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.

Google Diversity Numbers Highlight Tech’s Challenge

Yesterday, Google took a bold step in releasing the diversity data for its workforce. Of Google’s 46,170 employees worldwide, just 30% are women, 2% are black, and 3% are Hispanic. Asian workers make up 30% of employees, a very far second behind white workers at 61%.

The numbers, gathered as part of a report that major U.S. employers are required to file with the Equal Employment Opportunity Commission, confirm what much of the public has suspected--Google’s current workforce is mostly white and male. Google’s disclosure of its diversity figures finally provides hard evidence to back-up polemics against the homogeneity of Silicon Valley’s gender and ethnic makeup.

Tech industry giants have been notoriously discreet about their workplace diversity. Google is one of the first major Internet companies to disclose this data to the public, a commendable first step on a long road ahead that the company has to remedy its hiring and retention disparities. Lazlo Bock, Senior Vice President of People Operations admits, “Put simply, Google is not where we want to be when it comes to diversity, and it’s hard to address these kinds of challenges if you’re not prepared to discuss them openly, and with the facts.”   

There’s no doubt that Google’s diversity problem is one faced across the board in the tech industry. Silicon Valley has both a pipeline and retention challenge when it comes to recruiting a diverse workforce. Women earn approximately 18% of all computer science degrees in the United States, while Blacks and Hispanics make up less than 10% of U.S. college graduates and earn under 5% of degrees in CS majors. These statistics are reflective of a larger systemic problem, but rumors and realities of tech’s white “bro culture” present contexts and environments that make staying in tech unappealing for the women and minorities that are granted access in the first place.    

While companies are not required to disclose their diversity figures, it is a hope that Google’s example will pressure other big players such as Facebook, Apple, and Twitter to quickly follow suit. Google’s disclosure marks a pivotal moment in Silicon Valley’s agenda: it’s time to start solving the problems of inclusion and access.  

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.

Engine Joins Steve Case's Rise of the Rest Road Tour Team

For four days in June, we’ll be joining Steve Case, Revolution, and Up Global to celebrate entrepreneurship across the country, showcasing startups and entrepreneurs in Detroit, Pittsburgh, Cincinnati and Nashville.

From our recent research, we know that the growth in high-tech startups is not simply a “tech center” phenomenon. In fact, high-tech startups are being founded across the country, fueling local and national economic growth.

“I have always believed in the power of entrepreneurship to change the world,” said Steve Case.  “This four-day journey will shine a spotlight America’s best and brightest, wherever they reside, to demonstrate that great ideas and great companies can come from anywhere.”

“We’re so excited to hit the road and report back on a story that demands more attention: some of the most exciting things happening in tech are happening far from San Francisco and New York City,” said Julie Samuels, Executive Director of Engine. “And it’s these young startups -- growing in these cities across the country -- that will create the jobs the next generation relies on.”

We will be joined along the way by nationally recognized entrepreneurs and civic leaders to celebrate the progress of the startup economy. Steve will also personally invest in each city’s startup community by hosting a series of pitch competitions - one winner in each city will earn a $100,000 investment in their company.

Each stop along the route will feature:

• Visits to local startups, accelerators and incubators
• Fireside chats featuring Steve Case and other entrepreneurial luminaries in a candid conversation about the local startup ecosystem
• Local startups pitching a panel of all-star judges, with $100K investment at stake
• Celebration and networking for local entrepreneurs

We hope to see you on the road!

More information on the Rise of the Rest road tour, including times and locations for specific events in each city, is available at www.riseoftherest.com and by following #riseofrest on Twitter and Instagram.

Open Letter for Patent Reform

Julie Samuels, Engine's Executive Director, penned a letter to Senator Leahy and the Senate Judiciary Committee to express why startups need patent reform, and how the delay is already impacting businesses and the economy.

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.

Engine to Wheeler: We Look Forward to Continued Discussion

In response to this morning's FCC hearing on preserving an open Internet, we offer the following statement:

We are again encouraged by Chairman Wheeler’s commitment to protecting the open and free exchange of information on the Internet, and to inviting comment on various paths to preserve an open Internet. We agree that network neutrality is essential for consumers, startups, and economic growth, and that “squeezing out smaller voices [and new ideas] is unacceptable”.

While we can echo the Chairman’s sentiments, he has not explained how the authority of Section 706 will achieve the lofty goals as outlined. Based on the Verizon v FCC decision, we believe that the Chairman’s proposal to rely on the Commission’s secondary authority cannot lead to rules that can both be upheld in Court and preserve the open Internet to give startups the certainty they need.

We look forward to discussing specific approaches to reaching the goal of an open Internet, and will continue to advise that Title II reclassification is the only route to preventing paid prioritization and an Internet of haves and have-nots.

Yes, The FCC Has Acted to Protect Net Neutrality

The cable and phone companies are telling people in DC that the Internet has benefited from “no” net neutrality rules. They claim, since there were no rules for a decade, that we don’t need them now. They’ve got the story exactly backwards: we have had active FCC interventions on net neutrality. That’s one reason we have had a neutral Internet until now. Indeed, since 2004 we have had enforcement actions, policy statements, merger conditions, spectrum conditions, and a rule. The first time we have had the FCC announce that it would not ensure neutrality but would instead authorize fast lanes … was with Chairman Wheeler’s comments earlier this year.  

I explain that here. This post was originally part of the comments Engine Advocacy filed with the FCC. 

While often imperfect, the FCC has done much to ensure an open internet. Carriers have not historically engaged in rampant discrimination partly due to the threat of FCC action. In 2004, the FCC’s Chairman issued a speech about the “Four Freedoms” online, which promised to keep the Internet an open platform. In 2005, the FCC punished Madison River, a small telephone company that was blocking Vonage, an application that powered online phone calls competing with Madison River’s own service. In 2005, the FCC adopted an Internet Policy Statement and pledged to respond to any violations of the statement with swift action. In 2008, after it was discovered that Comcast, the largest ISP in the nation, was interfering with some of the internet’s most popular technologies—a set of five peer-to-peer (P2P) technologies—the FCC enjoined Comcast in a bipartisan decision. Much of the cable industry was engaging in such actions, so this wasn’t a small exception. In 2010, the FCC adopted the Open Internet Order that was only recently struck down.

Additionally, in the years since 2005 the FCC has conditioned spectrum assignments and mergers on net neutrality rules. The largest three broadband providers have been (or remain) subject to net neutrality for many years. AT&T accepted two-year net neutrality conditions in its merger with BellSouth, and SBC accepted a two-year condition in its merger with AT&T. Verizon accepted a similar condition in its merger with MCI. Verizon purchased a 22MHz band of spectrum (the C block) in the FCC’s 2008 700MHz auction for $4.7 billion dollars, and did so subject to open internet conditions modeled on the Internet Policy Statement. Comcast has been subject to network neutrality rules since its merger with NBC in 2011, and the merger condition extends for seven years. Both Verizon and Comcast’s conditions still apply today. Moreover, Congress imposed contractual obligations on internet networks built with stimulus funds—nondiscrimination and interconnection obligations that, at a minimum, adhered to the internet Policy Statement, among other obligations.

In light of these merger obligations, license conditions, FCC adjudications and rulemaking, stimulus conditions, and consistent threats of FCC action, startups have enjoyed a generally neutral network that is conducive to, and necessary for, innovation. These actions provided some certainty that startups would not be arbitrarily blocked, subject to technical or economic discrimination, or forced to pay carriers so that the carriers’ consumers can access all the innovation online. 

Following the Verizon v. FCC decision, and under the Chairman’s proposal, that will likely change, in ways that harm entrepreneurship and the public interest.

The last decade of tech innovation may not have been possible in an environment where carriers could discriminate technically, and could set and charge exorbitant and discriminatory prices for running internet applications. Without the FCC, established tech players could have paid for preferences, sharing their revenues with carriers in order to receive better service (or exclusive deals) and to crush new competitors and disruptive innovators. Venture investors would have moved their money elsewhere, away from tech startups who would be unable to compete with incumbents. Would-be entrepreneurs would have taken jobs at established companies or started companies in other nations. The FCC played an important role. The Chairman and this FCC shouldn’t break that. 

Net Neutrality's Legal Binary: An Either/Or With No "Third Way"

People working on net neutrality wish for a “third way”– a clever compromise giving us both network neutrality and no blowback from AT&T, Verizon, Comcast and others. That dream is delusional because the carriers will oppose network neutrality in any real form; they want paid fast lanes. They have expressed particular opposition to “Title II” of the Communications Act—something telecom lawyers mention the same way normal people might reference the First or Second Amendments. Title II is the one essential law to ban paid fast lanes.

All legal “third way” proposals have struck me as legally flawed and too clever by half. Let me explain why: current law sets up an either/or, without much possibility of a third way. We have two very different paths and have to pick one.

Laws usually include a definition of something and then apply rules to that thing. Drug laws, for example, might define what “drugs”, insurance, or securities laws define “insurance” and “securities,” then they apply rules to things defined as drugs, insurance, or securities. You can look at the legal definition of drugs and know that peanut butter and automobiles aren’t drugs. Therefore, the legal requirements on drugs don’t apply. If an agency has authority over both food and drugs, and decided both peanut butter and Viagra are not “drugs” but “foods,” then the agency could not apply drug laws to either of them. But it would likely have to declare Viagra a drug to regulate it as a drug, and peanut butter a food to regulate it as a food.

In January, a court in a decision called Verizon v FCC struck down the network neutrality rules adopted by the FCC in 2010. The court said that Title II of the Communications Act regulated some companies as “common carriers.” What is a common carrier? A common carrier is a company “forced to offer service indiscriminately and on general terms.” Common carriers cannot engage in “individualized bargaining.” Think about cabs, which are generally common carriers. For example, according to most state laws, cabs are not permitted to refuse to drive anyone and must charge the same prices, instead of discriminating and deviating from their uniform meter. Common carriers have included landline phone companies, mobile phone companies, DSL service (until 2005), also railroads, and grain elevators.

These are the parts of Title II that require common carriers in communications to serve everyone and not discriminate among users. (The full provisions provide even more detail.)

Serve everyone on fair terms: “It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor; … All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable.”

No unreasonable discrimination: “It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device.”

According to the court decision in January, services subject to Title II are subject to these provisions.

But service not subject to Title II cannot be treated as common carriers. That is the key holding of the Verizon decision: “We think it obvious that the Commission would violate the Communications Act were it to regulate [companies that are not subject to Title II] as common carriers.”

Here’s how the Court got there in plain English: its just like the Viagra example above. Ten years ago, the FCC said that ISPs aren’t common carriers. Therefore, the FCC can’t regulate them as if they were..

Here’s the legal jargon version. The Communications Act defines something called “telecommunications services,” and says those services must be offered on a common carrier basis under Title II. Telecommunications services are generally networks that carry data between two points without changing it. Other services, that provide and change information, like Facebook or Yahoo, are “information services.” They are not subject to common carrier obligations in Title II. The FCC (oddly) decided ten years ago to treat Verizon, AT&T, and others as information services, not as telecommunications services, even when they carry traffic from point A to point B, merely because they also offer things like email and domain name service.

Because the FCC decided that ISPs are not “telecommunications services” by law, Title II’s common carrier requirements of reasonable charges and nondiscrimination etcetera do not apply to Verizon, AT&T, and Comcast right now.

According to the court in January, the operative legal language making it a binary decision is this:

A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services. (Page 41).

The court interpreted this language as an either/or. Either a service is a telecommunications service (therefore a common carrier) or not a telecommunications service (and therefore not a common carrier).. It’s binary.

So, unless ISPs are reclassified as Title II common carriers, then common carrier laws simply cannot apply.

Said another way, if the FCC relies on any other provision then common carrier concepts cannot apply. It doesn’t matter if that other provision is one known as Section 706 of the Telecommunications Act, one known as Section 4(i) of the Communications Act, or one known as Mary Poppins. According to the decision, there is Title II, and then there is everything else, when it comes to network neutrality.

The court’s decision on this point is a really important development. Four years ago, when the FCC adopted its 2010 Order, the FCC didn’t know this binary existed. All it knew was that a few provisions of the law (such as Section 230) could not sustain network neutrality. In 2010, the FCC could believe that perhaps many provisions could work (other than 230 and a few others). It could treat “Title II” as the “big guns.” After the Verizon decisionthis January, we realize no provisions other than Title II would work. They’re the only guns.

So we know that (a) Title II services are regulated as common carriers and (b) other services cannot be. A simple binary.

And to finish off the analysis: is network neutrality a common carrier regulation?

Yes, by law. The court in January made that clear: network neutrality is a common carrier regulation. It is common carrier regulation because it requires ISPs to offer indiscriminate and general treatment for all websites. No paid fast lanes and slow lanes. The court said that, with the FCC’s 2010 language on fast lanes, “we see no room at all for ‘individualized bargaining.’”

Unless the FCC relies on Title II, it must permit fast lanes, slow lanes, discriminatory exemptions to bandwidth caps and all the other stuff AT&T, Comcast, and Verizon always wanted.

Still, the FCC Chairman keeps suggesting that the FCC can force the carriers to offer the same terms to everyone and can ban fast lanes under Section 706, without relying on Title II. It’s obvious from the January decision that forcing them to offer the same terms would be common carriage and therefore illegal. Any rules not adopted under Title II will either authorize massive network discrimination and “individualized bargaining” between ISPs and all websites—or be struck down.

If we want a rule against discrimination and against new access fees, we need Title II. There is no legal third way.

Title II and Banning Paid Prioritization

I keep hearing net neutrality opponents arguing that paid prioritization – “fast lanes” on the Internet – and discriminatory exemptions to bandwidth caps, etc. cannot be banned under Title II of the Communications Act.* They also argue that the FCC can’t ban access fees under Title II because Title II only bans “unreasonable” discrimination and unreasonable charges. Therefore, they argue that at least some discrimination and fees are reasonable.

That’s not true. Title II has a few key provisions.

The key language of the very first section in Title II is:

All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful …. The Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this chapter.

This is a pretty broad authority. The FCC can determine that the ISPs are imposing unjust and unreasonable charges on web companies and applications if they impose a tax to reach the ISPs’ customers. (To my knowledge, such charges are rare, new, and unusual.) The FCC could determine that all such charges are unreasonable. It can define a class of charges and make those charges illegal.

The key language of the second provision is:

It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.

The FCC can determine that paid prioritization is inherently unreasonable. (See Harold Feld’s ex parte for some history, particularly relying on the Carterfone case)

Indeed, previous FCCs understand that they can ban certain classes of actions as inherently unreasonable. In the 2010 Order itself, the FCC “effectively banned paid prioritization.” Verizon sued the FCC over the order and wrote this in its brief: “The Order effectively banned certain potential commercial services—including any ‘commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic’—by stating that ‘it is unlikely’ that such services ‘would satisfy the “no unreasonable discrimination” standard.’” (Page 9 of the brief.) The decision throwing out the 2010 Order, called Verizon v FCC, agreed with Verizon’s brief and the court interpreted the quoted language to leave “no room at all for ‘individualized bargaining.’” No room at all sounds like an effective ban. (Page 60-61).

The point is that under Title II, the FCC can eliminate certain classes of fees and discrimination, including banning paid prioritization (aka fast lanes) on the Internet altogether.

The FCC cannot do that under Section 706, as the Court already decided.

*The net neutrality debate is complicated by a question of whether the FCC should use its main authority that is found in Title II of the Communications Act or a new and very different authority under Section 706 of the Telecommunications Act. Net neutrality advocates prefer Title II because under Title II the FCC has the power to ban “unreasonable” discrimination and require “reasonable” charges and practices. A court in January has already decided that the FCC cannot ban unreasonable discrimination or eliminate (at least certain) unreasonable fees under Section 706. Indeed, the January case struck down the FCC’s 2010 net neutrality rules simply because Section 706 doesn’t give the FCC power to ban unreasonable discrimination.

Picture courtesy of Atul Nulkar

Give Congress a Second Chance

This post is by Ted Henderson, Founder of Capitol Bells.

A congressional approval rating hovering around 13 percent suggests a failure to engage the public in the legislative process, but technology can provide a solution by giving citizens and politicians a new way to interact. Representatives need to know what we think in order to represent us.

Public engagement means sharing your voice with your community and elected leaders. Unfortunately, it’s not as easy as pulling your elected official aside and telling them what you think. But what if it was that easy? What if there was a way to communicate with your community and your elected officials right from your laptop or smartphone?

The primary means for public engagement with Congress has been calling, emailing, or writing letters. But the volume of constituent mail has exploded in recent years. Over 10,000 advocacy organizations now direct millions of e-mail form letters to congressional offices, and as a result the value of each voice has been devalued.

Social media and crowdsourcing technologies provide new channels for engagement and direct communication with the political and social decision makers. Anyone can share their positions on specific bills through social networks, connect with communities, and amplified their voices.

Capitol Bells quantifies the voices behind a certain position, then uses those tallies to score politicians on how well they are representing. For instance, a user interested in immigration reform can use CapitolBells.com to express their support for H.R. 15 -- the House’s comprehensive immigration reform legislation. By creating and sharing a “Motion” with friends, this user can explain why the bill is important, try to collect more support,  and push her Congressman to cosponsor H.R. 15.

Hundreds of Members of Congress and thousands of congressional staffers already use Capitol Bells to promote their own legislation. Congresswoman Grace Meng wrote in support of H.R. 15:“It is well past time to fix our dysfunctional immigration system that has hurt too many people for far too long. The American people will not accept any more excuses. The time for CIR must be now.” Every time a constituent agrees with her position on the platform, Ms. Meng’s overall score as a Representative goes up.

Congressional approval ratings may be low, but our opportunity to engage with Congress has never been higher. With social media, and tools like Capitol Bells, lawmakers have a chance to take our voices into account like never before. Let’s give Congress a second chance to represent us.

Watch Ted's Startup Speak video:

Startups Speak: Ted Henderson on Vimeo.

Large and Small Internet Companies call for the FCC to Keep the Internet Open - Join Them

On May 15th, the Federal Communications Commission (FCC) will officially propose rules regarding the Open Internet. The proposal would authorize phone and cable ISPs to create two-tiered internet “fast lanes” for those who can pay, and slow lanes for everyone else, destroying the current level playing field and threatening innovation and entrepreneurship.

Yesterday, Engine and The Open Technology Institute at the New America Foundation filed a letter, signed by over 100 internet companies, calling for the FCC to rethink these proposed rules and instead recommit to protecting and preserving an open, equal internet.

From our statement, “the signers -- a diverse group including tiny start­ups, household names, and industry giants -- called for Open Internet Rules that afford companies and entrepreneurs strong protections against online discrimination and individualized bargaining.”

Today, over one hundred leading Venture Capitalists from across the country joined us in asking the FCC to reconsider. As Nick Grossman from Union Square Ventures writes, “it’s undeniably clear that the Internet has been an insanely fertile platform for innovation and investment over the past ten years...so today’s letter states our hope that the FCC will weigh all available options when considering how to maintain the most competitive, vibrant market possible for internet applications.”

If you still want to sign-on to our company letter, email your name, your job title, and your company name to eva@engine.is

AND, if you want to take part in our Startups Speak video series to show your support, email dan@engine.is for more information

Letter From Startups to FCC on Net Neutrality

Yesterday, Engine and The Open Technology Institute at the New America Foundation filed this letter, signed by over 150 Internet companies, calling for the FCC to rethink the proposed rules and instead recommit to protecting and preserving an open, equal internet.

SCOTUS Decision in Octane Fitness: A Good Step But Fee Shifting Legislation Still Needed

With today’s decision in Octane Fitness v. Icon, and a companion case, the Supreme Court became the latest branch of government to state unanimously that abusive patent litigation and patent trolling needs to be curtailed. The White House and a large bipartisan majority in the House of Representatives have also been unequivocal on this point. Patent litigation abuse is a complex problem requiring a multi-pronged solution that must include legislation as well as administrative and judicial action.

The Supreme Court’s unanimous decision recognized the burden that abusive patent litigation places on productive U.S. companies and the need to address the problem. It also took an important step in articulating what advocates of reform have been saying all along: the litigation playing field is tilted in favor of plaintiffs and has enabled patent litigation abuse.

The Court’s decision will make it easier to shift fees to the loser in “exceptional” cases, but that is only one part of the solution. Courts must have the discretion to fee shift not only in “exceptional “ cases, but also in cases where the Court determines the conduct or position of the non-prevailing party was objectively unreasonable. Legislation to this effect is essential if we are to discourage abusive litigation in any meaningful way.

The Innovation Act passed by the House establishes a rebuttable presumption of fee shifting in favor of the non-prevailing party whose conduct or behavior was found to be unreasonable. Now the Senate must act too. The heavily negotiated Schumer-Cornyn compromise is a balanced bill after years of discussion about how to address the patent troll problem. It strikes the right balance on fee shifting. It’s time for a markup of this bill.

Every day that goes by without legislation hurts innovation and costs the economy millions of dollars, as evidenced by the news reports of trolls launching a flurry of suits last week in anticipation of legislation.

The Court is to be commended for lowering the very high bar that previously existed for awarding fees in exceptional cases, and for recognizing the important role that fee shifting must play in deterring patent litigation abuse. The Senate must act to empower the Courts to fee shift in all cases where the non-prevailing party’s conduct or position was unreasonable – not only in “exceptional cases” which is all that the current law allows.

Big Day for Open DATA

The Federal Government has taken a big step towards reforming the way it buys, uses, maintains, and publishes data with the unanimous passage of the Digital Accountability and Transparency or DATA Act.

The bipartisan measure, which now goes to President Obama for his signature, would open up the way we track spending across government agencies, and was sponsored originally in the House by Oversight and Reform by Chairman Darrell Issa (R-CA) and Ranking Member Representative Elijah Cummings (D-MD). A companion Senate measure was sponsored by Senators Mark Warner (D-VA) and Rob Portman (R-OH).

What does this mean in practice? Hudson Hollister, Executive Director of the Data Transparency Coalition, explained what the DATA act will do for government transparency in Forbes earlier this month:

If the DATA Act is fully enforced, citizens will be able to track government spending on a particular contractor or from a particular program, payment by payment. Agencies will be able to deploy sophisticated Big Data analytics to illuminate, and eliminate, waste and fraud. And states and universities will be able to automate their complex federal grant reporting tasks, freeing up more tax dollars for their intended use.

This sort of transparency in government allows ordinary citizens to better track how government is using technology, and it will also allow government to better source information technology projects, and understand how tax dollars are being spent in an effort to streamline those multifaceted processes.

Of course, there will also be benefits for the startup community. Understanding how government money is being spent could make it easier for our most innovative companies to break through the procurement process.

We applaud the work of Chairman Issa, Ranking Member Cummings, Senators Warner and Portman, and everyone else who helped shepherd this vital legislation through the Congress. We look forward to continued efforts to leverage data in productive ways. 

Setting the Record Straight on Patent Reform

I’ve been involved in the debate about patent reform for a long time, and I’m thrilled to see that we are close to finally passing real legislation that will combat the patent troll problem. A Senate compromise is imminent, and we cannot let those who benefit financially from a broken system derail these efforts. Now is the time for real reform to curb the impact of patent trolls on America’s startups and our economy.

The widely reported Schumer-Cornyn compromise would provide a clear path forward against behavior that costs small businesses and the U.S. economy at least $29 billion a year (or more) in lost capital. These shadowy entities make nothing, provide no benefit to the wider economy, and do not advance America’s innovative, entrepreneurial spirit.

Claims that the current Senate compromise would gut the ability of “small inventors” to assert their rights as patent holders lack a fundamental basis in fact, but they are being levied loudly and distractingly by groups backed by large-scale assertion entities and multinational corporations with large patent portfolios. To be clear, there is nothing in the current proposal that would stop a legitimate patent holder from bringing a meritorious case for infringement. More than 6,000 patent holders and allies agreed by signing a letter; making it harder to patent owners to assert their legitimate claims for infringement is counterintuitive and not something our organization would fight for. Assertions to the contrary, made by those seeking to retain their rights to make offensive use of their patent portfolios, are wholly without merit.

Let there be no doubt: the startup community needs real patent reform. As a whole, it endorses the kind of strong reforms found in the Schumer-Cornyn compromise. Small, innovative startups bear the brunt of the patent trolling trend.Those startups who are targeted often have less than $10 million in revenues, and 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”.

We are asking the United States Senate to seize this opportunity. Let’s make this the week we beat back patent trolling. We are looking at serious, well-ordered compromise legislation -- worked out tirelessly by staff and Senators. We urge you to pass it on to the President, and let American innovation continue to lead the charge in rebuilding our economy.

Comments to the FCC on Net Neutrality

In response to proposed rules for the open Internet released by Chairman Wheeler, we provided these comments.

New FCC Proposal on Net Neutrality is Disastrous for Startups, Consumers and the Economy

“According to recent news reports, the Commission is considering adopting a rule that authorizes discrimination by ISPs and permits them to charge terminating access fees to technology companies. We believe such a rule, if adopted, would crush startups,and therefore undermine American technology entrepreneurship, innovation, and job creation.”

This is the first paragraph of comments we filed with the FCC today. The FCC’s widely reported net neutrality proposal authorizes web-content discrimination by enabling companies to pay Internet Service Providers for access to a faster lane, whole relegating those without the ability to pay to the slow lane.

This proposal marks a significant departure from the principle of Net Neutrality, which grants all content providers the equal ability to provide their offerings to consumers, and gives Internet users the equal ability to see any content they choose.

This proposal would place an incredible burden on small, high-growth companies. In so many ways, the deck is already stacked in favor or larger, well-funded business, and this is yet another barrier to entry. This framework will unequivocally empower the companies that can pay, at the expense of the next generation of disrupters.

As Fred Wilson pointed out back in January, in this new world order “telcos will pick their preferred partners, subsidize the data costs for those apps, and make it much harder for new entrants to compete with the incumbents.”

The innovation ecosystem -- so essential to job creation and economic growth -- benefits from low costs of innovation, not an environment where multiple ISPs can impose above-cost, unconstrained access fees on startups. Entrepreneurs rely on an open internet to build their companies, and investors rely on the certainty of an open internet to invest billions of dollars in edge providers to power the innovation ecosystem.

Startups rely on not being blocked, discriminated against, or subject to fees for access and preference. If some or all ISPs block a startup, the startup would be unable to reach a portion of users in the market. This is a particular problem for startups whose products rely on network effects -- those that become more valuable with more users -- such as social networks, e-commerce platforms connecting buyers and sellers (or drivers and riders), sites for user-generated content (including reviews, photos, or micro-blogs), and payment networks. If blocked by some ISPs, these companies will be less likely to win in the market, even if consumers would otherwise prefer their services.

Any arguments that suggest startups welcome the “right” to negotiate to pay fees for access or outbid giant incumbent edge providers for special preferences are divorced from the reality of entrepreneurship

For the last decade, the largest cable and phone companies have argued that network neutrality is “a solution in search of a problem.” That assertion is false.

We know that net neutrality solves a real problem. In countries without net neutrality, including several European nations, there has been widespread discrimination and blocking for many years. And even in the US, where the FCC has to this point supported net neutrality in principle, there have been violations. These include:

• Comcast interfering with peer-to-peer technologies, including some of the most popular technologies online;
• Apple blocking the application Skype on the iPhone, which was subject to a contract with AT&T, a carrier that competes with Skype;
• Verizon, AT&T, and T-Mobile blocking Google Wallet, while all three companies are part of a competing mobile payments joint venture called Isis; and
• Comcast’s disputes with Level 3 and Netflix over termination fees and congested transit.

We cannot overstate how devastating this pay-to-play model will be for startups, the innovation economy, the open internet, and for consumers.

In our comments to the FCC, we support the Chairman’s previously stated desire to adopt strong rules on disclosure, blocking, and discrimination, but we believe the Chairman cannot adopt such rules under the jurisdictional theory he favors: Section 706 of the Telecommunications Act that grants the FCC jurisdiction over “deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.”

We now know the obvious: he cannot pursue real nondiscrimination rules under Section 706.

Rather than permit widespread discrimination and fees that would crush entrepreneurship, he should choose a different jurisdictional theory known to legal eagles as Title II. Title II would reclassify Internet service as a public utility much like phone lines. Reclassification must be remain on the table and be seriously considered.

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