Piracy and "Economic National Security"

From lost jobs to shrunken profits, intellectual property theft is a major threat to the U.S., says the Justice Dept.'s David Israelite

File-swapping wasn't such a big deal when all you had to lose was a lousy download. But ever since the Recording Industry Association of America (RIAA) has gotten serious about making people pay for what they play, it's a different story. The RIAA is one of the industry groups that have joined forces with a Justice Dept. task force formed to combat intellectual-property theft.

The task force is chaired by David Israelite, deputy chief of staff and counselor to Attorney General John Ashcroft. In contrast to the RIAA, which has focused on filing civil lawsuits against accused pirates, Israelite can slap scofflaws with criminal charges. He recently sat down with BusinessWeek's Melissa Lynn to discuss piracy's threat and scope. Edited excerpts of their conversation follow:

Q: Are we looking at just music and movies as a source of piracy?


That gets a lot of the attention, obviously, but what we're really talking about is an area much broader. It goes into software and hard goods, things that we manufacture that have trademarks on them, and a lot of things that we ship overseas. While music and movies play an important part, they're really only a slice of the pie.

Q: You've said that the theft of intellectual property is a national security problem. Why?


First of all, we talk about it being an issue of economic national security. Our economy is so based on intellectual property ideas that, unless we can protect them, we're really looking at a situation where it's going to hurt our ability to survive as a country.

Secondly, so much of what we do now involves computers, whether it be with software or other types of communication lines. Often, intellectual property is a key component to the things we do to protect ourselves as a country.

Q: According to the Distributing Computing Industry Assn. report, sales of music CDs were up 7% in the first half of 2004, and the movie industry is seeing record revenues. If this is true, who does file-sharing really hurt?


That is such a false argument. You could have people shoplifting at Wal-Mart (WMT ) and then say that because Wal-Mart's making money somehow shoplifting isn't a problem.

The record companies have been hit very hard by theft. The fact that they are now starting to pick up a little bit is wonderful, but that doesn't mean they aren't losing millions and millions of dollars because of theft. Just because an industry is making or losing money doesn't argue as to whether or not [people] should be breaking the law or we should be prosecuting people. I just don't buy that argument at all.

Q: So many actors and musicians are millionaires. Does that make it harder for you to prosecute piracy?


The truth is the people that are really being hurt are those who have the regular jobs in that industry. I've done tours with many of the recording companies, and as you walk down their hallways there are just banks of empty offices because people have been fired.

[Piracy] isn't going to affect the most popular musician. It's going to affect the people who help make the music -- lawyers, accountants, and the people who actually ship the music. Those are the people we're talking about.

Q: The content industry claims that its lawsuits are aimed toward deterrence and to push migration towards legitimate services for downloading music/movies. What qualifies as a legitimate service?


What is important is that people who get their music, or their movies, or their video games, or software, online or in a digital format do so in a way that is legal. When Napster first existed, that was the only way to get music in a digital format. It was very important that the recording industry accelerate its ability to provide music online and in a legal fashion. And they're doing that now…. And what that means is the people who created the music are getting paid for it.

Q: Do you think you will ever be able to get a grasp on IP theft globally?


One of the biggest challenges we have is dealing with people based overseas who are stealing material from the U.S. [and breaking our laws]. Just a couple months ago, the Attorney General announced an operation called Fastlink that involved 12 countries that simultaneously raided what we call Warez groups, which steal material over the Internet. We had the cooperation of a lot of foreign countries, so this is an international problem. But we're not going to be shy about going after people who break our laws, even if they're based overseas.

Edited by Patricia O'Connell

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