What GAO Found
United States Government Accountability Office
Why GAO Did This Study
Highlights
Accountability Integrity Reliability
April 12, 2010
INTELLECTUAL PROPERTY
Observations on Efforts to Quantify the Economic
Effects of Counterfeit and Pirated Goods
Highlights of GAO-10-423, a report to
congressional committees
In October 2008, Congress passed
the Prioritizing Resources and
Organization for Intellectual
Property Act of 2008 (PRO-IP Act),
to improve the effectiveness of U.S.
government efforts to protect
intellectual property (IP) rights
such as copyrights, patents, and
trademarks. The act also directed
GAO to provide information on the
quantification of the impacts of
counterfeit and pirated goods. GAO
(1) examined existing research on
the effects of counterfeiting and
piracy on consumers, industries,
government, and the U.S. economy;
and (2) identified insights gained
from efforts to quantify the effects
of counterfeiting and piracy on the
U.S. economy.
GAO interviewed officials and
subject matter experts from U.S.
government agencies, industry
associations, nongovernmental
organizations, and academic
institutions, and reviewed literature
and studies quantifying or
discussing the economic impacts of
counterfeiting and piracy on the
U.S. economy, industry,
government, and consumers. GAO
is making no recommendations in
this report.
According to experts and literature GAO reviewed, counterfeiting and piracy
have produced a wide range of effects on consumers, industry, government,
and the economy as a whole, depending on the type of infringements involved
and other factors. Consumers are particularly likely to experience negative
effects when they purchase counterfeit products they believe are genuine,
such as pharmaceuticals. Negative effects on U.S. industry may include lost
sales, lost brand value, and reduced incentives to innovate; however, industry
effects vary widely among sectors and companies. The U.S. government may
lose tax revenue, incur IP enforcement expenses, and face risks of
counterfeits entering supply chains with national security or civilian safety
implications. The U.S. economy as a whole may grow more slowly because of
reduced innovation and loss of trade revenue. Some experts and literature
also identified some potential positive effects of counterfeiting and piracy.
Some consumers may knowingly purchase counterfeits that are less
expensive than the genuine goods and experience positive effects (consumer
surplus), although the longer-term impact is unclear due to reduced incentives
for research and development, among other factors.
Three widely cited U.S. government estimates of economic losses resulting
from counterfeiting cannot be substantiated due to the absence of underlying
studies. Generally, the illicit nature of counterfeiting and piracy makes
estimating the economic impact of IP infringements extremely difficult, so
assumptions must be used to offset the lack of data. Efforts to estimate losses
involve assumptions such as the rate at which consumers would substitute
counterfeit for legitimate products, which can have enormous impacts on the
resulting estimates. Because of the significant differences in types of
counterfeited and pirated goods and industries involved, no single method can
be used to develop estimates. Each method has limitations, and most experts
observed that it is difficult, if not impossible, to quantify the economy-wide
impacts. Nonetheless, research in specific industries suggest that the problem
is sizeable, which is of particular concern as many U.S. industries are leaders
in the creation of intellectual property.
Negative Effects of Counterfeiting and Piracy, by Stakeholder
Stakeholders Negative effects
Consumers Health and safety risks, low quality goods
Industries Lost sales and brand value, increased IP protection costs
U.S. government
Lost tax revenue, increased enforcement costs, and risks to supply
chains with national security or safety implications
U.S. economy
Lower growth and innovation, declining trade with countries having weak
IP rights enforcement
Source: GAO analysis.
View GAO-10-423 or key components.
For more information, contact Loren Yager at