Where Piracy Pays Off

12.19.2005

It is no secret that Russia is one of the world’s largest markets for counterfeit goods. However, the country can hardly be proud of being one of the world’s leaders in this category – it is one of the major barriers to joining the World Trade Organization (WTO). Piracy costs Russian and foreign firms hundreds of millions of dollars a year and despite public promises of government officials to address the problem it does not seem to go away. The reason that piracy remains so widespread in Russia is that incentives to violate intellectual property rights greatly outweigh the penalties:

Bootleggers and other knock-off artists in Russia are having a field day. According to the Union of Producers against Piracy, their profit margins are as high as 400 percent, while the risk of being caught is almost zero. In mid-November, even the U.S. Congress was outraged by the situation, saying that Russia is a place where “piracy that is open and notorious is permitted to operate without meaningful hindrance from the government.”

One of the solutions to the problem, naturally, would be to reduce profit margins and to increase the risk of being caught. The emphasis on “risk of being caught” implies that increasing penalties for violations is not enough – if those penalties are not enforced, what good are they? Improving enforcement will most certainly require Russia to address the widespread corruption, which hampers the effectiveness of law enforcement and impartiality of the judicial system.