The Authors of The Knockoff Economy Answer Your Questions

We want to thank everyone for their questions — it’s great to see people responding to, critiquing and, in some cases, tweaking, the ideas we set out in The Knockoff Economy. We are fascinated by the complex relationship between copying and creativity — and we’re thankful that many of you are as well.  So, to the Q&A . . .

Q. The issue that concerns my industry most is internet sales of prescription skin products such as retin-A and hydroquinone. Some might be counterfeit, but many are probably diverted products. The manufacturer sells them to a physician, the unscrupulous physician sells them on the internet at a deep discount, the patient may be hurt by expired or dangerous medications or may not use them correctly even if they are real. This hurts legitimate physicians by drawing business away from them, but also hurts a manufacturer’s reputation. (Apparently, people who have qualms about buying Viagra online don’t think twice before buying skin medications from those same sources.)

Do you plan to do any research in this area? Will you be looking at diversion in addition to counterfeits? -cosmetic dermatologist

A. So this is an issue of what are usually called “grey market” goods – i.e., real, legitimate goods that are nonetheless sold outside of licensed distribution channels. The law on this is complicated; suffice to say that a lot of it, at least in the prescription pharma context is illegal, but in other contexts, like non-prescription consumer goods, it isn’t. In any event, this phenomenon is a bit different from what we discuss in the book, which is concerned more with knockoffs and counterfeits (which are fakes), whereas grey market goods are real. But it certainly is a big and interesting phenomenon.

Q. As a guy in community theater, I often ponder the curious nature of intellectual property.

  • Want to sing a song from a show? Pay.
  • Want to perform lines from a show? Mostly, pay.
  • Want to perform the choreography? Free
  • Want to use a show’s costume design? Free.
  • Want to use a show’s name to advertise that you’re performing a show? Free.
  • Want to use a show’s logo? Pay. 

But what is the legal status of performing a musical review? Say we perform four songs from a musical, with people costumed as performers from the musical, performing choreography from the musical, but with only as much dialogue as required to transition from one song to the next. Is it sufficient to license the four songs, or do you need to license the whole show?  -nobody.really

A. So in fact, all of these elements of theater you’re mentioned are subject to some form of IP right.

  • The songs can be copyrighted.
  • So can the show’s text.
  • And the same is true of the choreography.
  • Costume designs can also be copyrighted! This is true even though apparel designs generally cannot be copyrighted. Costumes, the courts have held, are different from mere clothing. 
  • The show’s name and logo can be trademarked.

Upshot: some form of IP law touches pretty much every element of a play.

Q. I think your point about piracy is spot-on. Litigating against it won’t stop it. Nothing will. So it’s a matter of how do you align your fans’ incentives with your own? How do you entice them to give you money for your art. For my money, what the Internet has cost labels has been more than offset by the terrific music cheap recording and distribution has given us. We were in an era where only pretty faces with mediocre talent were getting major contracts and the Internet blew that all up. We live in an interesting time for music! -Jeff

A. We agree – even as the record labels are struggling, music as an art form is thriving. And as you note, the Internet gives more than it takes away.  We say more on this below. 

Q. Knockoffs usually don’t include counterfeiting, but probably should if only collectible coins are considered.

Recently the Chinese have “filled the need” for many collectible coins. Even early collectible Lincoln copper pennies are being faked.

Recently, I evaluated an 1883 Morgan silver dollar, that was slightly too heavy, slightly too thick and slightly too small in diameter, slightly magnetic, slightly too shiny, and slightly too good to be true, but was utterly beautiful in its details–actually better than the real thing. It even came with a good story having to do with great a Grandfather. But is was just a great Chinese copy, and sold by the score as real ones on Ebay.

Here’s a photo. See for yourself. – Eric M. Jones

A. Wow – this kind of stuff is illegal under U.S. law – there’s something called the Hobby Protection Act which makes it unlawful to, among other things, distribute fake collectible coins unless they are marked “COPY”.

From what I can tell, the U.S. government seems to be focused on the counterfeiting of circulating U.S. currency, rather than non-circulating or collectible currency. But that doesn’t make it legal.

Q. I have a knockoff golf driver. It was a gift. The person thought they were buying a real one, but when they went to exchange it from a store that sells the real ones, they learned that the serial number didn’t match a real club.

The clerk said that it is either a Chinese knockoff, or a real club and the manufacturer made too many and shipped the extras to China to BE knockoffs. The guy said that the company will do this rather than lower their price in the U.S. 

Did you see any other instances of this? Where the maker actually helps the knockoff get produced? -caleb b

A. One hears rumors like this from time to time in the fashion industry – that is, that a manufacturer who has overproduced sells some product to wholesalers as “knockoffs”.  And one also hears occasionally that overseas manufacturers will produce more copies of an item than they have contracted for, and then sell the “overage” as knockoffs.  We don’t know if these rumors are true. It is also the case that a factory (including factories here in the U.S.) will produce for many brands. So you may also find the same item with a different label, selling at different prices. 

Q. My question is: why is this research interesting for the creative industries traditionally protected by copyright like the book industry, the music industry, the film industry, etc.? Please could you expand a bit your answer? - Moggio

A. Sure. So we think our book has important implications for the industries like music, film, and publishing, that have traditionally relied on copyright (and other IP) protections, for the simple reason that in the current technological environment, copying is easy, and very difficult to stop using the law. And we think that, given the directions that technology appears to be taking (more access, more speed, better encryption, etc.), that’s only going to get worse. Which means that more creative industries are losing their ability to rely on the law to control copying.  They are going to have to find other ways. And they are going to have to find ways to live with piracy – and even to profit from it. Our book focuses on a number of industries – fashion, food, comedy, finance, fonts, and others – that already do this. And we hope (and believe) that the lessons can be applied more widely. In fact, the Epilogue to the book is all about the music industry, which is kind of the poster child for the problems of copying.  We apply some lessons to it from the rest of the book and also explain why music is doing well while the record labels are not. 

Q. Wondering if you have done any political analysis of intellectual property v. ‘free’ market as contradictory political beliefs – that is, do conservatives typically believe in a free market, yet also believe in IP protection; or conversely, do liberals typically scoff at IP protection, yet also believe in market regulation? How are these contradictions handled? -frankenduf

A. In America we typically prefer free markets and competition, and what’s interesting is that IP rules limit both. IP exists to restrict competition. Now, there is a justification for this – that  without IP rights, pervasive copying will kill the incentive to create, and we’ll all be poorer for that in the long run. Which, as a general justification, makes sense, and we don’t oppose IP in principle.  But in a lot of contexts, copying is actually an important part of the innovation process. 

What may be the most interesting political fact about IP is that it appeals to both parties. Conservatives generally like it because it seems like property, and they favor strong property rights. They don’t usually view it as market regulation (something they usually oppose). Liberals also tend to support it, seeing it as essential for the arts and a part of industries (Hollywood, publishing, Silicon Valley) that usually swing their way. This is one reason IP rights have steadily strengthened over time: the opposition is typically weak and lack voice. A notable exception—and maybe a harbinger for the future—is the recent debate over SOPA and PIPA, which pitted Northern California against Southern California, and was one of the few times stronger IP protection has been batted back. 

Q. It turns out that “enemy” forces, who have access to the internet can easily look up designs for munitions and instruments of war in the patent record.

Example: Explosively Formed Penetrating Munitions. Or those nasty armor-penetrating copper shaped-charge projectiles. These patent records all have complete details of how to make these weapons.

I have to wonder about the sanity of this. Are we going to bring Al Qaeda to patent court and sue them for stealing the designs? -Eric M. Jones

A. You’ve put your finger on a real problem. There is a federal law called the Invention Secrecy Act which attempts to deal with it. The ISA prevents the grant of patents on certain inventions and technologies that, if made public, could pose a threat to our national security. And it further prevents disclosure by other means. When the ISA is applied to a particular invention, the gov’t issues a secrecy order, and there are thousands of these — somewhere north of 5000 are effective now.

Q. Without ruining the conclusion of your book, my question has to do with the music industry. In an earlier post on this topic, your finding that a person who buys knockoffs often becomes a customer of the knocked off brand got me thinking. One common defense of stealing music is that, if I get it for free and tell people about it, that will lead to more sales. Is this consistent with your findings, or do the people I “tell about” the music go on to steal it themselves?

On the flip side, many indie bands are doing this themselves, either going the Bandcamp route of donation-based pricing; Amazon MP3 heavily discounting music, sometimes very new music; or services like SoundSupply, which offers a bundle of 10 albums for $15 every few months.

Another argument that leads to both of these models is that bands make most of their money from tours and licensing, and albums are really just “ads” for all the downstream uses of the music. Is this consistent with your findings?

To inject my own opinion in the matter, I purchase music when I can. A lot of the bands I like are self-managed (ie not on a label, on a tiny label, or on their own label). Anything I can do to keep them from having to get day jobs means they have more time to keep touring and creating music for me! – Jeff

A. So in the book’s epilogue we apply a lot of the lessons we learn by looking at industries like fashion, in which there is very little IP, to the music industry, in which there’s a lot of IP on paper, but increasingly little chance of enforcing it. What we see in music is that although the record labels have suffered and are suffering badly, music as an art form is thriving.

So how is this possible? Well, it’s early days yet, so it’s not yet possible to say definitively what’s working and what’s not. But we mention some of the new ways that you’ve mentioned that musicians are trying to break through in a fast-changing industry. We’ll note two here. One is giving away some music to build a fan base. Another is simply taking advantage of low-cost/high-quality digital recording and distribution tools, and direct connection to fans via social networks, to dramatically reduce the cost of producing and distributing new music — a strategy which permits less reliance on intermediaries (record companies) with deep pockets.

The music industry is going through a period of wrenching change, a lot of it driven by piracy. But our point is that piracy is very unlikely to go away. And yet there’s no reason to think that music is going to go away. It’s just a fact — music is thriving, even as the music industry is not.

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  1. Mike says:

    The follow-up question on the piracy question is why do the publishers not only fail to distribute content globally but even resist this? Just taking the example of music, so much popular music is simply not available globally for sale on digital platforms. Even if a track is on iTunes, that doesn’t mean it can be bought on all the 40 or so iTunes stores, and if you’re on holiday in another country the license would forbid you from downloading a purchase on foreign soil (even if the track were on sale there on another iTunes store).

    Whereas I can go to Bandcamp or other artist-managed sites and buy something from anywhere in the world, the big publishing companies who distribute mostly through iTunes, Amazon, Spotify have extremely different catalogs from one country to the next. If you’re say an American living in France, and want to buy your favourite American artists then this is quite hard to do digitally. You may have an American credit card but your physical location contravenes the licensing terms. You can’t use Spotify or Amazon or services that geolock based on your computer IP address unless you buy an international proxy to pretend to be in another country. There is hurdle after hurdle to prevent you buying. What is the economic rationale for this?

    For TV shows and movies there are all these issues and more (region protection anyone?), where the publishers fail to satisfy demand for legal product. The potential paying audience for digital product does not live in neat little boxes as defined by the publishers, yet those publishers are willing to cut off supply to huge markets outside their comfort zones.

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    • Griff says:

      What is the economic rationale for this?

      Obviously some areas of the world are paying a lot more than others… if there were no limit, we’d all buy from the cheapest country.

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      • Mike says:

        That doesn’t explain anything.

        These products are not offered *at any price* – it’s got nothing to do with relative incomes. People in the UK can’t buy from the USA and vice versa.

        Of course I could point to examples where Apple adjusts iTunes prices so that Americans are always favoured relative to other countries irrespective of whether those other countries have higher or lower incomes or exchange rates relative to the USD.

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    • Jeff says:

      Thank you! This is totally ridiculous. I have my own “moral” rule on this: if I can buy it for a (reasonable!) price, I will. If you make it unavailable to me, or prohibitively expensive to import, I am going to download it.

      This also goes for things that are out-of-print. In 2012, with the almost no-cost electronic market we have, there should never again be an album, movie, or book that’s out of print!

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      • James says:

        For out-of-print books, you can also try used book sites like AbeBooks.

        That also raises an interesting IP question. If I buy a used book (or CD &c), am I not depriving the creator of income? The original purchaser has “consumed” the book by reading it, yet I can buy it from him and read it too…

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  2. joe says:

    So, this is interesting stuff.

    So, I’d really like to learn more about it.

    So, I’m having a hard time because the writing isn’t great but I can’t put my finger on the problem.

    So, the writing, or delivery, interferes a bit with the message.

    So, these guys really wrote a book?

    http://chronicle.com/blogs/linguafranca/2011/12/02/so-it-turns-out-that-everyones-starting-sentences-with-so/

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  3. Moggio says:

    @KR&CS: Thanks for your answer to my question.

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  4. Sbard says:

    Factories in east and southeast Asia most certainly to produce overages and sell them out the back door. In fact many of the factories will give western companies rock bottom pricing just to get their hands on a formulation/design/etc. so they can sell the goods for higher margins in their domestic market or in overseas markets where the original designer doesn’t do business (the book Poorly Made in China has accounts of this). Several years ago my family had a Vietnamese exchange student spend a year with them. This student had a number of pieces of clothing from Old Navy in her wardrobe that she had obtained in Vietnam that were identical to products available in the US. We later learned that despite the fact that Gap Inc. doesn’t actually sell any clothes in Vietnam their products are widely available there because of factories selling lots of “overage” in the domestic market.

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