China's pirates continue pillaging of Hollywood.

Government fails to crack down on bootleggers

Just over a year ago, when the United States and China signed a trade pact designed to protect American intellectual property from piracy, Southern California's entertainment industry heaved a sigh of relief. Not only did the deal avert a potentially costly trade war, but perhaps now, the industry would be able to recoup billions of dollars in revenue lost due to illegal bootlegging of films, videos, interactive software and music recordings.

One year later, the entertainment industry is sighing again - this time with frustration.

Despite government pledges to crack down on bootleggers, industry leaders say China's pirates are as active as ever. According to the International Intellectual Property Association, a Washington, D.C.-based coalition of trade groups, virtually all of the videos, entertainment software and music recordings sold in China are illegal, a fact that has effectively closed the world's fastest-growing consumer market to legitimate sales. And much of this pirated product is exported abroad, diluting other potentially lucrative markets in Southeast Asia, Latin America and Europe.

The industry is demanding action. In a filing late last month with the U.S. Trade Representative, the IIPA recommended that the United States enact trade sanctions against China unless the illegal activity ceases immediately.

"The U.S. business community is in a great deal of trouble if China won't enforce its own rules," said Neil Turkewitz, senior vice president of international affairs for the Recording Industry Association of America. "None of us can survive in an environment in which the rules are blatantly disregarded."

A U.S. trade ambassador is expected to visit China to investigate charges of piracy later this month; after that, the U.S. government will decide whether to levy sanctions against China.

Huge stakes

The battle against international piracy - in China, as well as in other major pirate havens, such as Russia and Turkey - has extremely high stakes for the entertainment industry. The IIPA estimates that U.S. companies lost more than $6 billion in 1995 due to copyright piracy.

The losses are especially meaningful in California, where intellectual property is a top export, with a value of more than $50 billion a year.

Take, for example, the movie business. The Motion Picture Association of America estimates that the U.S. film industry loses more than $2 billion each year worldwide in potential revenues to piracy. "With any popular movie, (illegal) copies can show up on the streets within the first week after release," said Jay Monahan, who directs anti-policy efforts for Walt Disney Co. "Then, it's simply a matter of how long it takes to transport an illegal copy abroad.

"The real damage is that the movies are available in video form long before they are available theatrically. And that's true of every major picture released," he said.

The same is true of most new interactive software titles, said Brad Auerbach, vice president of business affairs for Phillips Interactive, a Los Angeles software publisher. Auerbach said he has seen his company's hottest new titles, such as the computer game "Burn: Cycle," appear in bootlegged form - often for as little as $10, a fraction of their typical retail prices in the $40 range - on the streets of Hong Kong or Shanghai, long before they've been released officially been released in either city.

"We really feel it in terms of lost sales," said Auerbach. He added that rampant piracy also makes it difficult to find distributors. "They've already seen (the product) out in the market, so they wonder how much in legitimate sales they can make."

Success story

Despite the persistence of the piracy problem, with proper enforcement of existing international copyright protections, piracy can be fought, and even stamped out, according to Tim Kiuk, director of worldwide anti-piracy for the MPAA.

Kiuk points to the case of South Korea, which as recently as the late 1980s had videocassette piracy rates of almost 100 percent, meaning virtually all tapes being sold were pirated versions. Now, thanks to tough enforcement program, the country has whittled its piracy rate down to single digits. Since 1994, Kiuk said, the South Korean government has conducted more than 6,000 raids on pirates, seizing almost half a million illegal cassettes.

Of course, China promised similarly rigorous enforcement in last year's trade deal with the United States. And although the Chinese government did close down an illegal laser disc plant last year, the IIPA estimates that at least 30 illicit compact disc factories - which pump out thousands of copies of pirated films, music recordings and software - have been permitted to remain open and operate with impunity.

That's why it's time for the United States to begin threatening sanctions, according to the MPAA's Kiuk. Enforcement of copyright laws in China "is a token activity," he said. "And without enforcement against piracy in the marketplace itself, all the laws in the world won't help at all."