Today, the Supreme Court delivered a blow to patent trolls by unanimously reversing the Federal Circuit’s decision in TC Heartland v. Kraft Foods Group Brands LLC. The high court ruled that defendants in patent cases can only be sued where they are incorporated or have a regular and established place of business. The decision will make it significantly harder for patent trolls to file lawsuits in jurisdictions that patent-friendly but otherwise unrelated to the claims at issue—most notably the Eastern District of Texas, where almost forty percent of patent cases were filed last year.
Today, Engine hosted Austin Meyer, the director of the new documentary “The Patent Scam,” at the Capitol Hill Visitor Center. The screening and subsequent discussion with real victims of patent litigation abuse demonstrated the extent that the U.S. patent system is failing to protect small businesses and startups from patent trolls.
After almost five years of legal volleying, the U.S. Supreme Court finally issued a decision in the highly anticipated Apple v. Samsung design patent case late last year. On Tuesday, Dec. 5, the court delivered a unanimous decision in favor of Samsung, finding that damages for design patent infringement may be limited to revenues attributable to a component of an article of manufacture rather than profits from the entire article. While this is an important victory for startups and innovators—from global corporations to inventors toiling in garages—courts must still work to provide the guidance and clarity necessary to prevent bad actors from abusing the patent system to the detriment of innovation. And they have a new opportunity to do so: On Feb. 7, the U.S. Court of Appeals for the Federal Circuit took a significant step in that direction by remanding the Apple v. Samsung case to the Northern District of California court.
Under Director Michelle Lee, the Patent Office has made real strides toward fixing patent quality. While much work in that area remains to be done, we are encouraged by the steps she and her team have taken and are pleased that she will remain in her role in the incoming Administration so that this important work can continue. Startups in particular rely on a well-functioning patent system, and under Director Lee's leadership, the Patent Office has welcomed the startup community to play a role in that debate. We look forward to continuing working with her to ensure that that the patent system promotes rather than hinders innovation.
The Supreme Court’s December 2016 decision in Apple vs. Samsung reversed a dangerous lower court decision that would have allowed patent plaintiffs to claim the total value of a product containing an allegedly infringing design feature, even if that design feature only provides a small amount of the product’s value. While total profits awards may arguably have been more plausible in an age when devices were less complicated and the design of the object constituted a significant portion of its value, the complexity of modern devices renders total profits awards for design patent infringement particularly illogical.
The patent system was established by our founding fathers as a tool to promote innovation and invention. But too often, America’s most creative, forward-thinking startups find themselves interacting with the patent system in a less-than-ideal way: on the receiving end of an infringement suit or a letter threatening as much. Bad actors that have amassed hundreds and thousands of overbroad, low-quality patents (colloquially known as “patent trolls”) target businesses, using these patents as proverbial weapons with the goal of forcing companies into costly settlements.
Considering tech’s strong presence in DC politics, it’s hard to believe that half a decade ago, the notion that the internet community was capable of any unified political engagement seemed far-fetched. But exactly five years ago today, the nation’s political apparatus quickly came to understand just how powerful a constituency the internet community could be.
The Copyright Office’s announcement on New Year’s Eve 2015 that it was launching a public review of the Digital Millennium Copyright Act (DMCA) set the tone for a varied and busy year in intellectual property policy. While there was no “Next Great Copyright Act” or comprehensive patent reform bill in 2016, courts, agencies, and elected officials addressed a wide range of IP issues, setting the stage for even more significant developments in 2017.
This morning, the Supreme Court ruled unanimously in Samsung’s favor in a case against Apple involving how damages should be calculated and awarded in design patent cases. In a win for the startup community, the court held that an award for design patent infringement does not necessarily allow the patent holder to obtain damages equivalent to the total profits of a product in which the patented design is used, as the lower court originally ruled. Rather, courts can award design patent damages for the particular components in which the patent was used. The decision may result in the lower court drastically decreasing its original award of almost $400 million to Apple, though the Supreme Court did not rule on how the modified damage amount should be calculated.
As a non-profit policy organization committed to making the world better for startups, Engine has a long history of engagement on copyright reform issues. Indeed, Engine began as an effort to harness the political power of the startup community that emerged from the tech world’s fight against the ill-fated SOPA/PIPA copyright bills. While the SOPA/PIPA battle remains a critical milestone in the emergence of tech as a political force, our work to return copyright law to a system that promotes rather than hinders innovation is only beginning. To help further this crucial mission, we are proud to join the Re:Create Coalition, a group of creators, innovators, and users working to ensure that copyright laws are balanced and foster innovation, creativity, and economic growth.
The patent system was enshrined in the American Constitution as a tool to promote innovation and invention. But as we have lamented again, and again, and again, the current system often has the opposite effect. In recent years, patent trolls—more politely known as non-practicing entities or NPEs—have hijacked the patent system, amassing hundreds and thousands of overbroad, low-quality patents with the sole purpose of suing and forcing companies into costly settlements. Unfortunately, this abusive patent litigation disproportionately impacts startups, entrepreneurs, and innovators (more than 80 percent of patent troll victims are small- and medium-sized businesses, and 55 percent of troll suits are filed against companies with revenues of less than $10 million).
Historically, startups have had little occasion to pay attention to the proceedings of our nation’s highest court. While arcane questions of constitutional law have an enormous impact on broader society, the Supreme Court’s activities are often too far removed from the challenges entrepreneurs must handle every day to simply keep their businesses afloat. But, an upcoming case on the Supreme Court’s docket may warrant a shift from this traditional mindset, as the outcome of the dispute could have a resounding impact on startups and small businesses in all industries.
The RIAA and its allies in the traditional music industry continue to ramp up their efforts to undo one of the key laws that made the modern internet possible, releasing a letter to Congress yesterday signed by dozens of musicians arguing that the Digital Millennium Copyright Act (DMCA) is somehow ruining the music industry.
On New Year’s Eve 2015, while most people were out celebrating, the Copyright Office quietly issued an notice of inquiry seeking public input on an incredibly important topic: the effectiveness of Section 512 of the Digital Millennium Copyright Act (DMCA). For those who didn’t skip their New Year’s Eve party to brush up on copyright policy, here’s a refresher: the DMCA is a law from 1998 that, among other things, grants online service providers (OSPs)—basically, all your favorite websites—a legal “safe harbor” from facing lawsuits arising from user copyright infringements.
This week, Senators Flake, Gardner, and Lee introduced a piece of legislation targeting one of the most egregious—and, frankly, ridiculous—problems with our current patent system. Specifically, the Venue Equity and Non-Uniformity Elimination (VENUE) Act would get patent cases out of the Eastern District of Texas, where patent trolls most commonly file their specious lawsuits. Together with the comprehensive reform legislation found in the PATENT Act, this bill would help put an end to a dangerous patent troll problem that continues to prey on this country’s startups and innovators.
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.
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:
Congress must pass patent reform legislation that addresses fundamental inequities in the patent system that favor large patent holders and litigation plaintiffs.
Patent quality must be improved. Removing low-quality patents from the system will also remove the trolls’ deadliest weapon.
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.
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.
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.