Copyright Damages: A Capricious System That Stifles Innovation

The last time Congress enacted significant new copyright legislation, only about one quarter of U.S. households had Internet access. It’s not surprising, then, that the current copyright regime isn’t exactly suited to our digital age. Copyright law is meant to provide incentives for creators and innovators. This principle is in the Constitution, which gives Congress the power “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In other words, we give creators limited monopolies over their works—patents and copyrights—in order to encourage them to create.  

Lately, however, this concept has started to backfire. Laws meant to foster innovation have in fact discouraged technological innovation by imposing the threat of ruinous financial penalties on entrepreneurs for engaging in perfectly legal activities that lawmakers couldn’t have envisioned when drafting the Copyright Act.

Copyright law can be confusing, particularly because many of the ways we create and share content today didn’t exist in the 1960s and ’70s, when Congress wrote most of the current Copyright Act. But, one aspect of the law is clear: a court may levy damages of up to $150,000 for each instance of infringement. This means that you could be on the hook for $150,000 for illegally downloading a single song, or for reusing or repurposing content in a manner that you believed was totally legal—until you found out it wasn’t.

The uncertainty resulting from this huge potential liability touches innovators of all kinds, not just traditional content creators. If you’re a startup and host any third-party content, you could find yourself unwittingly facing the threat of outrageous damages. Even if what you’re doing is legal, just starting your business may not be worth the risk.

Recognizing the need to reform copyright law to better protect the new types of creativity that technological changes have allowed, Congress held several hearings in recent weeks evaluating different aspects of the copyright regime, from term lengths to music licensing to the first sale doctrine. Most recently, and perhaps most importantly, the Judiciary Committee held a hearing to discuss possible changes to the nature and scope of the remedies available in copyright infringement actions.

Under virtually all U.S. laws, plaintiffs can only collect money from defendants to the extent that they were actually injured by the illegal activities. Copyright law, however, is different: plaintiffs don’t have to show any economic injury from infringement whatsoever in order to collect money from defendants. Instead, a copyright plaintiff can ask the court to award a fixed amount of money—between $200 to $150,000 per work infringed—whether or not the plaintiff was actually harmed. Juries have significant discretion to award damages within this range, and, as juries are wont to do, they often issue awards that are wildly unpredictable and many times larger than the plaintiff’s actual injury.

While it’s certainly important to deter blatantly infringing conduct, the chilling effects of these large statutory damages have unintended consequences. Copyright law doesn’t have a lot of bright lines separating conduct that is infringing from conduct that isn’t; this flexibility is necessary to ensure that new, beneficial modes of creative expression aren’t outlawed under statutes that couldn’t predict future innovations. This, of course, means that it’s often difficult for innovators to know with certainty whether their conduct is infringing or not, and the threat of hundreds of thousands of dollars in damages for failing to accurately predict what a judge or jury will say will necessarily deter a lot of non-infringing conduct.

For example, the rules surrounding liability for companies that provide content distribution services (e.g. BitTorrent, YouTube, etc.) are decidedly unclear. The law does provide “safe harbors” for content intermediaries, but those harbors are hardly safe if, like YouTube, you have to spend seven years and untold millions in court to determine whether you’ve qualified. The risk of a high statutory damages award, even if it is unlikely that any infringement has occurred, can be enough to discourage entrepreneurs and investors from entering the market.

The disincentivizing effect of massive statutory damages awards isn’t limited to startups hosting third-party content. The rules regulating software copyrights are incredibly confusing, even for copyright experts. Considering so much software development revolves around building off preexisting code, uncertain copyright liability is a risk for virtually any entrepreneur who wants to innovate by transforming existing code. In the wake of the Oracle v. Google ruling, using simple APIs to ensure interoperability raises the risk of huge statutory damages liability, even if the use of such APIs causes no damage at all.

The existing statutory damages framework seems to have lost sight of the ultimate purpose of all copyright laws: “To promote the Progress of Science and useful Arts”—essentially, to promote innovation. When considering changes to the Copyright Act, Congress must reconsider the statutory damages framework to make sure that discouraging infringement doesn’t also discourage innovation by subjecting entrepreneurs to undue risk from the threat of irrational statutory damages awards.

Thanks, President Obama: President Speaks Out Against Slow Lanes

The latest politician to add his voice to the growing coalition supporting Title II reclassification and strong net neutrality rules is none other than U.S. President Barack Obama. The President, in remarks given at this week’s U.S.-Africa Summit in Washington, made a strong statement in favor of real net neutrality, saying, “I personally, the position of my administration, as well as a lot of the companies here, is that you don’t want to start getting a differentiation in how accessible the Internet is to different users. You want to leave it open so the next Google and the next Facebook can succeed.”

Here’s the thing: the only way to ensure there is no “differentiation in how accessible the Internet is to different users” is to reclassify the Internet as a “common carrier” under Title II. The crux of the current debate surrounds under what legal authority the FCC can protect an open Internet, one without paid prioritization and fast lanes. The FCC Chairman, in public statements, has signaled his intent to work under the current legal structure--called Section 706--but, simply, the law will not allow that.

The D.C. Appellate Court has made it abundantly clear that the FCC must reclassify broadband as a “telecommunications service” under Title II if it wants to ban the type of behavior President Obama spoke out against.  According to that Court, the FCC’s prior rules preventing ISPs from discriminating against or blocking access to disfavored companies were “per se common carrier obligations,” and only services subject to Title II can be treated as common carriers. Quite simple, in fact.

Which is why the President’s statements are so important. It’s now clear that the President must support reclassification. And those comments came at a particularly important time. As you likely know, the FCC, and its Chairman, Tom Wheeler, are currently evaluating a number of proposals dedicated to protecting the Internet, and keeping it free for innovation.

In making his comments, President Obama joins with hundreds of our country’s leading startup companies, Fortune 500 corporations, technologists, advocacy organizations, Internet users and supporters across the world in calling for the Internet to be reclassified under Title II. We look forward to continuing our work with the Administration to protect and “leave open” the Internet to ensure that all startups, especially the “next Google and the next Facebook can succeed.”

The Drumbeat Continues: More Startups Call for Title II Reclassification

Today, 10 more startup companies across the United States called on the FCC to reclassify the Internet and keep it free and open for innovation. While Congress has gone home for the August Recess, the process on Internet rulemaking continues at the FCC, where startup companies continue to make their voices heard. The companies, which represent a broad swath of growing businesses all across the country, once again focused on the only real choice available for Chairman Wheeler to preserve the ability for these companies to hatch, grow, and scale in the marketplace, and that is reclassification under Title II.

Take, for example, the story of San Francisco-based microfinance startup LendUp. Their story, according to co-founder Sasha Orloff in the filing, is only possible because the rules governing the Internet allowed for free and fair competition. As Orloff writes, “Competition within this industry is fierce and, if we were founded under the rules laid down in the Chairman’s proposal, our initial cost projections could have proven prohibitive. We would have needed to pay a substantial premium in order to ensure customers could find and access us within a crowded marketplace.” Instead, LendUp is now able to provide financial assistance to people in need, while also educating their customers about the positive benefits of responsible financial behavior, all because of technology they could build on an open Internet.

We get a bit of a global influence in this batch of comments as well, because despite Europe’s having recently fought -- and won -- its’ own battle for Net Neutrality, the FCC’s proposal could have deleterious effects on global companies doing business in the United States. Publitas, an Amsterdam-based company working to optimize and present digital content in the retail space, writes that not only would the company never have been gotten off the ground in the world envisioned by the current proposal, their future is under threat as well. U.S. influence on the Internet has global reach, and because of that, Publitas Founder and CEO Guillermo Sanchez warns that “[i]f the FCC had enacted policies which infringed upon net neutrality, the Netherlands might have enacted similar ones” which would have put the original idea under threat. But also, with a “data intensive” business like Publitas, “our business would be seriously hobbled if we were in a slow lane.”

The current proposal could also have negative influences on new marketplaces, writes Shapeways, a New York-based leading marketplace for 3D Printing images and blueprints. They are responsible for 18,000 Shapeways shops already, and with 3D Printing continuing its massive growth curve, the market they empower is continuing to foment further entrepreneurial gains in the economy on the whole. But that future is uncertain because of the proposal which Shapeways says, undermines “the great equalizer.” Everyone has the same access, anyone can float their own “crazy idea.” By creating two-tier access, you sacrifice this core tenet, throttle the spirit of freedom, and ultimately kill the power of wild innovation this nation is founded upon.” They lay out their proposed solution plainly, asking the FCC to reclassify the Internet as a utility, “which it is.”

These comments and more are available on our site, and we have again extracted multiple key quotes below. For more like this, sign up at startupsfornetneutrality.org and our work to reclassify the Internet continues over the course of the summer, we’ll keep you updated with all the news and views you need to help support a better proposal and a solution that keeps the Internet free and open for innovation.

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Distinc.tt

We currently spend considerable resources ensuring that our users can quickly access the content that they need. They view high-resolution photos of restaurants, events, and people; as well as geolocation data to help with coordination. They find out what places around them are most popular and who is currently there. These tools help LGBT people stay connected and maintain a sense of community in this rapidly changing environment. As you can imagine, the amount of bandwidth that this takes up is exponentially related to our growth and success. Having to negotiate with ISPs for the same access that our competitors would enjoy is simply not an option at our stage as a startup, we neither have the time nor the money.

Badger Maps, Inc.

There are a lot of costs to starting a business, and investors and venture capitalists are only interested in funding certain types of businesses. An entrepreneur needs to pay peoples' salaries, pay for servers, buy software, pay for space to house workers, buy Ramen and peanut butter, etc. So by adding another cost — paying off Internet service providers, to keep them from putting a gun to companies’ heads — you will get less innovation in the American economy.

LendUp

Beyond competition, core aspects of our business depend on Internet speed and efficiency. From underwriting to transaction processing, we rely on large amounts of data flowing quickly to meet customer needs and ensure accuracy and security. Speed also enables our value proposition as no customer is going to sit through a credit education video that takes too long to load. Again, with competition so intense and the alternative lenders so lacking our benefits, the consequences of a borrower abandoning us for a less compliant lender that could pay more for bandwidth are high. Furthermore, as investors evaluated the potential of our business, if these would-be risks had been a reality, I am confident conversations would have been different.

Linear Air

I am a serial networking entrepreneur and inventor.  I have four Internet patents, and prior to Linear Air, I spent a decade as the CTO of a networking company (Ipanema Technologies) whose product was designed to guarantee good performance across the Internet. That makes me, as it happens, one of the world’s foremost technical experts on Internet performance, the matter at the heart of this proposal, and I can state definitively that the only way to create a “fast lane” on the Internet is to slow everything else down. Anyone who claims differently is either mistaken, or lying.

MobileWorks

We need strong network neutrality rules that keep the Internet as a level playing field. FCC Chairman Tom Wheeler should not preside over the transformation of the Internet from a level playing field that has been the greatest engine of innovation and growth the world has ever seen to being a discriminatory, heavily tolled platform controlled by an largely uncompetitive ISP industry. The Chairman’s proposal would allow ISPs to create new barriers to innovation that would harm startups like ours—and all those who may benefit for our services. It harms consumer choice, entrepreneurship, and will kill jobs.

Publitas

We need the protection of bright-line rules. We cannot make do with the FCC’s vague commercial reasonableness standard. We have no telecommunications lawyers on staff; big ISPs have hundreds at their disposal. We simply don’t have the resources to fight a legal battle on the basis of presumptions. We urge the FCC to enact bright-line rules which prohibit blocking, technical discrimination, paid prioritization, and access fees, applicable to both fixed and mobile connections, and to reclassify broadband providers under Title II of the Communications Act.

RebelMouse

The FCC’s proposal will parch the Internet ecosystem, constricting our revenues. It will also force us to pay whatever we must to put ourselves in the fast lane, and to negotiate individual deals with multiple ISPs. That is time and money that we could have spent on hiring, innovation, and growth. We also face the threat of exclusive deals, hammered out between our competitors and ISPs, giving them and them alone the right to a fast lane. We could not afford to purchase such a right, which undoubtedly would be very expensive. If any of our competitors bought the exclusive right to a fast lane, we might have to go out of business.

Shapeways

Over the past twenty years, American innovators have created countless Internet-based applications, content offerings, and services that are used around the world. These innovations have created enormous value for Internet users, fueled economic growth, and made our Internet companies global leaders. This innovation happened in a world without discrimination. An open Internet has also been a platform for free speech and opportunity for billions of users. Shapeways would not have come to life without the Internet, and the FCC’s proposal threatens our future to provide an open platform for independent businesses to flourish, even those with an inventory of one product. The proposal will further harm competition by quelling innovation among small businesses in all sectors by creating financial barriers to entry.

Fred Trotter

The Digital Divide is getting narrower but steeper, there are fewer on the ‘wrong’ side but life is getting worse and worse for those few. Our country is betting on digital health interventions working to rescue our economy but this model relies on consistent connectivity between consumer grade doctor ISP connections and consumer grade patient ISP connections. If we allow for the creation of Internet “fast lanes” we will force at least some patients and doctors into the slow lane. This will deepen the Digital Divide and significantly damage the healthcare reform efforts that are designed to rescue our country’s economy.

Poll Everywhere

Many of the concerns we would have had at our founding remain problematic today. We still run on a tight budget, and we’re not sure whether we could afford to put ourselves in a fast lane. Even if we could, that would only mean diverting money away from hiring and growth.

Meanwhile, we are terrified by the threat of an exclusive deal, forged between ISPs and a giant producer of clickers. We certainly could not afford such a deal, which would come at a great cost. If that deal forced us to the slow lane, it would be hard for us to draw in new users. We might even lose our current ones, frustrated as they would be with our slow and patchy service.

RFP-IT: Making It Easier for Government to Support Startups

Our Federal Government spends a lot of money. I mean, a lot of money. And with that money, they purchase many goods and services. Increasingly, many of those purchases have intersected with technology: technology that makes existing products more efficient, solutions for new and existing problems, new infrastructure to help the government manage its processes, and so on. In fact, the government buys so much stuff, whole industries (yes, plural) have been built with the singular goal of selling to the government. While these processes and industries are largely pretty boring, every once in a while something happens, the system stops functioning properly, and it becomes news.

That is exactly what happened with the mangled rollout of the much-maligned healthcare.gov website late last year.

Among the many problems uncovered by the process, we realized that those systems in place to spend the aforementioned sums of money are not always best at finding the most efficient projects, programs, and services to buy. In fact, healthcare.gov was just latest high-profile example of the problem. Many, if not most, of the issues faced in federal government procurement are situated squarely in the fact that these laws and regulations represent a different time, and have been made archaic by advances in technology.

Stepping into that breach with an innovative solution of her own is Silicon Valley’s own representative, Anna G. Eshoo. The Democratic Congresswoman, a longtime supporter of the technologies that lead the world from her home district, today introduced the Reforming Federal Procurement of Information Technology (or, RFP-IT) Act which seeks to make these processes more open, easier to navigate, and more accessible to startup companies looking to sell to the Federal Government.

The bill, co-sponsored by a bipartisan coalition of Rep. Eshoo’s House colleagues, has three specific goals. First, it will enhance competition in the marketplace by enabling more small businesses to bid on federal IT contracts without having to spend thousands on compliance costs by lifting the threshold for a streamlined contracting process from $150,000 to $500,000. According to Eshoo’s summary of the bill, “expanding the use of simplified acquisition procedures will shorten procurement lead times and help level the playing field for start-ups and small businesses – a critical factor in an IT marketplace that is characterized by the constant influx of new entrants and rapidly evolving IT products and services.”

Second, the bill takes a number of steps to promote innovation, including codifying the popular Presidential Innovation Fellows program, and asking the General Services Administration to recommend how to slim-down certain procedures.

Finally, the bill moves to ensure more accountability by establishing a Digital Government Office within the Office of Management and Budget, strengthening the existing CIO office in the White House and improving transparency and oversight.

You can read the full text of the (very short!) bill here. We thank Rep. Eshoo and her colleagues for highlighting one of the ways our government functions, and working to bring more efficiency and innovation into the process.

ECPA Pushes Past 235 Co-Sponsors

For the last few months, we’ve closely watched the progress of a bill in Congress seeking to reform and update the Electronic Communications Privacy Act. We’ve discussed the current law’s outdated regulations of our communications infrastructure, but a piece of that could be updated very quickly through Kansas Congressman Kevin Yoder and Colorado Congressman Jared Polis’ Email Privacy Act. Essentially, as we’ve noted before, law enforcement currently doesn’t currently need a warrant to read your email--leaving many startups in the unenviable position of not being able to protect their customers. We think this is wrong, and it turns out a bunch of our elected representatives agree.

Less than a month ago, we noted that the bill had reached 218 co-sponsors, fully half of the House of Representatives, and which, let’s face it, is a monumental achievement with such a divided Congress, and a testament to ECPA reform’s popularity. With this week’s announcement that six more Republican co-sponsors are signing on, that number has now ballooned to 235 and is threatening to climb even higher.

Even as we creep closer and closer to mid-term elections, there are certain things Congress can still do while it’s in session. The Email Privacy Act, which would drastically enhance both privacy and security for Internet users and bring our laws into the 21st Century, is a great example of the “art of the possible” and we encourage the House to listen to itself and pass this much-needed reform swiftly.

Net Neutrality Comments Crash FCC Website: Keep The Pressure On

Back in May, we sent a letter to the FCC signed by over 150 startups supporting net neutrality. Since then, we have thought a lot about the dangerous uncertainty the lack of real net neutrality will cause, and the FCC has received nearly 700,000 comments and counting on the subject -- including some from education startups, software companies, reddit, and Internet giants. In fact, so many people are filing today that the system crashed, prompting organizations (us included!) to file by hand, and forcing the FCC to extend today’s deadline to midnight (eastern time) on Friday.

This is great, because we have to keep the pressure on Chairman Tom Wheeler to make sure he does the right thing, and issues a strong, sensible rule that preserves the open Internet. If you still want to file comments, you can do so here.

There is still a strong wave of opposition from individuals and groups committed to letting telecommunications companies build fast lanes on the Internet for those who can pay. And unfortunately, those telecommunications companies, and their supporters, have targeted the U.S. Congress, and now we are anticipating amendments to the Appropriations bill currently being debated in the House. The Latta bill, for example, would gut the FCC’s ability to reclassify the Internet as a utility, and other similar telecom-favoring legislation like prohibiting communities from building their own broadband networks.

You can help preserve an open Internet by letting your representative in Congress know that any such bill is unacceptable. Our friends at Free Press have set up a call tool to contact your member of Congress today. It is especially important that Democratic members who have generally (though not entirely) been supportive of our goals stand strong against these tactics.

You can make that call here.

And if you can’t call, think about sending out a tweet. Here are some examples:

Stand up for an open Internet. Say no to a bill that would stop the FCC from issuing real #NetNeutrality rules! http://goo.gl/mH95YT

Startups need an open Internet. Say no to the Latta amendment and stand up for #NetNeutrality! http://goo.gl/mH95YT

#NetNeutrality supporters in Congress, please make your voices heard and say no to the Latta amendment. Preserve the open Internet!

It’s time for the telcos to stop messing with #NetNeutrality. Call Congress and tell them to stand up for innovation http://goo.gl/mH95YT

Finally, if you haven’t already done so, please sign up with http://www.startupsfornetneutrality.org/ to show your support and join the movement for an free and open Internet.

More Companies Comment on Net Neutrality

In our continuing series of filings with the FCC and their open docket on Net Neutrality rules, we have a series of comments this week from a broad range of companies and organizations, again focusing on one critical viewpoint: that the Chairman of the FCC has within his power the ability to reclassify the Internet as a utility under Title II, and that he should do so. From the web, Opera Software is one of the world’s leading web browsers with more than 350 million users worldwide, and comments have been written by Chief Technology Officer Haakon Wium Lie from their head office in Oslo, Norway in support of reclassification with a global perspective. 

Opera Software services many users in sub-optimal situations, mostly those with poor connectivity or lower-end devices, which is first among many reasons that in a marketplace designed for ease of switching with only marginal cost, speed is a key factor in retaining consumers. And with one of Opera Software’s key differentiators being their proprietary compression service, Lie points out they would “have to” secure fast lane agreements under the Chairman’s proposal in order to stay effective for their users. In a sense, Opera Software provides a service on the margin for those on the margins of our society, and the reason they do so is that the Internet is the great equalizer. Even those without the latest and most powerful devices, or the best connectivity and bandwidth, can still explore the vast recesses of information and connect with people around the globe.

And, as Lie points out, if other countries copy the FCC’s current proposal, we run the risk of continuing to chip away, not just at the innovative Internet which has brought us so many products and services to enrich our life, but the very fabric of the community built online by restricting access to those who may not be able to afford to connect. In that “undue bureaucratic burden” says Lie, we find the greatest cause for alarm, all of which can be averted, in his words, by reclassifying the Internet as a utility under Title II of the Telecommunications Act.

We also hear from organizations in the global health space, including the Global Healthy Living Foundation, which creates disease-specific communities and networks to help many facing chronic illness get the support they need. And from the interactive world, Heyzap and TouchCast create new experiences online. Without rules that keep the Internet open for innovation, their businesses won’t reach their users.

In all of these cases, especially in the delivery of high-bandwidth content like YouTube videos or other interactive devices, user experience could be hamstrung to the point of dysfunction without clear rules keeping the Internet open for innovation. “If we aren’t in a fast lane, by definition we are in a slow lane,” says GHLF. According to Heyzap, “If we had pay a special fee to each phone company to get the same treatment as our competitors, we would have to slow our growth and our hiring,” and that even if litigation under commercial reasonableness standard were available, it wouldn’t help them with ISPs. And TouchCast points out, “When someone views a TouchCast, they not only stream video, but also download web pages and data from the Internet all at the same time. Any perceived delays in video streaming rates or the presentation of any other information within a TouchCast would result in high consumer abandonment rates.”

We have links to the full comments comments and some key quotes below. If, like any of these organizations, your business and customers will be adversely affected by the Chairman’s proposal, sign up with us at startupsfornetneutrality.org. And if you can file a comment, let us know at comms@engine.is.

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Opera Software

“In the hyper-competitive market for web browsers, speed is key. Consumers will switch browsers to experience the web marginally. Competition would suffer if some browser vendors have fast lane arrangements, or if the non-fast lanes do not provide sufficient capacity. Under the Chairman’s proposal, in order to have a viable web compression service, we would have to secure agreements for a fast lane. “

“Our worst-case scenario is that other countries copy FCC’s proposal. The United States is not only influential with new technological innovations, but also Internet policy. Opera Software would never be able to provide web companies, including U.S. companies, with access to 350M end users if we had to negotiate Internet fast lane agreements with all network operators globally. If other countries follow the logic of the FCC proposal, we and other Internet companies would have to prioritize countries and regions.”

Global Healthy Living Foundation

“We are the first source of health-related news for thousands of people. When several contaminated vials of methotrexate (an arthritis medication) were recalled, we were one of the first organizations to reach out to the people in our community. Within two hours of disseminating the recall message through the Internet, we received two replies from members who were scheduled to take the contaminated medicine that afternoon. Our ability to quickly and efficiently reach a large number of people very likely saved lives. If we had slow or patchy service, we likely would have had a much smaller network that relied on us less often for information.”

Heyzap

“We could not have become the company we are today under the rules proposed by the FCC. We provide real-time recommendations of apps based on data gathered from users. This requires gathering a lot of data, bringing it to our computers, processing it, and sending recommendations and ads back to our users—all in fractions of a second. We need to process a lot of data, quickly. Any limitations in speed or consistency of our service would be noticeable to our users.

Meanwhile, under the Chairman’s proposed rules, broadband providers have strong incentives to make the differences between their standard and premium access options noticeable. If there were no noticeable differences, then no edge provider would feel the need to pay for premium access.”

TouchCast

“We are hoping to change the way people watch videos and TV. Established broadcast companies are wealthy and powerful, and they could easily forge exclusive agreements with broadband providers and lock us from those providers’ networks. While the Chairman’s proposal prevents NBC from forming an exclusive agreement with its affiliate, Comcast, it does nothing to prevent NBC from forming the same agreement with Verizon, or CBS with both Verizon and Comcast. These exclusive agreements could shut us out of the game entirely.”

Education Startups File Net Neutrality Comments with FCC

As you likely know by now, this summer is key in the fight for net neutrality and an open Internet. It is crucial for stakeholders to take this time to file comments at the Federal Communications Commission explaining why an open Internet is essential to their life and  businesses. Today, with our help, four startups in the education space -- who work directly with students to help them acquire the necessary skills to compete in the very global economy -- did just that.

The comments, filed by Codecademy, CodeCombat, General Assembly and OpenCurriculum, all make the central point that harm to net neutrality is harm to startups. In this case specifically, harm to education startups is harm to the pursuit of knowledge and America’s ability to compete in a global technological marketplace. And all four believe that harm can be mitigated by reclassifying the Internet as a utility under Title II of the Telecommunications Act.

We’ll be working with more startups to file comments as the summer continues. We want to make sure that startups in every industry have a voice in this debate. If you are interested in filing comment for your business, and would like our help, email us at comms@engine.is for more information. We hope you’ll join the fight and help us preserve an Internet free and open for innovation.

The existing comments will be posted to the FCC’s comment intake page and are available below for you to read at length:

Overall, these education startups reflect a wider community belief that reclassification is the best (and only) way to achieve the necessary end goal of making sure the Internet does not devolve into a mess of paid prioritization -- or fast and slow lanes. Staying this result is critically important in the field of education, where margins are tight, business is seen as a service, and the outcomes may provide the best fix yet for our economy on the rebound.

From CodeCombat comments:

When CodeCombat first started, resources were scarce, and if we had to negotiate with and pay funds to ISPs, we would have been unable to do so. At that time, we also would not have been able to use the FCC’s standard of “commercial reasonableness” or even a public advocate provided by the FCC to protect our interests. We still may not be able to do so.

...

Almost a million people have learned to code using CodeCombat, including 343,000 students during Code.org’s Hour of Code, a campaign that both President Obama and Republicans encouraged and embraced.We’ve also helped thousands of more experienced programmers hone their skills with more advanced levels. In addition, we’ve translated our game into 40 languages so that students around the world can learn to program as well.

...

We firmly oppose the FCC proposal. We urge the FCC to reclassify ISPs as common carriers under title II of the Communications Act of 1934 to prevent technical discrimination, paid prioritization, interconnection disputes, and the host of other harmful issues which would arise as a result of the adoption of the proposal.

From General Assembly comments:

With national attention on the rising cost of higher education and the crippling debt for recent graduates, General Assembly offers an important outlet for students looking to receive a high return on investment from their education. Over 100,000 students have benefitted from our services, including our 10 - 12 week long immersive programs and our three-month apprenticeship program that provides students with a paid opportunity to further hone their newly-acquired skills on the job.

...

Clear rules are important in promoting innovative enterprise. The factors of the commercial reasonableness test are too vague to provide certainty. These standards include “harm to consumers” or “to competition” and evaluation of a totality-of-the- circumstances. Such a standard will only lead to expensive and time-consuming litigation that start-ups cannot afford and which will therefore curb entrepreneurial activity to the benefit incumbent players and their legal teams.

General Assembly believes we need strong network neutrality rules that prohibit blocking, discrimination, and access fees. These require reclassification under Title II of the Communications Act. The Internet works well today; allowing ISPs to price discriminate will harm businesses like ours, the general public, and the economic well-being of our country.

From OpenCurriculum comments:

We want to spend our time and resources transforming education, changing the lives of teachers and students, with the awareness that such education will have lasting impact on today’s young people throughout their entire lives and benefit society in general. Asking us to negotiate for “commercially reasonable” deals in light of our larger competitors being willing to pay a premium to keep us out of the market is rigging the market so we (and other entrants) lose. “Comforting” us with the right to hire lawyers and expert witnesses, or wait years for an FCC Ombudsman to win or lose a case whose legal standards are also stacked against us, provides no comfort.

….

Even if we find ways to pay for premium tiers with different cable and phone companies, this is going to significantly eat into our capital ­ affecting the way we grow and our ability to allow more teachers in the United States and around the world to get access to better quality teaching materials for the future generations.

...

The FCC should instead reclassify access to the Internet as a common carrier service and forbid unreasonable technical discrimination, define pay­-for­-play deals as inherently unjust and unreasonable, define access fees as inherently unreasonable charges, and apply these rules to both mobile and fixed platforms.

From Codecademy comments:

Codecademy is an innovative solution for schools and students to save money. Our company also has an important impact on job creation. We're building the basic steps of competency to help people start their own companies, websites, apps, and products and get entry level jobs right now. The next big thing, or an innovative solution to a social problem, could be developed by someone who learned how to code using Codecademy.

But none of that may happen if the FCC adopts its fast-lanes proposal and abandons an open Internet.

Senator Markey: FCC Already Has Power to Save the Internet

UPDATE 7/15/14: Sen. Markey has rallied fellow Democratic Sens. Chuck Schumer, Al Franken, Ron Wyden, Richard Blumenthal, Jeff Merkley, Elizabeth Warren, Sheldon Whitehouse, Ben Cardin, Kristen Gillibrand, Cory Booker, and Barbara Boxer, as well as independent Sen. Bernie Sanders of Vermont, to sign his letter telling the FCC they already have the power to save the Internet and reclassify under Title II. Here is a draft of the letter. Sen. Ron Wyden also backed the push for Title II "common carriage" regulation in a comment to the FCC. Wyden wrote that the FCC should call the Internet what it is: a "telecommunications service."

The last time Congress took up the issue of how to regulate telecommunications (telephones, broadcasting etc.), the Internet was but a dream, haltingly emerging into reality. It was 1996. At the time, then-Representative Edward Markey of Massachusetts was the lead Democratic co-sponsor of the Telecommunications Act in the House of Representatives; he shepherded the bill through various committees and the floor of the House, ultimately becoming a leading champion for the Internet along the way before the bill was signed into law by President Clinton.

Fast forward to today, and the Internet as we know it, shaped in large part by the 1996 Act, is under direct assault. Now-Senator Markey is still an advocate for the power of the Internet and is working to protect the needs of consumers and businesses nationwide.

The Senator is asking his fellow Senators to sign a letter urging FCC Chairman Tom Wheeler to make use of the power they believe is already afforded to him by the Telecommunications Act to reclassify the Internet as a utility under Title II. Only with reclassification under Title II can the FCC ban paid prioritization (fast-lanes) on the Internet.

As we’ve documented extensively, we agree with this sentiment and urge the Chairman to do exactly that. You too can help by urging your Senators to contact Senator Markey’s office and sign the letter. This battle must be fought on a number of fronts, and this is one where we have an opportunity to exert pressure.

Call your Senator today, and tell them to sign on with Ed!  Tell Chairman Wheeler to do what he has the power to do: reclassify the Internet under Title II.

New Legislation Revives JOBS Act Intentions

When I sat in the Rose Garden in April 2012 watching President Obama sign the JOBS Act into law, I remarked to myself, and anyone who would listen, just how far “the Internet” had come in terms of polished political activism and policy coherence in such a short amount of time: The JOBS Act was passed in six weeks. As originally intended, JOBS Act would have opened up new avenues for investment in early-stage startups, providing new ways for entrepreneurs to secure the funding they need to turn their ideas into reality.

But, just two years later, there are many within this community who have been left disheartened by the haphazard implementation of such an important law, and have also become hamstrung by the limitations put on them by the Securities and Exchange Commission -- in stark contrast to the spirit of that legislation.

The crowdfunding for equity provisions have yet to become a reality. And, perhaps more importantly, provisions on general solicitation aimed at making it easier for startups to widen their investor base in a more rational way, as opposed to the previous, wink-and-nod style capital formation, have made the situation worse to the point of being untenable for many early-stage companies, especially those who grow through accelerator programs.

Luckily, news from Washington this morning signals the beginning of a solution we hope will make the JOBS Act work for startups, angel investors and all those who wish to join their ranks. Dubbed the Helping Angels Lead Our Startups, or HALOS, Act (clever, because they’re supporting angels!), this important legislation, offered in a bipartisan manner in both houses,but led by Illinois Democrat Rep. Brad Schneider and Ohio Republican Rep. Steve Chabot, would change the Regulation D rules governing General Solicitation to once allow “Demo Days” to continue once again.

Demoing early stage startups and their products has been a key way for companies to accelerate growth, but the unintended consequences of JOBS Act’s rulemaking at the SEC have complicated the process by which these startups can present their groundbreaking ideas. The current status quo stands in total contrast to the original intent of the legislation, and unfortunately we need a further fix.

Luckily, Reps. Schneider and Chabot have been joined by Sens. Chris Murphy (D-CT), Patrick Toomey (R-PA) and John Thune (R-SD) to provide that legislative fix in the form of the HALOS Act. You can read the (short) bill in its entirety here. We encourage you to reach out to the co-sponsors and thank them for their foresight here, as well as to your own representative and Senators urging them to pass this important legislation.

Supreme Court’s Latest Patent Decision Reins-in Federal Circuit, Again

Today, the Supreme Court issued its latest  9-0 opinion, once again reining in the Federal Circuit’s consistently overbroad interpretations of patent law. The ruling, in Alice v. CLS Bank, deals with the question of what can and cannot be patented. Put simply, the Court held that unpatentable “abstract ideas” do not miraculously become patentable when they are merely tied to general purpose computers or generic hardware. Our patent laws already do not allow the government to issue patents on laws of nature, natural phemonen, and these so-called abstract ideas because we do not want to grant monopolies on things that belong to everyone. This concept is incredibly important because it deals directly with whether or not software is an unpatentable “abstract idea”. Is software an abstract mathematical algorithm? Or is it more?

Traditionally, software was always unpatentable. But that changed in the mid-1990s when the Federal Circuit issued a string of rulings allowing for software patents. In this 20-year experiment, we’ve seen serious abuses of the patent system, starting with poor quality patents, leading directly to the patent troll problem. Armed with these low-quality software patents, trolls have been able to wage a war on small businesses and individuals, costing our economy billions of dollars a year.

Despite this, the Federal Circuit (the appellate court that has jurisdiction of all patent cases), has been unwilling and unable to fix the quality problem with software patents. Which brings us to today’s ruling. Alice v. CLS Bank involved patents covering a computer system that helps with closing financial transactions by avoiding settlement risk (the risk that comes with any financial transaction if one party cannot uphold its end of the bargain). During the case’s tortured history, the Federal Circuit upheld those patents, and then later invalidated them. The last Federal Circuit opinion was 135 pages long, and the judges could only agree on 55 words.

So the Supreme Court took the case (along with five other patent cases this term -- an unprecedented number), and today, all nine justices invalidated the patents. Invalidating them wasn’t a surprise -- these patents were of particularly poor quality -- but the Court did make some important statements about patents and abstract ideas that should reign in the worst software patents.

First, it unequivocally stated that if you have an idea so abstract that it cannot be patented, simply tying it to a “generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention."

Second, it stated that tying an abstract idea to “purely functional and generic” hardware similarly will not make the idea patentable.

This legalese is important. Most of the worst software patents do exactly what the Court said they can’t: present a general idea (e.g., hedging risk, one-click shopping, etc.) and say, because this idea is done on a computer, or a generic piece of hardware, it is not just an idea anymore. As computers play an ever-growing part in our everyday lives, you can understand the flaws in this logic. Today, the Supreme Court stopped it in its tracks.

Now, it’s true that the Court didn’t comment directly on “software” patents. But it did say that if you’re going to patent a software invention, it must be tied to something more specific than a general purpose computer or a generic piece of hardware. You can’t just run a generic piece of software on a general purpose computer and then stop everyone else in the world from doing the same for 20 years. Because, as we said at the outset, these types of ideas belong to everyone. They are fundamental building blocks of today’s technology, and society benefits when everyone can use them.

So we applaud the Court’s decision today, along with five others this term, for reminding the Federal Circuit Court that owning a patent monopoly is not an inherent right. Instead, patent law must be a delicate balance between granting patent owners limited and worthy monopolies, while leaving the rest of us with a vibrant public domain of ideas and technology on which to build.

ECPA Reform Bill Attracts Majority Support in House

This morning, Congress has taken a significant step towards defining privacy for the digital age in a way that will benefit startup companies and their users. The Email Privacy Act -- a common-sense piece of legislation that would bring ECPA (the Electronic Communications Privacy Act of 1986) better in line with how the Internet actually works -- is supported by a majority of the House of Representatives. This kind of support, before a bill even comes to a vote, is an important sign that policymakers and their constituents understand that something must be done.

The Email Privacy Act gives online documents the same privacy protections granted to physical documents. Specifically, the bill would require government agencies to obtain warrants from a judge in order to force service providers to disclose private emails and documents they store online for their customers.

Since data play an increasingly important role for many startups, any uncertainty over compliance increases the burden of time and resources needed to handle the issue. The current status quo also disenfranchises businesses and consumers, and places an added strain on user trust. Under the current law, a complex legal request from law enforcement would force businesses to chose between facing fines and legal action while protecting their users, or complying with the government at the cost of alienating users.

The Email Privacy Act clarifies existing law, and provides a much-needed update to bring regulations in line with the digital age. We thank Reps. Yoder and Polis for their leadership on this important issue, and with majority support we look now to House leadership to move this bill, and we hope they act swiftly to pass this common sense reform.

New Bill To Ban Paid Internet Fast Lanes

This morning, Rep. Matsui and Sen. Leahy introduced a bill that would direct the FCC to ban paid prioritization deals on what’s known as “the last mile" - the final distance web content travels to reach a consumer. The draft “Online Competition and Consumer Choice Act” would ban preferential treatment on the Internet, upholding the principle of net neutrality.

Paid prioritization deals, as we have already argued, are inherently anti-competitive and violate the principles of a truly free Internet ecosystem. So this bill should be applauded for promoting the interests of startups, content creators, and Internet users; we support this effort and hope it sends the FCC a strong message that paid fast lanes should not become a new Internet standard. They should instead be banned.

"A free and open Internet is essential for consumers," said Matsui. "Our country cannot afford ‘pay-for-play’ schemes that divide our Internet into tiers based on who has the deepest pockets."

But, it's worth noting here that there is no way to achieve these aims without first reclassifying broadband Internet under Title II.

This year’s Verizon v FCC decision makes relying on section 706 legally impossible. In that case, the DC circuit court actually went so far as to say that under Section 706 the FCC would have to permit exclusive access arrangements, e.g., paid prioritization, among edge providers and ISPs, and that it could even charge similarly situated edge providers very different prices for the same level of access.

Only under Title II can the FCC can eliminate certain classes of fees and discrimination, including banning paid prioritization (or “fast lanes”) on the Internet altogether. We applaud Rep. Matsui’s and Sen. Leahy’s efforts to ensure an open Internet, and we hope the FCC follows suit.

We Didn’t Fail on Patent Reform: An Open Letter to the Media, Congress and Tech

This post originally appeared in re/code

Last month, Sen. Patrick Leahy unceremoniously pulled patent reform off the Senate Judiciary calendar -- denying a good piece of compromise legislation a vote -- reportedly under pressure from Sen. Harry Reid, who was reportedly under pressure from the trial lawyers’ lobbying arm. This took many of us who have been working hard to fix a dangerous patent troll problem by surprise. And not a pleasant one.

I’ve taken some time to reflect in the aftermath of this failed bill. I’ve looked for a lesson, a single take-away. None exists. But some points must be made, to the media, who I think have largely missed the point; to D.C. insiders, whose failure to make patent reform happen will have real consequences; and to the tech community, whose hard work has paid off but who still faces an uphill battle in navigating policy and politics.

First, to the media who report that tech is “D.C.’s biggest loser” and highlight “Silicon Valley's lost year in Washington”: you’ve got your story wrong. For starters, if you’re living in the same political universe that I am, it should be clear that this Congress is notorious for getting nothing done. It should come as no surprise that tech’s causes are not miraculously turning into legislation. No one’s are.

Still, so-called tech issues are driving political debates at all levels of government. The movement for patent reform has already had a serious chilling effect on patent trolls, and it’s far from over, as courts and states keep chipping away at the troll “business model”. And other issues that tech traditionally cares about -- immigration, privacy reform like an update to ECPA, government surveillance, and net neutrality -- dominate headlines. Many have turned into social movements that are not at all limited to the “tech community,” and each will continue to shape policy in this do-nothing Congress, and hopefully in the more productive ones that come next.

Second, to D.C. policymakers: when you failed to even put patent reform to a vote in the Senate you taught many proponents of reform what all too many knew already, that politics is “pay-to-play” and that deep, entrenched interests make it nearly impossible to get anything meaningful done in D.C. What many of you failed to recognize, however, is that the so-called “tech community” is actually becoming the American electorate at large. Soon, there will be no distinction between the “tech community” and the rest of the country. As today’s digital natives turn 18, they all become tech voters. The politicians who understand that, and work to legislate policies that help technologies and the startups who create them thrive, will be the future of this country.

Finally, to tech. Two messages: the work you did and the community you built to support patent reform did help. But we need to do more.

The Difference A Year Can Make: A Court Grants FindTheBest Attorneys’ Fees

For those of you who thought patent reform is dead: it’s not.

Sure, the comprehensive piece of legislation we need to put an end to a dangerous patent troll trend has stalled, but the fight against those trolls continues.

Remember when startup FindTheBest found itself facing a patent troll threat a year ago? A “company” called Lumen View Technology claimed that its patent covered a “computer implemented method to match the preference data inputted by at least two parties who input preference data into the website.” Lumen went on to sue FindTheBest, along with about 20 other companies, claiming that they all infringed that patent. There are a couple of big problems here. First, FindTheBest’s website undisputedly does not use match preference data. Second, it turns out the patent itself was invalid.

Late on Friday, a federal judge in New York ruled that Lumen will be on the hook to pay FindTheBest’s legal fees and costs, calling this case a “prototypical” one for making the loser pay. What’s interesting is that it’s also a prototypical patent troll case. For instance:

• Lumen continually threatened FindTheBest with expensive litigation if it did not agree to pay Lumen a licensing fee.
• Lumen threatened to raise the cost of settlement the longer FindTheBest continued to defend itself.
• Lumen did not conduct even a basic pre-suit investigation before it sued FindTheBest.
• As the Court found, “Lumen’s motivation in this litigation was to extract a nuisance settlement from [FindTheBest] on the theory that [FindTheBest] would rather pay an unjustified fee than bear the costs of the threatened expensive litigation.”
• The Court also found that Lumen’s tactics were “part of a predatory strategy aimed at reaping financial advantage from the inability or unwillingness of defendants to engage in litigation against even frivolous patent lawsuits.”

And this all brings us back to patent reform. Even as recently as a few months ago, courts very rarely granted attorneys’ fees in patent cases -- in fact, it happened so infrequently that it really wasn’t even considered a possibility. But the Supreme Court recently changed that in a case called Octane Fitness v. ICON Health & Fitness. There, the Court held that a losing party in a patent case might be forced to pay the other sides fees and costs (which can easily stretch into the millions of dollars range) in certain cases where a party either brings a particularly bad case, or acts unreasonably when litigating it.

Last week’s ruling was one of the first tests of the Supreme Court’s Octane ruling. And it showed that typical troll behavior -- like Lumen’s -- is enough to trigger fee-shifting. So, finally, the trolls can be held responsible for their actions.

This outcome was a direct result of all the hard work our community did on patent reform. We raised awareness of a dangerous problem that led the Supreme Court take an unprecedented five patent cases this term, and undoubtedly to this ruling.

This country still needs comprehensive patent reform legislation, and we’re going to keep fighting for it. And that legislation will still need a stronger fee-shifting provision than currently exists to make sure that it’s applied evenly across the country. But, in the meantime, parties facing patent trolls have a powerful new tool to fight back.

The Dangerous Uncertainty Over Net Neutrality

Last month, the FCC released a proposal for new rules concerning the open Internet, and now the public has four months to provide comment. Those proposed rules pay a lip service to an open Internet -- something we strongly support -- but their substance tells a different story. One of the most dangerous aspects of the proposal is the resulting uncertainty that startups and investors would face. Unfortunately, until and unless we have real net neutrality rules in place, that uncertainty is unavoidable.

As any business owner will understand, when you’re trying get a startup off the ground, any uncertainty can be dangerous -- enough to spook investors and stunt growth. In this way, startups and other business owners are already feeling the impact of the net neutrality debate.

Jamie Wilkinson is the co-founder and CEO of VHX, an online video distribution company that helps artists connect directly with their audience. Watch Jamie explain how the uncertainty over net neutrality is already affecting his business.

So, a speedy solution is required here. But it must also be the right solution.

FCC Chairman Wheeler’s current proposal is not the right solution. The Chairman has stated his preference to rely on Section 706 to implement so-called open Internet rules. While this sounds fine, this year’s Verizon v FCC decision makes that legally impossible. As a result, the Chairman’s proposed rules would result in years of litigation. Likely to be overturned, we’d be left exactly where we are today

Instead, the Internet needs to be reclassified under Title II as a “common carrier” (like telephone lines, roads, highways, and trains). Only once the FCC has done that can it ensure a true open Internet and deliver the certainty startups need.

In a recent letter to the FCC, Venture Capitalist Brad Burnham explained that without the certainly Title II reclassification brings, Union Square Ventures (and other VC firms) will not invest in Internet startups like they have been to this point:

“Investors like us will need to extract a risk premium before supporting an unproven service, which will hurt the creators who are ultimately responsible for innovation. Worse, investors like us will decide not to risk our partners' capital at all to back an applications layer start-up, because an incumbent could easily copy the basic elements of a new service and beat them in the market by paying for a faster connection to consumers. We will also be very reluctant to fund companies building services that compete with current or future offerings of the cable or telecommunications companies that can directly impact a consumer's experience of a new service.”

Not only would the proposed rules allow for pay-to-play schemes, but they would allow ISPs to make “commercially reasonable” deals to prioritize certain content. This violates the concept of net neutrality, and -- potentially even worse -- determining what is and is not “commercially reasonable” would require the kind of legal budgets and lawyers on staff that startups just don’t have. If you’re a startup and can ISP proposed a “commercially unreasonable” deal, would you have the time and resources to bring a case at the FCC? This added layer of uncertainty is another reason we cannot support Chairman Wheeler’s proposal.

Congress Must Not Abandon Meaningful Patent Reform

This post originally appeared in Roll Call. 

The Senate’s decision to pull the plug on meaningful patent reform legislation leaves a serious, costly problem unsolved.

Patent litigation abuse is rampant and it’s getting worse. According to the first annual “2013 Patent Litigation Year in Review,” by the respected legal data analytics firm Lex Machina, patent cases hit record levels last year with 6,092 such lawsuits filed in U.S. District Courts, a 12.4 percent increase over 2012. Meanwhile, the average damages awarded increased by 28 percent to $34.7 million.

Most new patent cases were filed by ten plaintiffs that purchase patents — not to commercialize them — but to file lawsuits against companies that make use of these so-called inventions.

Known as “patent trolls” — or more politely, as “non-practicing entities,” patent assertion entities,” and “patent monetizers” — these perpetual plaintiffs buy up broad, vague patents and then claim their wide-ranging applications.

Armed with these patents, these entities sue operating companies that make and sell things, arguing that their patents cover those products and services, and demanding that the companies pay up. These companies can range from the most innovative major corporations to the small businesses that are end-users of basic technologies, such as shopping cart software or Wi-Fi routers.

The patent trolls’ not-so-secret strategy? Because of the high costs and great risks of a lawsuit, many companies will simply settle, paying them to go away. This is especially true for startups and small businesses that cannot afford to fight the trolls in federal court. In short, the trolls always win.

Carefully targeting where as well as who they sue, the patent trolls file their legal actions in the U.S. District Courts where they have reason to believe they stand the best chance of winning large judgments. In fact, patent trolls filed a growing number of their new cases in just two district courts: the Eastern District of Texas, with 1,495 cases, 20 percent more than in 2012, and the District of Delaware, with 1,366 cases, 33 percent more than in 2012.

These trolls tend to rely on old patents with questionable applicability to modern technology. A patent lasts for 20 years, but we all know that technology moves much more quickly than that. So it should come as no surprise that of the 4,917 patents at issue last year, 61 percent — 3,032 — had not been the subject of lawsuits over the past decade or more.

Not surprisingly, all of the top ten filers of patent cases in 2013 were patent trolls. In fact, the top three — ArrivalStar, Wynncom and Thermolife — each filed more than 100 cases. And six of the ten most frequently asserted patents — the subject of lawsuits by ArrivalStar — covered systems for tracking and monitoring vehicles. In many instances, ArrivalStar’s targets weren’t the companies who pioneered those systems, but the small municipalities who try to provide their citizens bus-tracking software, or the U.S. government for U.S.P.S.’s package tracking software.

These litigation tactics — using old and vague patents, and focusing on certain courts — do not add any value to the economy. Instead, they extract valuable resources from companies that could, and should, be commercializing new products and services, building their businesses, creating new jobs, hiring new workers, and otherwise contributing to American competitiveness and prosperity.

That is why it is so important that Congress not abandon efforts to pass comprehensive patent reform legislation that will protect productive businesses and rein in the patent trolls.

As this study of patent litigation reveals, the America Invents Act — passed just a few years ago — simply was not effective enough. Since 2011, we have seen a record number of patent lawsuits filed, and the average damages awarded have reached a new high.

Every day that goes by without reform costs our economy money. Annually, that number stretches into the billions. And every day, American businesses are targeted with spurious claims of infringement, requiring that they shift their focus away from growing their businesses.

Once and for all, it’s time to stop the patent trolls from taking their toll on American innovation, American businesses, and American jobs. Congress should not give up on patent reform. The cost of inaction is simply too high.

Hacking the Patent System

See the new white paper.

For many startups, the patent system is a necessary evil. Getting a patent can easily cost tens of thousands of dollars, and getting sued by a patent troll can cost millions. Despite these costs, and the other lost resources that come with them (lost employee and engineer time, stress, etc.), many startups find themselves feeling like it’s good business to file for patents. Traditionally, this was for a couple of reasons: 1) to use defensively if another company threatened a lawsuit (e.g., you sue me? I’ll sue you right back); or 2) to secure investment.

Over time, both of those rationales have proved to be false. First, owning a patent is no defense for a patent troll suit. Since a patent troll usually neither makes nor sells anything, it can’t be threatened with a lawsuit. Second, more and more investors report that they don’t care about their portfolio companies owning patents.

We think these broken rationales are proof of a patent system that has become unmoored. And recently we’ve been working hard to fix that through legislation -- you might have heard the news yesterday that the latest attempt at comprehensive patent reform died in the Senate.

This now leaves startups with a few bad choices: participate in the patent system and spend tens or hundreds of thousands of dollars (excluding the cost of enforcing those patents!), or don’t, but still find yourself facing lawsuits and other threats that come with sitting the system out.

So, together with EFF and OIN, we’re releasing a white paper prepared by Marta Belcher and John Casey from the Juelsgaard Intellectual Property Clinic at Stanford Law School. The paper is for startups and small businesses that want to understand some of their non-traditional licensing options. As we say in the paper:

“The traditional model of patent licensing—whereby a company pays a patent owner to license an invention that the company legitimately uses—has been hijacked by non-practicing entities (“patent trolls”) and other aggressive patent holders who assert overbroad patents that never should have been granted in the first place. Within this broken patent regime, companies are increasingly hacking the system—that is, finding alternatives to the traditional patent licensing model in order to both promote open innovation and protect the companies themselves. These patent system hacks can be organized into two broad categories: (1) defensive patent aggregators, which pool member companies’ resources to defensively purchase patents for the group and to fight patent trolls, and (2) patent pledges, whereby companies opt to openly and defensively license their patents to others.”

One example of an alternative is Twitter’s Innovators Patent Agreement (IPA). The IPA is simple: like most companies, Twitter asks its employees to assign their patents to the company. But, in exchange, Twitter promises it won’t use that patent to sue anyone, except for defensive purposes. Importantly, this promise travels with the patent, so even if Twitter sells it, the new owner cannot offensively sue without the permission of the original inventor. This kind of deal helps in hiring, since many software engineers scoff at software patents. It also helps Twitter’s brand, as a company that has taken a strong stand against a broken patent system.

This paper is intended as a guide to more solutions like this. Some might work for you, and some might not, but we think any commitment to patent defense is a step in the right direction.

Patent Reform off the Table For Now. What’s Next?

Yesterday, Chairman Leahy effectively ended our best hope of real patent reform by taking strong compromise legislation off the calendar. According to his statement, “there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions.” We disagree. There was agreement between stakeholders -- especially those for whom reform is most needed.

This news is devastating to the welfare of startups who will continue to face the threat of patent trolls. That no agreement could be reached, especially in light of the efforts being made across the committee to find common ground, is also bad news for the economy where annual losses from patent troll litigation are billions of dollars.

While this is certainly a step backwards, it’s worth noting all the progress we have made.

The fact that we have reached this point at all can be attributed in large measure to the actions of the tech community and the work of Sens. Charles Schumer (D-NY) and John Cornyn (R-TX). These two senators, who often find themselves ideologically opposed, put their differences aside and worked together to defend the startups and small business being crushed by the scurrilous practices of patent trolls. We are thankful for their work.

And, while we might not see caps on discovery costs, transparency of ownership, or fee shifting this year, we will not stop fighting to empower startups against patent trolls. Bills are still alive in the House and Senate that would curb deceptive demand letter practices. Right now, we have a good Senate bill and a weaker, but workable, House bill that are moving forward. We’ll also continue to work with the Patent Office in its efforts to modernize and improve its internal processes; with the Federal Trade Commission in its efforts to investigate patent trolls and protect consumers from the trolls’ worst behaviors; and with the states that are working hard to keep their local economies troll-free and business-friendly. This is not to say that we don’t still need comprehensive reform; it is to say, however, that we have made progress.

Thanks also goes to all of you for being a part of this conversation, and making this issue such an important one. The fact that all of these government bodies -- along with the Supreme Court, who heard five patent cases this term -- are involved in fixing the problem is really something. The intellectual property system is not easy to understand, but you still took a stand because you saw the toll patent litigation abuse was taking on your businesses. And in standing up to patent trolls, you made a difference.

You got the Innovation Act through a rancorous and partisan House of Representatives on this issue with a 325-91 vote. You forced the hands of trolls themselves and pushed them further than they have been pushed before with your efforts in the Senate. And, perhaps most importantly, you changed the conversation from a wonky, back room discussion of legal tenets, to real world examples of harm. With your continued support, and the support of our friends in Congress, we can be on the winning side.

Is This Our Last Chance For Patent Reform?

Over the last few years I have written about how badly we need patent reform more times than I care to recall. Here I am in September 2011, upon passage of the America Invents Act, stating that it "wholly fails to address many of the biggest problems plaguing the patent system, especially the problem of patent trolls." Or last year, when I called on the tech community to “strike while the iron is hot” to get patent reform done. I’ve explained time and again how the system doesn’t work and why we need to fix it, and I have been joined by so many other leaders in the tech community: founders, investors, and policymakers.

Many of us have been watching Capitol Hill closely since August 2012 when Reps. Peter DeFazio and Jason Chaffetz introduced the first SHIELD Act, the first bill to take on the troll problem. Since then, the President has compared the patent troll business model to extortion and called for reform in his most recent State of the Union address; the House passed the Innovation Act, which the White House publicly supported; the Federal Trade Commission has said it will undertake an in-depth investigation into the patent troll business model; and 42 states’ attorneys general have called for legislative reform.

Every day that goes by without reform costs our economy money. Annually, that number stretches into the billions. And every day, startups are targeted with spurious claims of infringement, requiring that they shift their focus away from growing their businesses.

So why haven’t we passed patent reform yet?

The answer depends on who you ask. Some blame Senate Democrats on the Judiciary Committee, who, under Chairman Patrick Leahy, hold the power to make it happen. (Sen. Leahy is responsible for deciding what bills the committee votes on, and up until now, no comprehensive patent reform bill has made it to a vote.) Others claim that certain provisions -- like fee shifting -- have made a deal impossible.

The truth is, it doesn’t matter. The Senate goes on recess after this week, and then we’re into the summer when things in D.C. notoriously slow down. And after Labor Day, congressional members will be distracted with the November midterm elections. All this adds up to a short window to get this done. We have been waiting long enough. The pieces are all in place. The time for patent reform is now.

Want to help? Go to fixpatents.org and call your senators today. Let them know that you’re watching, that you care, and that you expect them to finish the job and pass patent reform.