Intellectual Propery PiracyThe booty intellectual property pirates can steal is enormous.

by Peter Roff

Intellectual property pirates operating in the open waters of cyberspace managed to pull down more than $250 million in 2013 by selling ad space on sites selling counterfeit goods, the Digital Citizens Alliance reported in a study released Tuesday. “The 30 largest sites that profit exclusively from advertising dollars by pushing stolen movies, music, and television programs will each make more than $4 million dollars a year for the ‘work,’” the DCA concluded in “Good Money Gone Bad: Digital Thieves and the Hijacking of the Online Ad Business.”

Any way you slice it, $4 million a year is real money. That it comes from ad sales alone should have heads turning, because those ads are being posted on sites that exist solely to allow people to buy things that are manufactured, duplicated, reproduced, knocked off and in every other sense of the term “rip offs,” meaning that it is only what DCA Executive Director Tom Galvin called “the tip of the iceberg.”

“These ad-supported rip-off websites are just a small sample of the sites that are profiting from theft,” Galvin said, “and with the Internet population growing so quickly we need to address this problem immediately. Let’s be clear, the quarter of a billion dollars that these sites make from ads in a year is a huge sum, but it’s only a fraction of the financial losses inflicted on the creative economy and its workers. This goes beyond the old adage that crime pays.”

As this new study makes abundantly clear, in cyberspace it not only pays — it pays handsomely. According to the DCA:

The websites examined in the study have projected annual ad revenues of $227 million.

The 30 largest sites that profit exclusively from advertising average $4.4 million a year in revenue. Even the smallest sites still make more than $100,000 a year.

With profit margins ranging from 80 percent to 94 percent, the study underscores the potential for a vendor who doesn’t have to purchase inventory but can just steal it instead.

It is not, however, just the criminal enterprises behind such sites that are to blame. Legitimate businesses may be paying a role as well for, as the DCA found, nearly 30 percent of large sites “carried premium brand ads” and nearly 40 percent “carried legitimate secondary ads.”

“This report confirms that content theft isn’t a cottage industry — it’s big business. Plain and simple, ad-supported rip-off sites are exploiting the Internet and advertising community to get rich. The result is a damage to brand value for advertisers and serious harm to people who work in the creative industries,” Galvin said. “We hope this report pushes the online advertising community to take additional steps to protect brand value and stop ads from appearing on content theft sites that are undermining the vibrancy and safety of the digital marketplace.”

It is important to remember that the DCA report, as the group said when releasing it, is “focused on the advertising revenues bad actors generated offering up other people’s works” and did not take into account “the losses incurred by the victims of content theft.”

Meanwhile, with Congress reluctant to take up the issue and critical parts of the executive branch looking the other way, the problems created by intellectual property piracy are only getting bigger. Federal law enforcement is doing what it can but it can only do so much – particularly now that, as former Obama national security adviser James Jones and others have said, criminal enterprises and terror cells have discovered that trading in counterfeit computer parts and pirated software and illegally streamed movies can be a more lucrative and safer way to raise money than dealing in illegal narcotics.

There are a few bad actors in the United States who likewise profit from these trades. Congress may not be able to do much about web sites based in Asia, Russia or Eastern Europe, but it should take a closer look at what is happening with the help of companies based in the U.S. that are buying ad space on these sites. It’s a dirty business from which no legitimate company should be making a profit. Stricter controls may be necessary, but legislators must be careful to balance the rights of free speech and commerce in crafting them.

It’s time for legislators, industry, advertisers and the burgeoning web ad industry to come together to talk about ways to combat these newly identified problems. When the criminals gain, everybody else loses, even those who allow themselves to believe all they are doing is getting a “good deal” on somebody else’s product. The way in which unfettered access to stolen IP already on the ‘Net reduces the creative community’s incentive to innovate, upgrade and spark our imaginations in new and exciting ways is enough of a reason to take this issue on even if lost wages, lost productivity and lost profits don’t move you.

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Peter Roff is a contributing editor at U.S. News & World Report. He’s also affiliated with Frontiers of Freedom, a public policy organization, headquartered in the Washington, DC area.

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