Celebrating Startup Day Across America 2015

The startup ecosystem is no longer exclusively a Silicon Valley, a New York City, or even a Boulder, Colorado phenomenon. Startups are flourishing in communities all across the country. We’ve seen entrepreneurs building new businesses in Des Moines, Detroit, and New Orleans on our Rise of the Rest tours and we’ve reported on some of the fastest growing startup ecosystems in the nation. On Wednesday, August 19, we’re working with Reps. Darrell Issa and Jared Polis, 1776, and dozens of startups and elected leaders  throughout the U.S. to celebrate Startup Day Across America—a national day bringing together members of Congress with startups in their districts.

This year, members of Congress will be making stops at startups, incubators, and co-working spaces in cities like Sacramento, Phoenix, and Charlotte for tours, demos and conversations with entrepreneurs.

Startup Day gives our representatives the opportunity to see firsthand how young and emerging companies are leveraging the power of technology to develop new products and services at an unprecedented rate, and also creating jobs in their districts. It provides entrepreneurs the chance to tell policymakers how and why supportive policy makes a difference: from patent reform to capital access, our lawmakers have the power to craft and champion legislation to support the new innovation economy.

We’ll be highlighting activities throughout the day. Follow #StartupDay on Twitter for updates - and if you’re hosting a member of Congress, make sure to let us know by posting with #StartupDay on your social media channels.

See you in Austin? Vote for Engine’s SXSW Panels!

It may seem early to be thinking about next year’s SXSW, but the panel picking process is already getting started. From now until September 4, the public can vote on over 4,000 potential panels for next year’s SXSW agenda. The team at Engine has submitted several proposals that we think will make for fascinating and informative conversation at the intersection of technology, startups, and policy. Plus, we’ve proposed a panel on how to launch a nonprofit organization like Engine. Help us make sure these panels get picked by voting for them today. You’ll need a SXSW account, and then you can vote for other great panels you’d like to see as well.

Last year, Engine discussed the “Politics of Innovation” with Techstars, Senator Jerry Moran, and Representative Kyrsten Sinema.

We hope to see you again in 2016!

Engine's Panels:

Tech at Issue in 2016 Election

Featuring Julie Samuels (Engine), Ron Klain (Revolution), Tod Ullyot (Andreessen Horowitz), Tony Romm (Politico)

Crowdfunding: Possibilities and Policy Challenges
Featring Evan Engstrom (Engine), Ryan Feit (SeedInvest), Sara Hanks (CrowdCheck), Michal Rosenn (Kickstarter)

Startups & Diversity: Can Public Policy Help?

Featuring Julie Samuels (Engine), Robin Kelly (House of Representatives), Robin Hauser Reynolds (Finish Line Features, LLC), Charlie Hale (Pinterest)

Interactive: Start a Nonprofit Without Tearing Your Hair Out
Featuring Chhaya Kapadia (New America's Open Technology Institute), Brooke Hunter (Engine)

Music: Start a Nonprofit Without Tearing Your Hair Out
Featuring Chhaya Kapadia (New America's Open Technology Institute), Brooke Hunter (Engine), Jesse von Doom (CASH Music)

More tech policy panels from Engine's friends:

Can Congress Tackle the Internet of Things?

Featuring: Rep. Darrell Issa, R-Calif.; Elizabeth Frazee, TwinLogic; Paul Daugherty, Accenture; Nicole Gustafson, National Football League.

Decrypting the Cyber Security Debate in Washington

Featuring: Rep. Will Hurd, R-Texas; Chani Wiggins, TwinLogic; Sonny Sinha, Department of Homeland Security; Denise Zheng, Center for Strategic and International Studies.

Are We Giving China the Internet? ICANN Explained

Featuring: Rep. Suzan DelBene, D-Wash.; Christian Dawson, i2 Coalition; Michele Neylon, Blacknight Internet Solutions; Tiffany Moore, TwinLogic.

Elise’s Data-Plan: Connecting Rural America

Featuring: Sen. Jerry Moran, R-Kan.; Rebecca Thompson, Competitive Carriers Association; Kristi Henderson, University of Mississippi Medical Center; Eric Woody, Union Wireless.

Following the Stream: Congress & Music Royalties

Featuring: Casey Rae, Future of Music Coalition; Rep. Mimi Walters, R-Calif.; Katie Peters, Pandora; Rachel Wolbers, TwinLogic.

Winter is Coming: Copyright Chill on Security

Featuring: Corynne McSherry, Electronic Frontier Foundation; Laura Moy, New America Foundation; Kyle Wiens, iFixit; Karen Sandler, Software Freedom Conservancy.

Pixelated & Political: The Internet in Washington

Featuring: Rep. Blake Farenthold, R-Texas; Rep. Eric Swalwell, D-Calif.; Rep. Renee Ellmers, R-N.C.; Michael Beckerman, Internet Association.

Internet Economy: In the U.S. & Abroad

Featuring: Sen. John Thune, R-S.D.; Michael Beckerman, Internet Association.

Embedding Human Rights in the Internet

Featuring: Joseph Hall, Center for Democracy & Technology; Karen Reilly, Independent; Eric Sears, MacArthur Foundation; Lindsay Beck, Open Technology Fund.

How to Fight ISIS without Breaking the Internet

Featuring: Rebecca MacKinnon, New America Foundation; Judith Lichtenberg, Global Network Initiative; Shahed Amanullah, LaunchPosse; Andrew McLaughlin, Betaworks.

The End of Online Free Expression?

Featuring: Gautam Hans, Center for Democracy & Technology; Dorothy Chou, Dropbox.

CDT/Fitbit: Ethics & Privacy in Wearable Research

Featuring: Michelle De Mooy, Center for Democracy & Technology; Shelten Yuen, Fitbit.

Everybody Dies: What is your Digital Legacy?

Featuring: Alethea Lange, Center for Democracy & Technology; Megan Yip, Law Office of Megan Yip; John Troyer, Centre for Death and Society; Vanessa Callison-Burch, Facebook.

Protecting the Digital You

Featuring: Nuala O’Connor, Center for Democracy & Technology

Euro vs. American Privacy: Clash of Civilizations?

Featuring: Jillian York, EFF; Ulf Buermeyer, Netzpolitik; Raegan MacDonald, Access; Chris Soghoian, American Civil Liberties Union.

Every City is an Internet City

Featuring: Nika Nour, Internet Association; Sen. John Thune, R-S.D.; Sen. Jerry Moran, R-Kan.; Rep. Fred Upton, R-Mich.

The Killer Congressional Office

Featuring: Seamus Kraft, Open Gov Foundation; Rep. Seth Moulton, D-Mass.; Sen. John Cornyn, R-Texas; Rep. Cathy McMorris Rodgers, R-Wash.; Sen. John Thune, R-S.D.

Internet of Things: Just Someone Else’s Computer?

Featuring: Rep. Blake Farenthold, R-Texas; Sherwin Siy, Public Knowledge; Jen Ellis, Rapid7; Sara Watson, Berkman Center.

Using data to power criminal justice reform

Featuring: Emily Shaw, Sunlight Foundation; Wesley Lowery, Washington Post; Tracy Siska, Chicago Justice Project; Clarence Wardell, Presidential Innovation Fellows Program.

The New Battle Over Encryption & How to Survive It

Featuring: Kevin Bankston, New America Foundation; Moxie Marlinspike, Open Whisper Systems; Jennifer Valentino-DeVries, Wall Street Journal; Heather West, CloudFlare.

No Encryption Backdoors, Please. Myths Debunked.

Featuring: Sunday Yokubaitis, Golden Frog.

Cryptowars 2.0: Silicon Valley vs. Washington

Featuring: Sara Sorcher, CS Monitor; Matt Blaze, University of Pennsylvania; Amit Yorak, RSA; Stewart Baker, Steptoe & Johnson LLP.

Smart Cars, Smarter Cities: New Transit Tech

Featuring: Michael Petricone, Consumer Electronics Association; Susan Zielinski, SMART; Andrew Collinge, Greater London Authority; Ashwini Chhabra, Uber.

Get your Goods: Unmanned Systems and 3D Printing

Featuring: Doug Johnson, Consumer Electronics Association; Gur Kimchi, Amazon; Ping Fu, 3D Systems; Richard Pelletier, Ford Motor Co.

Building better cities with better data

Featuring: Chris Gates, Sunlight Foundation; Tony Yarber, City of Jackson; Jennifer Pahlka, Code for America; Daniel X O’Neil, Smart Chicago Collaborative.

Be the Next Tony Stark

Featuring: Mike Geersten, TandemNSI; Gary Shapiro, Consumer Electronics Association; Christina Winn, Arlington Economic Development; Brad Tousley, Defense Advanced Research Projects Agency.

5 Best Startup Ideas in VR / AR

Featuring: Robert Scoble, RackSpace; Nonny De La Pena, Emblematic Group; Shawn Dubravac, Consumer Electronics Association.

High Res Audio in Every Earbud

Featuring: Jeff Joseph, Consumer Electronics Association; Maureen Droney, The Recording Academy; Aaron Levine, Sony; Pal Bratelund, TIDAL.

Online Privacy and the Price of Free

Featuring: Sunday Yokubaitis, Golden Frog; Alan Fairless, SpiderOak; Alex Bradshaw, Center for Democracy & Technology.

Zombie SOPA—A New Threat to the Open Internet

Featuring: Charles Duan, Public Knowledge; Mike Godwin, R Street; Abigail Slater, Internet Association; Ellen Schrantz, Office of Rep. Darrell Issa.

Autonomous Vehicles Are Here. But Are We Ready?

Featuring: Ian Adams, R Street; former National Highway Traffic Safety Administrator David Strickland; Jim Chen, Tesla; Jennifer Haroon, Google[x].

Disintermediation in Digital Content Markets

Featuring: Katie Oyama, Google; Casey Hastings, Pandora; Sasha Moss, R Street; Rep. Jared Polis, D-Colo.

Regulate All the (Internet of) Things!

Featuring: R.J. Lehmann, R Street; John Godfrey, Samsung; Eli Dourado, Mercatus Center; Lauren Soltani, Office of Rep. Suzan DelBene.

Disrupt the Grid! The Politics of “Homebrew” Power

Featuring: Catrina Rorke, R Street; Lynne Kiesling, Northwestern University; Tom Tanton, Reason Foundation; Doug Lewin, SPEER.

Ride the Wave: Data as Movement Builder

Featuring: Greg Fischer, City of Louisville; Dewey F. Bartlett, City of Tulsa; Michele Jolin, Results for America; Lori Sanders, R Street Institute.

Wi-Fi in Jeopardy: Losing the Signal

Featuring: Jessica Rosenworcel, Federal Communications Commission; Michael O'Rielly, Federal Communications Commission; Maura Corbett Glen Echo Group

Unlocking the Future of Music with Transparency
Featuring: Hank Shocklee, Shocklee Entertainment; Anthony Ray Sir Mix-A-Lot; Panos Panay, Berklee Institute for Creative Entreprenuership; Maura Corbett, Glen Echo Group

Will 2015 Be Our Last Real Best Chance for Patent Reform?

Earlier this month, the White House hosted its first ever Demo Day, inviting startups from all over the country to celebrate entrepreneurship. At that event, the President eloquently pointed out just how important the startup community is for our nation:

"Startups, young firms account for almost 40 percent of new hires.  And as we’ve fought back from the worst economic crisis of our lifetimes, those firms have helped our private sector create more than 12.8 million jobs over the last 64 straight months, which is the longest streak of private sector job growth on record."

With numbers like those, you would think all elected leaders would be racing to support pro-entrepreneurship policies. Yet Congress continually fails to move patent reform legislation, threatening the future of the startup community and the good jobs it creates.

The patent troll threat is not an abstract problem. And it’s not a problem that’s getting better. In fact, abusive patent litigation is becoming more prevalent: patent lawsuit filings are on track to break a new record this year (with a forecast of more than 6,000 suits) and 68 percent of suits so far have been filed by trolls. Furthermore, 82 percent of troll activity targets small and medium­-sized businesses, and 55 percent of troll suits are filed against companies with revenues of less than $10 million.

This fall presents an important opportunity—maybe our last—for patent reform to become law.

Where are we?

In June, the Senate Judiciary Committee voted 16-4 to move the PATENT Act to the full Senate floor; later that same month the House Judiciary Committee likewise voted, 24-8, to move the Innovation Act to the full House floor. Both bills represent comprehensive solutions that would address a dangerous patent troll problem; neither is perfect, but both would go a long way to fix a broken system. You can read more about the House bill here and the Senate bill here.

We were very excited when both bills were introduced. Since then, however, provisions in each have been watered down. Compromise and revisions are inherent to the political process, so to some extent this was expected. Questions remain, however, about how much is too much.

There are four primary issues that remain open to debate: venue, pleadings, discovery, and inter partes review (IPR). For political watchers, the last—inter partes review—is the most important. All of the other provisions of the House and Senate bills deal with litigation reforms, but inter partes review is a Patent Office procedure that allows for efficient and effective review of patents outside of federal court. That means the process is particularly good at weeding out bad patents and addressing patent quality, a huge problem that patent trolls have been able to exploit. Originally, the House and Senate bills barely addressed inter partes review, which we were glad about, since by and large the process has been quite successful.

Enter Kyle Bass. The well-known hedge fund manager’s most recent enterprise involves using the IPR process to challenge weak pharmaceutical patents and then short the stock of the company that owns the patent. The pharmaceutical industry, which relies heavily on patent rights, is far from pleased. And despite the fact that the IPR process contains significant protections for patent holders and the fact that Mr. Bass’ actions can already be addressed by the SEC, the pharmaceutical industry has been able to shoehorn its issue into the larger reform efforts.

As a practical matter, this means that long-standing Capitol Hill players, like PhRMA and BIO, are holding up patent reform efforts unless changes are made to weaken the IPR process. (We explain in more detail here why those changes are not only unnecessary, but in fact quite dangerous.) Senators Schumer, Cornyn, Grassley, and Leahy—the primary authors of the Senate bill—are still hammering out a so-called deal on IPR, details of which we should see soon. Even with such a deal, it’s unclear if PhRMA and BIO will decide to support reform efforts.

In the meantime, the House originally planned to move forward with a full vote on its bill in July, but at the last minute, Republican leadership pulled it from the calendar, claiming they needed more time to get the deal done. There is no real way to sugarcoat what happened: the delay shows a slowing of support and momentum for an important bill and we were disappointed that it happened.

Is there a path forward?

There is still a path forward. In September, when Congress comes back, the Senate is slated to pick up its efforts. We understand that Senate reform champions are close to a deal on IPR and that such a deal could create a framework for the bill to pass out of the full Senate. (This would be a particularly interesting turn of events, because in 2013 a strong patent reform bill passed the House 325-91 and then languished in the Senate in 2014.)

Using the momentum from the Senate, the House would be in a good position to revive its own efforts. Given the fact that the House did pass a bill in 2013 with a wide, bipartisan majority, we are confident that the bill would make its way through that chamber easily.

The White House has made clear its support of patent reform and we have every reason to believe that President Obama would happily sign a strong piece of patent reform legislation into law.

Is that path worth it?

Probably. There are two things to watch closely: IPR (see above) and venue (see more here). Right now, the House bill includes a strong venue provision that would help prevent trolls from filing so many cases in the notoriously plaintiff-friendly Eastern District of Texas. This would in turn make it easier for patent troll targets to fight back.

So, to simplify: anything that weakens IPR is bad (this should play itself out first in the Senate bill). Efforts to fix venue are good (see the House bill for this). Some combination of the two is probably liveable, though—as always—the devil is in the details, details we will be watching very closely over the next couple of months.

We’ll continue fighting to make sure that startups and inventors see legislation that will actually protect them from patent trolls and will need to call on you to help make our case. So watch this space closely and stay tuned.

VET Act: Turning GI Benefits into Startup Funding

Many Americans think of GI benefits as applying only to secondary education. But that’s a fairly narrow interpretation of a bill that originally set out to provide broader assistance for those transitioning from the military to civilian life.

In 1945, when the GI Bill (then called the Servicemen's Readjustment Act) was first passed, it provided low-interest loans to start a business, low-cost mortgages, tuition and living expenses to attend higher education. The Bill made not just college, but also business and home ownership possible for millions – opportunities that were previously seen as unattainable by the average American.

In 2015, GI benefits primarily emphasize education, providing about $20,000 per year (for three years), plus a stipend, to attend a university program. As Todd Connor of Bunker Labs (a network of veteran business incubators) explained in his recent blog post, this assumes that further education is what every veteran needs to become gainfully employed and reach their career goals. However, not all veterans demand nor need a secondary degree -- for many, employment and personal goals are better achieved by launching a startup or traditional small business. In a study conducted by Bunker Labs, 90 percent of veterans said they would like to use their benefits towards starting a business.

One way to make that dream a reality for more of our veterans is through the Veterans Entrepreneurial Transition Act of 2015, legislation co-sponsored by Senators Moran and Tester that was recently passed out of the Small Business and Entrepreneurship Committee. The VET Act would set up a pilot program to evaluate and fund proposals by veteran entrepreneurs, allowing them to use their $20,000+ per year towards starting (or acquiring) their own business. This would include “purchasing goods or services necessary for the creation or operation of a qualifying business enterprise.”  The pilot would even allow veterans to apply as a group and pool their benefits.

Our military is made up of diverse individuals who are hard working, strategic thinkers, and fast learners. We’re missing a great opportunity by not helping more of them become the next generation of innovators and entrepreneurs. We support the efforts of Senators Moran and Tester and urge the Senate and House to pass this important piece of legislation.

Bring Us Your Innovators: New entrepreneurial visa legislation aims to bring jobs, investment to America

Last week U.S. Reps. Zoe Lofgren (D-CA-19) and Luis Gutierrez (D-IL-4) introduced the EB-Jobs Act of 2015. The bill is meant to augment the present EB-5 immigrant investor program, providing additional visa opportunities for qualified immigrants who are not currently eligible for visas. This bill would create  a ‘startup visa’- a new green card category for entrepreneurs who establish businesses and create jobs. While the ‘startup visa’ is certainly a positive for entrepreneurs, it’s not the first time such legislation has been introduced, highlighting the need, but also difficulty of passing similar legislation.

This new bill is important for two main reasons; it highlights deficiencies in immigration avenues for entrepreneurs, and also recognizes the unique role the startup community plays in economic development and job creation. Currently, entrepreneurs and founders seeking to start a business in the US have limited options. The existing EB-5 program provides green cards to individuals who invest in a new commercial enterprise of between $500,000-$1 million (depending on the particular project area). Alternatively, high skilled individuals can enter the H-1B visa lottery, though as we noted in April it’s woefully oversubscribed.  This spring saw 233,000 applicants for 85,000 spots-  and only for individuals with a sponsoring employer. Lacking significant personal wealth or an existing employer willing to sponsor a visa, foreign entrepreneurs have no pathway to legal residency.

The EB-Jobs Act would change this landscape, allowing immigrants with a clear business plan and outside venture backing into the US on a green card. As written, the bill would provide residency to individuals who have either secured outside venture capital, are accepted into an accredited accelerator program, or have recently started a company that employs American workers. As Rep. Lofgren noted in announcing the bill, immigrants have created “nearly half of America’s top venture-backed companies and those companies in turn have created an average of 150 jobs each.” Research backs up the impact of immigrants on the startup economy: according to a recent report from the Kauffman Foundation, immigrants are nearly twice as likely to be an entrepreneur compared to native born americans. The EB-5 visa would ensure promising individuals can continue to start their businesses in the US, instead of Canada, Ireland, or a host of other countries currently offering startup visas.

Since 2010, Congress and the White House have put forth similar proposals to address this need, though efforts have perennially stalled - most often due to contention around broader immigration reform. While the bill faces an uphill battle in Washington, it’s important for all parties to recognize its benefits and limitations. As Rep. Gutierrez stated upon its introduction, “this bill is intended to address just one aspect: making the U.S. economy more attractive to job-creators and entrepreneurs.” This bill alone will not address the multitude of immigration issues affecting the economy, though for a small, but important subset of entrepreneurs, the legislation offers a new path to the US. For that reason alone, the EB-Jobs Act is good for the startup ecosystem and the American economy.

Celebrating Inclusive Tech & White House Demo Day

Momentum behind improving the tech community’s diversity and inclusivity is stronger than ever. And it needs to be - the current numbers are striking:

• At seven Silicon Valley companies that have released staffing numbers, and average of just 2 percent of technology workers are black and just 3 percent are Hispanic.
• Women represent fewer than 13 percent of employed engineers and 3 percent of startups founders.

Though most companies admit to a diversity problem, the startups and entrepreneurs who are successfully creating an inclusive environment and combating stereotypes have gone largely unnoticed, and their best practices are not being widely replicated. The White House seized this moment to host its first ever Demo Day under the theme of inclusive entrepreneurship, showcasing a diverse set of 50 entrepreneurs. Attendees represented a range of technologies, from new kinds of search engines to apps that utilize military base information and startups improving foreign language education.

Additionally, many larger companies and organizations announced tangible commitments to develop a more diverse and inclusive workforce and talent pipeline. Highlights from the announcements can be found below. More details, including the companies and individuals involved, can be found in the official press release.

To continue this important conversation, Engine hosted a reception with CEA and Google following the White House events. It gave Demo Day attendees and supporters the chance to talk further about their work to diversify tech, and better understand what part everyone is playing. Attendees engaged in detailed conversations about the road to entrepreneurship, what it means to be a minority seeking funding, and, more generally, the policies that affect new, small businesses. In attendance, among others, were Demo Day honorees Pinterest, FoodTrace, and Millennial Trains Project.

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The Administration announcements:

• Announcing 116 winners of two Small Business Administration prizes that promise to unleash entrepreneurship in communities across the country: the Growth Accelerator Fund for startup accelerators, incubators, and other entrepreneurial ecosystems; and the President’s “Startup in a Day” initiative that will empower mayors to cut red tape for local entrepreneurs.
• Scaling up the National Science Foundation I-Corps program with eight new and expanded Federal agency partnerships, introducing hundreds of entrepreneurial scientist teams across the country to a rigorous process for moving their discoveries out of the lab and into the marketplace.

The independent commitments:

• Expanding the response to the President’s TechHire initiative with 10 new cities and states working with employer partners on new ways to recruit and place applicants based on their skills, create more accelerated tech training opportunities, and invest in innovative placement programs to connect trained workers with entrepreneurial opportunities and well-paying jobs.
• Over 40 leading venture capital firms with over $100 billion under management, including Andreessen Horowitz, Intel Capital, Kleiner Perkins Caufield Byers, and Scale Venture Partners, committing to specific actions that advance opportunities for women and underrepresented minorities in the entrepreneurial ecosystem.
• Institutional investors committing over $11 billion to emerging managers, including CalPERS and the New York City Pension Funds.
• Over 100 engineering deans committing to attract and retain a diverse student body, building the pipeline for the next generation of American engineers and entrepreneurs.
• Over a dozen major technology companies announcing new actions to ensure diverse recruitment and hiring, including Amazon, Box, Microsoft, Xerox, and others committing to adopt variations on the “Rooney Rule” to consider diverse candidates for senior executive positions.

Patent Reform: Keeping Inter Partes Review Strong

As you probably know, patent reform legislation is moving again. Bills in both the House and Senate have been passed out of committee with bipartisan support and are moving to their respective chamber floors. We are cautiously optimistic we could see a patent reform bill signed into law in 2015. However, some issues remain unsettled and they must be addressed in order for patent reform legislation to be effective in fighting the patent troll problem. We’ll be breaking down these issue areas for you in separate blog posts - they concern Inter-Partes Review (or “preserving the ability to more affordably challenge the validity of a patent outside the court”), venue (or “dealing with the Eastern District of Texas”), pleadings (or “including basic information in the plaintiff's initial complaint”), and discovery (or “limit unnecessary fishing expeditions for evidence before the validity and scope of the case has been determined”).

Patent trolls rely on two tools: low-quality, impossible-to-understand patents and the outrageous costs of patent litigation. Proposed legislation in the House (Innovation Act) and Senate (PATENT Act) would address the second problem by leveling the playing field and giving defendants a meaningful chance to defend themselves. Yet, throughout the legislative process, we have expressed concern that the bills fail to do anything to improve patent quality. In an unwelcome development, certain proposed legislative changes would actually further weaken patent quality.   

As part of the last update to patent law, 2011’s America Invents Act, Congress created a procedure called inter partes review (IPR). IPRs allow a party to challenge a patent’s validity at the Patent Office instead of in court. These proceedings were designed to move quickly, within a year, and are considerably cheaper than litigation. While IPRs remain too expensive for most small startups (with legal fees, an IPR can easily cost upward of $250,000), they represent smart policy that helps rid the system of bad patents. So far the procedure has been successful.

Despite this, reform opponents—the biotechnology and pharmaceutical industries, in particular—are demanding major changes that would upend the IPR program in exchange for their support for patent reform legislation. They allege that IPR proceedings are unfair to patent holders. They wrongly allege that the program has resulted in “overly high” invalidation rates, and that these rates reflect underlying defects in the proceedings.       

But as Professor (and former White House advisor) Colleen Chien recently noted the bogeyman of overly high invalidation rates is wildly exaggerated.  

To understand this numbers game, you first have to understand a bit about how patents work. The heart of any patent is a series of claims. Patent claims should spell out exactly what a patent covers and the claims–usually at least upwards of 10, sometimes more than 100 per patent–are what define the metes and bounds of the patent. When a patent owner alleges that its patent is infringed, it is essentially saying that certain claims are infringed. Likewise, when a patent’s validity is challenged either in court or at the Patent Office (where IPRs take place), the party challenging the patent is asserting that certain claims are invalid.

Next you need to understand a bit about the Patent Office’s IPR process. First, it was specifically designed  to protect a patent holder from frivolous attacks. A party challenging a patent’s validity needs to put forward its entire case at the very outset and essentially ask the Patent Office to take up the challenge. (This is the opposite of litigation, where a party claiming infringement or challenging a patent can actually use the legal system to prove out its case as the litigation progresses.) In fact, the law requires that the Patent Office only institute IPRs when a “reasonable likelihood” that one or more of a patent’s claims are invalid. This weeds out frivolous claims and weak challenges at the outset. The process also uses an “estoppel provision” that prevents a patent challenger from later making arguments in a court appeal that it made—or could have made—at the Patent Office. In other words, the challenger can’t get two bites at the apple. If the litigation system likewise protected startups and other defendants from frivolous challenges in the same way that IPR does for patent holders, we would not have the huge patent troll problem we have today.

Now, back to the numbers. Certain groups—again, largely the pharmaceutical and biotechnology industries—have claimed that IPRs are “patent death squads,” citing data that purport to show that patents are invalidated by IPRs at an overly high rate. And while it might be true that about about 80 percent of patent challenges that result in a full IPR proceeding (up to and including a final ruling) have at least one claim invalidated, that statistic is seriously misleading. For starters, this statistic excludes the very large number of cases that the Patent Office has declined to hear. The Patent Office has instituted IPRs in only approximately 47 percent of patent challenges to date, meaning about 53 percent of patent challenges were not instituted, dismissed, or settled. By declining to institute a proceeding, the Patent Office gold-plates a patent and renders it basically immune from any further challenge.

First, about half of the claims that the Patent Office actually reviews are settled or dropped by the parties. Moreover, of all claims that the Patent Office reviews, only 24 percent are invalidated (again, these are claims, not entire patents). And most of these patents are still partially—or largely—valid, even if some claims have been thrown out. And all the others have been “gold-plated.” So the Patent Office has actually gold-plated far more patent claims than it has invalidated.    

IPRs are good for the patent system and there’s no evidence that they are unfair. To the contrary, the Patent Office has been widely praised for the quality and timeliness of its work. And nearly every decision by the PTO Board has been affirmed when appealed in the courts.

In sum, it is clear that the IPR process is working; in fact, it’s working quite well. And, notably, it’s being used very effectively by the tech industry, the industry that faces the biggest patent troll threats. In fact, over 60 percent of petitions are being filed on computer or electrical based patents, while less than 10 percent are on biotechnology and pharmaceutical patents.

Congress has worked hard to balance the needs of all industries that use the patent system, and proposed language in the House and Senate has been narrowly tailored to address only the worst actors and behavior (specifically, abusive litigation by patent trolls) while preserving the rights of patent holders to enforce valid claims. That balance is now threatened by the insistence of certain industry sectors that changes be made to the IPR process. These proposals would change the claim construction standard that has been used by the Patent Office for decades in order to make it harder to invalidate claims. The Senate bill goes even further: it would establish a presumption of validity for patents that are challenged in IPR that does not currently exist. Those changes threaten to severely weaken the effectiveness of IPR proceedings for everyone.

We should not further open up negotiations that weaken IPR—or carve out whole industries from using the procedure at all—merely to appease opponents of patent reform. Successful patent reform legislation must be comprehensive in scope and must produce a level playing field for all innovators. It must also do nothing to weaken patent quality. So it must ensure that the Patent Office’s IPR proceedings remain a viable, efficient, and effective tool to rid the system of bad patents.

Engine Statement on Postponement of New York FHV Cap

Engine is pleased that New York City has agreed to postpone a proposed cap on the number of for-hire vehicles in the five boroughs. As we said after the proposal was introduced, it had the potential to be especially problematic for some of the newest and smallest transportation startups in New York, and particularly for the next wave of innovators that haven't even launched yet.

We commend the Council and the Mayor's office for once again being responsive to concerns raised by the startup community. And we look forward to supporting a dialogue with startups and other stakeholders to find creative 21st century solutions to the problems of traffic and congestion.

Patent Reform: Addressing Discovery Abuse

As you probably know, patent reform legislation is moving again. Bills in both the House and Senate have been passed out of committee with bipartisan support and are moving to their respective chamber floors. We are cautiously optimistic we could see a patent reform bill signed into law in 2015. However, some issues remain unsettled and they must be addressed in order for patent reform legislation to be effective in fighting the patent troll problem. We’ll be breaking down these issue areas for you in separate blog posts - they concern Inter-Partes Review (or “preserving the ability to more affordably challenge the validity of a patent outside the court”), venue (or “dealing with the Eastern District of Texas”), pleadings (or “including basic information in the plaintiff's initial complaint”), and discovery (or “limit unnecessary fishing expeditions for evidence before the validity and scope of the case has been determined”).

Discovery reform may be the kind of subject that makes non-lawyers’ eyes glaze over, but it is a crucial element of comprehensive patent reform. One might ask, what is discovery? Why does it matter? Why does it need to be fixed? Good questions. Let’s take them in turn.

Discovery is the phase of litigation where parties obtain information from the other side so they can build their cases. In the best of circumstances, it is often the most expensive and burdensome part of litigation. In a patent troll case, it is unmanageable. A patent troll may sue a startup and allege that the startup’s “website” infringes its patent(s) with no more specific information. The troll can then spend months requiring the startup to turn over all the information on its “website”—including by requiring that engineers and management sit down for day-long depositions and demanding that thousands, if not millions of emails, be turned over. Even worse, the troll, being in the business of patent litigation, has these discovery costs baked into its business model, so discovery for them is no great burden.

Currently, there are few limits in place to prevent a bad actor from requesting large amounts of irrelevant information just to drive up the cost of litigation early in the case. When costs balloon out of control, startups and small businesses have little choice but to give in, settle, and encourage the troll to continue its suing spree. While this kind of cost can be detrimental to a small startup’s product development, hiring goals, and market-entry, for a patent troll who doesn’t make or sell anything, the cost of discovery is next to nothing.  

This is why any real patent reform must also include reforms to the discovery process.

In their current forms, the House and Senate bills curb some of the worst of these practices by delaying discovery until a party has had a chance to make certain early motions, like an effort to get a case dismissed (we would like this these fishing expeditions delayed even longer, until the point at which the court determines the boundaries of the patent). If this were the case, discovery would be inherently narrowed and less wasteful. As such, these reforms are also good for patent holders who want to efficiently move their cases through the system, too.

Only with a more streamlined the discovery process can small companies and startups afford to litigate. Furthermore, these changes would lead to earlier, more informed settlements as well as relieve some of the burden in the courts confronting the flood of patent cases. Greater transparency and fairness are essential for a well-functioning patent system - and discovery reform is an essential step to achieve this.

Patent Reform: The Need for Better Pleading Standards

As you probably know, patent reform legislation is moving again. Bills in both the House and Senate have been passed out of committee with bipartisan support and are moving to their respective chamber floors. We are cautiously optimistic we could see a patent reform bill signed into law in 2015. However, some issues remain unsettled and they must be addressed in order for patent reform legislation to be effective in fighting the patent troll problem. We’ll be breaking down these issue areas for you in separate blog posts - they concern Inter-Partes Review (or “preserving the ability to more affordably challenge the validity of a patent outside the court”), venue (or “dealing with the Eastern District of Texas”), pleadings (or “including basic information in the plaintiff's initial complaint”), and discovery (or “limit unnecessary fishing expeditions for evidence before the validity and scope of the case has been determined”).

If a patent troll wants to sue, it first needs to file a written complaint (part of a party’s “pleadings”) in federal court, which costs approximately $350 in filing fees. In theory, that complaint should contain enough information about the suit so a defendant can understand the charge it faces and make informed decisions about the best way to proceed.

But in practice, a plaintiff can file a patent suit without providing some of the most basic information: how a patent is infringed, what products allegedly infringe, and even who owns that patent. A recent study by LexMachina found that:

• Less than half of patent infringement complaints identify which part of the patent was actually allegedly infringed; and

• More than 40 percent of patent infringement cases don’t identify the infringing function or feature.

Without this information, a defendant is left to guess whether it’s worth hiring a lawyer to challenge the accusation, or easier to just pay the plaintiff to go away.

This information is not difficult to come by. In fact, one would consider finding such information basic due diligence before filing a lawsuit in federal court to begin with. Unfortunately, current patent law allows bad actors to file these complaints without conducting that due diligence—which has led directly to today’s patent troll problem.

Trolls conduct their business behind a veil of secrecy; they take advantage of these very low standards for pleadings to intimidate those who don’t have the resources, let alone an understanding of patent law, to stop them from moving the case forward. It would likely cost a defendant at least tens of thousands of dollars to hire a lawyer and determine basic details of the suit it faces. Trolls use this to their advantage, frequently offering a settlement that hovers a few thousand dollars below average legal costs.

This is why we have long argued that any meaningful patent reform must fix this loophole by addressing abusive pleading practices and providing greater transparency for defendants. The Senate’s PATENT Act requires patent holders to provide basic information at the outset of litigation, while allowing a plaintiff who is unable to find any of this required information, after “reasonable inquiry,” to still file the suit.  The Senate bill also requires patent holders to tell the Patent Office when they sell or assign a patent to another party (the Patent Office must then make that information publicly accessible).

Unfortunately, the version of the House’s Innovation Act that passed out of committee would not meaningfully address this problem. However, the bill’s drafter, Representative Goodlatte, promised to work further on the pleading language - and we have been made aware that this language has been fixed. We’ll look forward to supporting the Innovation Act as it comes to the House floor with stronger pleading standards.

Any legitimate complainant should have no fear of greater transparency. Our system should be based on public notice at all stages of the life of a patent, which is especially critical at the outset of litigation when parties are trying to understand their options. Heightened pleading standards provides an obvious and easy fix that would disincentivize the troll business model by limiting their ability to use vague lawsuits as an intimidation tactic.

Patent Reform: Getting Trolls out of Eastern Texas

As you probably know, patent reform legislation is moving again. Bills in both the House and Senate have been passed out of committee with bipartisan support and are moving to their respective chamber floors. We are cautiously optimistic we could see a patent reform bill signed into law in 2015. However, some issues remain unsettled and they must be addressed in order for patent reform legislation to be effective in fighting the patent troll problem. We’ll be breaking down these issue areas for you in separate blog posts - they concern Inter-Partes Review (or “preserving the ability to more affordably challenge the validity of a patent outside the court”), venue (or “dealing with the Eastern District of Texas”), pleadings (or “including basic information in the plaintiff's initial complaint”), and discovery (or “limit unnecessary fishing expeditions for evidence before the validity and scope of the case has been determined”).

The Eastern District of Texas is known for being not just the epicenter of the patent troll problem, but, in many ways, the face of a broken patent system. Simply put, trolls cherry-pick the location for filing suits because it is well known that, once in the Eastern District, they have a higher chance of success. (John Oliver humorously explains here.)

Some background: according to the US Government Accountability Office Report, 40 percent of troll cases were brought in the Eastern District of Texas. So it’s no surprise that these small town economies (that have become host, or the “venue,” for patent troll suits) are booming with upscale hotels and restaurants catering to hundreds of patent lawyers who now regularly fly there.

For many startups, especially those that rely on the Internet to reach users (and what startup doesn’t?), the law currently makes it easy for a troll to drag its patent infringement case to a plaintiff-friendly court. In those courts, startup defendants are already at a disadvantage. But the vast majority of defendants aren’t even based in these districts and small, resource-strapped startups cannot afford to litigate there, let alone even travel there. Which is why litigation in the Eastern District of Texas is but one more tool at a patent troll’s disposal to effectively threaten startups and other productive businesses and innovators.

We need to get these cases out of Texas to give defendants a real chance to fight back in a fairer forum to which a startup has reasonable access. Fortunately, the latest version of the Innovation Act addresses this venue abuse. The bill would limit bringing patent infringement suits where the patent inventor conducted research or a party operates a physical facility. It would effectively shut down countless offices in Texas that are nothing more than an empty room with no employees and force cases to courts that are convenient and fair. Successful and comprehensive patent reform requires venue reform.

Chicago’s New “Cloud Tax” Raises Questions Around Process, Policy

It’s no secret the winters in Chicago are brutal—anyone who has lived through a January in the Windy City can attest to this fact. Long periods of Netflix-aided hibernation are common for Chicagoans in the depths of winter. This is perhaps why the news last month that city residents will begin paying a “cloud tax” on their monthly Netflix bill didn’t go over well. As more business activity migrates online and consequently outside traditional tax protocols, cities and states are being forced to modify their tax regimes to adapt to these changing circumstances. While governments are certainly justified in their concern about dwindling tax receipts, digital commerce is fundamentally different than traditional brick-and-mortar enterprise and requires a thoughtful, unique approach to taxation in order to properly protect public interests without stunting business growth. Unfortunately, Chicago’s approach to digital taxation appears to be precisely the sort of hastily considered, ad hoc policy that could end up doing serious harm to the digital economy.

The ruling from the Chicago Department of Finance imposes a 9% tax on “electronically delivered amusements,” defined as “any exhibition, performance, presentation or show for entertainment purposes.” Essentially, this means that any electronically delivered television shows, movies, or music consumed for rental by customers in the city will be taxed. Technically speaking, the tax itself isn’t “new”—rather, it’s an expansion of Chicago’s existing amusement tax which covers concerts, sporting events and other activities. The ruling requires online digital content distributors to collect amusement taxes for digital amusements. While other cities have similar amusement taxes for brick-and-mortar establishments, Chicago’s application of the tax to digital content distributors is novel.

Chicago realized the tax money it was collecting from brick-and-mortar enterprises like movie theatres and video stores was evaporating as consumers stopped frequenting such establishments in favor of Netflix and other streaming services. So what’s the problem if Chicago is merely taxing digital video rentals in the same way it had traditionally been taxing physical video rentals? For one thing, the ruling took most people by surprise because there was little if any public participation in the decision. Instead of passing a new city ordinance or going to the voters to approve a new tax—both of which would have involved robust opportunity for public comment—the Department of Finance chose to quietly broaden an existing law. It’s hard to imagine a similar tax policy with such a wide impact not being publicly debated. Sidestepping voter approval suggests (not surprisingly) that there may have been public opposition to the new tax.

Beyond the process questions this new regulation raises, it highlights a broader issue around taxation of digital commerce. While a local brick-and-mortar business only has to worry about complying with tax laws of the jurisdiction in which it operates, online businesses may be subject to taxation in any jurisdiction in which its customers reside—that is, anywhere in the US.  For larger companies like Netflix, setting up the infrastructure to comply with a variety of tax jurisdiction is possible (though still expensive and onerous). For the small businesses that have historically driven the growth of the Internet economy, such compliance obligations would be insurmountable. According to the US Census, Illinois has 6,994 separate local governments. If each one chose to implement unique taxes on various internet goods and services, compliance would be significantly convoluted. For small businesses operating in an online marketplace with limited margins, such requirements could potentially put them out of business.

It’s no surprise cities struggling with reduced tax revenue are looking for new revenue streams. Indeed, discussion and action needs to take place around fair online tax policy, but it needs to take into account the uniqueness of the online environment. Chicago’s recent action highlights the need to have these conversations soon, and at a national level. Congress has put at least some effort into addressing the problem of e-commerce taxation, introducing the Marketplace Fairness Act three times, and discussing alternate proposals from Reps. Chaffetz, Goodlatte, and Eshoo. However, the current legislative climate—coupled with opposition from large Internet businesses—makes legislative action before the 2016 election unlikely. In the interim, other cities and states may follow Chicago’s lead, attempting to raise tax revenues in the short term, while jeopardizing the long-term health of the Internet economy.

BitLicense: It's not just for New Yorkers

Periodically, Engine will invite policy experts to weigh in on specific topics with guest blog posts. Today’s expert is Peter Van Valkenburgh, Director of Research at Coin Center. As Bitcoin's leading advocacy group, it is Coin Center's mission to ensure that any regulatory reaction to digital currencies is based on a sound understanding of the technology. As the bitcoin ecosystem grows, we are keeping a pulse on the policy environment it faces as it disrupts age-old financial regulatory systems. One new regulatory system with major implications is New York’s recently approved BitLicense, which will go into effect August 8. If you have even the most broad interactions with bitcoin, we suggest you read the summary below - with one month to go until unlicensed businesses will be prosecuted, we want to make sure startups understand the potential impacts of the new law.  

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We’ve one month to go until the grace period ends and the BitLicense—New York’s new digital currency regulations—comes into full effect. What’s a BitLicense? The short of it is don’t get caught engaging in virtual currency business activity with a New York resident or visitor without one after August 8th!

If that sentence reads like a bad civics PSA or a Jaden Smith tweet, don’t worry - you’re not alone. The BitLicense is a confusing new regulation, but this is the top line: it can apply to your business even if you are not located in New York and even in some situations where you may not think you are offering digital currency transmission. So, in the spirit of not ending up on the wrong side of a prosecution, here are 8 things everyone involved with a digital currency business should know:

• Whether or not you run your business from New York has nothing to do with whether you need a BitLicense. The BitLicense isn’t interested in where you are; it cares about where your customers are. So if you have a New York resident using your website or app, or you have a California resident traveling in New York City using your product, you may need a license. That’s true even if you have no way of knowing that the user is in NY. There’s a federal law, the Bank Secrecy Act, that makes it a felony to operate a money services business in a state where you don’t have a license, and there is no “knowledge” requirement to that law. Take a customer who’s in New York but spoofing their IP to appear like they are from elsewhere? You could be violating a federal law—and facing prison time—without even knowing it.   

• You probably need a BitLicense if you do any of the following as a business: transmit digital currency; store, hold, or maintain custody or control of digital currency for another; buy or sell digital currency as a consumer business; or control, administer, or issue a digital currency. Therefore, asking whether you need a license is a process that involves asking whether any of these words—like transmit, store, or control—is an apt metaphor for something specific you do in your business. Holding the private keys to a customer’s bitcoin is the easier fact-pattern: “storing” and “holding” both sound like obvious metaphors for that technical activity. Maintaining and updating an app that helps a user store her own keys? That’s harder and you’d probably want to at least talk to a lawyer or seek clarification from DFS.     

• No one really knows what “administrating, issuing, or controlling” means in the context of bitcoin or other cryptocurrencies; if you think you might be doing these things maybe you should ask. The definition of a virtual currency business in this section of the regulation is tricky. It makes some sense in the world of centralized digital currencies, where the centralized company or entity creating the currency can decide when to issue new units of currency and how to control or administer their allocation. The section doesn’t make any sense in the world of decentralized currency like Bitcoin. Bitcoin has no definite “issuer,” “administrator,” or “controller.” People mine new bitcoins (“issuing?”), yes. Others write software that miners run (“administering?”). Others run nodes that help the P2P network communicate (“controlling?!”). Are any of these activities covered? Probably not: Benjamin Lawsky, the outgoing Superintendent of the DFS, repeatedly said that miners and software designers will not need a license. Trouble is, the law is the text of the regulation, not the speeches given by its author. That text is vague, so, again, the best advice is to ask a lawyer and get clarification from DFS regarding your particular facts and circumstances. Maybe we need an abbreviation for that answer. Let’s call it A(sk) L(awyer); S(eek) C(larification). AL;SC.   

• Awesome new tools, like multi-sig, may not be excluded from licensing. Cryptocurrencies can do pretty neat tricks, like dividing control over some amount of currency between two or more people. People in a bitcoin multi-sig transaction, for example, can effectively vote to decide where the money moves. It all happens with cryptographic keys that are linked to cryptocurrency addresses. So, if you run a business that only holds one key to some amount of bitcoin, and your customers hold the other keys, do you need a license? What if you could never even spend those bitcoins on your own, or lose them, or get hacked and have them stolen? Your business certainly isn’t like the traditional banks or money transmitters we talked about above—the technology limits your losses and makes you less risky!—but do you still “maintain custody or control,” as per the regulation? We’d like to think that the answer is no, because these tools are amazing innovations that provide security and limit consumer risk rather than create it. The safe answer: AL;SC.

• Nominal, non-financial uses are excluded but what that means isn’t crystal clear. The bitlicense has an exemption for companies that are transmitting “nominal” amounts for “non-financial uses.” This is seemingly aimed at exempting so called Bitcoin 2.0 or Blockchain companies that want to use cryptocurrency ledgers to record non-financial metadata—i.e. a document notary service or an identity validation tool. This may be where colored coins, app coins, or sidechain businesses could fit. But “nominal” isn’t defined, and neither is “non-financial,” so the prudent next steps for your blockchain business? AL;SC.    

• Software development is excluded as long as that’s all you’re doing. If you are writing an app that lets people check the price of Bitcoin, you’re home-free because of this exemption. But what if you write software for mining clients, and you also mine for fun? Or what if you write a mobile wallet app that stores users’ keys on their device? Or what if you are a core contributor to the protocol?! Are you really just writing software, and will DFS agree with that self-portrait? Sadly, and First Amendment problems aside, you should probably AL;SC.

• You can ask for a conditional license but there’s no clear guidelines for when it will or will not be granted, or how much easier it will be to get. If this is all starting to sound hard and expensive, take note: the BitLicense can be tailored to be lighter-touch and cheaper at the discretion of the Superintendent. This is called a “conditional license.” Unfortunately, however, there’s no obvious way to qualify for a conditional license. Some commenters in the drafting process asked for a formal threshold, something like “all companies under two-years old, and dealing with less than $5 Million in obligations annually can get conditional license.” Those thresholds didn’t make it into the final draft however, so if you want a conditional license . . . sorry . . . AL;SC.  

• If you need a license and get one, you’ll have to do some hard work keeping records, filing reports, and asking permission to make new products. Unlike normal money transmission licenses, a BitLicense comes with some special obligations. You’ll need to keep specifically formatted records of all your customer’s activities. You’ll need to file reports about transactions to New York in situations where you didn’t already have to file them with federal regulators like the Department of Treasury. You’ll need to ask permission if you make “material” changes to your apps or products, and if you decide to release any new products. The specifics requirements are far too complicated to learn in a blog post, you’ll need to AL;SC, a lot.

So what do you now know for sure with regard to the BitLicense? AL;SC! Ask a lawyer and seek clarification from the DFS. We can say this for sure: the BitLicense just drummed up a whole bunch of new business for the legal profession. We also know that it will be harder to operate a legal digital currency business than it will be to operate a traditional money transmission business—don’t forget those additional recordkeeping requirements and change-of-business requirements. These are some unfortunate new realities, and they make it hard to believe that this new law is really the pro-innovation regulation some politicians hoped or said it would be. Whatever it is, it’s here and the grace period ends in one month, so don’t be caught off guard. And if you’re bothered by all this, consider supporting organizations that are working with the state to improve regulations.

The Future of Transportation Innovation in NYC

New York City is considering legislation that would halt the growth of the for-hire-vehicle industry, including--and especially--startups that use technology to connect riders with rides. Local leaders have generally worked hard to support innovation, but policies like this have the potential to undermine those efforts. The following is an explanation of how the bill would work, and why Engine opposes it.

Of all the disruptive technologies to emerge in the last few years, it seems ridesharing and for-hire-vehicle (FHV) applications have been subject to some of the most heated policy debates in cities around the globe. We’ve seen this on display in New York City, where the Taxi and Limousine Commission (TLC) recently proposed rules that had troubling implications for application developers in almost any area of tech.

Fortunately, after hearing concerns from startups and organizations like Engine, the TLC updated those rules in ways that protect both startups and riders. But fresh on the heels of that positive resolution, the New York City Council introduced legislation that could threaten the future of transportation innovation in the city.

New York City has a booming startup economy, and government officials have worked very hard to support innovation. It would be hard to argue that a single policy would spark a mass exodus of entrepreneurs from the five boroughs. But policies like these do send a message that reverberates through the larger startup community, a message about what kind of environment New York wants to create, and how much local leaders are willing to listen to our community’s voice. And it certainly sends a message to anyone who wants to innovate within regulated industries - not just transportation, but health care, finance, and education - about whether they can really start and grow and thrive in a city like New York.

New Legislation

Two connected bills have been introduced by the City Council. The first bill, Intro 847, would require the Mayor's office to produce a study on what impact, if any, a recent increase in the number of FHV licenses had on traffic and pollution in the city. While we question the presumption that any noted decrease in average vehicle speeds must be the result of an increase in FHVs, we certainly support the city doing a comprehensive study to inform future transportation policy decisions. And in fact, the TLC and Department of Transportation have already begun work on such a study prior to any legislative mandate.

But it's the second bill, Intro 842, that is the greater cause for concern in the startup community. This bill would essentially freeze the number of FHVs currently on the road by capping the number of vehicles that can be affiliated with TLC-licensed bases, which, among other things, would disproportionately harm the smallest startups. Here’s where it’s helpful to know a bit about the way FHVs are currently regulated in New York City.

How FHVs are Regulated

There are two main types of FHV licences issued by the TLC. The first is called a medallion, and it allows a vehicle to accept street hails. Yellow medallion cabs can pick up riders anywhere, but the vast majority tend to serve Manhattan south of 96th street where density and demand are highest. The relatively new green medallion cabs can pick up riders anywhere except for that central business district and the airports. The number of medallions available is capped by local law, and periodically (if it believes there is sufficient rider demand) the City will put additional medallions up for auction.

The second type of licence is issued to livery cabs, limousines, and black cars. These vehicles cannot accept street hails. Instead, they can offer pre-arranged trips (like a ride to the airport) or contract with businesses and individuals to provide private transportation (like a law firm that offers employees rides home). Any FHV operating in the city must be affiliated with a livery, limo, or black car base, and it is through that base that they are licensed by the TLC.

Unlike medallions, these licenses are not currently capped. They also do not dictate how many different drivers can drive an individual vehicle, nor do they require that a vehicle drive only for the business associated with its base. Startups like Uber, Lyft or Via own bases through their subsidiaries, as do traditional livery companies like Dial 7 and Carmel, along with hundreds of small community providers. But a driver that owns a vehicle licensed through an Uber base can drive for Lyft, a Lyft car can drive for Dial 7, a Dial 7 car can drive for Uber -- and many drivers take rides through multiple companies throughout the day.

How the Vehicle Cap Would Work

Intro 842 would cap the number of new vehicle licences issued to any livery, limo, or black car base, whether a traditional provider or a high-tech startup. The cap is determined by the number of vehicles affiliated with a base as of June 15, 2015. If a base has 500 or more affiliated vehicles, it can only increase its total number of licenses by one percent. If it has between 20 and 499 vehicles, it can grow by five percent. And if it has less than 20 vehicles, it can grow by 15 percent. The cap would remain in effect until August 31, 2016, or until the traffic study is complete, whichever came first.

This may seem like a structure that favors smaller operators - until you actually run the numbers. Under the cap as proposed, a base of 500 vehicles would be able to add just five more vehicles in the next year. A base of 50 vehicles would be able to add just three vehicles, and a base of ten could add just two. So across the board we’d see negligible growth among any single base operator and throughout the industry.

What This Means for Startups

New York City has every right to evaluate traffic and take steps to alleviate congestion. But while the proposal to cap the number of new FHVs is likely well-intentioned, we believe it is misguided and will create a number of adverse impacts.

Media coverage of Intro 842 has generally framed this as a battle between Uber and the City -- and understandably so, given Uber currently accounts for the majority of app-based FHV rides in the five boroughs. But while this would obviously have a negative impact on Uber’s ability to expand its bases, we’re concerned that it will have a disproportionately damaging effect on smaller companies, and make it all but impossible for new startups to enter the market in NYC. In fact, by forcing everyone to compete for a limited supply of fluid labor even as demand for rides continues to grow, it has the potential to create an even greater monopoly within New York’s FHV industry.

It will have a particularly negative effect on small, home-grown startups like Via, a NYC-based service that provides shared rides within the city’s central business district. And it also means anyone with a great idea that could become the next Via, or the next Lyft or Uber, can’t start that business in NYC - certainly not in the next year, and possibly not ever.

Intro 842 won’t just impact businesses; it will also impact riders and other residents. It will slow or stall the expansion of ridesharing services that are likely to reduce congestion and make rides more affordable. It will also slow the expansion of FHVs into communities that remain underserved by traditional services, especially in the outer boroughs.

The City has argued that it can’t produce an accurate traffic study unless it holds the number of FHVs constant, a claim that simply doesn’t hold up. Analysts of all kinds are constantly studying snapshots of systems in flux, and no one claims that their findings are invalid simply because those systems have continued to evolve. And the City’s traffic study wouldn’t hold other variables constant, such as increases in both tourism and city residents, changes in streetwork or construction, or growth in the number of bicycles on the road.

The City has previously demonstrated a willingness to work collaboratively with the startup community towards smart regulations, as evidenced in the TLC rulemaking process just a few weeks ago. And the goal of alleviating congestion and the resulting traffic and pollution is a noble one. But the City seems to be conflating correlation with causation.

A vehicle cap is a blunt policy instrument that will likely stall or kill the growth of ridesharing services, which could actually take vehicles off the road and reduce congestion in the long term. Policy makers should postpone any movement of Intro 842 and instead work with the startup community and all stakeholders towards a better solution.

What’s the most startup friendly city in the world? You may be surprised.

by Engine Policy Fellow, Aidan Ali-Sullivan

You can also read this post on Medium.

The rivalry between San Francisco and New York City heated up last week when New York City took top honors in a global analysis of leading cities supporting start-ups through municipal policy. The CITIE (city initiatives for technology, innovation and entrepreneurship) report -- a collaboration between UK based innovation charity Nesta, global consulting firm Accenture and urban idea accelerator Future Cities Catapult ranked global cities on their support for tech entrepreneurship and start-up facilitation. The report grades cities on their overall startup-friendly climate by comparing a variety of policy considerations - from traditional elements like physical infrastructure and regulatory environment, to modern considerations like smart city data analytics - and ranks startup-friendly climate.

While many cities with historical advantages persist in the top tier, the rankings highlight the fast pace of change in technology and the associated municipal policies needed to keep up. The top five cities were New York, London, Helsinki, Barcelona and Amsterdam, highlighting traditional market leaders (like San Francisco) are no longer the only innovative actors in this space and increasingly face global competition. The report asked the question of how cities around the world support innovation and entrepreneurship. By examining forty diverse global cities in the categories of Openness, Infrastructure, and Leadership, the authors identified what policies best support startup growth, and how cities are implementing them.

The first category, openness, is identified as a general willingness to support new ideas and businesses. At the city level, this manifests as favorable regulatory regimes, self promotion as an innovation hub, and efforts to be a customer for innovative local companies. The report cites Sao Paulo, where local startups receive preferential treatment in city contracts. Meanwhile, Amsterdam recently relaxed municipal lodging regulations to better allow shared housing, creating the status of ‘private rentals’ with policies outlining the rights and responsibilities of homeowners. In both these cases cities are directly and indirectly supporting, rather than hindering, innovation and growth.

Cities also need physical and digital infrastructure in place to ensure on the ground policy success. This includes fostering spaces for start-up companies to grow, facilitating digital and physical connectivity within city limits, and investing in the citizens driving innovation. NYC recently added coding classes to public school curriculum, an initiative other mega-cities are following. The skills learned in these classes will help students develop and grow their ideas within innovative workspaces like Paris based “1000 Start-Ups”—set to be the world's largest business incubator when it opens. Cities that build and support the foundations upon which startups grow will be uniquely positioned to reap the economic benefits.

Finally, cities need municipal leadership, and in particular a direct plan of action that engages citizens and utilizes smart data. The Greater London Authority did just this, by opening up 850 proprietary municipal datasets to residents, allowing them to build interpretative applications and businesses off the data. Cities must include innovation in their activities, and in particular use big data to solve problems and engage citizens.

So what should a city do to grow their entrepreneurial ecosystem, and how can cities with emerging tech sectors race to the front of the pack? While there's no single path to success, the report identifies three common traits of top cities. First, they share a willingness to open doors. All the answers are unlikely to be found within the corridors of city hall, so municipal governments need to be open to collaboration with outside experts. Second, people serving in disparate areas of policy communicate and work above departmental silos towards broader goals. As noted, “good policy in one area can be undermined by bad policy in another”. Third, they think like startups: top cities try new ideas and are not afraid to fail. Agility and risk may not come naturally to unwieldy bureaucracies, but if NYC can lead in this space, others certainly can follow a similar path.

For further information and analysis, the full report can be found here: http://citie.org.

Why Broadband Competition Matters to Startups

Last week, at the annual U.S. Conference of Mayors meeting in San Francisco, Minority Leader Nancy Pelosi identified the two policy issues she most wanted the mayors in attendance to focus on: sequestration and spectrum. As Pelosi noted, issues surrounding sequestration will hopefully get sorted out relatively quickly, but adjusting our national broadband infrastructure to maximise innovation and economic growth is a far more difficult task.

In most markets in the country, consumers and businesses have access to only one or two wired Internet access providers. The situation isn’t much better in the fast-growing mobile Internet space, where the two dominant wireless companies, AT&T and Verizon, control nearly 75% of the low-band spectrum in the country—the type of spectrum most valuable for mobile Internet use. Given this concentration of key resources in the hands of a few companies, it is no surprise that the U.S. recently ranked 26th out of 29 countries in terms of wireless broadband speed.

As Leader Pelosi noted, in a country where “only 37 percent of our nation’s schools [have] enough broadband for digital learning,” increasing broadband access and affordability would help grow the economy by training a generation of entrepreneurs with the technical skills needed to thrive in the digital world. But, improving wireless broadband speed, price, and coverage through greater competition would grow the economy in myriad other ways, perhaps most profoundly through its impact on the startup sector.

We at Engine are fond of reminding policymakers that startups are responsible for virtually all new net job growth in America, and in light of this reality, policies that help increase startup activity are policies that create jobs. Simply put, actions that increase competition in broadband markets—like expanding the spectrum reserve in the upcoming low-band spectrum incentive auction—will go a long way towards spurring startup activity and the economy more generally. That’s because better competition in mobile broadband helps startups in a number of key ways:

1) A bigger customer base. At any pitch meeting, one of the first questions an entrepreneur will get from potential investors is about the size of the company’s addressable market. That is, how many consumers will your business reach? The bigger the market, the higher the company’s potential value. Citizens that are either not online at all or do not have access to broadband of adequate speed or capacity are citizens not participating in the startup economy.

According to the FCC’s Seventeenth Mobile Wireless Report, in 2014, 0.3 percent of the U.S. population “lived in census blocks that received no mobile wireless broadband coverage.” That may seem like a small percentage of the population, but it amounts to approximately one million people without any mobile wireless access. Amongst people with access to some mobile broadband coverage, a huge percentage of the population is dramatically underserved. A recent Pew study found that seven percent of the public—or more than 22 million people—have no home broadband service and have a limited number of ways to get access beyond their cell phone. Considering how poorly U.S. mobile broadband fares in terms of speed, data availability, and affordability, many if not all of these citizens likely cannot use any of the amazing technologies and services that startups provide. Giving these folks access to better, cheaper mobile broadband will greatly expand startups’ addressable market and consequently boost startup activity. And, increasing competition amongst mobile broadband providers is really the only feasible method of improving broadband penetration.

2) Lower costs for startups. The archetypal image of the startup as one or two scrappy inventors in a garage isn’t all that far from the truth for most companies. While there are a few outliers that find substantial funding early in their life cycles, most startups have to get by with minimal funding as they develop their core business. Failing to raise adequate seed funding to launch an enterprise is one of the most common pitfalls for entrepreneurs. Since every dollar counts, lowering the amount of money it takes for entrepreneurs to start businesses directly results in more startup activity. And, according to a report from the Internet Innovation Alliance, access to quality broadband can save startups an average of more than $16,000 annually—a significant number for startups trying to get off the ground. Making mobile broadband more efficient and affordable will further help drive down costs for startups and in turn improve competition in the startup sector.

3) New technologies. It’s impossible to predict precisely how the innovators that drive our startup sector will harness the power of faster broadband technologies like gigabit WiFi, but it’s a guarantee that they will find ways to generate entirely new companies and services that take advantage of whatever broadband resources are available to them. This innovation represents the real economic growth potential from increased mobile broadband competition. Just look at the value of startup products and services riding on unlicensed spectrum technologies like Bluetooth and WiFi, which are estimated to add $222 billion to the U.S. economy each year. If startups had access to ubiquitous, ultra-high speed mobile broadband, the value of the technologies and services they could create would be staggering.

The importance to the startup economy of advanced broadband infrastructure is hard to overstate, and yet opportunities to promote the type of competition necessary to spur faster and cheaper networks are in short supply. The upcoming FCC low-band spectrum incentive auction represents one such opportunity. Failure to take adequate steps to promote competition through auction safeguards will put at risk the untapped economic potential of future generations of startups and the millions of jobs they could create.

Updated TLC Rules a Win for Startups

Last month the New York City Taxi and Limousine Commission issued proposed rules for for-hire-vehicle and ridesharing services, many of which raised concerns for the startup community. Particularly troubling was a broadly written rule that could have required all software updates to be pre-approved by the TLC. Also of concern was a rule prohibiting the use of more than one electronic device outside whatever was provided by a dispatcher. This rule could have been especially damaging for new market entrants trying to compete with larger incumbents.

After vigorous public debate and a fairly contentious hearing, the TLC voted today on an updated set of rules which, while still not perfect, address many of the tech community’s concerns. Some of the more significant changes include:

• Software and user interface review have been taken out of the rules. Instead, rideshare companies must notify the TLC of any changes to the ways in which they comply with passenger or driver facing requirements.
• The number of handheld devices has been expanded. While we still question the purported safety value of placing a limit on electronic devices, the fact that most drivers will now be able to access rideshare apps on two separate devices is a noted improvement to the previous draft.

• Violations will not impact all bases operated by a single company. Violations by a single driver affiliated with one company base will no longer have the potential to shut down a rideshare company’s entire operation.

• Companies that operate bases will not have to pay a separate $1,000 technology fee. Companies without bases of their own that want to partner with existing bases will still have the opportunity to do so by through the new technology license.

To their credit, the TLC demonstrated a real willingness to come to the table with rideshare companies, and worked towards smart regulations that protect both riders and innovation. As the sharing economy continues to expand into even more facets of American life, we hope to see similar commitment to open collaboration from other regulatory agencies in New York City and beyond.

Lessons from the First Weeks of Net Neutrality

For years, opponents of net neutrality ridiculed open Internet rules as a “solution in search of a problem,” even though examples of ISPs abusing their gatekeeper power are numerous. Well, it looks like the critics have once again been proven wrong. Less than two weeks after the FCC’s Open Internet Order went into effect, these purportedly unnecessary rules have already had a major impact. Here’s a look at a few notable lessons from the first few weeks of net neutrality.

An End to Throttling?

Within a few days of the rules going live, Sprint (one of the few ISPs to claim Title II-based rules wouldn’t diminish its investment incentives) announced that it would stop throttling data speeds for its heaviest users. Sprint has said it thinks that its policy would have passed scrutiny under the new rules, but decided to end its policy in an abundance of caution. On the heels of the FCC’s announced $100m fine levied against AT&T for false representations about its own data-throttling policy, it is no surprise that Sprint is keen on making sure it's in compliance with the new rules. We’ll be watching to see if other companies follow suit.

Interconnection Challenges

While some ISPs are treading lightly around the net neutrality rules, others will almost certainly test the breadth of the FCC’s rules and the Commission’s willingness to enforce new protections. Indeed, one such dispute is already queued up: Commercial Network Services, a streaming media company, has said it will bring a complaint against Time Warner Cable for charging excessive rates to deliver video to its customers.

This challenge is particularly interesting, as it implicates the FCC’s regulation of interconnection—the protocols and agreements through which large ISP networks agree to exchange traffic with each other—which was one of the more controversial aspects of the Open Internet Order. Unlike the FCC’s ban on throttling, blocking, and paid prioritization, its regulation of interconnection agreements will be hashed out on a case-by-case basis. The outcome of the dispute between Commercial Network Services and Time Warner could set a significant precedent for future enforcement actions, including those related to zero-rating and other practices the FCC will evaluate on an ad hoc basis.

New Net Neutrality Ombudsperson

That companies are already invoking the net neutrality regime’s discretionary provisions frames an important issue for how well the Open Internet Order will work to protect startups. Throughout the FCC’s rulemaking process, we argued in favor of bright-line prohibitions on discriminatory ISP activity because the cash-strapped startups that would suffer most from anticompetitive behavior are unlikely to have the resources necessary to challenge such practices. Ultimately, the FCC’s case-by-case consideration of discriminatory interconnection deals or zero-rating practices may have no value if they are too costly for startups to initiate.

Recognizing that such costs are a real threat to the efficacy of its rules, the FCC’s net neutrality plan established an Ombudsperson to field formal and informal complaints. The FCC recently appointed its first Ombudsperson, Parul Desai, who will serve as the primary point of contact for individuals and companies seeking to challenge ISP practices. While it remains to be seen how effective the Ombudsperson program will be in addressing complaints, having a low-cost protocol for consumers and companies to help enforce the FCC’s rules is crucial if the Commission’s net neutrality regime is to have any meaningful impact. Considering a new study “found significant [data speed] degradations on the networks of the five largest internet service providers,” it seems likely that the new Ombudsperson will have her hands full in ensuring the FCC’s new rules work as intended.

Overall, it’s been an exciting time for all of us that fought for net neutrality. But, even as the rules are proving their merit, the FCC’s entire open Internet regime is under attack, both in the courts and in Congress, where House Republicans are attempting to subvert the FCC by burying a provision in a large appropriations bill that would preclude the Commission from enforcing even the most basic net neutrality rules. With opponents of net neutrality willing to resort to shadowy tactics to undermine the open Internet, it’s as important as ever to highlight when the new net neutrality rules are working to promote fairness and innovation online and why it’s so vital that we fight to keep them in effect.

Statement on Court Denial of Attempts to Delay Net Neutrality Rules

 

The innovators and entrepreneurs that depend on an open Internet to drive our economy won an important legal victory today. In rejecting ISP attempts to delay the implementation of the FCC’s net neutrality rules, the DC Circuit helped ensure that the Internet will remain open during what will likely be a long period of litigation. Any departure from the non-discrimination principles at the heart of the Internet’s growth would seriously harm the startup economy and the good jobs it creates.

But, much work remains to be done. Just today, members of Congress opposed to meaningful net neutrality rules put forward an appropriations bill that attempts to use Congress’s budgetary authority to prevent enforcement of even the most basic net neutrality principles. Anyone who believes in the value of an open Internet and a smoothly functioning democracy should be alarmed by these tactics. Engine will continue to work with the startup community to prevent these efforts, and any attempts to undermine Americans' freedom to innovate.

 

 

 

 

Statement on House Judiciary Committee Passage of Innovation Act

Engine was pleased to see the House Judiciary Committee pass the Innovation Act this afternoon; we’re glad to see the process move forward and the commitment from members to patent reform. While there are still open questions regarding the pleading provision that need to be addressed, today’s amendment process left us in a much stronger place on several key provisions including venue and discovery. As this bill moves to the House floor, however, we cannot afford to have legislation weakened further.

Since 55% of troll targets are small businesses, comprehensive patent reform remains critical for the startup community. We look forward to working with the committee towards final legislation that truly protects startups from abusive litigation and gives them the tools necessary to defend themselves in court.