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Wednesday, 29 July 2015

You wouldn't steal a car: Criminalisation of IP

With recent and possible changes to IP crime laws, your Katonomist turns her third eyelid to criminalisation and the economics of crime.  

Criminalisation throws up a number of questions. Do existing laws cover the area to be criminalised?  (For example, trade secret theft in the US is often covered by wire fraud laws.) Will criminalisation have the desired effect on incentives?  Is it an appropriate use of police and public resources? Does harm exist? Is there a victim?  How do magnets work?

It is easy to compare criminalisation of IP infringement to violent crime, and question the allocation of public resources.  Instead, compare IP crime with white collar crime.  The last 15 years of white collar crime, from Enron, to the wonderfully named Madoff, and our current Fifa, have highlighted the billions that white collar crime can cost. A lot. Yet Golan suggests criminalisation of white collar crime over-deters otherwise desirable business activities, conflates blameworthiness with imprisonment and increases social costs, among others.  This of course, assumes that IP infringement can be considered white collar crime and that the impact is analagous.  So where does that leave us? 

Turning to the economics of crime, the famous economist (yes, economists have heroes) Becker argues that the optimal murder rate is not zero.  All crime cannot be prevented. It would be far too costly to prevent all murder.

In addition to the sheer resource costs of preventing all crime (anyone seen The Minority Report?), there are also civil liberties to consider. The amount of invasion of privacy required to prevent all IP infringement would be intolerable. So we are stuck with some infringement.

Crime is rationale.  Becker argues that criminals respond to incentives as they weigh up the costs and benefits of crime. Increased punitive measures increase the costs of crime to criminals.  This cost-benefit analysis is based on expected costs and benefits (known as expected utility).  This associates the probability of getting caught with the costs of getting caught.  Becker and evidence suggest that, for online copyright infringement, increasing this probability is more effective than increasing fines or other punishment.

Here is an example of the criminal's analysis; assume the following:
  1. Probability - there is a probability (p) that I will be caught and found guilty
  2. Costs - being found guilty costs me fines (f)
  3. Benefits - infringement provides me benefits and utility (U) 
  4. Income - infringement saves me money and increases my income (y)
C'mon it's economics, doesn't have to be practical!
Some squiggly lines of the criminal's calculation of the expected utility of infringement:

So, the expected utility of infringement = the probability and costs of getting caught + the probability and benefits of not getting caught.

If expected utility is positive, then the infringer becomes a hardened criminal.  If expected utility is negative, then the infringer stays cute and fluffy.

To nudge criminals to not infringe, you either increase p or f. That is, you either increase the likelihood they'll get caught and found guilty, or you increase the fine or punishment.

(N.B. If you're struggling with saving money equating to increasing income, assume that income would have decreased have they purchased non-infringing goods.  So the 'savings' of infringement 'increase' income.)

Still with me? Police priorities are reportedly shifting as budgets are cut, so it is unlikely a lot of resource will be devoted to investigation of online IP infringement. That means that increasing the probability of being caught may not be feasible. Instead, criminalisation f for copyright infringement could be provide the intended deterrent.

Yet, with private copying quashed, it could be a slippery slope for the average consumer and would be infringer.  Maybe format shifting is a gateway drug into the dark, sordid world of online copyright infringement.

UK's consultation on "equalising the maximum custodial sentence for online and physical copyright infringement" closes August 17th, here.
UK IPO reports on online infringement, criminal sanctions and enforcement here and here.
An interesting previous post on IP & Criminalisation here.

25 comments:

Anonymous said...

Actually, the way you nudge people not to infringe is by decreasing U -- the net utility of the infringement.

If, for example, I miss last Sunday's episode of Humans, and then find that the catch-up option on 4od (a) locks out my tablet's ability to display onto a tv, and (b) forces my tablet to sit through sixteen minutes of unskippable ads to watch 46 minutes of tv, then don't be surprised if the next time I miss an episode I am sorely tempted to find a torrent.

Or if a torrent is the only way to see what the original Swedish version of the show looked like.

If you want to stop people downloading then, as the recent UK and AU patent office surveys found, (a) make the content legally available and (b) don't make pointlessly annoying restrictions like being unable to view the content on a tv.


PS: Shouldn't that headline read "You wouldn't download a car" ? :-)

Michael Factor said...

Nicola, there is another aspect to criminalising IP Law. Do we, as a society, want everyone who downloads songs or films to sit in gaol? I think that any attempts to criminalize should be balanced by reducing copyright protection to something more reasonable, like 10 years when registered, extendible by a further ten years.

Anonymous said...

Criminals probably understand economics better than legitimate businesses.

Anonymous said...

Anonymous at 14:33 and the model are inconsistent because the expected utility equals zero when y=pf i.e. it is independent of U.

Britt Reid said...

Shouldn't it be "You wouldn't duplicate a car!" since the original car would still be sitting there?

Anonymous said...

@Anon 15:34 -- I think you misread Nicola's equation.

The utility U(y) is a function of y which is not necessarily linear or a simple multiplier of y, and which also does not necessarily depend only on y.

In the case of Humans both the torrent and the 4od service would be free, so the utility does not arise from any change to income y (though, to be sure, there would be a disutility from a fine f, and not limited just to the monetary value of f); rather the source of the differential utility would be the ability to watch it with my other half on a proper tv (or in the case of the Swedish version of the show being able to watch it at all), lessened by a distaste for obtaining it through an unauthorised channel.

Anonymous said...

I recall from my criminology lectures that, for non-white collar crime at least, increasing the chances of detection was generally seen to be more effective than increasing the penalty (typically no. of years in prison).

James Wagner said...

As alluded to above you can also reduce the benefit of infringement (changing U). This can be done in two ways.

1) Making infringing harder (spoofed files, viruses, injunctions, isp monitoring, etc.)

2) Making non-infringement easier (removing long warnings about copyright infringement that are only seen by people who aren't infringing copyright, providing access to other languages/content, providing higher quality content faster, etc.)

The advantage of both of these approaches over increasingly punitive approaches is that punishment imposes on negative effects on the individual and can create an external cost on society (court time, jails, disruption/loss of employment etc.)

While facilitating access and new technology can generate net benefits (greater utility for the individuals who access more content in more convenient ways, and new companies/technologies allowing easier access. (Compare streaming individual songs chosen by you or selected by some convenient algorithm to driving to a store to stand in line to buy a physical copy that contains 1 song you want and 10 you don't and only operates on one type of device).

Nicola said...

It's interesting that debate looks to be in favour of increasing p, the probability of detection and prosecution, as the most effective deterrent. Increasing f doesn't look as popular.

I'm not sure how feasible increasing p (namely police resources) is, and it needs to be weighed against the benefits (decreased infringement.) It may be that the costs outweigh the benefits when put into the larger context of limited police resources and opportunity costs (choosing where to allocate police resources.)

The model is oversimplified. A number of comments quite rightly point out that a wider model could more completely look at the utility (or not) of licensed content and the non-financial costs of infringement (the time it takes to find etc.) U of infringement = f(income, enjoyment, ease etc.) compared to U of non-infringement

Other things to consider would be the risk preferences of the individual. And, of course, what happens when the E(U) = 0? And if you really want to get snazzy, what happens if individuals are, gasp, irrational?

And Michael, you're absolutely right that this model looks at only the individual decision. Not the wider impact on social welfare. I am a microeconomist after all!

Right, off to download a cat.

Anonymous said...

I said to the police officer "Look officer, I am a lawyer. I wouldn't steal a car." He arrested me anyway, saying the car I was driving had just been reported stolen. I'm sure the judge (fellow lawyer and all) will sort it out.

Anonymous said...

Increasing punishment can in certain situations actually have an opposite effect. High fines or criminalization of infringers will be negatively perceived by the public and lead to a backlash against "excessive" copyright enforcement.

Or in other words, the probability of being caught is very low. It is in fact so low that most people consider it practically zero. The only way to balance the equation is then via gigantic, disproportionate, punishment. The resulting situation leads to a very negative public perception of copyright enforcement and will consequently not lead to less piracy. In fact, it can in certain situations potentially encourage more illegal downloads to "fight the system" which is seen as excessive to even cruel.

An interesting paper on the subject here:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=740184


Anonymous said...

A problem here is lack of morals.

In the equation, that is.

What price then, one's soul?

THE US anon said...

The comment about irrationality is apt.

Take any post on this lovely site with over thirty comments. People choose sides in an emotionally charged issue - and some of the most interesting exhibit the least rational behavior.

That's not by accident. When one becomes invested into an idea, one buys into that idea with more than just cold hard objective coin. Politics (and political systems) also show the fact that the human element cannot be ignored. The "great" socialism/communism failures are perfect examples of idealism that crashes upon the rocks of realism as unstoppable as the tides.

Anonymous said...

US Anon!!! Your point starts off ok - looks like a perfectly balanced comment. You then prove your initial opinion to be so apt in your own case by diving into an attack of those pesky Ruskies and their collaborators. Do you not understand there can be an opposing argument to your own political viewpoint? I doubt you see the irony of your comment.

THE US anon said...

Using a verified historical example is no "attack of those pesky Ruskies."

Of course there can be an opposing argument to ANY political position - but each and every one of those cannot rewrite the facts of history and claim victory from what is evident defeat. As such, you presume too much (you don't know my political stance), and listen too little (historical facts are facts, not because I say them, but I say them because they are facts).

You want to change the facts? Anyone "can" spin whatever they want to spin. But not if you want to have any credibility, eh? The world still turns, my friend.

Anonymous said...

Opinion = "The "great" socialism/communism failures are perfect examples of idealism that crashes upon the rocks of realism as unstoppable as the tides."

Fact = US Anon is deluded.

THE US anon said...

You want to try and rewrite history...

...and you say that I am deluded....?

Once again, these are facts not because I say them - I say them because these are facts.

Anonymous said...

US Anon: I doubt you could name a socialist country other pesky Russia and pesky Korea and possibly pesky Canada.

Or am I being unfair and you know very well that there are at least 4 countries outside of America on this planet?

THE US anon said...
This comment has been removed by a blog administrator.
THE US anon said...
This comment has been removed by a blog administrator.
THE US anon said...
This comment has been removed by a blog administrator.
Nicola said...
This comment has been removed by a blog administrator.
Anonymous said...

accusing someone of masturbating in public is hardly polite

Merpel McKitten said...

Quite right, Anon @17:48. The offending comment has been deleted.

MaxDrei said...

Good that the moderator is active. Better, that readers can see that the moderator is active. Nicola, a word of advice: don't feed it, for that is what it craves. Instead, put your trust in the moderator, to do the necessary.

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