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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.

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.

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.