Engine Files Comments on Embedded Software and Copyright Law

Copyright law has always had a complicated relationship with software. Supreme Court Justice Stephen Breyer presaged the difficulties in applying copyright law to software in a seminal law review article in 1970, and despite a few legislative revisions of copyright law since then, many of those same inherent difficulties persist. In the past year, these problems received public attention in a few high profile news stories, including John Deere’s claim that tractor purchasers don’t actually “own” the tractors they buy. Instead, purchasers merely receive an implied license to operate the vehicle and the software it contains. To just about any rational person, this seems like a Kafka-esque absurdity that only the most creative lawyer could dream up. But as more and more of our everyday products become computerized and connected, it’s likely that we’ll see many more examples of how copyright laws meant to encourage creative production can produce bizarre outcomes when applied to products containing embedded software.

Spurred in large part by the John Deere story, the Copyright Office opened a public inquiry seeking commentary on the legal and policy challenges related to copyright’s application to software embedded in everyday products. Last week, Engine filed comments with the Copyright Office identifying the many challenges to startup innovation that arise from this application. Written by a crack team of legal students at Stanford Law School’s Juelsgaard Intellectual Property and Innovation Clinic under the guidance of Phil Malone and Jef Pearlman, the comments examine difficult questions surrounding the appropriate scope of software copyrights, focusing on how granting copyright protection to essentially functional code can hurt startup competition by undermining interoperability between platforms and services, and how limiting a user’s right to modify software in devices they own poses a range of threats to innovation and security.

The innovation-stifling threat of overbroad copyright protection for software is perhaps best encapsulated in the ongoing litigation between Google and Oracle over the copyrightability of Application Programming Interfaces (APIs) that facilitate communication between computer programs. As the comments explain, “APIs have been and are indispensable to interoperability in standalone software platforms and products and will be equally indispensable to software-enabled consumer devices,” such that allowing companies to assert copyrights over APIs to will create “incentives for incumbents in almost any industry to misuse copyright law to try to exclude new entrants and emerging competition.” Particularly in the emerging Internet of Things, where startups will be well-positioned to build apps and services that interact with the innumerable connected devices that will soon be a part of everyday life, protecting interoperability is paramount to encouraging innovation and competition. This competition will foster both enormous economic growth and consumer value, so it’s critical that we rein in rules that give incumbents the power to use ill-fitting copyright laws to exclude competitors.

The comments make a compelling case for sensible copyright rules in the age of embedded software, and we at Engine are incredibly grateful for the fantastic work of the Stanford team. Read the full submission here.

So You Want to Hack the Patent System

Are you a startup or inventor wondering what to do about our broken patent system? Want to know what your options are? Check out Hacking the Patent System, an updated white paper published in partnership with EFF and students from the Juelsgaard Intellectual Property Clinic at Stanford Law School.

This paper includes important and timely advice for technology entrepreneurs attempting to navigate a dysfunctional and unfair system because, unfortunately, patent trolls remain a grave threat to startups and innovators. This is despite multiple attempts to pass reform legislation through Congress and an active Supreme Court working hard to fix a broken system. Not only does the threat of extortionary patent trolls still exist, but it’s actually getting worse. Lawsuits filed by patent trolls are up and significantly more than half of those cases are filed in the notorious Eastern District of Texas.

Despite these problems, startups often find themselves filing for patents, either because their investors tell them it’s a good idea or they plan to later use them defensively against lawsuit threats. This has led to a dangerous culture of “patenting up”—getting as many patents as possible in as short a time as possible.

To really fix the problem, a handful of things need to happen:

1. Congress must pass patent reform legislation that addresses fundamental inequities in the patent system that favor large patent holders and litigation plaintiffs.

2. Patent quality must be improved. Removing low-quality patents from the system will also remove the trolls’ deadliest weapon.

3. We must change the culture of “patenting up.” Big companies, investors, startups, and inventors need to come together to take a stand and return the system to its roots, which—as the Constitution provides—is meant to promote the progress of science and useful arts.

That all might take awhile. In the meantime, there are things that startups can do to navigate a broken patent system without hiring an expensive patent lawyer or even filing for a patent itself. We lay out some of those options here in an updated version of our Hacking the Patent System white paper, originally released in 2014. The paper takes a deep dive into alternative patent licenses: specifically, patent aggregators, patent pledges, and (new this year!) patent insurance.

Thanks to partners EFF and the Juelsgaard Intellectual Property Clinic at Stanford Law School—especially former students Marta Belcher and John Casey—for all their hard work.

Startup News Digest: 1/8/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Patent Lawsuits Up in 2015, Trolls in the Lead. Surprise, surprise! The latest numbers are out, proving that patent litigation is still out of control and patent trolling is indeed a real problem. Unified Patents’ latest breakdown of data indicates that 2015 saw the second highest number of patent cases ever (nearly 5,800 cases filed). Further, non-practicing entities (or NPEs, aka, trolls) filed two-thirds of them, largely in the Eastern District of Texas, a judicial district notorious for its friendliness to patent trolls. Additionally, 64 percent of patent litigation in 2015 occurred in the high-tech sector and NPEs were involved in over 88 percent of these high-tech cases, a 10 percent increase over 2014. Until the patent system is fixed, the trolling problem evidently isn’t going anywhere.

Net Neutrality Kerfuffle Over T-Mobile’s “BingeOn” Program: Recent reports about T-Mobile's treatment of streaming video services has many net neutrality advocates up in arms. Its latest offering, BingeOn, has actually avoided most of the criticism typically directed towards so-called "zero rating" programs. With BingeOn, T-Mobile allows any video provider to participate for free, thus skirting net neutrality rules that bar preferential data treatment for some paying companies. However, apparently, T-Mobile has been throttling (or, from T-Mobile's perspective "optimizing") all streaming video its users consume, not just streams from companies participating in BingeOn. Throttling lowers the data consumption associated with watching a video, but also diminishes video quality. Because the FCC's net neutrality rules essentially ban throttling, it's possible that the FCC could find T-Mobile in violation of its Open Internet Order. T-Mobile points out that users can opt out of BingeOn and the associated video throttling, but critics note that T-Mobile makes opting out excessively difficult. While FCC Chairman Tom Wheeler has praised similar offerings from T-Mobile in the past, BingeOn raises difficult questions about the application of the Open Internet Order that the FCC will need to resolve.

Drone Registration Challenged in Court. In December, the Federal Aviation Administration (FAA) announced new rules requiring the registration of recreational drones. According to data released by the FAA this week, over 181,000 drones have been registered since the registration site went live just three weeks ago. But not everyone is keen on registering their brand new toy. Some stakeholders have criticized the rules as being burdensome and unnecessary, while others have raised concerns around the public availability of registry data. And now a Maryland “model aircraft hobbyist” has sued the agency over the contentious rules, arguing that the registration requirement violates a federal law that prohibits the FAA from regulating recreational drones. The court has denied his request to immediately halt registration.

#CES2016. The annual Consumer Electronics Show takes over Las Vegas this week and along with the new electric cars and Ultra HD TVs, policymakers and government officials are also taking the stage. In fact, it was at last year's CES that FCC Chairman Tom Wheeler first indicated the agency's support for net neutrality. We don't expect any news of that nature, but this week FTC leadership told conference-goers the commission is close to striking a data-transfer deal for U.S. tech companies with its EU counterparts and FAA officials discussed new recreational drone requirements. USPTO Director Michelle Lee and Rep. Darrell Issa (R-CA) talked patent reform and Sen. Mark Warner (D-VA) made a showing, addressing policy challenges facing both government and emerging gig-economy startups as did . The new technologies unveiled at CES—virtual reality devices, autonomous cars, and other smart, connected tools—also offer a preview of new tech policy challenges to come.

The State of Female Founders. CrunchBase released their latest data on women-founded companies, illustrating that there is still a long way to go for gender parity among startup founders. Though 18 percent of companies that received seed funding in 2015 have at least one female founder, only 8 percent companies that received seed funding have at least one female founder CEO. For companies that received Series A and B funding in 2015, these numbers drop to 14 percent and 5 percent, respectively. The numbers may seem dismal, but this is a strong improvement from 2014, when only 10 percent of founders raising Series A rounds were women.

Startup News Digest: 12/11/2015

Our weekly take on some of the biggest stories in startup and tech policy. 

Net Neutrality Has its Day in Court. The net neutrality debate that has dominated tech policy headlines for the past two years finally got its day in court last Friday. A panel of three judges from the DC Circuit heard oral arguments in the lawsuit brought by a consortium of ISPs to invalidate the FCC’s net neutrality rules. Proponents of the FCC’s rules came away from the hearing fairly optimistic. A majority of judges seemed to side with the FCC in the most crucial aspect of the dispute: whether or not the Commission had adequate authority to reclassify Internet access as a “telecommunications service.” The court pushed back more significantly on the FCC’s authority to reclassify mobile broadband and the adequacy of the notice the FCC provided about the final rules it adopted. While we remain optimistic about the Court’s ultimate decision, the net neutrality debate will almost certainly not go away when the Court issues its ruling early next year. It seems likely that the case will ultimately end up before the Supreme Court, and Congress continues to ponder whether it should pass anti-net neutrality legislation.

Feinstein Wants Tech to Report Terrorist Activity. As terrorists attempt to use Internet platforms to mobilize followers, disseminate propaganda, and coordinate attacks, working to diminish militants’ capacity to organize through social media is critical. But the Requiring Reporting of Online Terrorist Activity Act, introduced by Senator Dianne Feinstein (D-CA) earlier this week, is not the answer. The bill would require tech companies to report “any terrorist activity” that they have knowledge of to law enforcement. This obligation seems innocuous on its face, but as often happens, difficulties arise in determining how to actually apply this standard. Emma elaborates on all of the reasons the bill’s controversial (and previously rejected) framework could potentially do more harm than good here.

Computer Science in Classrooms. An education bill signed into law on Thursday acknowledges computer science as a foundational academic subject. By doing so, the bill puts computer science “on equal footing with other subjects when state and local policymakers decide how to dole out federal funds.” This new designation could potentially accelerate computer science's introduction into classrooms across the U.S. and ultimately help address the country's growing tech talent shortage.

Bill Would Cut Back H-1Bs. Senators Bill Nelson (D-FL) and Jeff Sessions (R-AL) introduced a bill this week that would reduce the number of H-1B visas available by 15,000 and also modify the way those visas are allocated—requiring they go to workers who will earn the highest wages. The H-1B program allows companies to hire foreign high-skilled employees, including those with expertise in science, engineering, and computer programming. While these visas are highly coveted within the tech industry, accounts of program abuse have galvanized members of Congress to restructure the program. “This bill directly targets outsourcing companies that rely on lower-wage foreign workers to replace equally-qualified U.S. workers,” Sen. Nelson said in a statement. While attempting to prevent bad practices by specific outsourcing companies, this bill would unduly harm the wider tech industry by further limiting global talent from contributing to U.S. companies, big and small. 2015 saw a record number of H-1B applications: 233,000 for the current 85,000 spots.

Investment Crowdfunding for Tech? Not So Fast. An article in this week’s Wall Street Journal highlighted a few of the shortcomings of investment crowdfunding, a new fundraising tool for startups made legal last month with the release of SEC rules. Those rules contain numerous burdensome requirements for companies raising equity from the crowd, potentially deterring high-growth technology startups. For instance, once a company takes on over 500 investors or grows to a certain size, it must file regular disclosures with the SEC: “It is all the pain of an IPO without the benefits of the IPO.” We’ve previously detailed some of the other issues with those rules, concluding that policymakers must continue to work to lower the cost of raising seed capital through crowdfunding or the impact of investment crowdfunding for startups will be modest.

What We Heard in Iowa: Earlier this week, Engine teamed up with the Technology Association of Iowa to discuss technology policy with Iowa entrepreneurs, caucus goers and two of the 2016 presidential candidates in Cedar Rapids. As the Cedar Rapids Gazette reported, the candidates agreed that education is “vital to innovation” but, not surprisingly, disagreed on the federal government’s role. O’Malley’s address focused on his track record as governor of Maryland. While Fiorina took a different approach, focusing on national security and technology “as a tool and a weapon” in those efforts. The forum offered a glimpse on where at least two candidates stand on a handful of important tech issues and as we look to 2016, we hope to hear a lot more.

Patent Suits Cost Universities. Universities have been getting more involved in patent reform policy and a recent Brookings article explains why. Its author also emphasizes that universities are turning observers off by engaging in offensive litigious actions, which is seen as contrary to the public mission of a university. Furthermore, it doesn’t make sense for universities to be involved in patent reform conversations since universities as a group do not have a financial interest in patenting: 87 percent of tech transfer offices operate in the red. Since there is a false belief among some that without patents there would be no innovation, it is important that the public voice of universities acknowledge “that the debate on the impact of patents on innovation is not settled and that this impact cannot be observed in the aggregate, but must be considered in the context of each specific economic sector, industry, or even market.”

Where are the Women in Tech? A new list was published on the “Best Cities for Women in Tech” and Washington, DC topped it, with women making up about 37 percent of the tech workforce (New York, NY comes in at number five and San Francisco, CA at 23). Kansas City, Missouri (at number two) was one of the only two cities in the study where women in tech don’t face a gender pay gap. Recruitment of women and underrepresented groups in the tech community remains a large part of the diversity conversation: language used in outreach and job descriptions could be turning well-qualified applicants off from even applying. One startup, Textio, is trying to address this problem with their product that “applies a form of artificial intelligence (AI) called natural language processing (NLP) to study the verbiage in documents” and can help highlight words with certain negative connotations.

Startup News Digest: 12/4/2015

Our weekly take on some of the biggest stories in startup and tech policy.

Trade Secrets Bill Resurfaces. On Wednesday, the Senate Judiciary Committee held a hearing on the Defend Trade Secrets Act (DTSA), a bill purportedly meant to help curb international trade secret theft by creating a federal cause of action for trade secret appropriation. However, like most intellectual property laws, trade secret litigation is rife with abuse as companies regularly use trade secret claims to stifle competitors and hinder employee movement. The proposed legislation would exacerbate these problems by creating an ex parte seizure procedure whereby a party can—without detailed factual inquiry and without a presentation of both sides of the case—ask a judge to seize a defendant’s property. In this regard, the DTSA goes well beyond what state trade secret law provides, making it a potent tool for incumbents to use the courts to unfairly hinder legitimate competition. And, international trade secret thieves will be able to avoid this federal law as they have avoided prior state laws by simply being outside of the US, it’s hard to see how this bill would actually address the problem it claims to address.

Net Neutrality Hearing. The DC Circuit Court of Appeals heard oral arguments today in the challenge to the FCC’s net neutrality rules. A group of telecom companies filed suit against the FCC shortly after the Commission issued its net neutrality rules this spring, arguing that the decision to reclassify violated administrative rules and exceeded the FCC’s delegated authority. While most net neutrality supporters believe that the Commission’s rulemaking is likely to withstand legal challenge, the DC Circuit is notoriously unpredictable. The hearing itself was not broadcast due to the DC Circuit’s strict rules on recording proceedings, so we’ll have to wait for reports from those in the room to get a read on how the judges received each side’s arguments. We’ll be tracking closely.

Starting Up the Broadband Economy. In an op-ed in re/code, Engine Policy Director Evan Engstrom elaborates on why policies that encourage a competitive broadband market are essential to the continued success of the startup economy. Increasing competition ensures America’s entrepreneurs can use their limited funds to build their businesses, rather than lining the pockets of a few huge incumbent providers. There is still a long way to go towards a robust, healthy Internet ecosystem. But we are working to ensure that startup voices are heard and that real reform happens now.

Trouble for ECPA Reform? The broadly supported Email Privacy Act ran into opposition from law enforcement authorities at a House Judiciary Committee hearing on Tuesday. Calls for an emergency exception and a carve out for civil agencies are nothing new, but they are preventing the committee’s chairman, Rep. Bob Goodlatte, from backing the legislation. Despite being one of the most popular bills in Congress with over 300 bipartisan cosponsors, it won’t move until Rep. Goodlatte gives the go-ahead. We’re tracking.

Add “Lobbying” to List of Startup CEO Responsibilities. Engaging with lawmakers is just another part of being a startup leader now, reports the New York Times. “In addition to knowing the language of computer code, founders are speaking the language of Washington, keenly aware of the potential regulatory battles that could be on the horizon.” In a shift from the historical status quo, startups are no longer eschewing politics, but increasingly embracing a dialogue with D.C. instead.

Patent Lawsuits Filed Set New Record. On November 30, 257 new patent litigation cases were filed—a new one day record. Furthermore, 196 of these cases were filed in the Eastern District of Texas, a notoriously plaintiff (and troll) friendly court. This is clear proof of forum shopping and further evidence that patent reform legislation should also address venue abuse. The mass amount of filings are likely tied to the fact that December 1 marks the effective date of significant changes in the Federal Rules of Civil Procedure for patent cases—i.e. going forward, plaintiffs may be required to provide more information in their initial claims.

Women in STEM. Michelle Lee, the Director of the US Patent Office, authored an op ed in which she cites a study that found that only 15% of all inventors are women. She writes, “The lack of gender parity is not just a social issue, it is an economic imperative.” In response, the Patent Office has launched, in partnership with Invent Now, an “All in STEM” initiative to get more girls interested in STEM and more women in flourishing STEM careers. Meanwhile, the latest diversity numbers from tech companies demonstrate the continuing need: women employed globally by Microsoft decreased from 29% to 26.8%.

Cities and Innovation Ecosystems. It takes years for cities to build up a “critical mass” of tech companies and workers to the likes of the Bay Area. But in some of the nation’s smaller cities, the environment has proven conducive to small companies and large companies cooperating in a way that has become engrained in the DNA of Silicon Valley—where startups are built off the API of large companies and interoperability is part of the culture. A recent report by the World Bank discusses what factors affect the growth of entrepreneurship ecosystems across different cities.

Conversations Around Capital Access. Before taking a break for Thanksgiving, Engine attended a forum hosted by the SEC on capital access issues for startups. Participants honed in on the JOBS Act rules: how they’re playing out in practice and whether there are policy modifications that could facilitate their success. Read Emma’s run-down of the discussions here.

Startup News Digest: 11/20/2015

Our weekly take on some of the biggest stories in startup and tech policy. 

Encryption Debates Resurface. Last week’s terrorists attacks in Paris reignited debates over encryption. Officials suspect the attackers may have used encrypted messaging systems to coordinate the plots, (though nothing has been confirmed.) Policymakers are again considering whether the law should require tech companies create “backdoors” for law enforcement, making it easier for officials to track and disrupt threats. Many in the tech community, including Apple, have publicly opposed such backdoors for government, arguing these restricted access points could make their systems more vulnerable.  

$100 Million in Grants for Tech Training. This week, White House representatives were in Baltimore to announce the expansion of its TechHire initiative with the launch of a $100 million grant competition. TechHire, which launched in March, involves education and employer partnerships in dozens of regions across the U.S., all dedicated to training, recruiting, and placing more Americans in tech jobs. Awards from this new grant will go to programs across the country that serve Americans who face barriers to entering the tech sector, whether those are educational, geographical or income-based.

Startup Equity in Highway Bill. A little known piece of startup-friendly legislation has made its way onto the highway bill, the massive federal transportation bill that lawmakers in the House and Senate are scrambling to finalize. This unrelated legislation is the RAISE Act, which would more easily allow startup employees to sell company equity to accredited investors. In October, the House passed the bill unanimously, but it hasn’t yet made its way to the Senate floor. We won’t know until December whether these new rules will remain in the highway bill - federal funding for roads has been extended to December 4 while Congress hashes out the details of the new bill.

Chicago Limits Drones. Chicago’s city council passed a bill banning certain uses of drones. The first bill of its kind, the rules will potentially hinder hobbyist use. Chicago’s ordinance, in line with FAA regulations, prohibits drones from flying above 400 feet, flying within five miles of and flying over schools, churches, hospitals, police stations, and any private property without consent. Chicago has experienced some uncomfortably close encounters with drones: one crashed Midway airport’s runway and another flew frightening close to crowds gathered at Lollapalooza.

Patent Reform will Encourage Innovation. Executive Director Julie Samuels was featured in a series of perspectives on patent reform in the Washington Post. Her perspective: if Congress does not pass patent reform legislation, patents will inhibit the innovation they set out to incentivize. Innovative inventors and young companies are being threatened by “patent trolls” that are wielding bad patents, frivolous infringement allegations, and exploiting loopholes in an expensive patent litigation system. Unfortunately, legislation that would help relieve startups and stop trolls is stalled in Congress - largely because of incumbent interests, e.g. the pharmaceutical industry (PhRMA). The bottom line: the one-size-fits-all patent system that has long worked for PhRMA is not working for software.

ICYMI: November is National Entrepreneurship Month. In other news from the White House, President Obama has issued an official presidential proclamation designating the month of November as National Entrepreneurship Month. “Since our Nation's founding, our progress has been fueled by an inherent sense of purpose and ingenuity in our people. Americans have more opportunities now than ever before to carry forward this legacy - to create something, to raise capital in creative ways, and to pursue aspirations,” states the proclamation. While we’re always celebrating the work of entrepreneurs, it’s great to see policymakers and organizations across the country rally behind them this month.

Startup News Digest: 11/13/2015

Our weekly take on some of the biggest stories in startup and tech policy.

#VetsWhoTech on Veterans Week: The passage of Veteran’s Day offered a moment for the tech community recognize the enormous contributions of our service men and women, the lessons we can learn from them, and the plain fact that veterans are very much a part of the tech and startup workforce. We’ve highlighted some of their stories and unique career paths in a booklet that profiles seven successful veterans in the technology industry. Yet, as these stories underscore, the current offerings covered by veterans benefits are woefully outdated. In an oped, Engine Executive Director Julie Samuels called on Congress to fix the challenges facing veterans looking to transition into the tech industry: "Trained as leaders and decision makers in complex situations, many veterans have the fundamentals to quickly learn or adapt problem-solving skills as an entrepreneur launching a startup or an engineer at a tech company.” It’s time policymakers address the limitations of veterans benefits in a changing economy.

Congress' Copyright Listening Tour. Since the spring of 2013, when the Register of Copyrights called for Congress to write “Next Great Copyright Act,” the House Judiciary Committee has held more than 20 fact-finding events to solicit opinions from a variety of stakeholders about what reforms they should pursue. This lengthy “listening tour” took a swing through California this week with stops in Silicon Valley and Los Angeles. The Northern California roundtable featured participants from all segments of the tech sector, from startups and larger tech companies to investors, academics, and advocacy organizations. The conversation was refreshingly in-depth throughout, including a series of exchanges between the Representatives and panelists about the need for fixes to copyright’s statutory damages regime. While participants were generally supportive of the DMCA, they also highlighted the need to address the growing problem of false takedown notices, which disproportionately hurt small companies.

Court Rules ITC Can’t Block Overseas Data Flow. The US Court of Appeals ruled in ClearCorrect v. ITC this week that the International Trade Commission (ITC) does not have the authority to block the electronic transmission of digital data from overseas. The ITC has typically had authority to block the importation of solely material, patent-infringing devices - and the Court confirmed this. This is an important decision because, as Charles Duan of Public Knowledge states, it “helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression.” The entertainment industry, however, is disappointed in the ruling which they hoped would have authorized the ITC prevent the import of pirated movies, books, and other digital goods.

Gig Economy Politics Makes Strange Bedfellows.  Tuesday saw the emergence of an unlikely alliance between gig economy giants and labor groups. In a letter addressed to regulators, the coalition of 37 startups, VCs, labor advocates, and thought leaders called for “a stable and flexible safety net for all types of work […] regardless of employment classification.” The letter presented more of a framework than clear, concrete solutions to the current worker classification conundrum. But the group did highlight the need for easier and more expansive access to the sorts of benefits that are traditionally enjoyed by full-time employees. Notably absent from the letter was Uber, which is embroiled in its own legal battles around this issue.

Clay Shirky on Online Education. In a compelling essay on Medium, Clay Shirky writes that the digital revolution in higher education isn't the future, it is already happening. Millions of undergraduates enroll in online courses every semester and have now for several years. Shirky points out this shift towards online learning is less a pedagogical change than an organizational one that is serving a far wider population of college students than the public conversation about higher-ed tends to focus on. Online education offerings are not only more affordable than traditional college courses, they also meet "a demand for more flexibility by students who have to manage the increasingly complicated triangle of work, family, and school."

Immigration Arguments Making Headlines. A handful of immigration issues made headlines this week. A federal appeals court ruled against the Obama administration's Deferred Action for Parents of Americans (DAPA) plans and Republican presidential candidates sparred over one another's positions on amnesty. Nonetheless, few candidates are discussing proposals to reform or expand the nation's high-skilled immigration system, where problems also persist. This week, The New York Times reported on the particular challenges small companies face in the competition for limited H-1B visas. Large outsourcing companies have flooded the system with requests in recent years and in 2014, just 20 employers acquired 40 percent of the available visas. In other vias news, the Department of Homeland Security is considering amending its Operational Practical Training program to extend the length of time foreign students in STEM fields can remain in the U.S. The agency is accepting comments on this proposed change until Nov. 18.

More Spectrum, Please. Did you know that by the end of this decade, over 50 billion “things” will connect wirelessly - from your thermostat to your car to your fitness tracker? Or that in the same time period, mobile data traffic is projected to increase seven-fold? What about the fact that the federal government controls the vast majority of spectrum, the invisible airwaves that enable these wireless products and services? In the second post in our Broadband Solutions Series, we take a look at why making more government spectrum available for commercial use is essential to improving competition and unleashing the next wave of mobile innovation.  

Taking on Patent Trolls in the States

We are pleased to announce the latest paper from students at the Juelsgaard Intellectual Property and Innovation Clinic at Stanford Law School: “How States Can Fight Patent Trolls.”

Some context: the patent troll problem has gotten so bad that states are trying to come up with their own legislative fixes that fall within their jurisdiction.

This paper, by Marta Belcher, John Casey, Madeleine Laupheimer, and Brian Weissenberg, takes a comprehensive look across legislation passed by states to target patent trolls. They compare the provisions, the type of behavior the bills try to limit, modes of enforcement, as well as remedies and exemptions. The paper then goes on to analyze lawsuits brought by various state attorneys general under consumer protection laws and based on the outcomes, makes recommendations for lawsuits going forward.

These efforts at the state level highlight the need to address the patent troll problem, but state legislation can only do so much. The authors conclude, “Because bad faith must be asserted in order to avoid a state law cause of action being preempted by federal law, states can only really fight the egregious trolls that explicitly lie in their letters. In order to fully address the patent troll problem—a multidimensional problem of which frivolous demand letters make up only part—Congress must act.”

Startup News Digest 10/30/2015

Our weekly take on some of the biggest stories in startup and tech policy.

SEC Finalizes Crowdfunding Rules. At today’s SEC open meeting, the Commission voted to adopt Title III crowdfunding rules, finalizing the last and most highly-anticipated provision of the 2012 JOBS Act. Once the rules go into effect, (180 days after they’re enter in the Federal Register,) any investor can buy equity shares from companies raising capital online, marking a new era of financing for startups and investors alike. As Engine and industry experts have commented, the rules aren’t perfect, but their long-delayed release is the first critical phase in working with policymakers to improving and expanding the crowdfunding ecosystem.

Cybersecurity Bill Passes Senate. On Tuesday, lawmakers voted 74-21 to pass the Cybersecurity Information Sharing Act (CISA). The bill has been largely opposed by the tech community over concerns that the bill’s core information-sharing mechanism would compromise user privacy. Amendments aimed at providing additional privacy protections  didn't garner sufficient support, leaving industry stakeholders and civil liberties advocates frustrated. But the debate will not end here—there is a chance these issues will come up again as the Senate’s bill goes to conference with the House.  We’re tracking.

EU Passes (Bad) Net Neutrality Rules: The tech world's focus shifted to the EU this week, as the European Parliament voted on net neutrality rules that have caused consternation amongst open Internet advocates worldwide. Though the new European-wide rules look similar to rules the FCC passed earlier this year, the EU's regime contains many vague definitions that will allow ISPs to create and exploit loopholes that could render the EU's nominal ban on so-called "fast lanes" ineffective. For example, the rules create an exception allowing ISPs to prioritize "specialized services," but define that exception so broadly that ISPs could effectively create the types of fast lanes that the rules nominally ban. Similarly, while the U.S. rules allow the FCC to evaluate the legitimacy of zero-rating plans on a case-by-case basis, the new EU protocols allow zero-rating. While there may still be opportunities to correct these loopholes going forward, the future of an open Internet in Europe looks uncertain.

EU and US Close on New Safe Harbor: After the European Court of Justice’s rejection of the “safe harbor” that allowed U.S. companies to easily import EU customer data to the U.S., the tech world was left in a state of confusion as to what exactly was supposed to happen next. While the EU and U.S. had been hammering out a new safe harbor framework even before the old one was rejected, news this week that negotiators agreed in principle upon a new frameworks came as a pleasant surprise. Whether the new framework satisfies the ECJ’s concerns and what companies should do in the meantime remain open questions.

New Copyright Exemptions. In what has become a triennial reminder that it's impossible for the law to properly keep up to date with changing technology, the Librarian of Congress this week granted a number of exemptions to a rule in the DMCA that outlaws "circumventing" certain digital locks. This year's exemptions include rules allowing the public to tinker with car software and to jailbreak devices in order to run third party software. Of course, the exemption for security research on cars came way too late to prevent the VW emissions scandal, and the jailbreaking rule was perhaps most notable for fixing an absurd distinction between jailbreaking phones (already legal) and tablets (now legal). It's great that there is a mechanism for updating the law to reflect technological realities, but a system in which you have to wait three years before finding out whether it's legal to install third party software on your tablet needs an overhaul rather than a triennial tweak.

Can Tech Help Copyright? In an op-ed this week, Mike Masnick explores the potential for technology to solve the entertainment industry’s copyright woes. Take Sweden, for instance, where not long ago, piracy was rampant. But with the rise of forward-looking services like Spotify, which calls Sweden home, piracy rates have steadily declined. Policy lessons from other countries, detailed in a recent report, demonstrate that “attempts to reduce piracy by passing strict anti-piracy laws...had little long-term impact on piracy rates.” Instead, policymakers should embrace and support innovative ways to support the creative industry through new technologies.

Amazon Faces Worker Classification Suit. Four former Amazon Prime Now delivery drivers have sued the company, arguing that they were misclassified as contract workers instead of employees with full benefits. The suit is the latest in a long list of ongoing legal battles between on-demand workers and their employers (see Uber & Lyft, Grubhub & others, Postmates & others). As the debate continues around how to best support this growing class of workers, these cases have the potential to completely reshape the 1099 economy and the companies that operate within it.

Campaigns to Talk Tech in Iowa. Engine joins the Cedar Rapids Gazette and the Technology Association of Iowa in inviting Democrat and Republican Presidential contenders to the Iowa Presidential Tech Town Hall in Cedar Rapids this December. Candidates will share their agendas for supporting the innovation economy and take questions from a panel of tech policy leaders and local entrepreneurs. Potential topics include technology innovation, STEM education, broadband access, and entrepreneurship. More information and tickets to this event at PresTechTownHall.org.

Startups on the Hill for Patent Reform. Engine and the Consumer Electronics Association hosted a Capitol Hill fly-in Thursday where we were joined by four startups that have battled patent trolls first-hand. Together, we spoke with eleven Senate offices, including directly with Senators Heinrich (R- NM) and Peters (D-MI), about our support for the Senate’s PATENT Act. We also delivered the letter signed by nearly 200 startups in support of the Innovation Act (House bill) and PATENT Act (Senate bill). These bills would help disincentivize bad actors in the patent system and give startups tools to defend themselves against frivolous patent litigation.

Better Broadband Competition. Startups depend on internet connectivity and benefit from greater competition among providers. Over the next few weeks, we will be highlighting a number of policies that would improve competition in the broadband market and better encourage entrepreneurial activity. Read our first post outlining the series here and stay tuned for more.

Startup News Digest 10/23/2015

Our weekly take on some of the biggest stories in startup and tech policy.

Judicial Redress Act Heads to Senate. On Tuesday, the House passed the Judicial Redress Act, which would extend rights to judicial redress to citizens of the EU and other designated countries. The bill has broad support within the tech community, where it is seen as both a sensible next step in surveillance reform and essential to advancing an updated safe harbor agreement between the U.S. and the EU. The bill was slated for Senate consideration as an amendment to the Cyber Information Sharing Act (CISA), but was pulled on Thursday for procedural reasons. The bill’s sponsors are working with Senate leadership to schedule a vote and we will continue to track. Meanwhile, the White House chose to endorse CISA, but also criticized it for allowing companies to share data with any agency, rather than having a centralized clearinghouse.

A National Drone Registry: Recreational drone users will soon be required to register their unmanned aircrafts, federal agencies announced this week. The decision comes amidst national airspace safety concerns from the Federal Aviation Administration and the Transportation Security Administration as reports from piloted aircrafts of drone sightings of or close calls with rogue drones have mounted in the past year. The details of the registration system are still being worked out and the FAA is currently seeking input from the public. Hobbyists and drone users can submit their comments here until November 20.

Bitcoin Teams up with the Feds. A new technology-government alliance is bringing together Bitcoin experts and advocates with government officials. The Block Chain Alliance was established to help federal authorities better understand the complexities of bitcoin transactions, and to change the perception of bitcoin as a "currency for criminals". The alliance will also offer digital currency companies an opportunity to demonstrate power and potential of these new technologies, especially for law enforcement agencies. The Justice Department and Secret Service and are already exploring how to use Bitcoin to more securely track the flow of digital currency across borders.

‘Dig Once’ Bill Introduced in House. On Thursday, Reps. Walden and Eshoo introduced the Broadband Conduit Deployment Act of 2015, which would mandate installing broadband conduit pipes during federal road construction. This would allow service providers to easily install fiber lines years down the road without having to excavate the road to re-dig a channel. The Federal Highway Administration has reported that ‘dig once’ policies like these can reduce broadband deployment costs by as much as 90%.

Code.org letter on CS education. Code.org and several major tech industry players sent a letter to the legislators leading education reform efforts this week. The letter urges lawmakers to include provisions that promote computer science education in any revision of the Elementary and Secondary Education Act (ESEA). Among their requests: maintain computer science as a “core academic subject” and retain resources that would improve teaching and learning in STEM subjects. You can read the full letter here.

Coding Behind Bars. This week Vice reported on the first and only coding bootcamp behind bars. Non-profit The Last Mile, runs Code.3730, a six-month coding course for inmates at San Quentin prison. The curriculum - Java Script, HTML, CSS, and Python - is similar to other code academies, but it’s taught on on dry-erase boards, without Internet. In January, students in the program will be eligible to get paid for entry-level front-end coding work for companies on the outside.

Data Security for Startups. As startups generate, collect, and use data at an increasing rate, state and federal regulators expect them to have security protocols in place. On Tuesday, Engine co-hosted a data security panel at the Nasdaq Entrepreneurial Center in downtown San Francisco to dig into these security issues. Read our blog post recapping the event and unpacking existing resources, including the FTC’s “Startup with Security” guide, to help startups navigate data security regulation and ensure they are adequately prepared for a breach.

Startup News Digest 10/16/15

Our weekly take on some of the biggest stories in startup and tech policy.

Federal Aid for Coding Bootcamps. On Wednesday, the U.S. Department of Education announced a new pilot program that will make it easier for a more diverse range of people to attend alternative education programs like coding bootcamps. Until now, students enrolled in “nontraditional” educational programs have not been eligible for federal financial aid.  The new EQUIP (Educational Quality Through Innovative Partnerships) program will waive existing restrictions to allow federal aid dollars to be used towards approved alternative programs. While the scope of the pilot will be relatively small, this initiative is a great move by the Dept. of Ed towards making these popular and essential programs more accessible to all.

White House Opts Against Legislating Back Door for Encryption. At the end of last week, the White House made a long awaited decision: they would not push for legislation that would mandate companies be able to decode messages at the request of law enforcement. At least, that’s what they’ve decided for now. Even if the White House’s decision maintains status quo, advocacy groups worry about the White House’s definition of “strong encryption” and whether the Administration will “weaken security through other methods.”

EU Safe Harbor Ruling. Ars technica takes a deeper look at the far-reaching consequences of the EU’s safe harbor ruling in an article published on Thursday. Evan covered the impact this ruling will have on startups in a blog post last week, noting that “while larger companies have quickly moved to establish new legal pathways for importing EU data or have secured data centers in the EU, smaller companies face a more daunting task in trying to comply with now unclear data protection rules.” Ars goes even further, arguing that this ruling will have a dramatic effect beyond short-term global commerce—it will likely impact future trade agreements between the U.S. and EU, as well as the UK’s surveillance practices.

Evidence of “Over-Removal” by Intermediaries. When intermediaries receive a take-down request, the easiest, least risky response is to take down the cited material - especially for small companies that don’t have the resources to hire a legal team to thoroughly evaluate each request. A literature review by Stanford revealed growing amounts of empirical evidence of “over-removal” by intermediaries (e.g. Google, Twitter, Facebook), further defining a problem that puts free-expression at risk.

Wyden Calls for Greater DMCA Exemptions. As the U.S. Copyright conducts its periodic review of requests for exemptions under the Digital Millennium Copyright Act (DMCA), the agency should consider the importance of these exemptions to the  continued expansion and improvement of American technologies, Sen. Ron Wyden explained in this week’s Wall Street Journal. Wyden expressed his concerns about the EPA and FDA’s pleas to limit exemptions for new software in cars and medical devices, thereby prohibiting such new technologies from being legally tinkered with under the DMCA. Sen. Wyden and Rep. Jared Polis (D-CO) have introduced the Breaking Down Barriers to Innovation Act, a bill that aims to streamline “the process to obtain exemptions to the DMCA to promote scientific research, innovation and the fair use of copyrighted works.”

Better Crowdfunding Policy. In anticipation of the SEC’s impending release of the Title III crowdfunding rules, Engine published a white paper this week, “Financing the New Innovation Economy: Making Investment Crowdfunding Work Better for Startups and Investors.” The paper analyzes trends in U.S. and U.K. crowdfunding markets, which offer important lessons for U.S. regulators and lawmakers as we move closer to launching investment crowdfunding for retail investors.

In Celebration of Ada Lovelace. On Tuesday we commemorated Ada Lovelace Day and celebrated the achievements of the first programmer and women in science and technology everywhere. News from Stanford emphasized progress: 214 women have enrolled as computer science majors, 30% of all enrolled computer science students.

Startup News Digest 9/18/15

Our weekly take on some of the biggest stories in startup and tech policy.

Tech and 2016. In case you missed it, check out Julie talking about tech and the 2016 election on KCRW’s Press Play with Madeleine Brand.

FCC Opens Up Business Broadband Data to New Eyes. On Thursday, the Federal Communications Commission (FCC) announced that it will release data on the little-understood special access market. While most consumers have never heard of special access lines, you probably unknowingly use them every day. They are the high capacity business broadband lines that allow ATMs to connect directly to your bank or cell phone towers to connect back to the network. Competition in this industry is sorely lacking, with just two providers covering most of the U.S. and jacking up prices for the startups, universities, hospitals, and other businesses that use them. While the data will only be accessible to analysts approved by the FCC, its release represents a step in the right direction towards more transparency, increased competition, and lower broadband prices.

Senate Committee Considers ECPA Updates. The Senate Judiciary Committee held a hearing on reforming the Electronic Communications Privacy Act (ECPA) on Wednesday morning. As we’ve covered in past digests, it's still legal for law enforcement to access your emails and other digital data without a warrant. Last week, the California legislature passed a bill to modernize these outdated digital privacy laws at the state level. Still, a federal overhaul of ECPA would be an even better fix, bringing these laws out of the digital dark ages.  Sens. Lee (R-UT) and Leahy (D-VT) have proposed a bill in the Senate, and there is similar legislation in the House. We’ll be tracking reform efforts.  

Dancing Baby Wins Victory For Copyright Fairness. The courts ruled this week in Lenz v. Universal, the famous “dancing baby” case. As Evan writes, “The Lenz ruling is important for a few reasons. First, it should make it much harder for content owners to abuse the takedown process. […] Second, the decision should serve as a loud reminder that the tech world needs to get to work rebalancing our copyright laws to ensure that they’re actually promoting creativity and expression.”  Read the whole post here.

$81M for CS in NYC. On Wednesday, New York City Mayor Bill de Blasio announced an $81 million public private partnership to make computer science education available to every student in city public schools by 2025. Substantial contributions have come from the Wilson family foundation, the AOL Charitable Foundation, and the Robin Hood Foundation. New York joins Chicago and San Francisco in terms of large cities that have made similar commitments, and we hope to see other cities, states, and the federal government continue to build on such efforts to prepare students for jobs in the growing innovation economy.

The Fight Is On Over Chicago’s Streaming Tax.  A group of Chicago residents have sued the city over its controversial application of the 9% Amusement Tax to online streaming services like Netflix, Hulu, and Spotify.  The Amusement Tax, which applies to events like concerts and sporting games, has been in existence for a while, but was only recently expanded to cover streaming services. And Chicagoans’ bills are already increasing.  As Ars Technica reports, one reader’s Spotify bill went from $7.99 to $8.71 this month. We’ll be watching, as the outcome of this case could have a national impact on the power of cities and states to tax the internet economy.

“Cool clock, Ahmed”. When a Texas middle-schooler’s homemade invention was mistaken for a bomb this week, prompting an outlandish response by his school and local law enforcement, it caught the tech world’s - and the President’s - attention. As a New Yorker writer points out, “His arrest comes at a moment when some of the world’s most influential people...have argued that there aren’t enough U.S. students gaining the math and science skills that will get them jobs in the tech sector."

A Different Kind of Tech Event. We were impressed and encouraged by the conversation at last week’s Tech Inclusion conference in San Francisco, which brought together leaders in Silicon Valley and the national tech community to discuss the challenge of making the tech industry more diverse. Read our take on why this wasn’t your typical tech event and what we took away.

Dancing Baby Wins Victory For Copyright Fairness

The development of copyright law in the US has followed a predictable (and unfortunate) trajectory: over time, Congress and the courts have continually added ever more and stronger protections for copyright owners and minimized the importance of creative reuse and open access. So, when this trend occasionally reverses—like when the Internet community rose up to fight back against SOPA/PIPA—it’s worth taking note. This week’s court ruling in Lenz v. Universal (the famous “dancing baby” case) represents such a victory.

A quick refresher for those who haven’t been following the case closely since it was first filed way back in 2007: Stephanie Lenz posted to YouTube a short video of her son dancing to Prince’s “Let’s Go Crazy.” Despite the fact that the video was less than a minute long, and that the song was barely audible in the background, Prince’s record label, Universal, promptly went crazy and sent YouTube a notice claiming that Lenz’s video infringed its copyright.

Under the Digital Millennium Copyright Act (DMCA), content distribution platforms (like YouTube) can’t be held liable for their users’ alleged copyright infringements if, upon receipt of a notice of infringement like the one Universal sent, they remove the identified material from their sites. This essentially gives content owners the power to direct the removal of content from the Internet simply by asserting an infringement. Recognizing that, Congress included in the DMCA a provision that allows the poster of allegedly infringing content to challenge the accusation of infringement, which is exactly what Stephanie Lenz did, claiming that her video was a “fair use,” and thus didn’t infringe Universal’s copyright.

Fair use is one of the few doctrines in copyright law that permits people to reuse someone’s copyrighted work without permission. Think, for instance, of a book review, for which one might want to use an excerpt of the reviewed book. Or a parody, criticism, or other forms of speech protected by the First Amendment. Each of these requires use of the underlying work and doesn’t harm the market for that work by creating some kind of substitute for the original content. A short clip of a child dancing to a pop song seems like a quintessential fair use, so it’s hard to imagine how Universal could have believed that Lenz’s video infringed its copyright.

Despite this, content owners consistently and wantonly send infringement notices, no matter how preposterous their claims of infringement may appear to reasonable people. This allows certain parties to act as police of content on the Internet, giving copyright holders what nearly amounts to a blank check to remove all kinds of protected speech.

Thankfully this week’s ruling in Lenz restores some sanity to this regime. The Ninth Circuit ruled largely in Lenz’s favor, holding that a content owner must consider fair use before it has content removed from the Internet.

The Lenz ruling is important for a few reasons. First, it should make it much harder for content owners to abuse the takedown process. It’s incredibly expensive and time consuming for platforms (especially small ones) to respond to takedown notices, and because until now it was virtually impossible to face any repercussions for sending false notices, content owners were incentivized to send as many removal requests as they could, often for improper purposes. When combined with the absurdly large penalties facing companies accused of facilitating copyright infringement, the process of handling takedown notices makes running a content distribution startup difficult if not financially impossible.

Second, the decision should serve as a loud reminder that the tech world needs to get to work rebalancing our copyright laws to ensure that they’re actually promoting creativity and expression. It’s troubling that it took almost a decade to convince a court that content owners shouldn’t be allowed to accuse companies of hosting infringing material if they’ve done virtually nothing to confirm or deny that belief. But it’s not surprising, since for years, content industries were the only ones at the table in Washington lobbying for copyright rules.

There’s a long list of obvious fixes to the copyright system that will realign the law with copyright’s original purpose: to promote creative activity.  We could start by eliminating statutory damages awards that bear no relation to the actual harm suffered, and by precluding personal liability for entrepreneurs that have not knowingly violated any copyright laws but whose companies are accused of facilitating the infringing activities of their users. There’s much work to be done, but as Lenz shows, through dedicated effort, we can make incremental but important changes to the copyright regime.

Startup News Digest 9/11/15

Our weekly take on some of the biggest stories in startup and tech policy.

CalECPA Letter to Governor Brown Urgently Needs Your Signature. On Wednesday, the California Assembly passed the California Electronic Communications Privacy Act (CalECPA) with broad, bipartisan support. The bill (which we covered in last week’s digest) would update digital privacy laws by requiring law enforcement to obtain a warrant before accessing an individual’s electronic communications. The bill now heads to Governor Jerry Brown for signature, but opponents are campaigning aggressively for a veto. We’re sending a letter to Governor Brown urging him to sign the bill and modernize an absurdly outdated privacy law. If you are a startup and would like to lend your voice to this fight, please fill out this form by noon on Monday, September 14.

Upcoming Tech Events. Catch our webinar on September 23, “How can startups work with government to promote innovation and new technologies?” Co-sponsored with Gide Public Affairs and ConnecTech, the webinar will look at how to incorporate a government relations strategy and leverage government resources to grow your startup, and how we can all advocate to protect the startup community. Click here to RSVP.

Intelligence Reauthorization Bill Still Held Up Over Terrorist Reporting Provision. As Congress returns to session, a bill to reauthorize funding for intelligence agencies continues to be held up in the U.S. Senate over a provision that would require social media and internet companies to police the speech of their users and report apparent “terrorist activity.” Opponents argue that the bill’s vague legislative language will result in a compliance nightmare for the wide range of companies that will be subject to the bill’s requirements.  Senator Ron Wyden (R-OR) has vowed to block the bill until these concerns are addressed.  We will be monitoring closely, as the currently ill-defined requirements could be overly burdensome and difficult to navigate for many startups.  

An Immigrant Entrepreneur’s Story. "Our immigration system hinders entrepreneurship, innovation and productivity," writes tech entrepreneur, Amit Paka, and we couldn't agree more. Paka shares his story of patiently navigating the irrationally complex immigration system to at long last obtain residency status and become a U.S. citizen. And in that time he also founded two companies, despite significant obstacles. This broken system impedes opportunities for entrepreneurs - the men and women creating new technologies and jobs in this country every day - yet it remains to be seen whether real solutions are in sight.

Patent Reform. Lot’s of news on patents this week. House Judiciary Chairman Bob Goodlatte expressed confidence that patent reform legislation would get a vote in the weeks ahead. The NY Times wrote in an editorial that “patent law should not be used to prevent consumers from reselling, altering or fixing technology products.” And the patent research platform Patexia launched a new initiative using crowdsourcing to help companies share some of the burdens associated with patent litigation. In case you missed it, check out our recent post on the status of patent reform efforts in Congress.

A Safety Net for the On-Demand Economy.  As lawmakers continue to grapple with the gig economy’s dramatic transformation of the American workforce, recommendations are emerging around which policies will best serve the growing class of on-demand workers. On Wednesday, the National Employment Law Project published a report calling on lawmakers to classify on-demand workers as employees and extend a number of protections and benefits to them. Freelancers Union founder Sara Horowitz proposed additional solutions in a New York Times op-ed published Wednesday, arguing for the creation of a “new system of portable benefits” to better provide a safety net for workers in the freelance economy. These are important conversations for the startup community to take part in as the debate continues around how to best support this new class of workers.

Diversity in Tech. African Americans face serious challenges in entering the tech field, even if they live just miles from Silicon Valley. Profiling several new organizations including the Hidden Genius Project, based in Oakland, the New York Times highlights how the tech community’s debates about its lack of diversity have spurred initiatives to educate, train and support underrepresented minorities to enter into and succeed in the industry. African Americans have become an especially important focus: they currently make up only 7 percent of the tech workforce and receive only 1 percent of VC funding. See more on Engine’s work to diversify tech here.

Tech Leaders in Politico 50. The Politico 50 is out, recognizing some of the people transforming American politics this year. The list includes a number of tech leaders, including Engine board member Marvin Ammori, along with Susan Crawford, Tim Wu, Michelle Lee and Chris Soghoian. Congrats to everyone who made the list!

Startup News Digest 8/21/15

Welcome to the Startup News Digest, our weekly take on some of the biggest stories in startup and tech policy. Here's what we've been tracking the week ending August 21st, 2015:

• Venue Reform. 44.4% of all patent cases are filed in the Eastern District of Texas. And that’s no accident. Our friends at EFF took a close look at the numbers, and found that the “probability is so vanishingly small that you’d be more likely to win the Powerball jackpot 200 times in a row”. So why are so many cases filed there? Because the Eastern District is notoriously friendly to plaintiffs, making this an ideal location for patent trolls to operate. More on the numbers, and the need for venue reform, here. And read our recent take on the problem here.

• Copyright Law and Creativity. Copyright law's principal purpose is to encourage creativity: giving creators exclusive control over their content, the argument goes, will allow them to earn enough money to sustain further creativity. The trajectory of copyright policy in the past few decades seems to operate on the reductio ad absurdum that if exclusive control over content leads to more creativity, maximum control must lead to maximum creativity. It is no surprise, then, that content industries reacted so strongly to digital technologies that could weaken control over the distribution of their work, arguing that the Internet will ultimately destroy creative industries. But, as the New York Times highlights, this argument doesn't hold up all that well in practice. On the contrary, creative production has exploded with the rise of digital distribution technologies. The findings should give policymakers pause about further ratcheting up copyright protections like term lengths and infringement penalties that already likely diminish rather than promote creativity. We wrote more about the negative impact of punitive copyright law here.

• Diversity in Tech. The Verge took a close look at the diversity numbers at some of the largest tech companies.  And while the numbers aren’t good, they also point to some of the problems with the ways employment data gets reported to the federal government. If we’re going to make progress in diversifying the tech sector, we need data that accurately reflects the problem and the way it responds to various efforts from both the private and public sector. Check out some of Engine’s work on diversifying tech here.

• Taxing the Digital Economy. The Wall Street Journal looks at ways different states are trying to collect taxes from new technologies to offset losses in sales tax and other traditional sources of revenue. While states are reasonable to want to collect funds they are due, this kind of piecemeal approach creates serious regulatory issues for startups that operate nationally or globally. And it has the potential to push entrepreneurs out of states with particularly onerous policies. More here on the dangers of trying to apply old tax and regulatory schema to new technologies.

• Drones. As drones (or unmanned aerial vehicles, UAVs) go mainstream, and some disrupt air traffic, policymakers are looking to apply rules that would limit their ability to cause danger or invade privacy. Sen. Chuck Schumer (NY) is pushing to require dronemakers to develop technology that would keep drones from entering restricted airspace. This sort of geo-fencing provision will likely find its way into negotiations over the extension of the FAA reauthorization bill next month. Meanwhile, researchers at UC Berkeley are testing a license plate for drones consisting of multicolored lights on the bottom of an aircraft. The unique pattern of blinks assigned to each drone could be identified in a database by law enforcement.

• Decoding the On-Demand Economy. Policymakers (and presidential candidates, too) are grappling with how to interpret the emerging on-demand economy and too often, as Devin Findler of Institute for the Future points out, this industry is wholly categorized as either good or bad. The conversation among regulators, policymakers and even media critics should instead seek to understand the underlying technologies transforming sectors of our economy and how new platforms built on top of those technologies can be "intentionally designed to maximize the benefits for everyone connected to them." IFTF recently sat down with the Department of Labor to share these more nuanced insights about the future of work - we need more of these conversations happening at every level of government.

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.

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.

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.