Copyright reform: weak research will produce bad policy

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Heini Järvinen [EDRi]

Heini Järvinen [EDRi]

Recent studies have echoed extremely pessimistic analysis of the impact of copyright infringement on the European economy. But these are often based on false, misleading assumptions, writes Heini Järvinen.

Heini Järvinen is communications manager at European Digital Rights (EDRi), a not-for-profit association of 34 digital civil rights organisations from 19 European countries.

EURACTIV reported recently on a new BASCAP TERA Associates study on the allegedly vast cost of copyright infringement to the European economy. The hugely negative analysis for the European economy has generated headlines across Europe.

However, this is not the first time that TERA has produced extremely pessimistic analysis of the impact of copyright infringements. A similar TERA study in 2010 led media economies researcher Joe Karaganis to publish analysis illustrating the false, misleading assumptions on which the analysis was based.

Dr. Karaganis has now published a new paper that demonstrates how the TERA analysis is, again, fatally flawed.

The new TERA study, published on 16 October 2014, addresses important questions about the relationship between online copyright enforcement and the health and growth of the creative sector.

Copyright structures the market for many kinds of cultural goods, but enforcement policy is always a question of balance – of understanding the trade-offs between copyright and freedom of expression; between innovation and monopoly; and between effects at the sectoral, national, and international levels.

The study follows several other recent papers in developing a very expansive account of the size of the “creative” or “copyright intensive” industries. It argues that jobs in the creative industries compose 14% of the EU27 workforce, contributing 6.8% to their GDP. The definition of “core jobs” covers a very broad range of activity. The “creative” or “copyright” sector is potentially very large, but the “vulnerable to online infringement” sector is much smaller and concentrated around a subset of retail and advertising business models for music, movies and TV, and software. Only a small portion of the jobs categorised as part of these industries have significant exposure to online copyright infringement. Analysis that is based on the false assumption that this is not the case, as with the TERA study, leads to highly misleading conclusions.

The TERA study claims that “piracy” resulted between 2008 and 2011 in a loss of between 64,089 and 955,125 jobs. The study claims that, although economic depression and other factors may play a role in some sectoral changes, for example in retail, the job and economic losses are attributable to the failure of EU member states to adopt stronger intellectual property (IP) enforcement measures. According to the forecast presented in the study, by 2015 the number of jobs lost is likely to climb to 600,000 to 1.2 million.

The study builds its argument for stronger enforcement on the modest decline in overall creative sector employment since 2008. However, when this sector is disaggregated, there is no correspondence between employment changes and exposure to piracy in the key component industries. As TERA acknowledges, industries with among the highest exposure to online infringement saw job growth in the period, not decline. In theory, ”piracy” may negatively affect these industries, but the study fails to demonstrate any such impact. Job decline took place almost entirely in sectors with more limited exposure to piracy and more direct challenges associated with the shift to online markets, such as publishing and retail.

As in the 2010 report, the new TERA study ignores the fact that within the EU, online infringement can impose losses on specific industrial sectors, but these are not thereby losses to larger national or regional economies. Money saved on CDs or DVDs will be spent on other things, so the loss to the economy quite obviously not 100%. It is entirely possible that alternative uses of the consumer surplus are more productive, socially valuable and job creating than additional investment in entertainment goods.

Another fact the study fails to address is the importance of the direction of trade in IP goods. In vulnerable sectors such as audiovisual goods, software, and music, EU imports heavily exceed external exports. The balance in trade of infringed goods is likely to be even more tilted due to the dominance of Hollywood films and US television programmes. In such circumstances, the costs of infringement fall mostly on the US, while EU consumers realise a net welfare gain.

The 2010 TERA report enjoyed a successful run in the press and had visible influence on EC policy discussions, generating excited headlines.

We have a deeply flawed Copyright Directive from 2001, and an IPR Enforcement Directive from 2004. Both urgently need reform. As long as policy-makers are being presented with flawed analysis, we will be moving further away from a sustainable, effective approach to copyright law and enforcement – to the detriment of every single stakeholder.