The Big Story: Patent policy conversations need startup voices
Policymakers are continuing to evaluate several aspects of the patent system—one of many areas where policymakers need to account for startup voices and experiences to craft policy that promotes their success. This summer, IP subcommittees in both the Senate and the House held hearings about the Patent Trial and Appeal Board (PTAB)—a venue within the Patent and Trademark Office (PTO) that can take a second look at likely-invalid patents and weed out those that should not have issued. Lawmakers have also introduced legislation, including one bill aimed at improving patent quality and another piece of legislation that would, unfortunately, open doors to more patents on abstract ideas which could frustrate innovation and competition. And the PTO is simultaneously looking at similar issues.
There are still limited opportunities for policymakers to hear the startup perspective, but the U.S. patent system touches the lives and affects the work of people and businesses—especially startups—across the country, and it can help shape the direction of innovation and commercialization (in both good and bad ways). Many startups know, first-hand, the value of high-quality patents but they are also, regrettably, familiar with the severe consequences of low-quality, invalid patents and abusive lawsuits that only stifle innovation. For example, Luke Hansen, the CEO and founder of Nebraska-based CompanyCam, recently wrote about his experience and explained that “small businesses are bearing the brunt of a broken patent system” and “our lawmakers need to recognize the damage that bad actors with low-quality patents are causing businesses like CompanyCam.” Minnesota-based TheraTec CEO, Tony Hyk, also explained how his startup had to divert time and resources away from product development to fight a meritless patent suit. And he noted that policymakers “must act now to close destructive loopholes in our patent system” that allow small businesses and startups to fall victim to low-quality patents in the first place. Austin Meyer, founder of South Carolina-based startup X-Plane, also shared his experience not just challenging a low-quality patent but collecting similar stories from other small businesses across the country. He recently stated that “no business, large or small, is safe from low-quality patents being used as weapons against them.”
Sound policy has to account for the positive and the negative aspects of the patent system, and policymakers who prioritize ensuring startup voices have a seat at the table can learn from these stories and ensure they can waste less time on bad patents and get more time doing what they set out to do in the first place: innovate.
Policy Roundup:
Congressional Startup Day 2022. Next week kicks off Startup Advocacy Week, with our annual Congressional Startup Day on Wednesday bringing together dozens of members of Congress and startups to have conversations about their local innovation economies and how policy can better support the entrepreneurs in their states and districts. Learn more here.
FTC opens door to writing privacy rules. The Federal Trade Commission (FTC) has kicked off a process to solicit public input on potential new privacy rules that could govern how companies collect and process consumer data. The agency is asking for input on “harmful commercial surveillance and lax data security practices” from companies that currently collect and use consumer data, and the notice includes nearly 100 questions on collection, transparency, discrimination, algorithmic decision-making, and more. Critics warn the agency’s move to initiate a rulemaking process—which could take years and face challenges over the FTC’s authority—could detract from ongoing discussions in Congress about a bicameral, bipartisan comprehensive privacy bill. As Engine has long argued, startups need Congress to craft a federal privacy framework that creates clear, uniform, and consistent obligations and requirements while advancing strong protections for consumers.
Inflation Reduction Act passes Senate. The Inflation Reduction Act of 2022 passed the Senate on Sunday, and the House is considering the bill today. The bill is a successor to Democrats’ Build Back Better (BBB) legislative package that stalled late last year, and it includes healthcare, climate, and tax provisions. Unlike BBB, the Inflation Reduction Act (IRA), does not include changes to Qualified Small Business Stock (QSBS), which Engine and the startup ecosystem had raised concerns about. The IRA also does not include changes to carried interest, which had been in an earlier version of the bill and worried some startup investors. The IRA creates a new minimum tax on corporations whose 3-year average adjusted book income is above $1 billion, but a bipartisan amendment ensures portfolio companies are not considered in aggregate and subject to the tax.
State digital advertising taxes likely to impact startups. Startups could face higher costs for services they rely upon following recent developments in state policy around taxes on digital services. In Maryland, as the result of a court challenge to the state’s digital advertising tax law, the government conceded that taxed companies can pass down ad tax costs to their users, including startups. While Maryland was the first state to pass a digital advertising tax, several other states have considered and advanced similarly-aimed proposals. In a new blog, we explain the history of the ad tax law and why startups should remain attentive as other state legislatures eye similar proposals.
Irish Data Protection order targeting data flows met with objection, faces delay. Ireland said this week that their decision last month targeting Meta’s EU-U.S. data transfers via Standard Contractual Clauses (SCCs) has been met with objection from other European privacy regulators, meaning the impact will be delayed several months. While the decision centers on Meta’s use of SCCs, it carries broader implications for transatlantic data transfers relied upon by startups and others to serve EU users. And the delay buys time for U.S. and EU policymakers to finalize a deal announced earlier this year to restore Privacy Shield to a legal data transfer mechanism.
Startup Roundup:
#StartupsEverywhere: Washington, District of Columbia. Actionfigure enables its customers to make decisions that best fit their needs by collecting and curating transportation intelligence data. Co-founder and CEO Matt Caywood spoke with us about his company, his experience working in the sustainability and transportation spaces, and how the federal government could help simplify the income tax process for startups.
