A Look at Intellectual Property Piracy In Taiwan

A Look at Intellectual Property Piracy In Taiwan

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A Look at Intellectual Property Piracy In Taiwan


Intro: Current Piracy Situation

In Asia, Intellectual property piracy is rampant. Much attention has been directed at this issue and progress has been made in almost all Asian countries. Among them, Taiwan has been singled out as one of the worst offenders in the Intellectual Property Rights (IPR) violation.[1] The following statistics shows that the piracy rate in Taiwan is not very high compared to Korea and China. (More recent data is unavailable when I checked BSA.)

Table 1. Piracy rates
---------------------------------------------------------
Country 1994 1995 1996 1997 1998
Korea 75% 76% 70% 67% 64%
U.S. 31% 26% 27% 27% 25%
Japan 66% 55% 41% 32% 31%
Taiwan 72% 70% 66% 63% 50%
China 97% 96% 96% 96% 95%
Total World 49% 46% 43% 40% 38%
---------------------------------------------------------
Source: Business Software Alliance (BSA)
---------------------------------------------------------

Why is Piracy so Rampant

Why, then, is Taiwan considered a major offender for the last three years and counting? First, Taiwan has a monopoly on CD manufacturing and is renowned for its hardware manufacturing. Spend some time researching about blank CDs and you will find that most of them are manufactured in Taiwan.

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The equipments for counterfeiting CDs in mass quantities are readily available to anyone who is interested in making a profit by piracy. Second, a majority of the counterfeit CDs show up somewhere overseas.[2] This is the single biggest reason for all the attentions placed on Taiwan. The population of Taiwan is roughly 23 million,[3] although not small, it is less than 1/10 of that of U.S.[4] If the piracy is only contained in Taiwan, it can be argued that the damage is relatively small. Exporting pirated CDs oversea multiplies the damage by a potentially unlimited factor.

The Economics

According to a recent article from San Jose Mercury News, the U.S. entertainment and software companies lost roughly $756 million to Taiwanese pirates.[5] That figure is twice the figure of two years ago. And more confounding, Taiwan had designated last year as “IPR protection year.” Taiwan is trying to crack down on the piracy. As recently as April of 2003, “the Cabinet okayed a revision to the copyright law, making piracy a criminal act subject to public prosecution, and imposing hefty fines on violators.”[6] The government of Taiwan is responding to the pressure from U.S. to adapt tougher laws that give the enforcement of IPR laws more power. At the present time, the police can only act if the copyright holders raise complaints about a vendor. Should the revision be approved, the police can initiate actions against any vendor suspected of any kind of piracy. More specifically, “the Intellectual Property Office (IPO) of Taiwan hopes to strengthen the nation's intellectual property right protection efforts and rebuild its tattered reputation abroad by enacting revisions to the Trademark Law, Copyright Law, Patent Law and Optical Disk Law. On the Trademark Law alone, legislators are considering 40 new articles and amendments to 50 others, along with the elimination of 23 articles considered to be out of date.”[7] Also the maximum fine on piracy violation will be raised to the equivalent of $220,000, a few multiples higher than the previous limit. The time to prosecute has been a problem as well. A software pirate can drag out the trial long enough until the technology pirated becomes obsolete.

Pirated goods are destroyed in mass quantities.

The Taiwanese government’s newfound desire in stomping piracy has a logical reasoning behind it. The government does not want to be on the black list that may become reasons for more trading restrictions. Taiwan is an export nation; its economy is almost entirely based on its exports. Considering that it’s a relatively rich country with only 23 million people, the majority of the GDP is from exports like textures and high tech manufacturing. A lot of the exports are sold to the U.S. and any kind of trade embargo would be devastating for its economy. Taiwan strives hard to conform to U.S. IPR laws for this reason.

Taiwan is now considered as a developed country but it is only recently recognized. A decade ago, it was doing mostly manufacturing of apparel and everyday items for cheap labor. In short, Taiwan has just recently shifted from a manufacturing economy to a service economy. Earlier, the government did not see any major problem with IPR piracy because it was not hurting its own economy. But now as Taiwan begins to develop a software industry, it is evident that the piracy is not only hurting foreign company but also its own. The rampant piracy drives away venture capitals that would otherwise be injected into Taiwan. According to experts, “a 10-percent reduction in the software piracy rate could almost double revenues in the local technology sector by 2006, a research company reported yesterday. Fifty-three percent of all software disks sold in Taiwan are illegal copies, but if that figure is reduced to 43 percent, the information-technology sector could increase revenue from US$5 billion last year to US$8.1 billion by 2006, according to International Data Corp (IDC). In addition, US$1.4 billion could be added to the nation's gross domestic product, local vendors could benefit by US$1.1 billion in extra sales, and between 4,000 and 5,000 new high-tech jobs could be created, the IDC report said. “[8] The Taiwanese software industry growth is stunned by the piracy and results in the loss of competitive edge to adjacent Asian countries. Considering that Taiwan about the smallest country there, it needs to stay on top of the technology trend to be successful in being an economical power there. This realization prompted the Taiwan government to focus hard on the piracy issue since last year.

How criminals evade law right now

The proposed revisions of IPR laws will need to patch up the three major loopholes current pirates enjoy. They are a combination of delaying and prolonging the trial, generate false alibis via ties with criminal gangs and use of collection bins to avoid getting caught red-handed.

Delaying the trial is a common technique employed by software pirates. Mr. Jeffrey Harris, managing director of the law firm Orient Commercial Enquiries sums it up nicely, “When we go up against an infringer who's smart and has resources, that person can drag a case out for five, six, seven, even 10 years. This is a problem especially in high-tech infringement where the life of a product could only be two years. By the time there's a sentence, no-one cares about the product any more.”[9]

Many street vendors have criminal gang connections. Since the piracy business is so lucrative, requiring very little work for its reward, some gangs back the vendors for a large portion of the profits and they bribe the police to make the minor offenses disappear. This method is possible because the current law against IPR piracy is not very high priority in the eyes of the justice system. For some vendors they have strong bonds with each other and will help each out in falsifying alibis, “a man caught selling fake CDs in a night market managed to persuade all the other vendors on his street to testify in court that he was only a fruit seller.”[10]

Most recently, at the height of the intense crackdown, vendors have been adapting a strategy of not manning their stands. As a newspaper describes, “a rich collection of pirated Hollywood blockbusters, Hong Kong pop music and Japanese soap operas lies unattended on a wooden table. No vendor is in sight. A handwritten note asks buyers to drop their money in a white plastic box.”[11] It sounds rather ridiculous but such is the reality right now.

The Politics

The political pressure on stomping piracy is growing stronger and stronger all the time as Taiwan tries to stay ahead of neighbor countries in the World Trade Organization. The government of Taiwan places top priority on attracting foreign investments to sustain its economic growth. A large factor that concerns the foreign investors is how much the piracy will erode their profits; at the moment, the piracy is bad enough to drive away quite a bit of resources.

The software industry in U.S. is a large part of the U.S. economy without a doubt. Many of the largest, most profitable companies are high tech, software companies. They have a great combined influence in shaping Washington’s policy toward Taiwan. And they are decidedly asking Washington to pressure Taiwan to step up its enforcements or face the political/economic consequences. Taiwan has a history of complying with most of Washington’s top priority demands because Taiwan relies on U.S. to fend off the aggression from China in the struggle for its own independent nation.

On the home front, a local group of entertainment industry and software industry representatives has been putting consistent pressure on the Taiwanese government to act on the IPR laws. On Apr 05, 2003, “the Taiwan Anti-piracy Coalition gave the government a failing grade yesterday for its piracy enforcement efforts last year. The criticism comes one year after thousands of local music fans and artists held a rally in Taipei to protest ineffective anti-piracy enforcement measures. The coalition stopped short of organizing another protest march this year.”[12] As noted before, the local industry is losing billions to the piracy. With this high projection, "for Taiwanese government, a 10-point drop could translate into an additional US$87 million in tax revenues,"[13] according to Terry Tsao, general manager of International Data Corp's Taiwan branch. For the Taiwanese government the protection of monetary loss is a great incentive to go after piracy.

The Ethical View

Microsoft uses holograms like this one to help assure consumers their software purchases are genuine and to help law enforcement fight counterfeits.
Looking at the issue from the view of ethics, U.S. software is getting pirated and sold at a much lower price. U.S. intellectual labor is not rewarded. The resources put in to develop the software have a diminutive return due to piracy. For Taiwan, the consumers are getting a great deal and save most of their money to be used in Taiwan. So the resources that should have been heading to U.S. stay in Taiwan as they change hands between Taiwanese consumer and pirates. It’s pretty clear that there is moral issue here and it’s the pirates and consumers doing the wrong. The resources that should go to U.S. to reward their innovations don’t get there and the result is fewer innovations are motivated. The U.S. software companies try to make up for the lack of revenue by raising prices on each unit, which makes the honest consumers suffer. The pirates are getting a free ride on the labor of others. They just make a quick buck for doing work that has no real benefit to humanity. The kind of copying that anyone who can buy a CD burning machine can do. As mentioned before, the piracy is suffocating the growth of Taiwanese software industry as well. Ultimately, this is not good for either U.S. or Taiwanese society. U.S. innovates less, and Taiwan simply can’t evolve itself into anything more than a nation of mindless pirates. From the consequentialist view, piracy is clearly a no-no.

Where there is demand there will supply. The Taiwanese consumers are performing an immoral act every time they purchase pirated product. They are helping the pirates stay in business. Sure, it’s difficult to walk by such cheap bargains without wanting to acquire them. Since few people can sympathize with the flagellant software industry in Taiwan, the consumers don’t feel like they are hurting anyone. In fact some consumers use the argument that they are helping out the poor, handicapped vendors. Almost as an act of patriotism, the consumers are decidedly paying the Taiwanese pirates instead of the rich American software empire. From this perspective, it can be said that the war on piracy is never going to succeed by prosecuting the pirates alone. Some measures must be in place to discourage the consumers from seeking pirated products.

To some extent, U.S. software companies are also to blame for the rampant piracy. Considering that the average starting salary of a Taiwanese college graduate is $1000, compared to $3000 for a U.S. college graduate, it is easy to see why some people have to resort to buying pirated software. For the record, software prices are slightly higher in Taiwan than in U.S. possibly due to the work on translation. For example, Norton systemworks 2003 Pro goes for $96 on www.amazon.com and $114 on www.178mall.com, a popular Taiwan e-business website. Can the general consumers actually pay for software? It requires a big portion of their salaries to buy any kind of software. If U.S. software companies don’t slash prices, it’s almost as if they are driving the Taiwanese consumers to the pirates. For the conscious consumers, they may feel the moral dilemma, but it is all too easy to give in and ignore the morality issue. Think for a moment as a Taiwanese consumer, would you pay $90 when you can get it for $10? Would you pay $13 for a music CD when you can get it for $2? And as mentioned before, these people are brought up without sympathy for IPR since the software industry is so young in Taiwan. Now this is not saying that U.S. needs to bend over backwards to compete with the pirates but they need to do something to give the Taiwanese consumers some incentive to buy the copyrighted version. They can help fund social programs that encourage ethical conducts and they can slash the prices to a reasonable level for the standard of living in Taiwan.

Conclusion

Taiwan’s unique environment makes it a fertile ground for the seeds of piracy. But that environment is changing due to Taiwan’s advancement into a developed country and the transformation of its economy into service, knowledge-based. The current IPR laws are inadequate for prosecuting pirates and new steps are taken by the government to adapt stricter, more powerful laws from the international community. The act of piracy gives temporary monetary relief for the consumers but over the long run it stuns the growth of the software and media industry. Its cost outweighs the benefit by far, it's just that regular people lack the vision to see it. Pirates should be prosecuted and consumers should be discouraged from purchasing pirated goods. The U.S. software companies should be held accountable for discourage people to buy the copyrighted products with sky-high prices that are unrealistic for Taiwan's standard of living. Ethical social programs should be put in place to encourage consumers to get in the habit of paying for copyrighted products. With these steps, the piracy can be cut back substantially in the coming years.

Endnotes

[1] Alice Hung, “Taiwan’s copyright pirates less brazen.” Mercury News. 14 Apr. 2003. < http://www.bayarea.com/mld/mercurynews/business/5629437.htm>

[2] “AmCham’s point man on IPR protection talks tough.” Taipei Times. 14 Apr. 2003. < http://www.taipeitimes.com/News/biz/archives/2003/04/14/202053>

[3] Alice Hung, “Taiwan’s copyright pirates less brazen.” Mercury News. 14 Apr. 2003. < http://www.bayarea.com/mld/mercurynews/business/5629437.htm>

[4] “U.S. POPClock Projection.” <http://www.census.gov/cgi-bin/popclock> U.S. Census Bureau.

[5] Alice Hung, “Taiwan’s copyright pirates less brazen.” Mercury News. 14 Apr. 2003. < http://www.bayarea.com/mld/mercurynews/business/5629437.htm>

[6] “Cabinet revises copyright law to make piracy a crime.” The China Post. 27 Mar. 2003. < http://www.chinapost.com.tw/taiwan/detail.asp?ID=36206&GRP=B>

[7] Lisa Wang, “Lawmakers give initial approval to Trademark Law amendments.” E Taiwan News. 4 Apr. 2003. < http://www.etaiwannews.com/Taiwan/2003/04/04/1049418591.htm>

[8] Bill Heaney, “Less software piracy may aid industry.” Taipei Times. 16 Apr. 2003. < http://www.taipeitimes.com/News/biz/archives/2003/04/16/202306>

[9] “AmCham’s point man on IPR protection talks tough.” Taipei Times. 14 Apr. 2003. < http://www.taipeitimes.com/News/biz/archives/2003/04/14/202053>

[10] Alice Hung, “Taiwan’s copyright pirates less brazen.” Mercury News. 14 Apr. 2003. < http://www.bayarea.com/mld/mercurynews/business/5629437.htm>

[11] Alice Hung, “Taiwan’s copyright pirates less brazen.” Mercury News. 14 Apr. 2003. < http://www.bayarea.com/mld/mercurynews/business/5629437.htm>

[12] Bill Heaney, “Anti-piracy coalition flunks government.” Taipei Times. 5 Apr. 2003. < http://www.taipeitimes.com/News/biz/archives/2003/04/05/200948>

[13] Bill Heaney, “Anti-piracy coalition flunks government.” Taipei Times. 5 Apr. 2003. < http://www.taipeitimes.com/News/biz/archives/2003/04/05/200948>

Bibliography

Sun, Andy. Reforming the protection of intellectual property: the case of China and Taiwan in light of WTO accession. Pittsburge: University of Pittsburgh Press, 2001

Bayard, Thomas. Reciprocity and retaliation in U.S. trade policy. Washington, DC : Institute for International Economics, 1994.

Wang, Lisa. Lawmakers give initial approval to Trademark Law amendments. 04 Apr, 2003. http://www.etaiwannews.com/Taiwan/2003/04/04/1049418591.htm

USTR finds Taiwan still remiss in IPR protections. 03 Apr, 2003. http://www.etaiwannews.com/Taiwan/2003/04/03/1049332072.htm

Hung, Alice. Taiwan's copyright pirates less brazen. 14 Apr, 2003. http://www.bayarea.com/mld/mercurynews/business/5629437.htm

AmCham's point man on IPR protection talks tough. 14 Apr, 2003. http://www.taipeitimes.com/News/biz/archives/2003/04/14/202053

Heaney, Bill. Anti-piracy coalition flunks government. 05 Apr, 2003. http://www.taipeitimes.com/News/biz/archives/2003/04/05/200948

Heaney, Bill. Less software piracy may aid industry. 16 Apr, 2003. http://www.taipeitimes.com/News/biz/archives/2003/04/16/202306

Cabinet revises copyright law to make piracy a crime. 27 Mar, 2003. http://www.chinapost.com.tw/taiwan/detail.asp?ID=36206&GRP=B
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