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.

Filed Under: china, itc, losses, methodology, piracy

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  1. identicon
    Difster, 24 May 2011 @ 9:56am


    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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