Copyright. Trademark. Patent. Counterfeiting and Piracy Have a Wide Range of Effects on U.S. Consumers, Industry, Government, and the Economy

According to experts we spoke with and literature we reviewed,  counterfeiting and piracy have produced a wide range of effects on  consumers, industry, government, and the economy as a whole, depending  on the type of infringements involved and other factors. These sources further  noted that the economic effects vary widely among industries and among  companies within an industry. U.S. Government Loses Tax Revenue, Incurs Enforcement Expenses, and Faces Risks to Supply Chains

Many of the experts we interviewed identified lost tax revenue as an effect  of counterfeiting and piracy on governments. The U.S. government also incurs costs due  to IP protection and enforcement efforts. Seized goods have to be secured, as they have potential  value but cannot be allowed to enter U.S. commerce. Some  consumers may knowingly purchase a counterfeit or pirated product  because it is less expensive than the genuine good or because the genuine  good is unavailable, and they may experience positive effects from such  purchases. Lack of Data Hinders Efforts to Quantify Impacts of Counterfeiting and Piracy

According to experts we spoke with and literature we reviewed,  estimating the economic impact of IP infringements is extremely difficult,  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. Because of the  significant differences in types of counterfeit and pirated goods and  industries involved, no single method can be used to develop estimates,  and each method has limitations. Nonetheless, research in specific  industries suggest that the problem is sizeable. Three Widely Cited Estimates Sourced to U.S. Economy-Wide Impact of Counterfeiting and Piracy Is Unknown

While experts and literature we reviewed provided different examples of  effects on the U.S. economy, most observed that despite significant efforts,  it is difficult, if not impossible, to quantify the net effect of counterfeiting  and piracy on the economy as a whole. Appendix I: Objectives, Scope, and Methodology

The Prioritizing Resources and Organization for Intellectual Property Act  of 2008 (PRO-IP Act) directed GAO to conduct a study on the  quantification of the impacts of imported and domestic counterfeits on the  stry and the overall economy of the United States. Based on discussions with staff  from the House and Senate Judiciary Committees, we agreed that we  would (1) examine existing research on the effects of counterfeiting and  piracy on consumers, industries, government, and the U.S. economy; and  (2) identify insights gained from efforts to quantify the effects of  counterfeiting and piracy on the U.S. economy. To address both of these  objectives, we interviewed officials and representatives from industry  associations, nongovernmental organizations, academic institutions, and  U.S. government agencies and the multilateral Organization for Economic  Cooperation and Development (OECD). We also reviewed documents and  studies quantifying or discussing the impacts of counterfeiting and piracy  on the U.S. economy, industry, government, and consumers. No.
Why GAO Did This Study

In October 2008, Congress passed the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (PRO-IP Act), to improve the effectiveness of U.S. government efforts to protect intellectual property (IP) rights such as copyrights, patents, and trademarks. The act also directed GAO to provide information on the quantification of the impacts of counterfeit and pirated goods. GAO (1) examined existing research on the effects of counterfeiting and piracy on consumers, industries, government, and the U.S. economy; and (2) identified insights gained from efforts to quantify the effects of counterfeiting and piracy on the U.S. economy. GAO interviewed officials and subject matter experts from U.S. government agencies, industry associations, nongovernmental organizations, and academic institutions, and reviewed literature and studies quantifying or discussing the economic impacts of counterfeiting and piracy on the U.S. economy, industry, government, and consumers. GAO is making no recommendations in this report.

What GAO Found

According to experts and literature GAO reviewed, counterfeiting and piracy have produced a wide range of effects on consumers, industry, government, and the economy as a whole, depending on the type of infringements involved and other factors. Consumers are particularly likely to experience negative effects when they purchase counterfeit products they believe are genuine, such as pharmaceuticals. Negative effects on U.S. industry may include lost sales, lost brand value, and reduced incentives to innovate; however, industry effects vary widely among sectors and companies. The U.S. government may lose tax revenue, incur IP enforcement expenses, and face risks of counterfeits entering supply chains with national security or civilian safety implications. The U.S. economy as a whole may grow more slowly because of reduced innovation and loss of trade revenue. Some experts and literature also identified some potential positive effects of counterfeiting and piracy. Some consumers may knowingly purchase counterfeits that are less expensive than the genuine goods and experience positive effects (consumer surplus), although the longer-term impact is unclear due to reduced incentives for research and development, among other factors. Three widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies. Generally, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult, so assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates. Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates. Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts. Nonetheless, research in specific industries suggest that the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property.