Scam: SOPA advocates' claims about piracy costs

The media and software industry honchos claim that piracy has killed 750,000 American jobs and costs tens of billions of dollars. Don't believe it

So there you are with your spiffy new Macbook Air, and you want to move your copy of Mac Office 2011 from your old machine. But you can't find the activation key. Oops. Too bad. But that's the price we pay to stop Microsoft and other software companies from losing $59 billion a year to piracy.

Or maybe your son got a nasty letter from a lawyer because he's been downloading too much music and videos from that Russian pirate site. That's tough on the kid, but hey, don't you know that the piracy of intellectual property could cost the world economy some $48 billion and 19 million jobs in America alone?

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Excuse me?

Mark Twain said it very well: "There are liars, damned liars, and statisticians." But that was in the 19th century. If the great writer were alive today and watched the debate over SOPA and PIPA -- acronyms for the Stop Online Piracy Act and the Protect Intellectual Property Act that sound like the names of twins in a Japanese animé feature -- he might say, "There are liars, damned liars, and the antipiracy police."

Nearly every tech writer I read regularly opposed SOPA and PIPA for good reason. But most of them (and me too) were always careful to add an obligatory sentence or two deploring the loss of jobs and money to piracy of music, video, and software. Fair enough, but how many of us took the time to think critically about the numbers behind the antipiracy campaign? Almost none. Think about the numbers that were routinely tossed around during the debate:

  • "Rogue websites that steal America's innovative and creative products attract more than 53 billion visits a year and threaten more than 19 million American jobs," Mark Elliot, an a U.S. Chamber of Commerce apparatchik, wrote in a letter to the New York Times. The letter had absolutely no substantiating information, but even someone as smart as David Carr, a media columnist for the Times, regurgitated that preposterously inflated statement.
  • "The software industry is being robbed blind," said Business Software Alliance CEO Robert Holleyman. "Nearly $59 billion worth of products were stolen last year (2010) -- and the rates of theft are completely out of control in the world's fastest-growing markets," it reported in a study. The BSA, which is led by Microsoft, was a leading advocate for SOPA and PIPA. By way of comparison, Microsoft's revenue for that year was $62 billion. (Microsoft, by the way, spent $7.34 million on lobbying efforts last year, according to United States Senate Office of Public Records.)
  • Than there's this estimate that popped up repeatedly during the debate: Piracy costs the U.S. economy between $200 and $250 billion per year, and is responsible for the loss of 750,000 American jobs.

Think about that, says the Cato Institute's Julian Sanchez. A $250 billion per year loss would be almost $800 for every man, woman, and child in America. And 750,000 jobs -- that's twice the number of those employed in the entire motion picture industry in 2010.

Even as I sit writing this post, an email from Microsoft (I had called asking for a comment) hit my inbox: "A study by Wallace Walrod, chief economic advisor to the Orange County Business Council, found that California workers lost $1.1 billion in lost wages due to software piracy in 2011" and that "California lost $1.66 billion in economic activity, almost 20,000 jobs, and $697.6 million in state and local tax revenue in 2011."

We don't need to raise the sales tax or rebuild our infrastructure to fix the struggling California economy; all we have to do is reduce software piracy by 10 percentage points in two years to add $5.7 billion in new economic activity and $880 million in additional tax revenue for California, Walrod claims.

Millions, billions, maybe trillions. Who knows? Who cares? Industry representatives and their captive analysts crank these things out, feed them to their pals in Congress and a credulous media, and kaboom! We have a crisis; we'd better pass some tough new laws.

The good news, of course, is that nearly all of those numbers are wrong -- as the Cato Institute's Sanchez argued in a blog post recently. It's worth reading, but I'll quote a bit to make the point: "The 750,000 jobs number had originated in a 1986 speech (yes, 1986) by the secretary of Commerce estimating that counterfeiting could cost the United States 'anywhere from 130,000 to 750,000 jobs.' Nobody in the Commerce Department was able to identify where those figures had come from." In 2010 the federal General Accounting Office took a look at those numbers and said they "cannot be substantiated or traced back to an underlying data source or methodology."

One reason (along with pure fantasy) that estimates get so huge, argues Sanchez, is that these so-called studies may start with a real number, but then use our old friend the economic multiplier to figure out losses due to piracy's ripple through the economy. But as the GAO pointed out, "Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment."

When so-called experts throw around a bit of calculus and some jargon about multipliers, many of us simply stop processing and forget to use our critical faculties. Those bogus numbers are used to justify terrible legislation like SOPA and intrusive verification procedures by Microsoft, Adobe Systems, and other software companies.

I often write about complex research for Stanford University's Graduate School of Business, and I'm certainly no math whiz. So there's one question I always ask: "How do you know?" Real experts are never offended by that question. You should ask it too.

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This article, "Scam: SOPA advocates' claims about piracy costs," was originally published by Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at For the latest business technology news, follow on Twitter.