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Introduction

One of the current trends in global business has been the digitization and sale of EBooks, videos, software programs, photo collections and a variety of digital content via Amazon, iTunes and various online stores. As seen in the article of Holsapple, Iyengar, Jin & Rao (2008), digital content has gained considerable ground in terms of market penetration and popularity among different age groups due to the proliferation of tablets such as the iPad, Amazon Kindle and other types of tablet PCs (Holsapple, Iyengar, Jin & Rao, 199-218).

For retailers, digitized content can be considered one of the easiest products to produce and sell since they are easily replicable and cost distributors next to nothing to reproduce and sell. The inherent problem though with this particular method of sale and distribution is that unlike hardcopy version of novels, software or textbooks digital content can be easily copied, transferred and even distributed freely online by the thousands.

The same digitization that allows companies to sell digital content also allows other people to use the same methods for their own gains. A brief Google.com search shows that there are quite literally dozens of sites where digital content can be illegally downloaded for free (Holsapple, Iyengar, Jin & Rao, 199-218).

Sites such as the Piratebay.org and Rapidshare contain millions of music, video and software files that were “ripped” illegally from legal sources and then subsequently shared online for free.

This has resulted in significant losses in sales for hundreds of companies with estimates placing the amount lost in the hundreds of billions of dollars within a given year (Holsapple, Iyengar, Jin & Rao, 199-218). On the other end of the spectrum billions of intellectual property right infringements are also done on a single day by the sheer amount of videos and images shared on social network sites such as YouTube and Facebook.

Users arbitrarily share images taken from official websites and magazines as well as post videos online containing copyrighted songs, labels, symbols and images resulting in practically millions of people being guilty of intellectual property right infringement. Yet for the past 12 years companies have been unable to successfully combat this problem due to its sheer scale and the inherent limits of business law in actually being able address the issue.

Intent of Analysis

This paper will attempt to determine why consumers continue to violate IPRs despite the current affordability and proliferation of digital content?

Significance of the Issue

In the case of online internet users there are just far too many individuals, too many cases and not enough enforceable evidence of intentional violation to actually implement a successful means of deterring IPR violation in the scale it is seen today.

One of the means in which companies have attempted to combat this issue has been to lobby for stricter laws regarding digital good and services. The result was the DMCA (Digital Millennium Copyright Act) which in effect criminalized the production and distribution of various technologies, services or even devices which allowed individuals/groups to illegally access copyrighted works or circumvent the process that prevents digital distribution (Bach, 1-33).

In effect this law in the U.S. made it illegal to circumvent copyright protections on digital software for online distribution and made methods associated with intentional violation of such laws punishable by heavy fines or jail time.

It must be noted though that the limitations of this particular type of business law is evident in the fact that despite its implementation in 1998, online piracy has continued unabated and has in fact increased within the past decade (Kuhl, 18-20). This shows that merely attempting to stop IPR violations through law is ineffective given the ability of the internet to adjust and determine an alternate means of file sharing.

Not only that, attempts at restricting internet use through acts such as SOPA and PIPA which were intended to restrict online content sharing and privacy was met by outrage by local citizens resulting in such acts never being implemented. It is based on this that additional research is necessary in order to determine what are the factors that contribute towards online IPR violations, why this occurs and what can be done in order to prevent it from occurring in a lawful manner that does not outrage the general public.

This research paper will contribute significantly to the growth of knowledge of law and economics by enabling a better understanding of consumer attitudes, IPRs and what processes need to be implemented in order to prevent online piracy thereby saving companies billions of dollars in lost revenue.

Hypothesis

The hypothesis of this paper is that differences in regional wages and a lack of corporate acknowledgement of such differences results in the proliferation of online IPR violations with online piracy acting as a means of fulfilling the demand for goods that would be otherwise unavailable to consumers.

Literature Review

Internet Anonymity and the Application of Business Law

One of the current problems in the application of business law in online cases of IPR infringement is the level of anonymity granted by the internet which not only makes methods of prosecution against violators difficult but also encourages criminal behavior. As seen in the study of Rutter (2010) which attempted to explain the reason behind the popularity of online IPR infringement it was seen through numerous interviews and accounts that anonymity played a huge role in encouraging the behavior (Rutter, 411-418) .

As Rutter (2010) notes, social identity plays a huge factor in limiting criminal or anti-social behavior yet when the concept of social identity and thus accountability is taken away people are more likely to commit acts related to IPR infringement as they otherwise would have done if there was a distinct level of identity and accountability related to their online presence.

In other words the Rutter (2010) study showed that people were more likely to commit acts of online copyright infringement and the promotion of online piracy since they knew that the level of anonymity afforded to them by the internet allowed them to act without negative consequences (Rutter, 411-418). This in turn explains the depth and proliferation of online piracy and copyright infringement and shows how the problem cannot be so easily resolved merely by applying laws which state that a particular action is illegal.

Another way of looking at this concept is to look at it from a prosecutor’s point of view. While there are many instances where users download illegal IPR content there is no way to prosecute them for the act since there is no way of knowing who they are.

Not only that, services such as Rapidshare, Mega and Torrent technologies enable users to anonymously upload content and distribute it to millions of other users which further complicates the problem (Marie, 26-28). The sheer number of users and the amount of available online services which allows illegal IPR violations to continue shows just how impotent business law is at the present in actually resolving this issue.

It must be noted though that one way in which companies have attempted to fight back against online piracy has been to directly attack the sites themselves through their ISP (Internet Service Providers) however just as the Piratebay.com has been able to say operational by shifting ISPs and servers other websites have done the say which makes any attempt at even trying to resolve the issue a losing battle for companies due to the sheer number of servers available that are not under the jurisdiction of IPR law (Marie, 26-28).

Examining the Concept of IPR Violations as a “Service” Issue

When the head of Valve mentioned that IPR violations are a service issue he meant that certain licensed content whether in the form of media, games, software or pictures were either unavailable in a particular region or unaffordable by people that wish to utilize the copyrighted content. What must be understood is that a vast majority of IPR violations done today through the illegal consumption and use of copyrighted content is actually done by individuals who cannot afford to get the software or media in another fashion (Flora, 14).

As such they turn towards IPR violation as the only recourse they have in order to gain the content the need. In the case of Valve they resolved the problem of IPR violations being a service issue by establishing a service that both addressed the issue of availability and affordability of video games.

Through their proprietary “Steam” portal, players from all around the world were able to find the games they wanted and pay for them at a fraction of the cost that they otherwise would have if they had bought the game through traditional methods. Based on this it can be seen that there are alternative solutions that other companies are not event attempting since they seem more concerned in perpetuating their old business models instead of attempting various methods of innovation to address the issue of IPR violations.

Theoretical Framework for Analysis

The theory of consumer behavior in microeconomics revolves around the concept of the perceived value or satisfaction that a consumer derives from the consumption/ use of a particular commodity (Krystallis et al., 1438-1463). In terms of actually understanding the demand side of market consumption/utilization the theory of consumer behavior uses two distinct methods of measurement, namely Total Utility (TU) and Marginal Utility (MU).

Total utility is defined by various experts in the field of consumer behavior as being the equivalent to the total level of satisfaction that a consumer can get from the use/consumption of a particular good or service (Krystallis et al., 1438-1463). In the field of microeconomics, marginal utility is basically described as an add-on, namely it is the additional form of satisfaction that a passenger can get from the use/consumption of an added portion of a particular good or service (Hauser and Urban, 251-262).

It must be noted though that while total utility increases with the overall level of quality, at some point due to the continuous consumption of a particular product or use of a type of service the overall yield will result in smaller and smaller levels of additional utility towards the consumption (Hauser and Urban, 251-262) n.

It is the assumption of this paper that the lower marginal utility of continued consumption of digitized content coupled with low regional wages in some countries around the world creates the problem of online piracy as we know it today.

Methodology

Introduction to Methodology

This section aims to provide information on how the study will be conducted and the rationale behind employing the discussed methodologies and techniques towards augmenting the study’s validity. In addition to describing the research design, model for analysis, population and sample size that will be used in this study, the section will also elaborate on instrumentation and data collection techniques, and data analysis,

Research Design

The present study will utilize a quantitative research design to explain why business law would be ineffective in dealing with the current proliferation of IPR violations. This methodological approach will objectively answer the key research questions. Most quantitative research designs are concerned with determining the relationship between independent variables and dependent variables in a study framework.

In this study, understanding the correlation between intellectual property rights violations and the types of violators that perform them will be instrumental in designing and implementing effective methodologies aimed at improved company decision making processes involving product creation.

Data

The data for this study will attempt to show that there is a functional relationship between minimum wage levels and the percentage of income that goes into miscellaneous purchases (i.e. online purchases) that fall outside what has been deemed as “essentials” (i.e. food, utilities, family, child care and medical expenses). Disposable income for this study will be measured via the amount of credit card purchases since this the predominant medium by which online purchases are made.

In this examination, a sample of 4 nations has been chosen:

India: $6 per day minimum wage

Mexico: $7 per day minimum wage

Philippines: $10 per day minimum wage

United States: $58 per day minimum wage

X = Minimum wage level

Y = Percentile of Credit Card Payments to Income

X Y

6 0.2

7 0.1

10 1.5

58 7.8

Mean

X = 20.25

Y = 2.4

Standard Deviation

X = 25.244

Y = 3.655

The theoretical underpinnings of the examination show that there is a degree of linearity wherein progressively higher levels of minimum wage results in a higher predilection towards credit card use and thus online purchases.

A multiple regression analysis of the data shows that both predictors have a linear effect and a common slope.

The following is a simple regression analysis of the data.

Model R R Square Adjusted R Square Std. Error of the Estimate
1 .994a .987 .981 3.479
a. Predictors: (Constant), Credit Card
Model Unstandardized Coefficients Standardized Coefficients t Sig. Relative Efficiency
B Std. Error Beta
1 (Constant) 3.797 2.183 1.739 .224
Credit Card 6.855 .549 .994 12.477 .006
a. Dependent Variable: Minimum Wage

The results of the study reveal that for every $5 increase in minimum wage there is a corresponding increase of .55 in the amount attributed to credit card purchases. This proves the notion that higher minimum wage levels create a greater predilection towards online purchasing behavior due to greater levels of disposable income.

Wage Gap Explanation Model

As seen in the study of Polachek et al. (1994), the wage gap model shows that differences in wages based on the location of a worker in a region or country impacts their ability to be able to purchase particular goods and services (Polachek et al., 23-42). Not only that, explains that percentiles in income expenditure also change wherein people in particular regions place a greater emphasis on purchasing particular types of goods as compared to other (Polachek et al., 23-42)s.

Other factors in the wage gap model also take into consideration access to credit which significantly differs on a country to country basis (Polachek et al., 23-42). Through the study of Chul-In (2010), it can be seen that another way of looking at the wage gap model is to look at it through present day digital expenditure wherein the price of online goods such as music, movies and software is applied similarly on a global scale despite wages being distinctly different (Chul-In, 635-654).

Chul-In (2010) showed that products in countries such as the Philippines, China, Ukraine and Belarus are distinctly cheaper as compared to the U.S. due to differences in currency prices, regulatory practices and the fact that companies understand that if they priced goods within such countries at the same level as they do in the U.S. and U.K. for example, no one would buy their products (Chul-In, 635-654). However, the same cannot be said for the sale of online goods which do not take this into consideration.

For example, while a $250 piece of software may be affordable for a programmer that works in the U.S. the same cannot be said for one that works in Ukraine, the Philippines or China. As a result, the wage gap model helps to explain why piracy is popular in such areas since constraints in wages and income affects the ability of people in such regions to purchase online goods.

Study results

The results of the study showed the following:

India: $6 per day minimum wage

Mexico: $7 per day minimum wage

Philippines: $10 per day minimum wage

United States: $58 per day minimum wage

Analysis

The results of the analysis shows that a higher minimum wage level as well as greater access to credit (i.e. in the case of the United States, results in a greater likelihood for consumers to purchase goods/services that are outside of “the essentials” (i.e. food, utilities, medical etc.).

This one of the reasons why the U.S. is one of the largest consumers of online goods and services since it has greater levels of disposable income as compared to its counterparts. With online purchases geared towards U.S. consumers yet being sold on a global range, it is not surprising then that the disparity in income levels would cause more people to turn towards piracy in order to satisfy their desire for digital goods.

Going back to the theory of consumer behavior it can be seen that the concept of rational behavior assumes that all consumers are rational individuals who try to use their earned income in order to derive the greatest amount of satisfaction/ utility. In other words consumers try to get the most out of their income through rational buying behavior which results in a maximization of total utility from the products or services used.

This rational behavior is based on the fact that consumers will act in an economically competent manner in that they will not spend too much money on irrational purchases or services. Not only that, under the theory of consumer behavior the concept of budget constraints can be seen which states that each consumer is assumed to have a fixed and finite income due to the limited amount of work in exchange for income each individual consumer is capable of achieving.

In this case it is assumed that there is unlimited demand for goods and services however this is offset by a limited income. When taking both concepts into consideration, it can be stated that since consumers within India, Mexico and the Philippines are rational individuals with limited amounts of income, they would choose to purchase goods which for them are the most relevant (i.e. food and utilities).

Since online digital content for them is unattainable due to the inherent cost being fixed to the American purchasing model (i.e. American wages), it thus becomes more likely for them to turn to piracy that violates IPR in order to satisfy their desire for content that they otherwise would be unable to purchase.

Conclusion

This paper has shown that it is differences in regional wages and a lack of corporate acknowledgement of such differences results in the proliferation of online IPR violations with online piracy acting as a means of fulfilling the demand for goods that would be otherwise unavailable to consumers.

What must be understood is that market orientations tend to become ineffective when organizations are mired in bureaucratic nuances which prevent information from being passed on quickly. This is exactly what is happening to companies at the present wherein they are mired in the bureaucratic entanglements of IPRs, copyrights and trademarks.

They have become so concerned with maintaining their positions that they have neglected to take into account current market intelligence and customer orientation in order to innovate their products in such a way that it allows the company to both profit from online IPRs while at the same time allowing consumers to enjoy the current level of freedom they enjoy online. Better regional pricing models need to be implemented in order to address this issue in order to resolve the issue of global IPR piracy.

Works Cited

Bach, David. “The Double Punch Of Law And Technology: Fighting Music Piracy Or Remaking Copyright In A Digital Age?.” Business & Politics 6.2 (2004): 1-33. Business Source Premier. Web.

Chul-In, Lee. “Can Search-Matching Models Explain Migration And Wage And Unemployment Gaps In Developing Economies? A Calibration Approach.” Journal Of Regional Science 50.2 (2010): 635-654. Academic Search Premier. Web.

Flora, Brad. “Sleight Of Hand Or Heavy Handed?.” Econtent 31.3 (2008): 14. MasterFILE Premier. Web.

Hauser, John R., and Glen L. Urban. “Assessment Of Attribute Importances And Consumer Utility Functions: Von Neumann-Morgenstern Theory Applied To Consumer Behavior.” Journal Of Consumer Research 5.4 (1979): 251-262. Business Source Premier. Web.

Krystallis, Athanasios, Marco Vassallo, and George Chryssohoidis. “The Usefulness Of Schwartz’s ‘Values Theory’ In Understanding Consumer Behaviour Towards Differentiated Products.” Journal Of Marketing Management 28.11/12 (2012): 1438-1463. Business Source Premier. Web.

Kuhl, Craig. “Content Is King And So-Is Ownership.” Broadcasting & Cable 136.48 (2006): 18-20. Business Source Premier. Web.

Marie, Pascal. “Countering The Content Piracy Threat.” IBE: International Broadcast Engineer (2008): 26-28. Business Source Premier. Web.

Polachek, Solomon W., and Solomon W. Moon-Kak Kim. “Panel Estimates Of The Gender Earnings Gap: Individual-Specific Intercept And Individual-Specific Slope Models.” Journal Of Econometrics 61.1 (1994): 23-42. Business Source Premier. Web.

Rutter, Jason. “Consumers, Crime And The Downloading Of Music.” Prometheus 28.4 (2010): 411-418. Academic Search Premier. Web.

Shashank Rao, et al. “Parameters For Software Piracy Research.” Information Society 24.4 (2008): 199-218. Academic Search Premier. Web.

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"Law and Economics." IvyPanda, 15 May 2019, ivypanda.com/essays/law-and-economics/.

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IvyPanda. "Law and Economics." May 15, 2019. https://ivypanda.com/essays/law-and-economics/.

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IvyPanda. 2019. "Law and Economics." May 15, 2019. https://ivypanda.com/essays/law-and-economics/.

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IvyPanda. (2019) 'Law and Economics'. 15 May.

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