual businesses have suffered dramatically from the boom in digital downloads (HMV,
the music retailer is an example) music industry revenues overall have continued to grow year on year: to £3.9 billion in 2009, up ve per cent on 2008, driven by strong gures from live music, growth in international licensing and some stabilisation in the recorded musc market.11 In the much bigger publishing market, gures from the Publishers Association, show that book sales have also grown or maintained their net value between 2004 and 2009.12 The video sector too has managed to maintain unit sales, but struggled somewhat to sustain value in the last two to three years. All of this in spite of recession in Europe and North America.
8.20 Where else can we look for evidence of the damage done by piracy and the current enforcement regime? Creative industry sales gures provide a clue. In the UK music industry, though some individual businesses have suffered dramatically from the boom in digital downloads (HMV,
the music retailer is an example) music industry revenues overall have continued to grow year on year: to £3.9 billion in 2009, up ve per cent on 2008, driven by strong gures from live music, growth in international licensing and some stabilisation in the recorded musc market.11 In the much bigger publishing market, gures from the Publishers Association, show that book sales have also grown or maintained their net value between 2004 and 2009.12 The video sector too has managed to maintain unit sales, but struggled somewhat to sustain value in the last two to three years. All of this in spite of recession in Europe and North America.
Review of Intellectual Property and Growth 74
Figure 8.2 UK video industry
million units
500 450 400 350 300 250 200 150 100
50
500 450 400 350 300 250 200 150 100
50
value
£m
3000
2500
2000
1500
1000
500
3000
2500
2000
1500
1000
500
Retail
Rental
VHS
VHS over-the-counter DVD
Digital Rental
DVD over-the-counter Blu-Ray
HD-DVD
UMD
DVD on-line
Digital
Total Value, £m
VHS
VHS over-the-counter DVD
Digital Rental
DVD over-the-counter Blu-Ray
HD-DVD
UMD
DVD on-line
Digital
Total Value, £m
volume
00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: British Video Association
The Impact on the Incentives to Create Works
8.21 Copyright supports economic growth through incentivising creation of new works. How does piracy affect this incentive function? Here, US research13 suggests that while le sharing may have displaced music sales, it has not weakened the incentive to create new works. Other research14 found no evidence that changes since the launch of the original Napster le sharing site in 1999/2000 have affected the quantity of new recorded music or artists coming to market.
8.22 However some of the responses to the Call for Evidence reported some indications of weakened of incentives to invest in creation.
8.21 Copyright supports economic growth through incentivising creation of new works. How does piracy affect this incentive function? Here, US research13 suggests that while le sharing may have displaced music sales, it has not weakened the incentive to create new works. Other research14 found no evidence that changes since the launch of the original Napster le sharing site in 1999/2000 have affected the quantity of new recorded music or artists coming to market.
8.22 However some of the responses to the Call for Evidence reported some indications of weakened of incentives to invest in creation.
The BPI estimates that British record companies invest around £370m in A&R and marketing and
promotion every year - approximately 10% of the global total. A signi cant decline in sales has a very
profound effect on new talent development – in other words, it is reducing record companies’ ability to
fund new artists and invest in careers... Across ve years for which data is available... the total number
of breakthrough acts in the UK was the lowest in 2010, with only 17 British acts reaching the 100,000
sales threshold for the rst time. This follows two consecutive years where the total was much higher
at 26 each year... The BPI collects data on A&R investment and has found that spend has fallen in
each of the past three years for which data is available; from more than £250m in 2006 to £201m in
2009 - a decline of 20% over four years.- BPI submission
“The greatest barrier to growth in the creative industries is copyright infringement on the Internet ... deterring investment in new content.” Motion Picture Association submission
“The greatest barrier to growth in the creative industries is copyright infringement on the Internet ... deterring investment in new content.” Motion Picture Association submission
Review of Intellectual Property and Growth 75
“Spain, historically one of the strongest export markets for lms, provides a sobering example...
whereas producers used to count on Spanish distributors‘ minimum guarantee nancing to cover up
to 10% of a proposed lm budget, advance distribution commitments today are rarely above 3-5% at
best. This is the direct reaction to rampant online piracy...” Independent Film & Television Alliance
submission
8.23 What conclusions can we draw from these wildly differing perspectives? Certainly that many
creative businesses are experiencing turbulence, which translates into fears about the further, future
impact of copyright infringement on sales, pro tability and sources of investment. However, at the
level of the whole economy or even at the level of whole creative business sectors, the measured
impacts to date are not as stark as is sometimes suggested by the language used to describe them.
That said, copyright infringement is a stubborn fact of the digital landscape which might well get worse
and which justi es serious government effort in identifying the right mix of measures to address it.
Approaches to Tackling Digital Piracy
8.24 Many rights holders have called for stronger enforcement and other measures to secure compliance with rights. The Alliance Against IP Theft suggested a number of changes which are fairly representative of those put to the Review by other rights holders, and these can be categorised into calls for:
Approaches to Tackling Digital Piracy
8.24 Many rights holders have called for stronger enforcement and other measures to secure compliance with rights. The Alliance Against IP Theft suggested a number of changes which are fairly representative of those put to the Review by other rights holders, and these can be categorised into calls for:
xxi
xxii
xxiii
xxiii
-
implementing the DEA in full, including its substantial measures to combat online infringement
(see paragraph 8.26 below);
-
a levelling up of penalties, such as increasing the maximum penalty for digital copyright
infringement to match that available for physical copyright infringement;
-
increasing the use and level of damages to act as a deterrent;xxi
-
increasing nancial incentives for investigators and prosecutors (for example, by raising the
allocated percentage of Proceeds Of Crime Awards);
-
taking forward educational awareness measures, including those proposed in the DEA;xxii
-
working with ISPs as gatekeepers to the internet to ensure legitimate businesses do not suffer
at the hands of illegal services;
-
coordinating action across relevant Government departments and agencies responsible for
enforcement, possibly coordinated by a new “IP Czar”;
-
establishing a dedicated online crime unit with investigatory and operational powers.xxiii
The current law already allows courts to award greater damages than merely the cost of the unpaid licence. It states
that the court may have regard to all the circumstances and, in particular, to the agrancy of the infringement and any bene t accruing to the defendant in awarding additional damages.
Educational noti cations sent to consumers who may not know that they are infringing or may not know that their internet connection is being used by others to infringe. The letters will point out that the infringement appears to have occurred but will also direct the consumer towards sites with legal content and advise on how they can stop others from using their connection to infringe (for example stopping their wireless connection from being ‘hijacked’).
UK enforcers already have investigatory powers under the Regulation of Investigatory Powers Act 2000. The Enforcement Hub within the IPO acts as an information-gathering and sharing body to support public and private investigations. The Hub runs the IP Crime Intelligence Database but it is not a dedicated solely to online crime.
Review of Intellectual Property and Growth 76
8.25 The Alliance adds: “Whilst the UK is considered to be the best IP framework in the world
for protecting, exploiting and enforcing IP,15 this review provides an excellent opportunity to suggest
improvements to ensure its future success.”
8.26 The most substantive items in the Alliance’s list relate to the implementation of measures set out in the DEA, which provides for a substantial increase in enforcement action against those suspected of breaching copyright online. This includes graduated measures against infringers, starting with warning letters. If these are not effective there are reserve powers to slow or suspend temporarily internet connections and to block sites offering infringing content. These are the type of measures already in place or under consideration in a number of other countries around the world, including France.
8.27 Submissions to the Review re ected signi cant differences between rights holders and ISPs. Two telecommunications companies, BT and TalkTalk, challenged the legality of the DEA through the courts, but their arguments were almost entirely dismissed in a ruling in April 2011. Rights holders have also asked providers of search engines to block pirate services, which the latter advise they cannot do because of the dif culties in isolating illegal content from legal content, and to modify search criteria to ensure that sites selling copyright material lawfully are displayed more prominently than those which routinely infringe copyright. At the time of drafting Ofcom is nalising advice to the Secretary of State for Culture, Media and Sport on the feasibility of blocking infringing sites.
What Impact Might Stronger Enforcement Measures Have?
8.28 Although online infringement of copyright and the measures used to combat it are well established phenomena, there is relatively little research evaluating the impact of speci c approaches. A recent exception is a 400 page study by the US Social Science Research Council (SSRC)16 which reviews available evidence on what works and what does not in relation to addressing what they term “media piracy” (the term covers the making of both physical and non-physical copies).
8.29 The project looked at music, lm and software piracy in emerging economies and at international and local enforcement efforts to address it. Despite the report’s focus on piracy in emerging economies (which it sees as a major threat to the interests of copyright owners in the most advanced economies) it also pulls together empirical evidence on enforcement in the developed world, including in the US.
8.30 The report argues that investment to date in stronger enforcement has not signi cantly reduced piracy. For example, it suggests that since the era of the free and illegal le sharing operation of Napster in 1999, when P2P sharing rst took off, rights holders have brought legal actions against many P2P sites and have generally succeeded in shutting them down. But this is a short term effect. Looking at the approximately 27,000 Recording Industry of America Association (RIAA) legal cases brought against P2P users between 2003 and 2008, a Pew Internet and American Life Project survey, conducted just after the rst RIAA announcement, showed a 50 per cent drop in the percentage of users acknowledging use of P2P services, from 29 per cent to 14 per cent. However, by 2005 this number had reverted to 24 per cent.
8.26 The most substantive items in the Alliance’s list relate to the implementation of measures set out in the DEA, which provides for a substantial increase in enforcement action against those suspected of breaching copyright online. This includes graduated measures against infringers, starting with warning letters. If these are not effective there are reserve powers to slow or suspend temporarily internet connections and to block sites offering infringing content. These are the type of measures already in place or under consideration in a number of other countries around the world, including France.
8.27 Submissions to the Review re ected signi cant differences between rights holders and ISPs. Two telecommunications companies, BT and TalkTalk, challenged the legality of the DEA through the courts, but their arguments were almost entirely dismissed in a ruling in April 2011. Rights holders have also asked providers of search engines to block pirate services, which the latter advise they cannot do because of the dif culties in isolating illegal content from legal content, and to modify search criteria to ensure that sites selling copyright material lawfully are displayed more prominently than those which routinely infringe copyright. At the time of drafting Ofcom is nalising advice to the Secretary of State for Culture, Media and Sport on the feasibility of blocking infringing sites.
What Impact Might Stronger Enforcement Measures Have?
8.28 Although online infringement of copyright and the measures used to combat it are well established phenomena, there is relatively little research evaluating the impact of speci c approaches. A recent exception is a 400 page study by the US Social Science Research Council (SSRC)16 which reviews available evidence on what works and what does not in relation to addressing what they term “media piracy” (the term covers the making of both physical and non-physical copies).
8.29 The project looked at music, lm and software piracy in emerging economies and at international and local enforcement efforts to address it. Despite the report’s focus on piracy in emerging economies (which it sees as a major threat to the interests of copyright owners in the most advanced economies) it also pulls together empirical evidence on enforcement in the developed world, including in the US.
8.30 The report argues that investment to date in stronger enforcement has not signi cantly reduced piracy. For example, it suggests that since the era of the free and illegal le sharing operation of Napster in 1999, when P2P sharing rst took off, rights holders have brought legal actions against many P2P sites and have generally succeeded in shutting them down. But this is a short term effect. Looking at the approximately 27,000 Recording Industry of America Association (RIAA) legal cases brought against P2P users between 2003 and 2008, a Pew Internet and American Life Project survey, conducted just after the rst RIAA announcement, showed a 50 per cent drop in the percentage of users acknowledging use of P2P services, from 29 per cent to 14 per cent. However, by 2005 this number had reverted to 24 per cent.
Review of Intellectual Property and Growth 77
“Despite the stream of lawsuits and site closures, we see no evidence – and indeed very few claims
– that these efforts have had any measurable impact on online piracy. The costs and technical requirements of running a torrent tracker or indexing site are modest, and new sites have quickly emerged to replace old ones.” SSRC17
– that these efforts have had any measurable impact on online piracy. The costs and technical requirements of running a torrent tracker or indexing site are modest, and new sites have quickly emerged to replace old ones.” SSRC17
8.31 Evidence exists from countries which have already brought in similar measures to those in the
DEA, notably France and South Korea, both cited by interested parties. There are con icting opinions
about what recent surveys tell us about attitudes towards the French Hadopi18 law and compliance
with it.19 Our reading of the research is that it does not provide clear evidence either way. The law is
still only a year old but a key nding was that half of the web users surveyed who admitted illegal use
said that they did not plan to change their behaviour and a third said that they would (around a quarter
of the whole sample did not respond to this question).
8.32 The South Korean experience was also quoted by some stakeholders as an example of the success of stricter enforcement. However, a report for PRS for Music,20 while noting that music revenues had grown and the volume of music and lm piracy had appeared to have fallen, said that the apparent improvement was from a low base and that piracy remains a serious problem.
8.33 South Korea also introduced a wide range of measures to tackle piracy, not only stricter enforcement but also incentives not to host illegal content, educational campaigns and rights holders working with pirates. Further study would be needed to understand the relative merits of the different aspects of the programme.22
The Role of Education
8.34 A number of submissions to the Review called for additional efforts to educate people, especially the young, in the importance of copyright and the way it works. The evidence we have seen suggests that there is a role for education, though this evidence does not indicate that it is likely to make a decisive impact in the absence of other actions.
8.35 The British Video Association, in its submission, cites research for the Industry Trust for IP Awareness by NOP/GfK in 2009. The survey found that the Trust’s awareness campaigns achieved a 69 per cent agreement among people who had seen their advertising (compared to 53 per cent among those who had not) with the statement that “unauthorised downloading pirate/knock off lms or TV programmes is a form of theft” and 50 per cent agreed that it was socially unacceptable behaviour.
8.32 The South Korean experience was also quoted by some stakeholders as an example of the success of stricter enforcement. However, a report for PRS for Music,20 while noting that music revenues had grown and the volume of music and lm piracy had appeared to have fallen, said that the apparent improvement was from a low base and that piracy remains a serious problem.
8.33 South Korea also introduced a wide range of measures to tackle piracy, not only stricter enforcement but also incentives not to host illegal content, educational campaigns and rights holders working with pirates. Further study would be needed to understand the relative merits of the different aspects of the programme.22
The Role of Education
8.34 A number of submissions to the Review called for additional efforts to educate people, especially the young, in the importance of copyright and the way it works. The evidence we have seen suggests that there is a role for education, though this evidence does not indicate that it is likely to make a decisive impact in the absence of other actions.
8.35 The British Video Association, in its submission, cites research for the Industry Trust for IP Awareness by NOP/GfK in 2009. The survey found that the Trust’s awareness campaigns achieved a 69 per cent agreement among people who had seen their advertising (compared to 53 per cent among those who had not) with the statement that “unauthorised downloading pirate/knock off lms or TV programmes is a form of theft” and 50 per cent agreed that it was socially unacceptable behaviour.
“Korea’s success has been in making piracy somewhat less mainstream – it is less socially acceptable
than it was, and illegal material is less likely to be readily available on those otherwise legitimate
sites...absolute levels of piracy remain extremely high by international standards. It is possible that in
time piracy will increasingly rely on offshore servers or distributed peer-to-peer, which will be harder to
control, both from a technical and enforcement perspective.”21
Review of Intellectual Property and Growth 78
8.36 The American SSRC study, involving quantitative and qualitative research, found a consistent
set of attitudes on piracy:
8.38 However, the SSRC also draw attention to the absence of benchmarking and quality evaluation of education campaigns, despite their profusion. BASCAP identi ed 333 such campaigns in developed countries alone over 10 years. They examined 202 campaigns but there appeared to be no evaluation of their success or the lessons learned from any of them.
8.39 This is the threadbare research background against which policy-makers are currently working. Ofcom, as it prepares to advise Government about measures to combat online piracy, has concluded that well-monitored educational measures can be effective as part of a wider strategy which also includes enforcement and readily available legitimate digital services to consumers.
Changing Business Models
8.40 Where enforcement and education alone have so far struggled to make an impact on levels of copyright infringement, there has been more evidence of success where creative businesses have responded to illegal services by making available lower priced legal products in a form consumers want. Ofcom’s work also indicates that where a legal offering is readily available at the right price, incentives to circumvent enforcement measures, such as site blocking, are reduced.
-
that piracy is often regarded with ambivalence by consumers;
-
that pragmatic issues of price and availability usually override moral considerations;
-
that consumers know what they are buying (though this is in relation to physical DVDs/CDs
bought from street vendors not online piracy).
8.38 However, the SSRC also draw attention to the absence of benchmarking and quality evaluation of education campaigns, despite their profusion. BASCAP identi ed 333 such campaigns in developed countries alone over 10 years. They examined 202 campaigns but there appeared to be no evaluation of their success or the lessons learned from any of them.
8.39 This is the threadbare research background against which policy-makers are currently working. Ofcom, as it prepares to advise Government about measures to combat online piracy, has concluded that well-monitored educational measures can be effective as part of a wider strategy which also includes enforcement and readily available legitimate digital services to consumers.
Changing Business Models
8.40 Where enforcement and education alone have so far struggled to make an impact on levels of copyright infringement, there has been more evidence of success where creative businesses have responded to illegal services by making available lower priced legal products in a form consumers want. Ofcom’s work also indicates that where a legal offering is readily available at the right price, incentives to circumvent enforcement measures, such as site blocking, are reduced.
Review of Intellectual Property and Growth 79
8.41 Harris Interactive for the BPI’s Digital Music Nation report in 2010 asked why respondents
had stopped using P2P. Twenty nine per cent said that it was because a better pay service was
availablexxivxxivToday, there are many examples of UK companies successfully responding to the
opportunities presented by the demand for innovative digital services:
8.43 This is not a counsel of despair but a recognition that what rights holders face is a particular form of a challenge shared by many businesses, namely how to construct a distinctive product offering that consumers are willing to pay for. There is research24 suggesting a willingness to pay signi cantly more than zero for a CD, albeit not the current full market price, even when illegal copies of the same thing were available for no charge. Brindley and Walker (2009) conducted a survey in the UK of teenagers that showed increased use of licensed streaming services is displacing le sharing as a way of accessing music.25 This means that it is all the more important that licensing is made as simple as possible so that new offerings can come to market as soon as possible (as described in Chapter 4).
xxiv 24 per cent said it was not fair to artists and songwriters, 23 per cent use free streaming service instead, 21 per cent use social networks for music, 16 per cent use forums and blogs, 13 per cent have downloaded most of what they want, 12 per cent were worried they would get caught, 12 per cent said it was wrong to use unauthorised source.
-
Pearson’s submission cites the Financial Times’ success in developing a new global business
model based on the concepts of conditional free use (illustrated by the metered model and
database licences), multiple digital platform access and direct to customer licences that reduce
licensing costs for media intermediaries.
-
Spotify, an online music streaming service offering a combination of free and subscription
based access to music, illustrates the consumer demand for lawful online music services.
-
The lm industry is experimenting with shortening the windows for release of lms on DVD;
providers like Love lm in the UK are increasingly adding new online streaming options to their
established services.
-
The computer games industry is using monthly subscription packages to develop direct
relationships with consumers to reduce piracy and making available innovative variations on
the “freemium” model.23
8.43 This is not a counsel of despair but a recognition that what rights holders face is a particular form of a challenge shared by many businesses, namely how to construct a distinctive product offering that consumers are willing to pay for. There is research24 suggesting a willingness to pay signi cantly more than zero for a CD, albeit not the current full market price, even when illegal copies of the same thing were available for no charge. Brindley and Walker (2009) conducted a survey in the UK of teenagers that showed increased use of licensed streaming services is displacing le sharing as a way of accessing music.25 This means that it is all the more important that licensing is made as simple as possible so that new offerings can come to market as soon as possible (as described in Chapter 4).
xxiv 24 per cent said it was not fair to artists and songwriters, 23 per cent use free streaming service instead, 21 per cent use social networks for music, 16 per cent use forums and blogs, 13 per cent have downloaded most of what they want, 12 per cent were worried they would get caught, 12 per cent said it was wrong to use unauthorised source.
Review of Intellectual Property and Growth 80
The Way Forward
8.44 Governments around the world are acting in response to pressure from rights holders, for wholly understandable reasons. Given the relatively new and fast changing nature of the supply
of online digital content services, it would be unreasonable to expect settled clarity in consumer behaviour or the kind of sustained patterns of behaviour that researchers nd it easiest to track. In terms of enforcement against online copyright infringement and related educational initiatives, we are still in an exploratory phase. In this period, it is essential that enforcement and educational initiatives are carefully tracked and their impacts correctly understood. If this is not done, resource will be wasted and further harm may be done to the interests of everyone concerned. There can be no excuse for failing to conduct this kind of research as the UK prepares to implement the Digital Economy Act.
8.45 The most con dent conclusion we can draw from our experience of digital content markets to date is that we need a combination of enforcement, education and a big push to expand the legitimate market for digital content, through services which attract consumers of all ages and backgrounds. It will be important to ensure that enforcement measures are not designed or implemented in a way
that alienates consumers and undermines work in education and extending the appeal of legitimate markets. Emphasising enforcement as an alternative to improved digital licensing and modernised copyright law is the wrong approach. Action is needed on all fronts.
8.46 The role for Government is to facilitate the provision of readily available legitimate digital content, to reshape copyright law where it is out of touch and to support this with effective measures to educate consumers and to enforce the law.
8.47 How can Government know what amounts to a reasonable level of enforcement? WIPO, after looking at research including OECD data, concluded:26 “it is optimal for governments to devote a level of public spending on law enforcement, such that the marginal bene t of ghting IPR violations equals the marginal cost of enforcement activity. The marginal bene t includes the welfare effects.......
the marginal cost includes the opportunity cost of not using scarce scal resources to provide other
public goods. Public spending on law enforcement will affect the probability of apprehension and the penalties faced by suppliers, distributors and (knowing) consumers of IPR infringing goods, leading to adjustments in the market for offenses until equilibrium is reached.”
8.48 At this moment, given our state of knowledge, no-one in the UK could make an informed assessment of what is the right level of resource for online enforcement in the UK. We can only guess and get on with it, using rigorous evaluation to develop the kind of cost-bene t framework described by WIPO.
8.44 Governments around the world are acting in response to pressure from rights holders, for wholly understandable reasons. Given the relatively new and fast changing nature of the supply
of online digital content services, it would be unreasonable to expect settled clarity in consumer behaviour or the kind of sustained patterns of behaviour that researchers nd it easiest to track. In terms of enforcement against online copyright infringement and related educational initiatives, we are still in an exploratory phase. In this period, it is essential that enforcement and educational initiatives are carefully tracked and their impacts correctly understood. If this is not done, resource will be wasted and further harm may be done to the interests of everyone concerned. There can be no excuse for failing to conduct this kind of research as the UK prepares to implement the Digital Economy Act.
8.45 The most con dent conclusion we can draw from our experience of digital content markets to date is that we need a combination of enforcement, education and a big push to expand the legitimate market for digital content, through services which attract consumers of all ages and backgrounds. It will be important to ensure that enforcement measures are not designed or implemented in a way
that alienates consumers and undermines work in education and extending the appeal of legitimate markets. Emphasising enforcement as an alternative to improved digital licensing and modernised copyright law is the wrong approach. Action is needed on all fronts.
8.46 The role for Government is to facilitate the provision of readily available legitimate digital content, to reshape copyright law where it is out of touch and to support this with effective measures to educate consumers and to enforce the law.
8.47 How can Government know what amounts to a reasonable level of enforcement? WIPO, after looking at research including OECD data, concluded:26 “it is optimal for governments to devote a level of public spending on law enforcement, such that the marginal bene t of ghting IPR violations equals the marginal cost of enforcement activity. The marginal bene t includes the welfare effects.......
the marginal cost includes the opportunity cost of not using scarce scal resources to provide other
public goods. Public spending on law enforcement will affect the probability of apprehension and the penalties faced by suppliers, distributors and (knowing) consumers of IPR infringing goods, leading to adjustments in the market for offenses until equilibrium is reached.”
8.48 At this moment, given our state of knowledge, no-one in the UK could make an informed assessment of what is the right level of resource for online enforcement in the UK. We can only guess and get on with it, using rigorous evaluation to develop the kind of cost-bene t framework described by WIPO.
Review of Intellectual Property and Growth 81
Counterfeiting
8.49 Counterfeit goods infringe trade marks, and insofar as they deprive brand owners of sales, they may erode the incentive to build and protect brands.
8.50 We know that counterfeiting, like online piracy, is widespread. An IPO survey in 2009 found that 90 per cent of Trading Standards Authorities had dealt with such cases, most commonly designer goods, followed by DVDs and CDs.
8.51 As with online piracy, estimating the extent of counterfeiting is problematic and sources and methodology for much research are not open to scrutiny.27 A frequently cited statistic is the OECD’s estimate that counterfeit and pirated goods in international trade could have accounted for up to
$200 billion in 2005, later updated to $250 billion based on 2005-07 world trade data.xxvxxvThe OECD quali ed this by saying that it was based on data from national Governments and relevant industries and had not been independently assessed. It concluded that, “the overall degree to which products are being counterfeited and pirated is unknown and there do not appear to be any methodologies that could be employed to develop an acceptable overall estimate.”28
8.52 Counterfeiting may adversely affect growth since trade marks are associated with growth. Research has suggested that investment in brands constituted approximately six per cent of total tangible and intangible investment in the UK economy in 2006,29 and that rms which trade mark have signi cantly higher value added than non-trade mark companies.30 The association of brands and business growth is particularly clear in the branded fast moving consumer goods sector.31
8.53 There is also a consumer protection aspect to tackling counterfeiting, in situations where consumers are being misled. This is not always the case, however, depending on the nature of the product: for example, few people believe they are buying a genuine Gucci handbag when they pay a few pounds in a street market.32
8.54 Some of those who provided submissions drew attention to the losses to the exchequer,
links to organised crime, health and safety consequences and other adverse effects of counterfeits.
In an IP context these are very much secondary arguments, though there can certainly be value in ensuring that criminal enforcement agencies are suitably “joined up.” There are, however, good stand- alone IP arguments for the enforcement of IP law, and care needs to be taken not to confuse either the objectives or the means of tackling problems in very different areas, such as safety and counter- terrorism.
xxv Excluding digital piracy or counterfeit goods produced and consumed within the same country.
8.49 Counterfeit goods infringe trade marks, and insofar as they deprive brand owners of sales, they may erode the incentive to build and protect brands.
8.50 We know that counterfeiting, like online piracy, is widespread. An IPO survey in 2009 found that 90 per cent of Trading Standards Authorities had dealt with such cases, most commonly designer goods, followed by DVDs and CDs.
8.51 As with online piracy, estimating the extent of counterfeiting is problematic and sources and methodology for much research are not open to scrutiny.27 A frequently cited statistic is the OECD’s estimate that counterfeit and pirated goods in international trade could have accounted for up to
$200 billion in 2005, later updated to $250 billion based on 2005-07 world trade data.xxvxxvThe OECD quali ed this by saying that it was based on data from national Governments and relevant industries and had not been independently assessed. It concluded that, “the overall degree to which products are being counterfeited and pirated is unknown and there do not appear to be any methodologies that could be employed to develop an acceptable overall estimate.”28
8.52 Counterfeiting may adversely affect growth since trade marks are associated with growth. Research has suggested that investment in brands constituted approximately six per cent of total tangible and intangible investment in the UK economy in 2006,29 and that rms which trade mark have signi cantly higher value added than non-trade mark companies.30 The association of brands and business growth is particularly clear in the branded fast moving consumer goods sector.31
8.53 There is also a consumer protection aspect to tackling counterfeiting, in situations where consumers are being misled. This is not always the case, however, depending on the nature of the product: for example, few people believe they are buying a genuine Gucci handbag when they pay a few pounds in a street market.32
8.54 Some of those who provided submissions drew attention to the losses to the exchequer,
links to organised crime, health and safety consequences and other adverse effects of counterfeits.
In an IP context these are very much secondary arguments, though there can certainly be value in ensuring that criminal enforcement agencies are suitably “joined up.” There are, however, good stand- alone IP arguments for the enforcement of IP law, and care needs to be taken not to confuse either the objectives or the means of tackling problems in very different areas, such as safety and counter- terrorism.
xxv Excluding digital piracy or counterfeit goods produced and consumed within the same country.
“Total UK spend, just on clothing & footwear fakes per annum: £3.009 billion”
“The UK is one of the largest consumer markets for fakes per capita in the world.” Anti-Counterfeiting Group and British Brands Group submission quoting uncited consumer survey.
“The UK is one of the largest consumer markets for fakes per capita in the world.” Anti-Counterfeiting Group and British Brands Group submission quoting uncited consumer survey.
Review of Intellectual Property and Growth 82
8.55 It is striking that the debate around counterfeiting – a very longstanding problem – provides
such strong echoes of the debate about online copyright piracy, which is a fairly new problem. In
both cases, there is a chronic lack of reliable background data; very little useful research to support
the design of enforcement programmes and much grumbling about the role of Government and its
enforcement agencies. The submission from the CBI drew attention to variations in the application of
the existing enforcement regime.33
8.56 In recent years, the UK authorities and affected industries have made greater efforts to co- ordinate their approach to IP crime. In its 2004 IP Crime Strategy (about to be updated), the IPO identi ed the need for such an approach. As a result an Enforcement Hub was developed within the IPO to act as an information gathering and sharing body to support public and private investigations (where infringement is wilful, copyright and trade mark offences are criminal). The Hub runs the
IP Crime Intelligence Database and an IP Crime Group brings together Government, industry and
enforcement agencies.
8.57 These have proved to be useful initiatives, but they are still quite young. Progress has been made in coordinating the different parties but the group has not yet tackled the crucial issue of metrics and methodology for collecting information about the scale and nature of counterfeiting in different industries. The IPO is developing a more evidence-based approach to all of its work, but it has not yet done signi cant work on the links between counterfeiting and innovation. As trade marks become increasingly valuable in the economy, these are gaps of growing importance.
8.58 The strengthened IPO the Review envisages (Chapter 10) should be equal to this larger and demanding leadership role.
Cost of Dispute Resolution and Access to Justice
8.56 In recent years, the UK authorities and affected industries have made greater efforts to co- ordinate their approach to IP crime. In its 2004 IP Crime Strategy (about to be updated), the IPO identi ed the need for such an approach. As a result an Enforcement Hub was developed within the IPO to act as an information gathering and sharing body to support public and private investigations (where infringement is wilful, copyright and trade mark offences are criminal). The Hub runs the
IP Crime Intelligence Database and an IP Crime Group brings together Government, industry and
enforcement agencies.
8.57 These have proved to be useful initiatives, but they are still quite young. Progress has been made in coordinating the different parties but the group has not yet tackled the crucial issue of metrics and methodology for collecting information about the scale and nature of counterfeiting in different industries. The IPO is developing a more evidence-based approach to all of its work, but it has not yet done signi cant work on the links between counterfeiting and innovation. As trade marks become increasingly valuable in the economy, these are gaps of growing importance.
8.58 The strengthened IPO the Review envisages (Chapter 10) should be equal to this larger and demanding leadership role.
Cost of Dispute Resolution and Access to Justice
“Costs can be prohibitive, particularly for small rms. A rm challenging a patent can expect to pay
£750,000 for a simple case, largely due to the costs of the adversarial system.” Gowers Review of Intellectual Property, 2006
“...even a £2,000 claim for copyright infringement (eg the current case in the PCC about one architect copying another’s plan) can run up costs of £20-£30k which dissuades people from enforcing IP at low levels.” Nokia submission
£750,000 for a simple case, largely due to the costs of the adversarial system.” Gowers Review of Intellectual Property, 2006
“...even a £2,000 claim for copyright infringement (eg the current case in the PCC about one architect copying another’s plan) can run up costs of £20-£30k which dissuades people from enforcing IP at low levels.” Nokia submission
8.59 For all IPRs, ultimate resolution of disputes over alleged infringement of rights lies in the
courts.xxvi Businesses seeking to enforce rights or defend themselves from allegations of infringement
therefore have to contend with the costs of litigation.
8.60 For micro businesses and SMEs in particular, these costs – which are not simply the money cost of legal fees, but also the diversion of time and attention – can be considerable. The situation is exacerbated by the relative weaknesses of a smaller business’s negotiating position (lacking, for
xxvi Although the IPO has jurisdiction to hear patent infringement cases, this is limited in that both parties must consent, and the IPO has no power to issue injunctions, only award damages. The jurisdiction has never been used.
8.60 For micro businesses and SMEs in particular, these costs – which are not simply the money cost of legal fees, but also the diversion of time and attention – can be considerable. The situation is exacerbated by the relative weaknesses of a smaller business’s negotiating position (lacking, for
xxvi Although the IPO has jurisdiction to hear patent infringement cases, this is limited in that both parties must consent, and the IPO has no power to issue injunctions, only award damages. The jurisdiction has never been used.
Review of Intellectual Property and Growth 83
instance, large patent portfolios or frequent dealings with other businesses) compared to a large rm
with which the smaller enterprise may be in contention. This can result in smaller businesses being less able to obtain a favourable settlement short of court action.34
8.61 Evidence suggests that smaller businesses who have their “day in court” are not relatively disadvantaged35 but the question then remains as to whether smaller businesses are more likely to be forced into unfavourable earlier settlement. Submissions to the Review highlighted many examples
of smaller businesses saying they were unable to enforce their rights.36 One high technology small business told the Review:37 “it’s often easier to pay licensing fees on a patent that may be invalid than to dispute or challenge the patent.”xxvii It is noticeable that fewer SMEs are litigating IPRs in England and Wales than in some other EU countries.38
The Patents County Court
8.62 The Government has recently taken steps to address access to lower cost IP litigation with reforms to the Patents County Court (PCC). (Despite its name, the PCC deals with trade mark, design, and copyright cases as well as patents). These follow recommendations from the Jackson Review of Civil Litigation,39 and involve streamlined procedures, a xed scale of recoverable costs capped at £50,000 and a damages cap of £500,000. The costs cap in particular is designed to provide certainty to SMEs worried about a large costs award against them should they lose against a well funded opponent. Streamlined procedures aim to keep all costs down.
8.63 Although some submissions to the Review express scepticism as to whether the PCC reforms will bene t SMEs as intended,40 there is a strong case for seeing how these reforms work in practice – they are still being implemented – before considering further changes.
8.64 However, one issue not currently addressed by these reforms, but which both the Jackson Review and submissions to this review have advocated is a “small claims” track for low value IP claims. These are cases where the claimant is sometimes more concerned with discouraging future infringement than with the monetary value of the present claim.
8.65 Evidence submitted to the Review demonstrates a low level of awareness of the existence of the PCC among SMEs. This situation is probably not helped by its name – indeed the Jackson Review suggested a renaming to the Intellectual Property County Court, a suggestion this review supports – but more generally is symptomatic of a general lack of awareness of options for dispute resolution, and indeed about IP in general among SMEs. This issue is addressed in Chapter 9.
xxvii 15 per cent of participants in that meeting claimed to have had dif culties defending a claim against them which they felt unjusti ed; 45 per cent had not.
with which the smaller enterprise may be in contention. This can result in smaller businesses being less able to obtain a favourable settlement short of court action.34
8.61 Evidence suggests that smaller businesses who have their “day in court” are not relatively disadvantaged35 but the question then remains as to whether smaller businesses are more likely to be forced into unfavourable earlier settlement. Submissions to the Review highlighted many examples
of smaller businesses saying they were unable to enforce their rights.36 One high technology small business told the Review:37 “it’s often easier to pay licensing fees on a patent that may be invalid than to dispute or challenge the patent.”xxvii It is noticeable that fewer SMEs are litigating IPRs in England and Wales than in some other EU countries.38
The Patents County Court
8.62 The Government has recently taken steps to address access to lower cost IP litigation with reforms to the Patents County Court (PCC). (Despite its name, the PCC deals with trade mark, design, and copyright cases as well as patents). These follow recommendations from the Jackson Review of Civil Litigation,39 and involve streamlined procedures, a xed scale of recoverable costs capped at £50,000 and a damages cap of £500,000. The costs cap in particular is designed to provide certainty to SMEs worried about a large costs award against them should they lose against a well funded opponent. Streamlined procedures aim to keep all costs down.
8.63 Although some submissions to the Review express scepticism as to whether the PCC reforms will bene t SMEs as intended,40 there is a strong case for seeing how these reforms work in practice – they are still being implemented – before considering further changes.
8.64 However, one issue not currently addressed by these reforms, but which both the Jackson Review and submissions to this review have advocated is a “small claims” track for low value IP claims. These are cases where the claimant is sometimes more concerned with discouraging future infringement than with the monetary value of the present claim.
8.65 Evidence submitted to the Review demonstrates a low level of awareness of the existence of the PCC among SMEs. This situation is probably not helped by its name – indeed the Jackson Review suggested a renaming to the Intellectual Property County Court, a suggestion this review supports – but more generally is symptomatic of a general lack of awareness of options for dispute resolution, and indeed about IP in general among SMEs. This issue is addressed in Chapter 9.
xxvii 15 per cent of participants in that meeting claimed to have had dif culties defending a claim against them which they felt unjusti ed; 45 per cent had not.
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