The Senate and Patent Reform: The Time Is Now

This post originally appeared in RollCall.

Recently, word from the Senate Judiciary Committee is that negotiators have reached a bipartisan agreement in principle on the key elements of a comprehensive patent reform bill. They are reportedly vetting and nailing down language and preparing the package for mark-up when the Senate returns. A deal appears close to being done, and it’s looking more like the House’s Innovation Act, which bodes well for final passage.

Yet time is of the essence as the clock is ticking on this Congress. Patent litigation abuse by trolls, entities that acquire patents for the sole purpose of shaking down actual inventors with dubious infringement claims, is a very real tax on innovation. A New York Times editorial calling on the Senate to move forward with robust legislation made it clear that abusive patent litigation costs the US economy billions of dollars a year. And, although we can debate the exact scope of the problem, there is no question that the patent trolling phenomenon is growing, and that it now targets retailers, small businesses, independent inventors,start-ups and consumers. Moreover, it has tarnished the reputation of the patent system at a time when innovation is such a critical driver of economic growth and global competitiveness.

Recognizing that patent trolls leverage the high risk and high cost of litigation to extract nuisance settlements, the House passed the Innovation Act by a lopsided 325-91 margin in December.

As the Senate Judiciary committee struggles to come to terms on some thorny provisions, they should bear in mind what Chairman Leahy said just last week: Patents are government-issued monopolies and the abuse of patents in litigation is qualitatively different and consequently warrants a higher level of congressional scrutiny. When bad actors send demand letters or file suits without any real basis for believing that their patent is infringed, they are abusing the system. This problem is exacerbated when many of the patents being asserted by trolls are vague or abstract software and business method patents that should not have been issued in the first place.

Current law and practice stack the deck in favor of trolls, who typically send out scores of form demand letters which make vague and unspecified assertions of infringement and request “licensing fees” while threatening litigation. The troll renders itself litigation-proof by creating shell companies with no assets, but a threatened start-up is faced with a dire choice: give in to what President Obama aptly called ‘extortion” or risk litigation, which would drain critical energy and resources from a fledgling business which can ill afford the cost or distraction of litigation.

To stem this tide, the committee should press ahead to finalize a package that will redress the existing imbalances in the patent litigation system. The bill must include provisions for:

• Transparency of ownership post-issuance and throughout the life of the patent
• Specificity in demand letters
• Heightened pleading standards that require the identification of claims asserted to be infringed. Any bona fide claim of infringement should be able to meet these reasonable standards, which even provide an exception in cases where the plaintiff is unable to access all the information
• Capping discovery costs by enabling the court to determine what the disputed patent covers and the scope of the claims before allowing broad-ranging, expensive, and potentially irrelevant discovery. This will prevent trolls from driving up costs in order to gain leverage in litigation
• End-of-case fee shifting in favor of a prevailing party while maintaining the court’s discretion to deny fee shifting if the losing party’s actions and conduct were objectively reasonable
• Provisions that enable the real party in interest to be held liable for any costs assigned to shell entities.

To be sure, infringement is also a very real threat to inventors and startups, so the Senate should take care to ensure that nothing in the legislation prejudices the ability of patent holders to commercialize patents or assert legitimate claims. The proposals that have been reportedly agreed upon reflect a keen sensitivity to balancing these interests and the bipartisan negotiators should be commended for taking such care in walking that fine line.

This legislation needs to be balanced but it also needs to be effective, so potential unintended consequences should not be exaggerated in an effort to water down or derail the bill. The bill, like any legislation, should be evaluated by its intended and likely effects, not by reference to potential consequences which are exceptional or unlikely.

It is clear that the current state of affairs enables abuse and is tilted too far in favor of litigation plaintiffs, who can essentially sue on a wholesale basis with impunity. The fulcrum needs to be restored to a position of balance so that the patent playing field is level for all innovators. The Senate Judiciary negotiators appear to have arrived at a fair and balanced set of reforms. Let’s hope the Senate seizes this chance to improve and strengthen the patent system.

In the Internet Revolution, We Can’t Afford to Leave Part of the Country Behind

This piece originally appeared in VentureBeat

Too many communities have been left behind as the Internet revolution marches on. In much of the country, communication, access to information, and business are powered by the Internet. But in areas underserved by broadband networks – where it might also be too expensive to own a personal computer – adults who went to school too long ago and have not pursued re-skilling programs, and students who do not have Internet access at home or at school, are in danger of never catching-up.

Efforts originating in the public and private sectors are trying to change this narrative, but we need to do more. The President’s ConnectED plan to reform E-Rate aims to connect 99 percent of classrooms and libraries within five years. As I’ve argued before, this program is essential for educational equality, and equality of opportunity post high-school, and it needs broader support.

On the private side, the Red Hook Initiative (in Red Hook, Brooklyn) has installed free WiFi routers at churches, schools, and other community spaces. With a complimentary program in local schools focused on leadership, employment skills, and STEM training, the initiative has empowered the community to develop services in the present, and students are also better prepared for their futures in the modern economy. With support from local and state governments, successful programs like this could be rolled out to more places where they are needed.

One model for public-private partnerships worth following is what Etsy is doing in the post-industrial community of Rockford, Illinois (at the request of the town’s mayor, Larry Morrissey), and underemployed communities in New York City. Working with local groups, Etsy has a “craft entrepreneurship” program to teach basic business and computer literacy by boosting existing craft and manufacturing skills.

According to Etsy’s site, “many low-income groups have long had craft and manufacturing skills, but are unsure of how to unlock the potential of these skills for income and wellbeing in this day and age.”

In this program, the idea of unlocking existing skills for “this day and age” is the key. While a third of Etsy sellers use the income from selling their handmade goods to cover some household expenses, and 20 percent use the money to boost their savings, this program isn’t fully about money, and it’s not about Etsy either; it’s about bringing more people into the Internet economy and empowering communities to use the Internet as a platform to better themselves and their families.

People are learning how to run a business -- even just a small one -- with marketing, photography, pricing, and growth strategy lessons; they are making the most of their existing skills; and when the course is complete they are left with an Etsy store that might just provide the supplemental income to push their family over the poverty line.

But the primary and enduring benefit of this program, and others like it, is access to the Internet economy and the pride that comes with being able to do a little more than you could yesterday. Essential connectivity and basic education lay the foundation for individuals to retake control of their careers. First it’s an Etsy store, but then maybe it’s SideCar, UberX and finally a brand new startup business.. For the wellness of our economy, and our society, more communities need access to high-speed broadband and the knowledge that will help them harness the power of the Internet. Tech should support ConnectED and then work with government to ensure universal access.

Image Credit: spirit of america/Shutterstock

Pushing Patent Reform Through Senate Recess

We found out late last week that the Senate is pushing back a key vote on patent reform for the third time in a row. Early reports decried this as the beginning of the end of patent reform, but in fact the opposite is true. From everything we’re hearing, the Senators have reached a deal on the key provisions of comprehensive reform and plan to use their upcoming recess to smooth everything out.

Good news first: the bill looks likely to include the following strong provisions that generally align with the House Innovation Act:

Fee shifting: Meaningful fee shifting will discourage the most egregious actors — those without meritorious cases — from suing in the first place; and joinder provisions are necessary to make sure that the real party in interest — the one that really owns the patent — can be held liable for the trolling activities of shell entities are also essential. In other words, no more hiding behind shell companies.

Heightened pleading: Patent trolls benefit from asymmetry of information. They can file suits with vague and limited information, leaving companies with no choice but to consult a lawyer about the scope of the threat they face. Most startups don’t have an in-house lawyer at all, let alone one who specializes in patents.

Those bringing suits should set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. This would, at minimum, give startups a basic and common-sense understanding surrounding the threat, allowing them to make more informed decisions on how to proceed.

Discovery reform: Discovery is one of the most onerous and expensive parts of patent litigation. Reasonable limits on initial discovery will help incentivize startups to fight the trolls in court. This will, by default, incentive those trolls to only bring meritorious suits.

Demand letter reform: Patent trolls can legally send vague licensing demands, full of threatening legalese, and startups are again left with no information to understand the scope of the threat they face. Demand letters should include concrete information on the patent holder’s claim to give recipients needed information; and demand letters sent in bad faith should be actionable. 

Customer stay exception: Startups can sometimes find themselves facing expensive litigation for a product they obtained from someone else, or they might find their customers facing suits for using their products. In either instance, startups need tools — like robust stays — so manufacturers and suppliers can step in and join the defense.

So far, so good. The not-so-great-news, however, is that the Senate is now out on a two-week recess — and two weeks is a lot of time for opponents derail what appears to be a really good deal.

Most opponents can be clustered into two groups: D.C. insiders who oftentimes know their way around the legislative process much better than the small businesses and innovators who are being targeted by trolls; and large, well-resourced businesses (including the trolls themselves!) that have invested significant resources in the current broken patent system and fear losing some of that investment value.

So,  those of us who care about ending the reign of the patent troll need to speak up. Go to fixpatents.org, call your Senators NOW and tell them it’s time for real patent reform.

Finally, a word of caution: we’re reasonably optimistic that the bill we’ll see after recess will be a good one. But the process has been largely opaque and until we see final language we don’t know for sure what this deal will look like. We’ll be watching closely, however, and will keep you up to date in this space and on social media (Follow us on Twitter and Facebook).

Thanks to your help, we're closer than we’ve been in years to fixing a broken patent system that has been hurting inventors, startups, and the promise of technology. Now is the time to get this done.

12 Startups in DC for the Day

Thanks to our team of superstar delegates, Startup Day on the Hill 2014 was a rousing success. Members of Congress and their staffs are increasingly involved with the startup community and the technologies and services we’re building; they are starting to understand that they must support what we do for the good of the whole economy.

Our Women in Technology event on Tuesday night was attended by more than 100 people and DC luminaries, including visits from startup-friendly members of Congress including Rep. Tulsi Gabbard (D-HI), Rep. Blake Farenthold (R-TX), and DNC Chair Rep. Debbie Wasserman-Schultz (D-FL), who gave the evening’s inspirational remarks.

The packed celebration was also an opportunity for us to introduce Engine’s new Executive Director, Julie Samuels, who is committed to the issue of women in technology and has laid plans to bring on a senior fellow to advise on the subject. By focusing on the under-representation of women as engineers, founders, and investors, we hope to create better policies to give women an equal opportunity.

(Here’s what Politico had to say about the evening!)

Startup Day itself was packed with incredible experiences, vibrant conversations, and bold actions – all aimed at providing members of Congress more tools and resources to support startup communities and create better public policy.

In having these conversations, we already succeeded in bringing the startup community closer to policymaking in Washington -- at least for a day. But we also hope to have had an impact as the Senate continues to work towards patent troll reform, as the House works on immigration reform, and as Congress begins to tackle the numerous issues we face as a community.

Take a look at pictures from the day!

Stay tuned, also, for new installments to our Startups Speak series -- putting a human face on the policy issues we face.

We’re thankful to CEA for their generous support, and we look forward to continuing our work together. We also thank WeWork for hosting our team at their beautiful Wonder Bread Factory, Franklin Square Group and S-3 for their assistance in getting our events together, and to our Congressional co-hosts for their assistance in the coordination of the event.

We can’t wait for Startup Day 2015!

Meet Peter Pappas, Engine Advisor on IP

I’m really excited to launch Engine’s Senior Fellows Program. Starting with Peter Pappas as our Senior Advisor on intellectual property and other policy issues, we plan to expand the program with fellows on net neutrality, women in tech, and other relevant areas that affect the startup community.

Peter, who made his first public appearance with us at a patent reform panel in San Francisco, and then joined us in DC for Startup Day on the Hill, is the former chief of staff at the USPTO where he worked with Director Kappos and the White House on policy initiatives. In this position, Peter was intimately involved in the formulation, and passage, of the 2011 America Invents Act. And since then, he has been working with the USPTO and the White House on additional patent reform legislation that targets patent litigation abuse and fills in the gaps that were not addressed by the AIA.

Having advisors is essential for us as we continue to conduct existing policy work, and enter into new debates. Peter’s experience and expertise are particularly crucial right now, as we push the Senate to pass comprehensive patent reform.

Speaking of which, here is Peter's first op-ed for us on why we need to restore a patent system that support true innovation.

Watch Peter introduce himself and tell us why he’s excited to be here!

The Biggest Threat to Patent Reform: The Apple/IBM/Microsoft Coalition

This article originally appeared in VentureBeat

There’s a new coalition in D.C., and big players like Apple, DuPont, Ford, GE, IBM, Microsoft, and Pfizer have all signed up. Unfortunately, launched on the day the Senate was supposed to take up the latest effort to reform the patent system, the coalition’s sole purpose appears to be an effort to derail the important strides we’ve made toward fixing the patent troll problem via the proposed Innovation Act legislation.

So what is it about the Innovation Act (and other legislative proposals being discussed in the Senate) that this coalition thinks will harm both their businesses and ability to build innovative products?

These companies were all startups themselves once, and protecting startups that cannot afford to protect themselves from patent trolls is at the heart of the Innovation Act. The startups being targeted by patent trolls have less than $10 million in revenues. They are in no position to hire a patent lawyer to understand the scope of the threat they face — let alone pay the millions of dollars it would cost to take case to court. Even worse, startups are too often short on talent, so they do not have the luxury of using their current employees to read and understand vague patents with “fuzzy boundaries”.

Today’s trolls send out scores of demand letters that make vague assertions of patent infringement while requesting “licensing fees” of $100,000 or more.

The cost of trolling, on the other hand, is minimal. Trolls also typically render themselves litigation-proof by creating shell companies with no assets, should they fall into legal trouble from a wrongful suit.

We need real reform that will stem the tide of the troll epidemic, while maintaining protection for patent holders to enforce their legal rights. This is precisely what the current proposals would do.

Fee shifting

It is nearly impossible for a startup to find the resources to fight a patent suit. The promise of seeing some of that money back at the end makes securing the resources easier.

Meaningful fee shifting will discourage the most egregious actors — those without meritorious cases — from suing in the first place; and joinder provisions are necessary to make sure that the real party in interest — the one that really owns the patent — can be held liable for the trolling activities of shell entities are also essential. In other words, no more hiding behind shell companies.

Heightened pleading

Patent trolls benefit greatly from asymmetry of information. They are able to file suits with vague and limited information, leaving companies with no choice but to consult a lawyer about the scope of the threat they face. Most startups don’t have an in-house lawyer at all, let alone one who specializes in patents.

Those bringing suits should set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. This would, at minimum, give startups a basic and common-sense understanding surrounding the threat, allowing them to make more informed decisions on how to proceed.

Discovery reform

Discovery is one of the most onerous and expensive parts of patent litigation. When startups face companies solely in the business of licensing and litigation (e.g., oftentimes a patent troll), they find themselves facing outrageously expensive motion practice that has little to no impact on their adversary.

Reasonable limits on initial discovery will help incentivize startups to fight the trolls in court. This will, by default, incentive those trolls to only bring meritorious suits.

Demand letter reform

Patent trolls are legally able to send vague licensing demands, full of threatening legalese, and startups are again left with no information to understand the scope of the threat they face.

Demand letters should include concrete information on the patent holder’s claim to give recipients needed information; and demand letters sent in bad faith should be actionable. Those senders should not be able to take advantage of the patent system and extort money from high-growth companies that are rebuilding the economy.

Customer stay exception

Startups can sometimes find themselves facing expensive litigation for a product they obtained from someone else, or they might find their customers facing suits for using their products. In either instance, startups need tools — like robust stays — so manufacturers and suppliers can step in and join the defense.

The harm resulting from the patent troll epidemic does not just impact startups; it creates an environment where startups have a negative impression of the patent system and are therefore significantly less likely to positively engage. A recent study from the National Sciences Foundation found that in the information sector (which includes software, Internet, and Data processing) only 10 percent of companies found utility patents either “very” or even “somewhat” important.

We need comprehensive patent reform to level the playing field for all innovators so they are no longer victimized by a litigation system stacked in favor of trolls. The legislation must realign the patent system with its founding principles — to incentivize innovation and the progress of technology. This includes protecting patent owners’ rights along with the rights of those facing patent threats. To be clear, there is nothing in the Innovation Act, or other proposed legislation, that would stop a legitimate patent holder from bringing a meritorious case for infringement.

To wit: our government grants patent holders a 20-year monopoly. Asking those who benefit from such monopolies to do basic minimal research before filing or threatening a lawsuit, or to actually inform the public about who really owns a patent is not onerous — it is part of a fundamental bargain between a patent holder and the public, and is probably something every responsible patent holder is already doing.

So why are companies like Microsoft, IBM, GE, and Ford trying to slow down this legislative process? Simply put, spending millions of dollars on patent resources has proved a good way to make money and to shut out their competition — high-growth, disruptive, and nimble startups. We must not let these entrenched interests get in the way of fixing a broken system.

Supporting Aereo Means Supporting Innovation Over Entrenched Interests

Today, we joined EFF, Public Knowledge, and CEA in filing a brief at the Supreme Court in favor of Aereo–the innovative company that allows you to watch television at any time, on any internet-enabled device.

Aereo’s product is thousands of dime-sized antennas, each one assigned to a customer who can use it to watch over-the-air television on-demand through the cloud. This Barry Diller-backed service has proven to be a good idea, and one that consumers want.

But enter the broadcasters who can’t stand the threat to their business model. Instead of competing with Aereo in the marketplace, they took the company to court, accusing Aereo of copyright infringement.

The argument is as follows: copyright law gives a copyright holder the exclusive right to “publicly perform” its content, so in retransmitting the broadcasters’ signals, Aereo is infringing the broadcasters’ copyrights. This is wrong. As a lower court already found, Aereo’s system of personal antennas and video streams allows individuals to make non-public transmissions of free broadcast channels that they may already access in their private homes independent of anything Aereo does. As such, no copyright violation.

The stakes here are high: if Aereo loses, it will likely have to shut its doors -- bad news for Aereo, bad news for its customers, bad news for innovative companies that want to follow in its steps, and I’d argue even bad news for the broadcasters--companies that can’t figure out how to deliver a product customers really want.

History should be a guide. In the early 1980s when the VCR first entered the market, the movie studios were less than pleased. At the time, the president of the Motion Picture Association of America famously told Congress: "I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone." There, like here, the movie studios sued for copyright infringement, and the case ended up before the Supreme Court. In a 5-4 vote, the Court found the VCR legal. That’s right--we were only one vote away from no VCR.

And, of course, the VCR not only proved to be an incredibly popular product, it was also good news for the movie industry. In fact, once VCRs were found in homes across the country, the market for home movies exploded and the industry found itself reaping the benefits.

It’s important to any entrepreneurial ecosystem that we allow innovative and disruptive products into the marketplace--whether it’s the VCR, Aereo, or who knows what else. Incumbent players that are often slow to innovate (anyone remember how long it took the record labels to realize people wanted digital music?) do everyone a disservice when they chose to fight in court instead of in the market.

Aereo has significant backing so it’s able to fight back. But litigation battles easily cost millions of dollars, and taking on a fight like this would be incredibly difficult for a smaller startup. So, we support Aereo and have asked the Supreme Court to keep the doors to competitive innovation open in the over-the-air television space, and in doing so set a precedent for more innovation generally.

This case is just the latest in a long history of entrenched interests trying to expand the scope of copyright law to shut down competition. The VCR case was another example, and so was the proposed SOPA bill we successfully shut down. As this case and others progress, we’ll be watching closely and working hard to stem this dangerous trend. Congress has indicated plans to overhaul U.S. copyright laws in the next few years--we hope they do it in a way that protects the interest of entrepreneurs nationwide.

It's Time To Fix Patents

Patent trolls, armed with low-quality patents, have been harming small innovative companies for years. Their time is up.

This week, the Senate Judiciary Committee is slated to take up patent reform -- Senate action is the important last step in an ongoing battle to fix a broken patent system. That’s why, today, we’re launching Fixpatents.org -- a simple campaign that allows you tell your Senator directly, on the phone or through Twitter, that we need real patent troll reform passed now. Personally contacting your representatives on the Hill is by far the best way to affect policy. Call your senator today and urge real patent reform.

Last December, the House passed an impressive bill of reforms, the Innovation Act, in a 325-91 vote, and the President has promised he'd sign it. We need to Senate to follow suit. This is the time to make our stand.

Patent reform matters to the recovering economy, to innovation policy, and mostly to small and growing startups who face the worst of the troll threats. Here’s why:

1. Startups are responsible for all net job growth over the last 30 years and the rise of the patent troll model threatens that continued growth.
2. The majority of companies targeted by patent trolls have less than $10 million in revenue. When small businesses face dubious multimillion dollar lawsuits, our innovation economy suffers.
3. Non-practicing entities -- or patent trolls --- filed 3,608 new suits in 2013, up almost 20% from 2012. And these types of lawsuits are expensive, costing defendants $1 trillion in lost wealth from 1990 - 2010 alone.
4. Patent troll suits accounted for 67% of all new patent cases filed last year, and 63% of all new patent defendants. This is a perversion of the justice system.

We are facing an epidemic and American businesses are paying the price. We need leadership, and action, now.

It’s time for Congress to pass legislation that puts an end to the dangerous business of patent trolling. Specifically, we need legislation that will:

1. Promote meaningful fee shifting
2. Shift the financial burden of burdensome litigation tactics, like discovery
3. Provide fair notice to accused infringers
4. Curb deceptive demand letters
5. Protect customers in patent litigation

The Senate must act, and with your help we can make patent reform a reality. Visit Fixpatents.org now, make the call, and urge your Senator to pass patent reform.

Please feel free to share this content on your own blogs, and share away on social media! 

Let’s Look Up From the ‘Google Bus’ and Focus on Solving Real Problems

This post was originally published in VentureBeat

In the Bay Area and across the country, Google’s private buses have become the proxy for important conversations about affordable housing, public transportation, and income inequality.

And whether we like it or not, the tech community has become the face of a city where so many workers cannot afford to live where they work.

It’s important that here in San Francisco we have hard conversations about the city’s future, and at the same time are careful not to demonize the people who ride the Google buses (and Facebook buses and Apple buses and Genentech buses); they are the young engineers and future entrepreneurs who are going to be best equipped to fix our problems. Right now, I fear we are turning them into the enemy.

As workers without high-tech skills are forced out of the job market, and traditional manufacturing jobs continue to evaporate, the entire country will need to confront the hard realities that San Francisco faces right now. And there is no one I would prefer to be leading us as we attack these issues than the type of engineers who invented the internet, came up with the algorithms that bring you search, learned how to 3D-print human organs, and created a single product that’s used by more than 500 million people worldwide to connect with each other.

Many of these entrepreneurs and engineers began their careers at large tech companies and went on build important products and tools. Roy Gilbert, for example, left Google to run Grockit, an online collaborative educational tool to help students prepare for standardized exams. Or Jack Dorsey, who left Twitter to build Square, a tool that enables small businesses across the country to process credit cards at far lower costs than the traditional services. Or Sebastian Thrun, who left the top-secret Google X project (where he built self-driving cars) to start the online education service Udacity. And of course we cannot forget the individuals who left Apple to make movies that have entertained millions at Pixar.

Here’s the thing: Entrepreneurs like these are the most optimistic group of people I’ve ever met. They believe that by creating, distributing, and sharing, they can make the world a better place. I think they can too. We have just seen the beginning of the promise of technology: its power to connect the world, harness information, and empower individuals still exists beyond what many of us can comprehend.

But when we lay the blame on Google buses, we take young engineers and future entrepreneurs and hold them responsible. We, as a society, make them “others” and not “us.” We teach them that they are the problem, instead of the solution.

This is not to let the tech community off the hook. Tech workers need to plug in and get involved with local politics and community efforts. They should volunteer their time and expertise to improve where they live, and join groups like sf.citi. They should organize and join hackathons that solve local problems. They should invest in the community’s interests, like public schools.

At a company level, more businesses should join Google and Linkedin to offer their employees paid time to volunteer, and they should encourage those employees to use that time locally.

In San Francisco, there’s talk of doubling the size of subsidized housing, legalizing currently illegal in-law units, improving light rail service, and making much-needed improvement to local municipal public transportation. Some of these ideas are better than others. But if we’re going to achieve anything, we need to get off the Google bus and start talking about the kind of solutions that will really fix the serious problems our city–and the nation–faces.

Image Credit: Chris Martin/Flickr

Critical Mass Supports Timely Patent Reform

This morning, we -- and 5600 other people -- sent a letter to the Senate urging real patent reform. Those people include 1507 entrepreneurs, 758 investors, and 1006 inventors -- at least 150 of whom own their own patents. This should serve as yet another reminder of the critical mass of job-creating entrepreneurs and businesses that support patent reform; the Senate should take note and act swiftly.

This letter is in addition to a letter the Senate Judiciary Committee received from U.S. Senators Mark Udall (D-Colo.), Rob Portman (R-Ohio) and 15 others  late last week. Signed by a broad coalition of Democratic and Republican senators, the letter cites widespread support across the county and in Congress for reforming the U.S. patent system to protect America's most innovative industries, as well as Main Street businesses and entrepreneurs across the nation, from abusive lawsuits and costly settlements.

As the Senate receives this letter, over 100 people will meet at Stripe’s office space tonight to talk about patent reform, listen to a panel of experts -- including former USPTO Chief of Staff and Engine Fellow Peter Pappas -- and formulate a plan of action for passing meaningful reform this year.

With the majority of patent troll targets making under $10 million in revenue, this is an issue so important to our community, and the economy as a whole, that we cannot afford to wait for action. When small businesses face dubious multimillion dollar lawsuits, our innovation economy suffers.

With the Senate poised to take up this debate in earnest early next month, we are entering the final, and most important, stretch of this battle. And we need you more than ever.

If you signed today’s letter and want to do more, or if you're just joining this coalition, stay tuned for the launch of fixpatents.org, a site that will help you call your Senators directly. A number of Senators and Representatives in Austin last week confirmed that making a phone call is the single most influential action you can take to encourage action in return, so we hope you’ll join us.

As we celebrate today’s actions, we also know there is still a lot more to do. Don’t stop here. Help us see this through.

The Importance of Copyright Notice and Takedown

Today, the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet held a hearing on copyright law’s notice and takedown procedure -- an important section that strikes a delicate balance between the rights of copyright holders and the freedom of online service providers. This hearing is part of a longer process undertaken by Judiciary Chairman Robert Goodlatte to reexamine copyright law, but today’s proceeding is of particular interest to startup companies, many of whom are directly affected by copyright law and who have a vested interest in seeing that law updated for modern technology.

Paul Sieminski, general counsel of Engine member company Automattic, testified today, and this is how he laid out the case notice and takedown procedures matter:

“From our perspective, the [law’s] notice and takedown system generally works in practice. The safe harbor provisions of the law are very important to us, and we, like hundreds of other internet service providers, rely on them in publishing the huge amount of online content that our users create. The [law] provides important certainty that our hosting of user generated content will not lead to costly and crippling copyright infringement lawsuits.”

Before the takedown and notice procedure was passed in the late 1990s, great legal uncertainty existed for any company providing online services that allowed for third parties to post content. At worst, these companies could find themselves liable if a third party posted content that infringed a copyright -- and that’s no small deal. Infringing a single copyright can result in damages of up to $150,000. With potential damages like that, it’s hard to imagine that sites like YouTube, Facebook, and WordPress would even exist today.

Under the Digital Millenium Copyright Act (DMCA), the notice and takedown procedure requires that:

• Copyright holders notify service providers when they find infringing work on the provider’s site;
• The service provider notify the poster of that work that it will be taken down; and
• The poster has the option to fight back if they believe the post was not infringing.

When this process is followed, service providers find themselves in a safe harbor where they will not personally be liable for potential findings of copyright infringement.

This safe harbor has been instrumental to the growth of startup internet companies. Again, according to Paul:

“When the DMCA originally passed In 1998, it wasn’t possible to create a Facebook page, Twitter account or your own website, for free, in minutes like you can do on WordPress.com. These innovative tools allow anyone to communicate their vacation photos to the world, build a business as an independent publisher, or even organize a democratic, grass roots overthrow of an oppressive regime in the Middle East. The internet’s communication and sharing tools are used by millions of people, and all grew up under the DMCA. For the most part, the statute has worked to encourage the growth of innovative platforms and businesses. The United States is now home to the most thriving and advanced internet companies in the world.”

Traditionally, copyright was meant to incentivize artists to create, but more recently we’ve seen abuses of the system where incumbent industries attempt to rely on it to squelch competition (remember SOPA?). As this debate continues over the next few years, we’ll work hard to keep those abuses from happening, and ensure that artists and entrepreneurs are protected equally under the law.

Julie Samuels Joins Engine As First Executive Director

The Engine team and board are excited to announce that Julie Samuels has agreed to join as our first Executive Director, and has been appointed President of Engine Advocacy and Engine Foundation.

Julie has served on the Foundation board since its formation in 2012, where she has been an invaluable resource for the organization. Now we’re delighted to have convinced her to join us full-time.

Julie’s appointment is a major turning point for us. Today, Engine is a still-growing nonprofit organization (two, technically) and our staff produces economic reports, and provides policy guidance, direct advocacy, and member services to hundreds of startups. Engine’s staff and volunteers have done an amazing job of self-directing and building the organization you see today, with leadership coming from within the team, and from board members.

Julie’s job is now to take the organization through its next growth phase. She has committed to growing the team (we’re hiring!), launching a new policy fellowship program, building up a more substantial and diverse funding base, and exploring the social issues around technology in addition to Engine’s core set of focus areas. 2014 is going to be a big year.

And for those who don’t know Julie, she’s joining us from the Electronic Frontier Foundation where she was a Senior Staff Attorney, and the Mark Cuban Chair to Eliminate Stupid Patents (we swear). She’s also on a number of advisory boards, is a regular speaker at a host of prestigious places (CES, Harvard, Princeton - you get the idea), and Julie started her career as an entertainment and IP attorney. But Julie’s no ordinary lawyer. She was an advocate and journalist before law school at Vanderbilt, and interned at the National Center for Supercomputing Applications -- where the modern internet browser was born -- while still an undergraduate at the University of Illinois.

Since then, Julie has argued in the Megaupload case, has written a number of briefs for our nation’s highest courts, launched TrollingEffects.org and advised countless startups. Not to mention the hard work of maintaining a Twitter account in her dog’s name! (You can follow Julie on Twitter here.)

We believe there’s nobody better to represent startup entrepreneurs around the country, and make sure we do everything we can to foster economic growth, innovation, and achievement -- in the United States and abroad.

If you’re at SXSW this week and next, please stop by any of our many events, including this immigration reform event with many of our tech partners, and give her a warm welcome.

You can also find the press release about Julie’s appointment here.

New Bill Takes Aim at Patent Demand Letter Abuses

Since the end of last year when the House passed the Innovation Act with a resounding bipartisan majority, the President has announced his intention to sign the bill, and he made a strong statement in support of reform in this year's State of the Union address. But we've still spent the early months of 2014 working with Senators, and urging the Senate to act on pending legislation. Today, a new bill was added to the list. The Transparency in Assertion of Patents Act, introduced by Senators McCaskill (D-MO) and Rockefeller (D-WV), is an important bill that would protect consumers and small businesses by curbing the patent demand letter problem.

While the Innovation Act brought great gains to our community by squaring-up against patent trolls, the demand letter problem, which for jurisdictional reasons was left out of the House package, remains a grave concern. Last year, when we launched the demand letter database, Trolling Effects, with EFF and a coalition of tech advocacy organizations, we wrote:

The letters demanding these payments are often evasive, failing to include details about the patents, who owns those patents, and the products or services that allegedly infringe. They fail to give recipients the information to make rational decisions, such as whether they should pay the troll, ignore the letter, or go to court to fight it. Just hiring a lawyer to ascertain that seemingly simple information can easily cost well into the tens of thousands of dollars.

The letters raise even more fundamental concerns, too. Because they happen before a legal complaint is ever filed, they are not part of the public record. And once a settlement or license is signed, it will likely include a non-disclosure provision, prohibiting the letter's recipient from talking publicly about its contents. This means that the scope of the problem is often underreported, making it harder for policymakers to understand the true scale of the patent troll problem.

Here is what Sen. McCaskill and Sen. Rockefeller's bill would do:

• Require that demand letters contain certain basic information, such as a description of the patent at issue, a description of the product or service that allegedly infringes it, contact information for the patent's owners, and disclosures of ongoing reexaminations or litigations involving that patent.
• Define as an illegal, unfair, or deceptive practice certain egregious behaviors, such as sending letters threatening litigation without a real intent to file litigation, or sending letters that lack a reasonable basis in the law.
• Give state attorneys general explicit power to to target similar bad behavior in their own states.
• Allow the Federal Trade Commission to enforce these rules by levying penalties of $16,000 per each violation.

Signing this bill into law would go a long way to stopping some of the worst demand-letter abuses. We applaud Senators McCaskill and Rockefeller, and look forward to supporting this piece of legislation as it works its way through the Senate.

Speaking of which, urge the Senate to take action on this bill, and other essential patent reform measures, here. 

The High-Tech Sector is Less Dynamic: Here's What That Means, and Why It Matters

This post originally appeared in Harvard Business Review

Believe it or not, America’s high-tech sector has become less dynamic and less entrepreneurial in the last decade. That’s the key takeaway of a recent Kauffman Foundation report I co-authored.

Despite the fanfare this vital segment of the economy and its startups have received in recent years, the high-tech sector is experiencing a consolidation of activity away from young firms into more mature ones, and the pace of job creation has been on a persistent decline. While it’s true that high-tech companies have been well-represented among the fastest growing firms in the past few years, the high-tech sector--like the rest of the economy--is less dynamic overall.

What do I mean by “dynamic”? The study of business dynamism involves measuring the flows of firms and workers underlying the private economy. Businesses are constantly being formed, growing, shrinking, and closing. Labor markets reflect this churning: some jobs are created while others are destroyed, and some workers move into new roles as others seek to replace them. New and superior ideas replace existing and inferior ones, while more productive firms usurp less productive ones.

A particularly important part of this dynamic process is the entrepreneur, who starts a venture to create a new market, or to replace incumbents in an existing one. And entrepreneurs also play an outsized role in new job creation. While older and larger firms account for the substantial majority of employment levels, new and growing young firms drive net new job creation overall.

The process of business and labor market churning is a messy one. But it’s also fundamental to modern economies. Research has firmly established that this process of “creative destruction” fuels productivity growth, making it indispensable to our sustained economic prosperity. In other words, a more dynamic economy is a higher growth one.

But business dynamism is breaking down.

Forthcoming research from economists at the University of Maryland and the Census Bureau shows that business dynamism has been declining across a broad range of sectors during the last few decades--and the single biggest contributor is a declining entrepreneurship rate. A host of indicators point to a workforce that has become more risk-averse, and therefore less likely to change jobs or start a new venture.

I recently teamed up with two authors of the aforementioned research to produce the Kauffman report: John Haltiwanger of the University of Maryland, and Javier Miranda of the Census Bureau. We surveyed how these trends might apply to the high-tech sector. What we found surprised me.

Though the high-tech sector was particularly dynamic and entrepreneurial during the 1980s and 1990s--a period when the same was not true across a broad range of sectors--all that changed in the 2000s. The job creation rate (representing expanding firms) has been on a sharp decline since the beginning of the last decade, while the job destruction rate (representing contracting firms) has held about steady--squeezing net job growth in the process. By 2011, the rate of overall labor market churning in high-tech had converged with the rate for the total private sector.

Even more striking was the declining entrepreneurship. Young firms that I’ll call “startups”-- those aged five years or less--comprised 60 percent of all high-tech firms in 1982. That figure fell to 38 percent by 2011. About half of this decline took place after the dot-com bust dissipated. The decline in both entrepreneurship levels and rates during the period associated with the Great Recession were sharper in high-tech than for the rest of the economy.

A decline in high-tech dynamism might be particularly problematic for future growth. Aside from the direct impact on productivity in technology-adopting segments of the economy, the high-tech sector itself plays an outsized role in income, employment, and productivity growth overall. Of the job-creating young firms, high-tech startups are particularly dynamic--growing at twice the rate of a typical young business, and high-tech firms account for an outsized share of America’s fastest growing businesses--the so-called “gazelles.”

To be clear, our data were last collected in March 2011 and our definition of high-tech stretches beyond software and internet companies to include things like computer hardware, life sciences, and aerospace. Still, investments in early-stage firms haven’t exactly been explosive in the last two years, and the recent boom of high-value venture-backed exits--either through acquisition or IPO--were generally companies hatched long before our lapse in data. Market participants I talk to think my observation of an uptick in high-tech firm starts in 2011 accelerated in 2012 before plateauing in 2013. That appears consistent with one recent analysis of high-tech job growth.

This work may pose more questions than answers, but as economists are working to uncover these, we can be asking ourselves what we can do to promote technology entrepreneurship right now--which, although popular, may not actually be booming at the level the media would have you believe.

We Need to Expand Access to Education, Not Curtail it with Outdated BPPE Regulations

This post is by Tina Lee, founder and CEO of MotherCoders, a non-profit that helps moms on-ramp to technical careers in the new economy.

In many ways San Francisco is now a very different place than the one where I was born and raised in the 1970s. But that’s not surprising considering how much the world has changed -- vastly transformed by globalization and the advent of the internet. What is so troubling, however, is not that the world changes, but that public policy has been so slow to catch up. This was made all too clear when the Bureau for Private Postsecondary Education (BPPE), a unit of California’s Department of Consumer Affairs charged with licensing and regulating postsecondary education, moved to shut down education programs like Hack Reactor, App Academy and others.

While the marketplace has been driving technological change at a rapid and unprecedented rate, our civic institutions have been slow to adapt. Yet the health of our economy – not to mention our democracy – is dependent upon strategic policymaking that will ensure that everyone has equal opportunity to thrive in this new world. And one thing that’s always provided a promising pathway to social mobility in the U.S. is education – the kind that prepares Americans for participation in the economy through the acquisition of skills and knowledge that match market demands.

Right now the market desperately needs people with digital skills to fuel the growth of our innovation in economy, and people with software programming skills are in the greatest demand. In other words, there are plenty of job openings requiring software programming skills that offer growth potential and good wages, but not enough people to fill them.

In this environment, it’s no wonder people are flocking to coding bootcamps to retool their skill-set, especially since these programs take less time to complete than traditional academic and vocational programs, plus they offer mentorship and direct connections to local companies looking to hire. That’s why the recent move to shut down these programs is so troubling.

At a time when the digital divide is becoming dangerously synonymous with the opportunity divide, this seems emblematic of a larger disconnect between policy and reality. The fact is that demand for technology skills will only continue to grow as we shift further away from an industrial-based economy. According by research conducted by CODE2040 – a non-profit that’s working to increase the number Blacks and Latinos in tech -- there will 1.4 million new tech jobs by 2020, 70 percent of which will go unfilled unless we create more pathways to technology training.

As an educator actively working to bridge the digital divide in underserved communities, I know we should be focused on expanding access, not curtailing it. In fact, that’s the reason I founded MotherCoders – a non-profit organization that offers a tech orientation program designed to on-ramp moms to technical careers. By providing on-site childcare for mothers who want to learn basic computer programming, expand their understanding of the technology landscape, and network with peers and industry professionals, we’re doing our part to create a more dynamic, sustainable, and inclusive economy. And when our moms complete their tech orientation program, I want coding bootcamps to be an available resource for them for further skill development so that they can advance their careers.

While the role of regulation is critical in protecting consumers, and bootcamps on notice are working to comply, in this case the BPPE rules are due for an update. Many BPPE rules pertain to the operations of traditional, brick-and-mortar, post-secondary academic institutions, with language devoted to the governance of satellite campuses, on-site learning resources such as libraries and physical equipment, and administrative staff.

Satellite campuses? Anyone with a web enabled device can now become one;

Libraries? Almost all of the world’s knowledge has been digitized and made available online;

Physical equipment? All you need is access to a computer, an internet connection, and maybe a printer;

Administrative staff? Everything from HR to accounting to IT can be accessed as a service mediated by internet technology.

It’s very clear that these rules do not yet reflect how profoundly internet technologies have transformed the way our society works, and certainly not how coding bootcamps -- a new means of workforce development -- works.

To keep the U.S. competitive in the innovation game, it’s time to adapt our education policies so everyone has a chance to thrive in our new economy. My hope is that policymakers will work with citizens and industry alike to create the conditions necessary for building a diverse and inclusive twenty-first century workforce capable of competing in a fast-changing, technology-driven, globalized world.

Tina Lee is a mother of two young daughters and founder and CEO of MotherCoders, a non-profit that helps moms on-ramp to technical careers in the new economy. A lifelong San Franciscan who was raised in Chinatown by an immigrant grandmother, she holds a Bachelor of Arts degree in Political, Legal and Economic Analysis, with an emphasis in Economics, and an MBA from Mills College. She also holds an M.A. in Education from the Stanford University Graduate School of Education’s Learning, Design & Technology Program.