patents and piracy

The debate over how harmful China's rampant piracy of US technology continues to rage. On one extreme, US tech companies are losing billions of dollars a year when Chinese consumers purchase pirated copies of MS Windows off the streets for $1.50 or when Chinese companies buy fake Cisco routers for half price. If you simply multiply the number of pirated units by the normal retail price of the official versions, the numbers are truly astronomical.

But on the other side of the scale, there are two reasons why the total is not really this high. First, many Chinese consumers couldn't or wouldn't pay for the official versions. So the total lost revenue is much lower. Second, there is some evidence (or at least theories) that when China finally does start enforcing patents and copyrights (more likely because its own companies are developing intellectual property rather than the cajoling of the US trade missions), there will then be a huge base of consumers used to the US style products (and more able to purchase them). The current piracy is sort of like a loss leader where the company loses money now to make more later. Of course, this second reason is not really fair to the US companies, as it should be their choice whether to use a loss leader strategy, not the Chinese government, consumer, or pirates. Stealing can't be justified by saying that it helps in the long run.

But what does matter is how much time, effort, and political capital the US government should use on this issue. Would it be better to work on the currency misalignment? Or China's growing relationship with dictators around the world - helping them economically and enabling them to continue repressive policies? There is no easy answer, but it is worth thinking about.