• EU study showing limited economic effects of piracy was not published
  • It has now been released following freedom of information request
  • Study raises questions for trademark, as well as copyright, owners

The EU Commission has come under fire for failing to to publish a €360,000 study of the economic costs of piracy – the report was only released after a Member of the European Parliament obtained a copy following a Freedom of Information request. The report suggests that piracy has little negative effect on sales of copyrighted material, although the findings are a little more nuanced than that headline conclusion. While it does not directly address the consequences of trademark infringement, it will also stir up debate about the economic costs of counterfeiting.

The study was completed by Dutch research firm Ecorys in 2015, and has been gathering dust (or the digital equivalent) at the EU Commission ever since. However, Julia Reda, a German MEP for the Pirate Party, was granted access to the document following an official request. The research measures the relationship between online piracy and sales of copyrighted materials by estimating the rate at which copyright infringement displaces legitimate purchases. It also gauges what proportion of people who consume pirated materials would be willing to pay full price for copyrighted music, films, books and games, should avenues for illegal downloading and streaming disappear. Using extensive questionnaire data and econometric analysis, it asks these questions of consumers in Germany, the UK, Spain, France, Poland and Sweden, which it takes to be representative of the EU as a whole.

The report’s headline conclusion is that “the results do not show robust statistical evidence of displacement sales by online copyrighted infringements”. The exception is the piracy of newly-released blockbuster movies, which does have a significant negative impact on legitimate sales, the study finds: “For every ten recent top films watched illegally, four fewer films are consumed legally […] All in all, the estimated loss for recent top films is 5% of current sales volumes.” In contrast, there is no discernible impact on book purchases, while the displacement of physical music sales by illegal streaming and downloading is found to be cancelled out by a boost to live concert sales. Moreover, transactions in pirated computer games are thought to have a positive effect on legal sales, with infringers being converted into lawful customers at a high rate.

Another significant result is that prices for films and TV programmes are higher than 80% of illegal users would be willing to pay, whereas current the current cost of copyrighted books, games and music are much more in keeping with what infringers are prepared to cough up. This, the study suggests, shows that a decrease in prices might bring down any displacement effect for games, books and music, but not for audio-visual content.

Of course, the study’s findings about piracy do not necessarily apply to online trademark infringement. Habits of consumption for pirated creative products need not reflect those for the vast range of counterfeited goods on the market. And, even if they did, the economic costs of counterfeiting are not limited to effects on sales; damage to brand reputation is also a major concern. Furthermore, counterfeiting arguably poses more non-financial risks than piracy; fake medicines, toys and aeroplane parts, for example, pose major public health risks that pirated music and books do not.

However, an understanding of the extent to which the sale of fake products reduces purchases of trademarked goods is important to both brand owners and policy-makers – and could influence their responses to the counterfeiting problem. Although the EU Commission study does not itself help us to gauge the displacement effect of brand fakery, it does remind us that the loss to the rights holders is likely to be a lot less than the total amount of counterfeit sales. As Chinese business expert Dan Harris argued in a recent blog, it is unlikely that each person who buys a fake Rolex for $55 or an imitation Gucci purse for $15 would otherwise buy the real product at full price.

More interestingly, by showing that the piracy displacement rate differs significantly among infringed products, the study highlights the importance for brand owners and legal authorities of understanding the economic effects of counterfeiting on particular goods when shaping strategic enforcement priorities. This point has not yet received sufficient attention from those studying counterfeiting; “the issue of the variability of substitution rates between product categories has been barely addressed in consumer surveys”, states a recently published OECD report on UK counterfeit trade.

As such, the belatedly unveiled study not only raises questions about the costs wrought by piracy - or even the uses of expensively commissioned research – but also provides food for thought for those contemplating how best to respond to the problem of counterfeiting.