10. Harm and Intellectual Property. Music Piracy as an Example of Empirical Measurement of Damage

This is precisely the grounds of the proposal by Díez Ripollés (2003) for legislative criminal rationality.

The criticisms of these studies are customary among economists, regardless of whether or not they argue that piracy damages the industry. See, for example Oberholzer-Strumpf (2010), p. 21. Neither are critical observations along the same lines in short supply in penalist doctrine. See for example Fernández Teruelo (2007), p. 97.

“It is not necessary to believe that sharing files is the only cause, or that each illegally downloaded file corresponds to a private sale, but to conclude that this sharp decline [of sales] during this precise period of time is no coincidence”; also Promusicae (2005), p. 112, while recognizing the methodological errors of the estimates of the lobbyists: “Although not everybody that buys a pirated CD in the street would be willing to buy a CD illegally, it is undoubtable that the emergence of piracy (sales on the street and on Internet) is impacting in a significant way on Spanish industry”.

See, for example, the report from the Observatorio de Piratería y Hábitos de Consumo de Contenidos Digitales 2013 (GFK 2014), 18, available at http://​www.​cedro.​org/​docs/​default-source/​textos-de-inter%C3%A9s/​observatorio-pirateria2013.​pdf?​sfvrsn=​6 (accessed 21-01-2015).

It is a question of what is called in economics the substitution effect. The copy, if it has the same or a very similar quality as the original product and is freely obtained or at a much reduced cost—for example, the price of a new CD-, will involve a reduction in the demand for original products, and consequently, a reduction in their price as well as their offer.

According to RIAA, the profits from sales rose from 7.5 billion dollars in 1990 to 14.6 billion in 1999, only to fall to 8.5 billion in 2008. The opinion of the music industry in the USA was that Napster and other p2p networks had been responsible for 25 % of the losses in the sector.

See the data on the evolution of music sales in the USA in Liebowitz (2005), p. 452, who paints the RIA figures in a less dramatic light, in so far as, when recomposing those figures, he removes sales of singles from the data and leaves only the figures for long-playing CDs, as the fall in sales of singles has a very different connotation. In any case, and with even less dramatic, the drop in sales is certainly pronounced. As the cited author says, “something unusual has to have happened over the past few years” that can explain this phenomenon; also Rob and Waldfogel (2006), p. 29 f.; Zentner (2005), p. 1 f.

The sales data in the USA are accessible, but access is very expensive. See on this Oberholzer and Strumpf (2010), pp. 41, 51. A subscription to Nielsen Sound Scan—a service that provides detailed data on music sales—for academic purposes costs around $10,000 a year.

http://​www.​rollingstone.​es/​noticias/​view/​una-filtracion-desvela-las-pauperrimas-ventas-de-discos-en-espana-75-ejemplares-para-entrar-en-los-mas-vendidos (last accessed 21 January 2014).

See http://​lareputada.​com/​2013/​12/​24/​exclusiva-asi-son-las-ventas-reales-de-albumes-en-espana-por-navidad/​(last accessed 21 January 2014), for the complete list of the 100 top selling CDs.

Liebowitz (2005), pp. 456–458, also sceptical of that conclusion, in so far as over other periods, the rises in sales of video and music have concurred over time; for example, from 1991 up to 1996, sales of music and video tapes rose in a similar way in the USA; Other frequently cited factors, such as the price of CDs, do not appear to be directly related with the fall in the level of sales, given that the price appears to have remained steady up until very recent times, since when they have undergone a sudden fall.

Liebowitz (2005, p. 460 ff.), seeks to demonstrate the weak influence of this parameter on the decline in sales, but in my opinion the author does so with unconvincing arguments, in so far as it is based on indirect and extremely weak indicators, such as the decline in radio audiences applied to different listener age bands. I think that the most advisable approach is to leave this point aside, as it is too subjective.

As pointed out by Zentner (2010), pp. 10, 12, the business of legal downloads represented 0.25 % of total sales of music with data from 2003. Michel (2006), p. 8, however, cites the intense volume of downloads from Internet platforms such as the Internet Underground Music Archive, inaugurated in 1993, according to whose—indirect—estimations had increased the benefits of sales in music through this channel by approximately 1 million dollars per year since 1998.

This study will not go into fine detail to assess the methodology of the studies. It is enough to say that the majority of percentages on the impact of piracy on business—whether for or against—are taken from multiple regression analyses, in which various variables are jointly taken into account that can intervene in the analysis, as well as the sale of music and illegal Internet downloads (for example: age, income level, intensity of the purchase of music, etcetera). Also, on occasions we also see some analysis of simple linear regression, in which only two variables are valued; a constant and another function with regard to the former—for example, inference on the basis of contrasting the data: “user downloads/does not download illegally from Internet” and “volume of purchases of music by the user”. This type of analysis can offer very suggestive conclusions, but these are less reliable than those obtained by multiple regression analysis. Having said as much, it does not mean leaving some methodological aspects unmentioned, when they are relevant. Anyway, the best work on a critical review of the methodology of economists when assessing these activities is without doubt Liebowitz (2005), especially as from p. 463. Also, more up-to-date, Liebowitz (2011) and Oberholzer and Strumpf (2010), although with perceptions of the activity that are practically opposed.

To do so, the authors took the 16 countries, as a reference, which represent 90 % of the digital sales volumes of CDs from all over the world: Australia, Belgium, Canada, France, Germany, Holland, Italy, Japan, Mexico, South Korea, Spain, Switzerland, Taiwan and the United States of America. See Peitz and Waelbroeck (2004), p. 73 ff. As a macroeconomic study, nothing more than a very superficial approach to the true scale of the problem, however empirical it may be, can be taken. Thus, elements such as PIB, the availability of broad band, the percentage of users that have downloaded an mp3 at least once from the Internet—without measuring the intensity with which it is done—or the data on availability by residence of such devices as DVD or CD-ROM players. The authors themselves refer to the need for subsequent microeconomic studies to verify the exact amount of sales losses (on that point p. 78). Likewise, it is meaningful that the authors leave out the study of the measurement of commercial piracy; in other words, what in Spain and in the majority of Western countries implies a crime, in so far as “it appears to have little relevance for the majority of countries in the sample” (on p. 76). This aspect already has relevance for the penalist, and will be covered later on, at the end of the present study.

It should be taken into account that the estimations by the author are based on a previous macro survey on consumption in Europe called Consumer’s Technographics, carried out by the Forrester consultancy and that, owing to its objective, covers multiple items, the majority of which are not related to our field of analysis. The study covers seven European countries that move 27.8 % of the global volume of music sales: France, Germany, Italy, Holland, Spain, Sweden and the United Kingdom. See Zentner (2010), p. 13 f. Likewise, note that although the last work by this author is cited, from 2010, it is a study originally published in 2003.

The study uses highly suggestive data that will be analysed later on.

Although on p. 11 the period of time is 1999–2003. Data from a consumer survey carried out by the US Bureau of Labor Statistics called Consumer Expenditure Survey was used, based on individual interviews covering purchasing patterns of certain consumer products among other aspects. To do so, certain “consumer units” were used (homes, university residences, etc.).

Takes into account that the interviews on which the study is based never asked about file sharing.

The possible advantages that piracy offers for the intellectual property market will be examined further on. This study shows a certain relation with another by Zentner (2005), in which inferences were established on the basis of, among other aspects, the penetration of broad band in many countries of the world and the fall in music sales. It is another indirect indicator, different from p2p file Exchange, but closely related to the study by Michel.

It should be taken into account that this period of “diffusion” of the law among the public started in June 2008, when the proposed law was presented in the French senate, although it had a complicated legislative process. In March 2009, it arrived at Congress where it was first approved and then rejected. In May 2009, an amended version of the law was once again presented, but the French Constitutional Council rejected the Project, basically because no judicial review existed in case “the third warning” was given, in other words the institution of criminal charges. Finally, the law was approved in October 2009, following compliance with the requirement from that Council, envisaging a body for judicial review. However, as of 2011, nobody has been given a “third warning”. Hence, it was decided to cover that period as a “period of impact” of the law on the general public Finally, it should be taken into account, as its authors acknowledge, that the law set in motion a series of publicity campaigns on respect for the rights of the author, such that the correct isolation of which effects are due to the application of the law and which to the success of the publicity campaign is not possible.

This counter-intuitive nature is not only given by the sales figures, which have fallen sharply since piracy has become generalized on the Internet, or by the logical proposal that a user can obtain a work at a cost of zero Euros with a minimum risk of facing negative legal consequences—arguments that are usually brought up, as we have seen, by economists. I would add that if piracy is so beneficial for business, it is not clearly understood why the main companies of the sector are so concerned to prosecute it. Are the lobbies really so short-sighted? Common sense appears to suggest otherwise. In fact, as Maffioletti and Ramello (2004), p. 85, pointed out, beginning with the reproduction of a musical work (for example, copying it on a CD) that always has a zero or close to zero cost for economists, “if the existence of technology that makes the copy so easy and so cheap were the only important fact that guided the decision to copy or not to copy, then the question that would have to be asked is why does that sector of the market exist at all”. It is evident that there are more factors at play and shallow approaches do not apply.

On this hypothesis of possible profits gained through the illegal copying and file-sharing of works protected by the rights of the author, see Peitz and Waelbroeck (2004), p. 71. Originally, it was called exposition effect, and at present it is usually called—sampling effect. See, on this, Liebowitz (2005), p. 442.

Pointing out that there is not very much empirical support for this thesis; Liebowitz (2003), p. 20.

Although affirming that, for this to happen, the copy would have to be an imperfect substitute.

See a critique of the survey method to draw conclusions on economic impact in Liebowitz (2003), pp. 12, 17 f.

See that line of argument, also used in relation to computer programmes, in Liebowitz (2005), p. 447, with references; also Maffioletti and Ramello (2004), p. 83 f.

If we look carefully, as the cited author points out, along with others, it is an effect that, in so far as it refers to music, has been traditionally sought by the radio transmission of songs. Moreover, even in the field of the radio, it appears that the studies that have been completed suggest that the broadcasting of music over the radio does not increase sales. In fact, at its beginnings, in the 20s, in the United States of America, it led to a fall in sales. Therefore, whether the exchange of files over the network promotes the aforementioned network effect at significant levels hardly appears easy to demonstrate.

On this point, Liebowitz (2005), p. 449, stated his opinion, although specifically in reference to the sale of music. The theory appears to have more support with regard to computer programmes. However, other authors, such as Wall (2007), p. 98, suggested that it is beginning to be demonstrated that mp3 downloads are contributing to the promotion of musical culture that is expanding the original capacity of this market.

For unquestionable evidence that even the most well recognized artists earn more from concerts than from the sale of CDs, see Oberholzer and Strumpf (2010), pp. 44–46, with data.

See academic support for this thesis in Martin (1998), p. 33; Oberholzer and Strumpf (2010), pp. 19 ff., 46 ff.; Dolfsma (2007), p. 91, raises objections to the disproportionate income that goes to intermediaries—approximately 80 %—and artists, noting what is more that the risk assumed by the intermediary in artistic creation does not justify such a wide profit margin. As mentioned earlier, there are no end of artists who have supported this argument, such as Pink Floyd, Radiohead, Blur and Courtney Love, who in 2000 made the following graphic statement: “Today I want to talk about piracy and music. What is piracy? Piracy is the act of stealing an artist’s work without any intention of paying for it. I’m not talking about Napster-type software. I’m talking about major label recording contracts”. Although the most widely quoted internationally by academia is that of the Spanish artist Ignacio Escolar (Escolar 2002)—from the now defunct band Meteosat and at present a journalist with El Diario-, published on Internet under the title “Please, pirate my songs!” See subsequent references to this argument and the range of artists who promote it in Gelsthorpe (2010), p. 408; Yar (2007), p. 105 f.; Bailey (2000), p. 486 f.; also Roca Sales and Castells (2007), pp. 79, 115 ff.

It may be added that, in the end, the best proof of this is that normally academics do not charge for publishing in academic journals and at times the academic pays to do so.

But also in other products, such as for example computer programmes. As Landes and Posner (2003), p. 46, made clear: “even illegal copying of programmes, something about which the software industry complains so much, does not imply losses for the software designers. Demand may be created by the pirates for complementary products made by the manufacturer of the pirated programmes”.

Although for Landes and Posner, that idea would arise both in the possibility of a legal and an illegal copy, in so far as Liebowitz appears to make reference, through the idea of indirect appropriability, to the higher value of the product when legal copies are possible.

However, Liebowitz (2003, p. 6 ff.) has defended in another place the theoretical application of indirect appropriability to the CD market, although it would take place in a situation in which the copies of CDs, as well as being prohibited, were susceptible to control; a situation which the same author recognized as reasonably unlikely. Liebowitz gives an example that is technologically outdated today, but is very enlightening. If we assume (a) that people have CD players at home but only have cassette players in the car; (b) that copying is prohibited and that people will comply with that prohibition; (c) that those users would pay 9$ for a CD from an LP and 4$ for the tape of that same LP (so as to be able to listen to music at home and in the car), then it is likely that the seller of the work would allow CDs to be sold that come with a taped copy, in exchange for rise in the price of the CD up to a maximum of 13$, without the sales being affected, while the CDs that could not be copied would continue to be sold at 9$. This situation seems to me, however, practically impossible at present. For example, although in recent times it has been quite normal to purchase a “physical” DVD that includes a digital copy, that is not due to implementation of indirect appropriability,—as the market price for those products has not increased as a result—but rather to the fact that the anticopy labels of the DVDs conflict with the aforementioned right to copy.

On the changes to the “cannons” applicable to different concepts in Spain, see De la Cueva González-Cotera (2014).

The work is by Oberholzer and Strumpf (2004). However, in subsequent years this work has been published again with some additions and corrections, as is the case of Oberholzer and Strumpf (2006), which we shall also use here.

In addition, this study was submitted to an intense and prolonged criticism by Stan Liebowitz. In general, such criticism appears well grounded to me and for that reason I also lend it the attention it deserves, although the “parallel discourse” of criticisms will be maintained in footnotes so as not to lose track of the guiding thread of the presentation.

Specifically, the p2p network, called OpenNap, allowed the technical means to access that information.

In addition, this quasi experiment begins on the basis that there are fewer downloads in the summer holidays. The concentration of sales of CDs refer on the contrary to December holidays. Further on we will enter into detail on this. The “historic” context of this study has to be borne in mind, over 10 years ago, in so far as the high-speed internet connection was available on campus, but much less in households, while Internet is almost ubiquitous today. This information explains why there were fewer downloads in summer. See Oberholzer and Strumpf (2006), p. 6.

A study of this kind would not have been possible in Spain, without access to secret information, because, as mentioned earlier, the data on music sales are neither accessible nor freely available to the public in Spain.

Although this work is not the most appropriate to delve into methodological aspects, Liebowitz has dedicated successive monographic studies that contain harsh criticism of the study by Oberholzer and Strumpf, which may be summarised as follows: (1) the positive correlation between the download of songs and the purchase of albums—the more downloads there are, the more that specific music is bought—is not sufficient in itself to explain whether, in general, downloads prejudice intellectual property; (2) the problem of simultaneity, basically reflected by the music with the highest sales also being the music with most downloads; in other words, one variable simultaneously determines the other, although this, as we have seen in the text, is likewise recognized by the authors of the study; (3) the variables chosen to mitigate the impact produced by the bias of simultaneity—for example, the duration of the songs—produced a contrary effect to that intended, in this study; they increased the correlation between pirated downloads and music sales. See Liebowitz (2005), p. 470 ff.

See Liebowitz (2007), p. 2, for a summary of the quasi-experiments.

Criticism of these premises may be seen in Liebowitz (2007), p. 5 f.,—with data—for whoever is absolutely unable to demonstrate that there are fewer downloads by Internet users in summer, which in their opinion would invalidate the conclusions upheld by Oberholzer and Strumpf.

Liebowitz (2007), pp. 7–8, presented data that express the contrary; that the decline in sales stood out far more on the East coast than on the West coast. Later criticism based on exaggeration of the “European” factor of this study may likewise be seen in Liebowitz (2010).

The data are for 2010, and were collected every Tuesday, the weekday on which the official launch of new albums in the USA takes place.

Liebowitz (2011, especially p. 5 ff.). In addition, this author reworked this table making various deletions and methodological corrections which, in his opinion, would prove an even greater impact of piracy on the decline of sales. However, take into account that I have updated the aforementioned table with studies that had not been completed in 2011.

See above all, for example, and among many others, Tonry (2008), p. 279, Medina Ariza (2011), p. 47, with references.

At least, if one is in agreement with the majority doctrine, in as much as it is an objective element of the criminal definition and that, effectively, there is no need to prove the effective damage that has been inflicted, but rather the objective likelihood of the behaviour that causes the damage. See supra, note 85.

The terms “intent” and “scale” have been interpreted as practically the same, despite their different meanings. More details in Rando Casermeiro (2015).

Specifically, 37 %.

It has to be remembered that this report uses data taken from the IPFI reports.

In favour of this interpretation, see, among many others, Martínez-Buján Pérez (2011), p. 153; Díaz y García Conlledo (2009), p. 115; Rodríguez Moro (2012), p. 348; Gómez Rivero (2012), pp. 139, 145. On the contrary, Miró Liinares (2003, p. 347 ff.) understands that prejudice to third parties should be interpreted as a subjective element of the crime; on the fluctuating positions of jurisprudence, see also Puente Alba (2008).

Against the option of setting amounts to define the boundaries, Gómez Rivero (2012), p. 144.

On both dimensions of the principle of proportionality, see, among others, Aguado Correa (2013), p. 123 and off; 227 ff.

Thus, for example Díaz y García Conlledo (2009), p. 97 f. For an analysis of the important debate raised around whether to protect moral rights, patrimonial rights or both, see the complete analysis of Rodríguez Moro (2012), pp. 73–153, although at present the discussion has lost interest following the Criminal Code of 1995.

I myself did so, to a certain point, in Rando Casermeiro (2012), p. 267.

This is the case of Australia, Germany, the United Kingdom, and the United States. See Ibidem. Although, probably, that lack of success is due to the enormous breadth with which the criminal definitions were written, which permits the incrimination of virtually any Internet user who might illegally download protected works.

An analysis of the judgment can be seen in Peguera Poch (2012), pp. 67–68, an author who qualified the calculation method as “at the least, surprising”, and the compensation as “very high”.