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:
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:
- Probability - there is a probability (p) that I will be caught and found guilty
- Costs - being found guilty costs me fines (f)
- Benefits - infringement provides me benefits and utility (U)
- Income - infringement saves me money and increases my income (y)
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 p 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.
