I have previously written about a new sub-institution established by the European Commission in the field of intellectual property enforcement – European Observatory on Counterfeiting and Piracy. In February the name was altered to the European Observatory on Infringements of Intellectual Property Rights (EOIIPR, perhaps).
This second baptism coincided with its transfer to a new home in sunny Alicante, at the Office for the Harmonization of the Internal Market (OHIM), and organisation better known for its administration of EU Community Trademarks and Designs. At birth the EOIIPR was located within the Enforcement Unit at the Internal Market directorate without much in the way of staff or money. The move to OHIM changes this and they will now have 15-20 people on an annual budget of three and half million euros. A Regulation officialising the transfer was passed by the European Parliament in February.
That this transition unfolded without any great ruckus will have been a great relief to both Commission officials and private sector lobbyists for the Trademark and Copyright industries: public commotion over the ACTA treaty raised the worry that the re-establishment of the Observatory could be sunk as collateral damage in the shit-storm.
Function of the Observatory
Once installed the EOIIPR began a consultation with interested parties to devise its programme for the next year, which was presented at its Plenary meeting in Alicante two weeks ago. I find it notable that once again the only consumer or user group present was the European Consumers Organization (European Digital Rights did make a submission as part of the consultation in July). Otherwise this has been a conclave of bureaucrats and lobbyists.
In the short term the Observatory is tasked with sourcing of data regarding piracy, counterfeiting etc which can be used to demonstrate that the Intellectual Property Rights Enforcement Directive is insufficient as stands, and thus requires some form of successor. That the Commission has already decided that this is the case is evident from its review of that legislation.
Consequently the Observatory put out a tender, and duly commissioned RAND to devise a methodology which could generate a set of figures which could be presented as objective (in contrast to the research reports bought and paid for by vested interests).
I was initially cynical about RAND’s involvement. So imagine how refreshing it was to discover that industry ‘stakeholders’ were not satisfied with how the work was developing. Had the research outfit gone off reservation? Decide for yourself: here is a short presentation made in Alicante, and the full report is here. If you don’t have the stomach for it, here are a few things that I gleaned:
(i) Firstly, it contains no estimates as to the size of the market in counterfeits or the impact of file sharing – referred to as unauthorised use of protected content (UUPC) – on the relevant industries or wider economy but is focused on building a methodology. As a result they address the lack of methodological and data transparency inherent in previous reports:
“Often the lack of clarity in fully describing the methods, assumptions and data underlying them constitutes a major barrier to an independent assessment of the statistical consistency of the results. This issue was also highlighted by earlier research efforts on the topic (e.g. OECD, 2008, p.78). In other cases, in the reports that produce the estimates reviewed above, more substantial issues remain poorly addressed from a scientific point of view” (P.17)
Later they extend their criticism to the limitations of the analytical frameworks more generally:
Overall, one of the main weaknesses of some of the existing estimates of the effects of counterfeiting and piracy on macro-economic variables such as GDP and employment is the assumption of a 100 percent substitution rate between counterfeit and genuine products – see for example the OECD (2008) critique of a 2005 IDC study. In addition, one aspect that seems to be systematically excluded from existing studies is consumer surplus. Consumer surplus refers to the welfare benefit of getting access to a substitute good at a lower price, while many studies consider the negative effects of counterfeiting and piracy on consumers (unemployment and health and safety risks) and on producers (lost revenues). Huygen et al. (2009) provide an example of a comprehensive treatment of the distribution of welfare effects and of their net balance (i.e., the balance between costs and benefits) in the case of file sharing (Huygen et al.,2009). From an economics point of view, any study that neglects consumer surplus in a welfare analysis is incomplete. (p.34)
(ii) Their own model (outlined in pages 41-65 of the full report) uses of sales forecast data generated internally by companies in affected sectors. Actual sales achieved are then deducted from the forecast numbers to identify the difference. Part of this discrepancy will be explicable retrospectively due to changed market conditions (e.g. the arrival of new competitors, foreign exchange rate variations etc.) But one part will remain, an ‘unpredicted forecasting error’ some of which will derive from the substitution of product sales by counterfeit alternatives.
The result of this first process is then object of a second analysis to try to identify the amount attributable to counterfeiting for a specific product and national market. A series of factors are used in the regression: (i) rule of law (ii) corruption (iv) government effectiveness (iv) customs (v) tourism ; relevant metrics are obtained from international organisations such as the IMF/WB. These factors are presumed to have an effect in encouraging or deterring counterfeit trade.
(iii) Their assessment is that the model is better suited to dealing with physical rather than digital goods, principally because of the difference in the utility and reliability of sales forecast data, but also because of the ease of supply and movement of digital goods.
(iv) Few firms were willing to cooperate with them to test drive the model, largely because of fears regarding control over commercially sensitive data. No digital media companies took part. Ultimately only one physical good manufacturer (unnamed) provided a full data set. The results obtained initially diverged strongly from the firms own research which had been conducted using mystery shoppers, whereby goods are purchased and then analysed for authenticity (apparently the gold standard in this field, but expensive to operate). Once the data was cleaned of severe outliers, it tracked the mystery shopping research more closely.
The Commission is now in a tricky position: they’ve paid RAND at least half a million for this and cannot simply sweep the results under the carpet. RAND have designed a model for use in real markets and products, rather than simply accepting that ‘piracy and counterfeiting’ are costing ‘Europe’ trillions of euros and hundreds of thousands of jobs. My guess is that it will now be minimised. What if any effect this will have on the IPRED review, due imminently, is uncertain.
Much of the EU’s output is not the work of officials but rather of thousands of firms contracted per project. Tender reference MARKT/2010/03/D requested proposals for:
A study to assess the scope, scale and impact of counterfeiting and piracy in the internal market, through a defined methodology for collecting, analysing and comparing data.
This study will be the flagship publication of the European Observatory on Counterfeiting and Piracy. The tender process concluded in December and the winner was announced in January: the RAND Corporation (UK), and they will be paid half a million euros for their labours.
RAND has a certain fame as the birthplace of much of modern game theory under John Nash, and the doctrine of nuclear deterrence through mutually assured destruction (MAD). Launched an part of the cold-war security apparatus, RAND is now a massive organization heavily focussed on statistics and modeling for the devleopment of policy recommendations, often in ‘public safety’ fields.
Their selection warrants unease because although they would not be regarded as IP specialists, they do have form: in 2009, their US organization produced a lengthy report ‘Film Piracy, Organized Crime, and Terrorism’. This study was financed by the Motion Picture Association, and much of the documentation compiled was assembled by a consultant on ‘organized crime’ employed by the MPA. RAND did at least disclose the relationship with a vested interest.
The rather boring series of posts recently was triggered by the announcement last December of a consultation on the review of the Intellectual Property Enforcement Directive (IPRED 1) passed in 2004. Closing date for submissions is next week, March 31st. Before continuing with an analysis of the review and a summary of my concerns, two recent incidents are worth noting.
1. Michel Barnier’s Letter to Françoise Castex & Stavros Lambrinidis
In response to a written question from two MEPs about the ‘stakeholders dialogue on illegal uploading and downloading’, reported here, Commissioner Barnier of Internal Market responded with a letter on March 7th. Therein he states:
“In conformity with the Commission’s “Better Regulation” initiative, a public consultation has been launched on the Report of the IP Enforcement Directive, adopted by the Commission at the end of 2010. Participants in the stakeholders dialogue do not benefit from a preferential position during this consultation.”
Regular meetings took place between the private sector and Commission officials for the preceding year and a half; the ‘stakeholders dialogue’ was held almost monthly. In addition there was also the of ‘legal sub-committee‘, representing the same sector of rightsholders (but with less interference from those pesky Telcos and ISPs). The contents of the Report mirror the subjects discussed at those meetings. so much is in fact acknowledged in Annex 2 of the Commission Staff Working document relating to the methodology of the review:
“Apart from the information contained in these reports, the Commission did not receive a substantial amount of additional information fromthe Member States’ authorities, neither during the implementation period, nor after the transposition of the Directive into the national law. As a result, and because of the reasons mentioned above, the information received had to be complemented from other sources, in particular through consultation with rightholders, and in particular through the consultation of legal experts from the private sector who meet regularly in the legal subgroup that has been formed in the context of the European Observatory on Counterfeiting and Piracy.”
So is it the case that the chance to continuously inject opinion and information during a documents assembly does not constitute ‘a preferential position’? Or was it just a matter of judicious reference only to the stakeholders dialogue, with the hope that the legal sub-committee (see details) might be forgotten?
He also claimed that Data Protection officials were present at any meetings where the identification of users by means of their IP address was discussed, and while I don’t know it for a fact, I would be interested in hearing if that was the case in February, April and July 2010 when these matters were discussed in the stakeholders dialogue. Reports I have read of these meetings are strangely omit to make any mention of their presence.
2. Fröhlinger Calls Halt
Better still, the very next day, Margot Fröhlinger, titular head of the stakeholders dialogue wrote to announce that it was over! Her apportionment of the responsibility of the blame is rather vague, as she bemoans how:
“An exchange of ideas on possible joint actions to promote access to legal offers and on user awareness could have brought new insights on how to assist consumers to legally enjoy premium content.”
Schade. Apparently some stakeholders are…
…less willing to continue with the dialogue. These stakeholders perceive the format of the stakeholder’s Dialogue, as well as its timing, as not appropriate and as not useful.
Which is just plain unsporting of them if you ask me. Presumably the stakeholders referred to are the ISPs and Telcos, although that’s a bit of deductive work on my part: consumers and users groups never participated, therefore they couldn’t leave; the content industry doesn’t pass up a chance to hang with their chums in the Commission.
Interestingly her letter also announces the intention to ‘reach out to the general public, through additional hearings, in order to take account of the public interest, to the maximum extent possible.’ Does that mean the consultation will be extended beyond March 31st?
in July 2009, three months after the McCreevy’s announcement of the European Observatory on Counterfeiting and Piracy (EOCP), a ‘stakeholder dialogue on illegal up and downloading’ was launched under its auspices and the direction of Margot Fröhlinger, Director for Knowledge-based Economy at DG Internal Market.
The goal was to achieve an accommodation between content owners and the infrastructural intermediaries. From the beginning the Commission have indicated that should the parties fail to come to voluntary agreements, the EC will amend one of its directives and impose a solution: E-commerce Directive (2000/31), the Infosoc Directive ( 2001/29) or the Enforcement Directive (2004/48).
Users and Consumers Missing from the Equation
Representatives of media companies, trade associations, collecting societies and ISPs have been involved in the monthly meetings. European Consumer group BEUC refused to participate, and, whether for wont of an invitation or lack of interest, no organization representing consumer or user interests was involved.
Two spheres of activity have dominated the attention of the EOCP since its inception: the rather insipid sounding ‘stakeholder dialogue on illegal uploading and downloading’ and a subgroup working on a review of the implementation of IPRED1 and proposals for the future. Where the first attempts to broker agreements between corporate players on opposing sides of the policy battle, the second is dedicated to the generation of new legislative substance. In addition there is work being done on public awareness initiatives around the ‘problem’ of counterfeiting and piracy.
Preparing the Ground for IPRED2: Legal Subgroup; Whois?
This has a relatively small membership made up of Commission employees such as Alvydas Stančikas together with representatives from national anti-counterfeiting groups (France, Italy, Sweden, Belgium, Netherlands), their European counterparts (SNB REACT), the International Federation of the Photographic Industry, Motion Picture Association, Business Software Alliance and lawyers representing collecting societies such as BASCAP and major software producers. There are no participants from consumer or civil liberties groups, or indeed from any other NGO. Nominally the European Consumer Organization – BEUC – should have a member present as well, but this has not come to be, for reasons unclear.
The European Commission will soon launch a second intellectual property enforcement directive (IPRED2), which this time will contain those crimninal provisions removed during the passage of IPRED1 in 2004 due to doubts as to their legal basis. With the passage of the Lisbon treaty and recent ECJ legal decisions this uncertainty has been reduced. In the following posts I want to sketch out other changes at an institutional level and provide an update on the mustering of the forces behind the new directive.
The first of these is the creation in 2008 of a unit dedicated to IP Enforcement inside of DG Internal Market. Created under the direction of Alvydas Stančikas, this unit creates a section of the bureaucracy now wedded unconditionally to the ideology of expansionist IP laws. Functionaries, alas, are usually substantially indifferent to the content of their roles, preferring to see their task as to bring suggested initiatives to fruition (thereby accruing institutional prestige with the career advancement that accompanies it) rather than challenging the assumptions behind them.
For more than a decade the Copyright unit, long headed by Tilman Lueder, has been the epicenter for Commission action. Whilst attached to the shibboleths which insist that increased protection is necessary to protect innovation, it at least located enforcement in a wider context of copyright objectives. Removal of enforcement questions from any broader discussion of the ecology of innovation and creativity transitions the apparatus to a structural capture by content industry incumbents.
European Observatory on Counterfeiting and Piracy
The first task of the new Unit has been to oversee the establishment of an ‘Observatory‘ to gather data about alleged IP infringements. Like so many other foul initiatives in the copyright sphere of late, it emanated from Sarkozy’s France. More specifically it was proposed during the period of the French Presidency in 2008. Given that he had made copyright protectionism a battle-cry in the previous year’s election, this came as no surprise. This campaign opened with a Communication by the European Commission on 16 July, mooting the need for better information collection and sharing. The following September the ECPO’S creation was mandated by a Council Resolution.
Sarkozy’s demands were realised on April 2nd 2009 saw the establishment of the ECPO’S launch by Charlie McCreevy, former irish finance minister, then Commissioner for the Internal Market. In September 2009 the Commission set out its aims in another Communication.
For some time those responsible for IP policy at a European level have bemoaned the unsolicited attention of external observers who criticise their policies on the basis of users’ interests or alternative visions of the innovation process. This was especially the case in the successful defeat of the EU Commission’s campaign for software patents. Part of their response has been to increase their activity in areas of soft law (communications, resolutions), try and effect change through closed-door dialogues between interested ‘stakeholders‘ (a lot more on this in my next post), and to either encourage or actively implement the mobilisation of administrative resources to attain their ends. The result is an immiseration of public discussion and a further dilution of democracy. The EOCP is a perfect example of several of these tendencies.
McCreevy’s speech at the launch spelled out the new approach:
“The mere existence of new laws, although important, cannot be expected to combat a worldwide infringement problem. So once again I stress the point that we must turn our attention towards supportive programs that can help bring to bear strong administrative commitments and resources, in conjunction with the flexibility and
resourcefulness of the private sector.”
Participation is limited to those invited by the Commission and industry involvement is obviously preferred: since the foundation of the ECPO there has been almost no involvement of consumer or civil liberties organizations (the BEUC did attend one meeting).
Criticism of Commission’s reliance upon industry produced statistics with regard to infringement, which unsurprisingly exaggerate the scale of losses, means that the basic task is to produce defensible figures. The methodology and collection of the data collation will be determined by a private contractor who is to work closely with industry representatives (like the IFPI and the MPAA).
Secondly the EOCP functions as a forum for the a series of work-groups: legal reform (in preparation of IPRED2); on online copyright infringement (focusing heavily on the legal responsibility of ISPs as well as IPRED2); public awareness.
In general the plan is that the EOCP will be a clearing-house for exchange of ‘best practices’ derived both from the various jurisdictions and a transmission-belt for private-sector enforcement initiatives. And doesn’t it all sound somewhat familiar? Well it should, much of it is in the Anti-Counterfeiting Trade Agreement (ACTA) – even though it hasn’t been passed yet, the EU is behaving as if it’s already there!
These meetings are staffed by functionaries from the Knowledge Economy and IP Enforcement Units inside DG Internal Market. In order to access additional resources the Observatory will now be under the official auspices of the Office for the Harmonization of the Internal Market in Alicante, who are otherwise concerned with Trademarks and Designs.
With the departure of McCreevy in early 2010, the position of commissioner for internal market passed to Michel Barnier, a right-wing member of Sarkozy’s UMP; his cabinet can be expected to provide enthusiastic encouragement for all enforcement related efforts.
Why Should We Care?
The real target of all these efforts are ordinary computer users. The cloud of professed concern about organized crime and the hazards of fake medicines is really an alibi for a campaign around individual use and circulation of cultural works. The EOCP is about preparing the ground for a subsequent legislative campaign threatening massive damages and the obligation to employ censorware against intermediaries such as ISPs, and nonjudicial punishments against users (a la Hadopi) or worse, jail (but this more as a threat than a reality).
In addition to the crudely repressive aspect of this, what grates is the boneheaded commitment to monopoly rights as a means to promote some notional ‘knowledge economy’.
– The Commission has screwed up in the past on this and it knows it: their own report on the Database Directive demonstrates that.
– The software community in Europe showed them they were wrong about software patents as well, but had to defeat the Commission in Parliament due to their impermeability to rational argument.
– And today, how many innovative services will never be born in Europe because of the protectionist approach to copyright law? Google could launch googlebooks precisely because they had a broad fair-use defense to rely upon, that gave them a counterweight to the publishers’ threats and enabled a negotiation. Such a scenario was unthinkable in Europe and it’s the EU’s loss as an economy.
Will anyone inside the EU Commission will take the risk to launch processes which correct these failures?
My next posts will deal with what is going on within the EOCP’s subgroups and the content of IPRED2.
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