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Wednesday, January 18, 2012

Combating Rogue Websites

The following Technology & Entrepreneurs analysis addresses the issue of Internet piracy by foreign rogue websites. As widely reported, some websites today are "going dark" or protesting the Protect IP Act and the Stopping Online Piracy Act (SOPA) through other means. But as noted below, this legislation is about protecting IP, and those who say it infringes upon free speech or will shut down the Internet are simply toying with the truth. Rogue foreign websites are stealing American IP and raking in billions of dollars from such theft. So why do some U.S.-based Internet companies want to protect them?

Establishing and protecting intellectual property rights has been central to economic growth since the Industrial Revolution. And its importance has only been magnified in today's international, knowledge-based economy - especially with the vast advancements in telecommunications, digital technology and the Internet.

At the same time, new avenues of opportunity for entrepreneurs, businesses and consumers have opened more doors to criminal activity, and created new challenges for government to meet its critical obligation of protecting intellectual property. The latest step being considered by Congress is stepped up combating of Internet piracy by foreign rogue websites.

First, let's consider why this is so important to the U.S. economy.

In terms of the economic contributions made by intellectual property industries in general, a January 2011 study by NDP Consulting titled "Employment and Gross Output of Intellectual Property Companies in the United States" found:

• "IP companies in the manufacturing and non-manufacturing sectors generated more than $7.6 trillion in gross output in 2008, accounting for 33.1 percent of total U.S. gross output. IP companies in the manufacturing sector alone generated $3.9 trillion in output, constituting 75.2 percent of total U.S. manufacturing output. IP companies in the non-manufacturing sector generated $3.7 trillion in output, accounting for 20.8 percent of U.S. non-manufacturing gross output."

• "Based on the latest U.S. official data, we estimate that, in 2008, IP companies in manufacturing and non-manufacturing sectors employed more than 19 million full- and part-time (headcounts) workers and accounted for 16.3 percent of U.S. full- and part-time employment. Nearly 70 percent of U.S. manufacturing jobs and 9.3 million workers (full- and part-time) were in IP companies and less than 10 percent of U.S. non-manufacturing jobs and 9.8 million workers (full- and part-time) were in IP companies."

And focusing on copyright industries in particular, the 2011 edition of the "Copyright Industries in the U.S. Economy," prepared by Economists Incorporated for the International Intellectual Property Alliance, and released in November, reported that in 2010, the value added by total copyright industries registered at 11.1% of GDP, and total copyright industries accounted for 9.9% of private sector employment in 2010.

So, intellectual property ranks as a key driving force of U.S. economic growth and employment.

Second, IP protections are crucial to small businesses specifically. The bulk of enterprises in IP industries are small firms. Consider the following examples of employer firms based on the latest (2009) data from the Census Bureau in terms of the percentage that have fewer than 20 employees:

• Telecommunications industry: 84%

• Internet publishing and broadcasting and web search portals: 89%

• Newspaper, periodical, book, and directory publishers: 83%

• Software publishers: 70%

• Motion picture and sound recording industries: 93%

• Radio and television broadcasting business: 76%

It should be clear that enhancing IP protections are necessary for the well-being of small business and their employees, and again, for innovation and the overall economy. IP protections are critical for a range of sectors where small businesses are dominant - from manufacturing to fashion; retail to health care; technology to consumer goods, and many more.

Therefore, bipartisan support exists in Congress for legislation providing enhanced tools to counter and disrupt the efforts of foreign rogue websites that steal the intellectual property of U.S. entrepreneurs, businesses and workers. Using professional-looking website, consumers get lured in, and wind up with counterfeit and pirated products, as well as being placed at risk of identity theft and exposure of computer viruses. While tools are in place to prosecute domestic piracy, countering foreign piracy remains far more elusive.

In the U.S. Senate, the PROTECT IP Act (S.968) has 40 cosponsors and received unanimous Senate Judiciary Committee support, and is scheduled for floor debate later this month. Meanwhile, in the House of Representatives, the Stop Online Piracy Act (HR 3261) has been introduced, and received strong bipartisan support during the House Judiciary markup process.

With proper checks and balances and due process protections, and without risks to domestic sites, this legislative effort is focused on foreign Internet sites dedicated to infringing activities, that is, as described in the S.968 summary, sites that have "no significant use other than engaging in or facilitating copyright infringement, circumventing technology controlling access to copyrighted works, or selling or promoting counterfeit goods or services;" or are "designed, operated, or marketed and used to engage in such activities."

Scaremongering among certain groups in opposition has tried to gin up opposition, declaring, for example, that this legislation would somehow strangle the Internet with over-regulation. Any kind of regulatory overreach obviously is a concern of small businesses. After all, no group suffers more from excessive and misguided regulation than small enterprises.

But that's clearly not the case here. Instead, this is about government exercising its proper role of stopping criminal activity - in this case, online piracy from foreign sources - and protecting IP so that small businesses, the Internet and the economy can thrive.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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