US ITC Uses Ridiculous Methodology To Claim 'Piracy' In China Costs US Firms $48 Billion In 2009

from the mythical-losses dept

I’m always a bit wary of news reports about “studies” claiming huge dollar value “losses” due to infringement, as when you look at the details, the methodology is almost always suspect. Of course, this generally applies to industry-driven studies. So, I was a bit more interested to find out the details of a newly released study from the US International Trade Commission, done at the behest of the Senate, to determine the “cost” of intellectual property infringement in China. I was surprised that Reuters, of all publications, would have such a vague description of the report, and not discuss the methodology at all. After all, Reuters employs Felix Salmon, who is one a very small number of folks who has spent quite some time debunking the methodology of similar studies.

In this case, the ITC is claiming losses of a rather astounding $48 billion. Having seen similar studies over the years, both good and bad, my first reaction was that this didn’t pass the laugh test (at all) and sounded like the typical exaggerations from industry. So, I looked at the actual ITC report (pdf and embedded below) and it turns out it’s even worse than I expected. Rather than taking any sort of actual objective study, the ITC simply asked 5,000 companies for what they thought their “losses” to Chinese infringement were. Not only that, but the ITC tried to choose the firms who were most likely impacted by this — which means those who have the highest incentives to lie or exaggerate, because they want to have greater protectionism against Chinese competition.

Seriously, this methodology is just dopey. It’s like asking horse and buggy makers how much in “losses” they would suffer if the automobile market were allowed to move forward — and then basing regulatory policy on what they had to say. What’s most frustrating about this is that folks at the ITC know this. Just last year, it held hearings on this topic for this very report in which it was told, repeatedly, by experts that such methodologies were woefully inaccurate. Given that, it’s somewhat incomprehensible that the ITC would still use such an obviously wrong and biased methodology to support its claims.

It’s both disappointing and troubling that the ITC would use such a methodology (and that the press would parrot the numbers back as fact, without bothering to look at or even mention the methodology). The real problem is that this clearly bogus study will now likely have a tremendous impact on US policy towards China.

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Comments on “US ITC Uses Ridiculous Methodology To Claim 'Piracy' In China Costs US Firms $48 Billion In 2009”

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61 Comments
E. Zachary Knight (profile) says:

My losses to Chinese Piracy

Let’s see if I can calculate what my losses are to Chinese Piracy.

China has roughly 1.3 billion people. Since everyone in China is a pirate, that means that there are 1.3 billion copies of my software in China. Since 1 pirated copy is equal to 1 lost sale, I have lost 1.3 billion sales. Since I don’t actually market to China, I need to base my losses on the closest estimation of what my product would cost there. So I will use my US cost of $1000. So my total losses to Chinese piracy is $1.3 trillion. Holy Crap!!! I need more IP protection!

John Doe says:

I had the losses discussion with a friend last night

I talked to a friend of mine last night about the supposed “losses” that piracy creates. I told him I had another friend with about 300 pirated movies and he is downloading more all the time. At $20 per movie that is $6,000. There is no way this guy would have spent $6,000 on movies over the last two years. At best he might have spent 10% of that. If you would not have made the sale anyway, then it is not a loss.

Mike42 (profile) says:

The Executive Hipocracy

The Chinese are pirates! Let’s not do business with them.
Oh, wait! The labor is cheap! Let’s send all our manufacturing to them.
Wait again! They take our plans and molds and create knock-off products! Let’s not do business with them.
Hold on! My yearly bonus is based on profit, and higher wages eat into profits! It takes them a while to get the knock-offs manufactured and imported, so I’m sending our manufacturing to them. I’ll just pay my congress critter to whine at them.

Seriously, the Chinese should tell the US to go pound sand. US companies are not going to stop sending their manufacturing jobs to China as long as the cost is the lowest. If CEO’s were principled, they would looking at enriching their own countrymen, especially in our current state of crisis. (Yeah, I’m looking at you, Steve Jobs!)

Brad says:

The flaw with these arguments over losses is the wild assumption that for every person that downloads something illegally Is money that would have been earned had there been no option to download illegally and it is also assuming that no one who downloads something illegally ever buys a legimite copy or drives legitimate sales through word of mouth which is also not true. Infact it has been shown that wide distribution drives legitimate sales especially in music and movies. There are marketing departments that work very hard to get things to go viral because they know it will increase sales. This is precisely why shutting down music services like Limewire will never result in increase sales and could even reduce sales in the long run.

buck lateral (profile) says:

Funny, I haven’t seen the apologists study.

I find it comical that in the course of a discussion the Techdirtbags repeatedly challenge with [citation needed] then dismiss whatever citation or study is offered but seldom offer any study of their own. This type of shrill, Glen Beck-type of advocacy is why even mainstream apologists are uncomfortable with you and why many others deservedly dismiss you as a laughingstock.

Anonymous Coward says:

Re: Re:

Why would people need to understand the exact losses to piracy? Any study will likely be highly flawed due to the complicated economic decisions here. How many pirated Windows users would use Linux instead of paying for Windows? The whole purpose of this site is dedicated to business models that succeed despite piracy, so the only study important here would be one that showed that areas with low copyright grow faster than areas with more protection, and there are many studies that do show this and are presented here.

Dark Helmet (profile) says:

Re: Re:

Dear Buck Lateral:

First off, love the name. Seriously.

“I find it comical that in the course of a discussion the Techdirtbags repeatedly challenge with [citation needed] then dismiss whatever citation or study is offered but seldom offer any study of their own.”

Some studies that this site in particular has put forth:

http://www.techdirt.com/articles/20110325/03191713624/study-shows-that-piracy-has-not-resulted-decrease-quality-new-music.shtml

http://www.techdirt.com/articles/20110204/23401312975/japanese-government-study-shows-anime-piracy-could-boosts-sales.shtml

http://www.techdirt.com/articles/20100914/14214111013.shtml

So…you know…swing and a miss.

“This type of shrill, Glen Beck-type of advocacy is why even mainstream apologists are uncomfortable with you and why many others deservedly dismiss you as a laughingstock.”

………..Citation needed.

Darryl says:

Re: Re: Re:

Trouble is Mr DH is that Mike uses the exact same method, but picks and chooses which ones he will agree with and which he will not agree with.

Usually, Mike will pick individual examples of his mantra, so how is that any ‘better’ then what he is whinning about now ?

So for you DH its a swing and a miss for you too.

Darryl says:

Re: Re: Re:

http://www.techdirt.com/articles /20100914/14214111013.shtml

Great study, that shows that over time the world population, and therefore world consumption increases.

It does not show anything else, and does not mean that because there was an increase that there were also no losses due to theft.

Banks (usually) make a profit, banks are often robbed as well, so without the theft the profit would be higher, therefore the theft is a loss.

Same with every industry and market.

It’s just a crying shame you and Mike as so blinkered that you cannot see what everyone else see’s and plain common sense !

Or have you simply given up the idea of individual critical thought ?

Darryl says:

Re: Re: Re:2 Re:

“apparently the US International Trade Commission held hearings where it heard from a bunch of folks explaining how inaccurate industry reports on “losses from piracy” are….. “

http://www.techdirt.com/articles/20100617/0228329860.shtml

May be the RIAA does lobby the Government, and im sure McDonalds do so as well.

What is clear, is that the very people Mike uses as his ‘sources’, do exactly the SAME DAMN THING !!!!.

So its OK for ‘a bunch of folks “lobbying” the US ITC, and use that lobby to condemn a formal study.

So mike’s argument is that it’s ok to take a lobbiest’s claims as valid as opposed to a formal study. If the lobby is stating something you agree with.

apparently the US International Trade Commission held hearings where it heard from a bunch of folks explaining LOBBYING how inaccurate industry reports on “losses from piracy” are

Darryl says:

Re: Re: Re:2 Re:

And where do you think the banks get the money to pay insurance premiums ?

And where do you think the banks get the money to hire security guards, install locks, camera’s and so on ?

Do you think that money just appears from under their pillow ?

Or that some nice person gives it to them?

You Sir, clearly have NEVER run a business, and most certainly have never been involved witha successful business at least at any level where you would be required to make decisions.

I guess you think all this happens for zero cost, and by some for of ‘magic’.

You guys need to go back to school of something, as it is clear you do not really have a clue about business, finance, commerce, the law, the constitution or much else.

May be you should sit down and have a long think, use that brain of your, (instead of getting mike to think for you), and see if you can actually form a realy, viable thought in your own mind.

I dont expect you to do this, nor do i believe it is within your capabilities. But it would be nice if you tried.

You all seem to have a super simplistic view of the world, and business, much like a 5 year old would have. (like money grows on trees).

You think that if you are not specifically sent a bill for a cost that you do not and never have to meet those costs.

Who do you think pays the banks insurance ?

Who do you think pays Googles execs ?

Who do you think pays the RIAA ?

What do you think the RIAA is ? (do you even know what it stands for).

Do you know what an “association” is ?

Do you understand the difference between ‘recording industry’ and a ‘marketting industry’ ?

Do you know who comprises the RIAA, how it was formed, and why ?

Do you know who pays the RIAA ?

I guess you probably cannot answer most or any of these simple questions. (until you consult with Mikes past posts at least).

I also guess you are incapable of forming your own independent opinion on most subjects, after all why bother right, you have THE MIKE to do all your thinking for you.

No wonder the US is in so much difficulity these days, if the attitude of most of its citizens are those of yours.

The eejit (profile) says:

Re: Re: Re:3 Re:

Actually, being an assiustant manager in a small gaming shop, I can honestly say YOU are the one full of shit. When, for example, a rival has to shut off their radio because they haven’t paid nearly ?50 thousand to obtain the ‘required’ licences from ASCAP anf BPI, when the rent on the building is just under HALF of that/annum, somehting’s horribly wrong.

Jay (profile) says:

Re: Re: Re:3 Re:

“And where do you think the banks get the money to pay insurance premiums ?”

FDIC insurance > Central banking system > appears out of thin air for “security purposes”

“And where do you think the banks get the money to hire security guards, install locks, camera’s and so on ?”
Not all banks have all of that.

“Do you think that money just appears from under their pillow ?” See first question

“You Sir, clearly have NEVER run a business, and most certainly have never been involved witha successful business at least at any level where you would be required to make decisions.”
Pot, Kettle.

“You guys need to go back to school of something, as it is clear you do not really have a clue about business, finance, commerce, the law, the constitution or much else.”
And yet clearly, all this does not mean, what you think it means.

“Who do you think pays the RIAA ?”

The RIAA consists of a board of directors of the top four companies. It’s also a nonprofit organization dedicated to the failure of the Big Four.

“Do you know who comprises the RIAA, how it was formed, and why ?”

http://www.riaa.com/aboutus.php?content_selector=who_we_are_board – Next time google it yourself

All other questions are irrelevant and all over the place.

HothMonster says:

Re: Re: Re:3 Re:

And where do you think the banks get the money to pay insurance premiums ?

And where do you think the banks get the money to hire security guards, install locks, camera’s and so on ?

Its called operating expenses, every business has them. Banks spend a decent percentage on security, maybe its cause they are full of cash money.

Try forming your ideas into these things called paragraphs. It makes it easier for people to understand your point and may keep you from rambling so much. As it stands I just have to ignore the rest of your rambling, disjointed, insult spree. Maybe slow down and have a little less coffee, “Maybe you should sit down and have a long think, use that brain of your and see if you can actually form a realy, viable thought in your own mind” and then express it through words without just jumping from one disconnected point to the next.

Darryl says:

Re: Re: Re:

http://torrentfreak.com/artists-make-more-money-in-file-sharing-age-than-before-100914/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A Torrentfreak %28Torrentfreak%29

follow the link, you get a link to a link to a link, finally we are provided with a graph and probably exactly matches population growth or GDP.

Who is building stawman arguments again ? Mike (and DHead)

darryl says:

Re: Re: Re:2 Re:

Is that your best ??

If so, well I really do not have any problems, its not likeim actually going up against a mental giant. LOL

maybe one to many facepalm’s have caused permanent damage.

But such damange would be hard or impossible to detect, as you gave up original thought years ago.

You just follow Mikes word, and what Mike says and things is good enough for you.

After all, it saves you all that energy and effort to use your own brain.

Darryl says:

Re: Re: Re:2 Re:

OK, can you work out that a one dimentional statistic is totally meaningless ?

Mike provies a graph that shows that music sales increase with time.

Everything increases with time, inflation, income, population, demand, supply, money.

But a one dimentional statistic is meaningless, because all it states is that obvious fact.

Mike NEVER, compares markets, or Delta Change, or rate of change of the entire economy.

If he provided a graph of the music industries grown compared to growth other industries, or GDP, or inflation, or population growth, or variation in trends then his statements would be meaningful.

But he does not do that, and for good reason because if you plotted say the rate of sales of music compared to the rate of sales of petrol, paint, pharma’s, cars, houses or some other industry.

You would have a multidimentional statistic, and a real possibility of comparison.

Mike never does that, for good reason, because if he did he would find out that the music industries claims are probably quite accurate.

Im sure the rate of growth of music for example would be less that the rate of growth of other industries.

And it would be easy to prove with multi-dim stats if it was either true or false that the music industry is still as profitable as it has been in the past.

That is just looking at it from a demand perspective, you can also look at it from the supply point of view.

Does it take more artists, more content and more expenses to make the same or less profit than at earlier times, or does it take less ?

What is the industries efficiency compared to other industries in different markes, how many people to make X amount of turnover and profit ?

Plot that, that would clearly show if the music industry is progressing faster or slower than other industries.

Mike NEVER does this, he never provides his own analysis.

He allways provies only one dimentional stats, that are worthless without reference.

All this graphs and claims state, is that over time all markets get bigger, that is because there are more people and generally more disponable income. (and natural improvements in standards of living).

But show us where the music industry is going better than other industries, or not.

Or, show us compared to natural growth that the music industry is either in front of the ‘curve’ or behind the curve.

They are claiming (accuratly) that they are behind the curve, you are claiming (inaccuratly) that they are ahead of the curve.

If that is the case, then ‘citation needed’.

It’s just such a shame that most here are willing to accept faulty analysis, and disregard your own common sense.

It’s not that hard to think for yourself.

Jay (profile) says:

Re: Re:

“I find it comical that in the course of a discussion the Techdirtbags repeatedly challenge with [citation needed] then dismiss whatever citation or study is offered but seldom offer any study of their own. “

That’s because others have put up the research a lot.

Here’s Nicedoggy’s post with a ton of research.

Study up

darryl says:

Re: Re: Re:

Study up, what freaking research.

Perhaps, Jay, you need to learn to read or something…

RIAA rantings are incorrect, but Mike without any research, knowledge, experience, expertise or sense or logic.

But you believe Mike as if he’s a GOD..

Maybe, you need to understand the term “research”, because clearly you do not have a clue.

Treating Mike like a GOD, and believing everything he says is easy for you, I guess because you do not have to think for yourself.

Jay (profile) says:

Re: Re: Re: Re:

Darryl, make some damn sense and quit being a troll.

People on this site have their own brain and everyone can come to their own conclusions. There’s no one here treating Mike like a deity and all you’re doing is trying to troll up negative feelings for your own emotional jollies. Bravo.

There were absolutely NO rantings at the end of the link, merely a look and a very convenient post about all of the reports that Mike has used on Techdirt. I for one, don’t believe it should be ignored in that one thread. If Nicedoggy were still around, I would point to it or ask him to rewrite it here if I could.

Also, if you ever look at my profile, you’ll see that I submit my OWN stories. They’re stories mainly to do with the insanity of copyright law. They’re stories about how game companies (since that’s what I’m interested in myself) abuse the law to the detriment of society. I’m glad to express my own view, that copyright has little to no place in digital society, with the reasons I’ve stated.

No man is a deity. Research is meant to show you why copyright is good or ill, as Buck wants to ignore to go on his tirade. If you ever had good research data, maybe I could take your rants seriously. If you spent less time trying to fight people and work to make copyright work, I might actually consider that option.

As it stands, you rant about nothing and lose any respect you may have had with me. Wish you the best. Maybe next thread you can work on actually having research to back you up.

Chosen Reject (profile) says:

Re: Re:

This is how it works. You claim losses. You then have to prove losses. You show obviously wrong “studies”. We call you on how obviously wrong they are. Which really puts us back at step two. To save you the burden of finding step two, I’ll give it to you as a refresher: “You then have to prove your losses.” Any study that comes out showing no losses is not necessary. It’s not even icing on the cake. It’s the parasol in the cocktail, simply there for added flair. Techdirt has provided a bunch of studies. You still have yet to prove your claims.

Anonymous Coward says:

Re: Re:

“then dismiss whatever citation or study is offered”

So we shouldn’t express the problems with these industry funded/driven studies and their methodology (or the fact that a study doesn’t really tell us anything useful if the methodology is not also published). We’re supposed to just accept bogus studies based on bad methodology (or no published methodology), and not dismiss it, without question?

Anonymous Coward says:

Re: Re:

“then dismiss whatever citation or study is offered but seldom offer any study of their own.”

Explain to me, how is simply asking the opinions of those with conflicts of interest in the matter constitute a valid study for what’s being asserted?

That’s no different than the RIAA claiming, “Infringement costs us trillions of dollars because we said so and our opinion somehow constitutes a valid study that proves our claims.” What nonsense.

These $48 billion dollar claims likely have no more validity than the trillions of dollars that the RIAA claim. It’s an equally made up number, probably generated from a poorly designed random number generator that’s been hacked to even draw forth more highly absurd numbers.

Anonymous Coward says:

Re: Re: Re:

I know what we can do. Why doesn’t techdirt conduct a study concerning how much money the public loses do to copy protection laws. We can also conduct another study concerning how much industry loses due to infringement. Many techdirt members will claim

“The public loses Trillions of dollars and the industry loses $0”.

If we conducted such a study and the results turned out to be as such, we have just proven that this is true based on this study of ours. A self fulfilled study.

Darryl says:

Mike does that allready -

We need to create some bogus studies using the same methodology

Too late its Mikes ‘MO’ for years, if fact Mikes does NO studies, he just ‘makes it up’ as he goes along.

Or quotes ‘studies’ using the same methodology but with results that he may be able to agree with.

Not that it matters anyway, who are you going to believe, a group that actually asked 5000 companies, or Mike who does not even run one company that is in that market or field.

It’s amusing how quickly Mike can change face, and put on the big whine about something that he does not agree with, then minutes later is raving about the same method that provided results that he does agree with.

If making profit from works without IP protections was so easy why Mike is it such a big deal when it happens ? So big that you have to write about individuals who do well.

(and a very small number of them).

If your system was so great, then why so few doing it, and doing it well enough to eat ?

Anonymous Coward says:

Rather than taking any sort of actual objective study, the ITC simply asked 5,000 companies for what they thought their “losses” to Chinese infringement were.

So, those companies say they lost $48 billion? Well, what a coincidence! I’m pretty sure I lost $48 billion too. That’s $96 billion China owes us now. They better pay up soon!

Anonymous Coward says:

The paper is in large measure a discussion of trade policies being practiced by the Chinese government and their impact of the US industrial base. To entitle this article in a manner that directly suggests the paper is all about “piracy”, which here is used almost exclusively in the context of copyrights associatedd with the entertainment industries, is disingenuous to a fault.

I wonder how many commenting here noted in the paper the portion discussing technology transfer mandates as a condition of doing business in China? What about the discussion concerning the automobile industry and the requirement to form joint ventures with domestic manufacturers in order to obtain access to the Chinese market? What about the requirements being laid down on US companies within the field of civil aviation?

There is a gatekeeper with regards to access to the Chinese market, and it is the Chinese government. To read the article here and many of the comments, one could easily conclude that the issues noted in the paper are because “buggy whip” makers refuse to adapt. This is hardly the case.

Mike Masnick (profile) says:

Re: Re:

The paper is in large measure a discussion of trade policies being practiced by the Chinese government and their impact of the US industrial base. To entitle this article in a manner that directly suggests the paper is all about “piracy”, which here is used almost exclusively in the context of copyrights associatedd with the entertainment industries, is disingenuous to a fault.

Bull. First of all, NOTHING in my title suggested that was all the report was about.

And man, your need to slam everything I write is really getting silly. Reuters headline was: “China piracy cost U.S. firms $48 billion in 2009: report” Did you slam them?

Of course not. Yet, I actually dug in and posted the full report (something Reuters didn’t do) and you claim that *I* am being disingenuous?

Grow up.

Anonymous Coward says:

Re: Re: Re:

Then why not try and use a word other than “piracy” before slamming a report that addresses issues far more wide ranging that the headline suggests to those who read your articles. Mandatory JV’s is not piracy. Mandatory tech transfer is not piracy. Etc., etc., etc.

If persons who may point out weaknesses in your articles are viewed by you as “silly” naysayers who need to “grow up”, then I do have to wonder if you are really commited to having vigorous discussions or just receiving laudatory comments.

Mike Masnick (profile) says:

Re: Re: Re: Re:

Then why not try and use a word other than “piracy” before slamming a report that addresses issues far more wide ranging that the headline suggests to those who read your articles.

Because we were *accurately* responding to the part that WAS about piracy. There is no rule that when addressing a point of a report that you need to obfuscate it to please people like yourself.

If persons who may point out weaknesses in your articles are viewed by you as “silly” naysayers who need to “grow up”, then I do have to wonder if you are really commited to having vigorous discussions or just receiving laudatory comments

No. I am fine with people who point out weaknesses. It is people like yourself who consistently manufacture false outrage at slights you feel I have made when I have not, that I have a problem with. It is immensely childish, so I have no problem telling you to grow up.

It’s quite telling that you didn’t even respond to the fact that everyone else is highlighting the piracy stuff too.

You’re so transparent.

darryl says:

Transmutation

apparently the US International Trade Commission held hearings where it heard from a bunch of folks explaining how inaccurate industry reports on “losses from piracy” are

Just last year, it held hearings on this topic for this very report in which it was told, repeatedly, by experts that such methodologies were woefully inaccurate.

Ah, so it went “from a bunch of folks explaining how inaccurate industry reports on…..” to

TO
experts that such methodologies were woefully inaccurate

Cover up Mike, your bias is showing.

Difster (profile) says:

Losses

Because I am deathly afraid of having all of my potential profits sucked up by piracy, I have been afraid to actually develop any software at all that is usable by the public. I am a php/mysql developer but that is scripting really, not the same as developing software.

And because I am an absolutely brilliant human being I am confident that if piracy were completely eliminated I could have built a business worth billions of dollars! I am however paralyzed by the onslaught of piracy and the feeling of abuse I would suffer to see my products being copied without my express permission.

I therefore calculate my losses conservatively at $3.8 billion dollars. This is a true and accurate representation of my losses. I’m not biased, really I’m not.

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