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US Panel Looks at Intellectual Property Violations in China

Members of the U.S. International Trade Commission (USITC) questioned how to measure the effect of copyright and other intellectual property infringement in China, with some witnesses at a Tuesday hearing saying they doubted the numbers that affected industries have given out.

The estimates of monetary damages released by many U.S. industries often assume that a pirated copyright of a product like software or a music CD blocks the sale of an authorized copy, when that may not be the case, said Fritz Foley, a professor in the Harvard University business school.

"It seems a bit crazy to me to assume that someone who would pay some low amount for a pirated product would be the type of customer who'd pay some amount that's six or 10 that amount for a real one," he said during the first day of a two-day USITC hearing on the impact of Chinese intellectual property infringement on the U.S. economy. "Be careful about using information the multinational [companies] provide you. I would imagine they have an incentive to make the losses seem very, very large."

Members of the USITC, tasked by the U.S. Senate Finance Committee to create a comprehensive study about the effects of Chinese infringement and protectionism on the U.S. economy, asked for better ideas on measuring intellectual property infringement in China, estimated by some to be multiple billions of dollars.

"How on earth do we quantify and identify the size of the problem in China?" said Commissioner Charlotte Lane.

The agency should press affected industries for better data, said Daniel Chow, a law professor at Ohio State University.

But Peter Yu, an intellectual property law professor at Drake University in Iowa, questioned whether an industry perspective would tell the whole story. Although the U.S. movie industry is hurt by copyright infringement in China, the U.S. may benefit in other ways, he said. Some U.S. workers may be employed by companies counterfeiting products in China, some U.S. companies may sell raw materials used by counterfeiters, and some counterfeited U.S. entertainment products may spread democratic ideals in China, he said.

In some cases, consumers get products for lower prices because of counterfeiting, he added.

It will be "complicated" to come up with estimates on the impact of infringement on the U.S. economy, Yu said.

The Business Software Alliance, a trade group, defended its numbers. Seventy-nine percent of software installed in China in 2009 was not paid for, with a retail value of US$7.6 billion, said Robert Holleyman, BSA's president and CEO. John Gantz, chief research officer at IDC, the research firm that compiles BSA's yearly piracy report, said IDC's research involves "thousands" of data elements, including surveys about software deployed in China.

Foreign companies doing business in China "believe our numbers more than the ones that are published by the Chinese government," Gantz said.

Chinese software piracy hurts not only U.S. software firms, but it also gives Chinese users of unauthorized software an unfair advantage over their U.S. competitors that pay for software, Holleyman said.

U.S. customs officials report that about 79 percent of all counterfeit seizures at the U.S. border involve products from China, added Shaun Donnelly, senior director of international business policy for the National Association of Manufacturers.

China is "ground zero for international counterfeiting and piracy," Donnelly said.

Representatives of the Chinese government were invited to speak at the hearing but did not respond, a USITC spokeswoman said.

Part of the problem, said Ohio State's Chow, is that copyright enforcement in China is uneven. Fines for counterfeiting are small, and the Chinese government often sells confiscated counterfeiting equipment back to infringers at auction, he said. Jail time is "not much of a deterrent because it tends to be very rare," he said.

Still, Chow recommended that U.S. firms, which have done their own raids in China, stop their "obsession" with enforcement and instead work on educating the Chinese public about the benefits of intellectual property rights. Chinese officials are tired of being lectured about intellectual property laws, he said.

"This approach isn't working," he said. "Companies have to think in the long term."

The USITC investigates trade complaints involving injury to U.S. companies.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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