Engine Files Comments on Embedded Software and Copyright Law

Copyright law has always had a complicated relationship with software. Supreme Court Justice Stephen Breyer presaged the difficulties in applying copyright law to software in a seminal law review article in 1970, and despite a few legislative revisions of copyright law since then, many of those same inherent difficulties persist. In the past year, these problems received public attention in a few high profile news stories, including John Deere’s claim that tractor purchasers don’t actually “own” the tractors they buy. Instead, purchasers merely receive an implied license to operate the vehicle and the software it contains. To just about any rational person, this seems like a Kafka-esque absurdity that only the most creative lawyer could dream up. But as more and more of our everyday products become computerized and connected, it’s likely that we’ll see many more examples of how copyright laws meant to encourage creative production can produce bizarre outcomes when applied to products containing embedded software.

Spurred in large part by the John Deere story, the Copyright Office opened a public inquiry seeking commentary on the legal and policy challenges related to copyright’s application to software embedded in everyday products. Last week, Engine filed comments with the Copyright Office identifying the many challenges to startup innovation that arise from this application. Written by a crack team of legal students at Stanford Law School’s Juelsgaard Intellectual Property and Innovation Clinic under the guidance of Phil Malone and Jef Pearlman, the comments examine difficult questions surrounding the appropriate scope of software copyrights, focusing on how granting copyright protection to essentially functional code can hurt startup competition by undermining interoperability between platforms and services, and how limiting a user’s right to modify software in devices they own poses a range of threats to innovation and security.

The innovation-stifling threat of overbroad copyright protection for software is perhaps best encapsulated in the ongoing litigation between Google and Oracle over the copyrightability of Application Programming Interfaces (APIs) that facilitate communication between computer programs. As the comments explain, “APIs have been and are indispensable to interoperability in standalone software platforms and products and will be equally indispensable to software-enabled consumer devices,” such that allowing companies to assert copyrights over APIs to will create “incentives for incumbents in almost any industry to misuse copyright law to try to exclude new entrants and emerging competition.” Particularly in the emerging Internet of Things, where startups will be well-positioned to build apps and services that interact with the innumerable connected devices that will soon be a part of everyday life, protecting interoperability is paramount to encouraging innovation and competition. This competition will foster both enormous economic growth and consumer value, so it’s critical that we rein in rules that give incumbents the power to use ill-fitting copyright laws to exclude competitors.

The comments make a compelling case for sensible copyright rules in the age of embedded software, and we at Engine are incredibly grateful for the fantastic work of the Stanford team. Read the full submission here.

Startup News Digest: 2/19/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Apple, Encryption, and the Future of Digital Security. This week’s federal court order that would require Apple to unlock an iPhone linked to last year’s San Bernardino attack has catapulted the debate over privacy, security, and encryption into the headlines of nearly every major news outlet in the U.S. and beyond. Evan takes a look at the ramifications of this case for startups and the tech industry, highlighting the complexity of the situation: “though the FBI’s request is tailored to investigating a specific terrorist activity, it will ultimately weaken security standards and may lead to serious vulnerabilities that will put countless consumers at risk.” Read the full post here.

MOBILE NOW Act. The battle between Democrats and Republicans over a Supreme Court nominee will not thwart Senate Commerce Committee plans to move the MOBILE NOW Act this year. The bipartisan bill, which was introduced last week by committee leaders, Sens. John Thune (R-SD) and Bill Nelson (D-FL), aims to free up additional spectrum for commercial use and improve mobile infrastructure. “I see no reason that any nomination would affect consideration of the bill,” said a staffer for Sen. Thune. While this statement should be taken with a grain of salt (things haven’t exactly been moving quickly in Congress lately, even absent the escalating clash over Justice Scalia’s replacement), it is positive news for the startup community, which supports the bill. More broadly, the Chairman’s reaction signals that lawmakers aren’t ready to give up on 2016 quite yet. We’re hopeful…

Evaluating Startup Accelerators. Startup accelerators are on the rise: today over 170 accelerators support thousands of startups throughout the country. But are they effective? The results are inconclusive, explains researcher Ian Hathaway in a report for Brookings. The top accelerators do help early-stage companies hit key milestones at an accelerated rate. And those top programs even count some unicorns among their alumni. But not all accelerators are created equal. "Much research needs to be done to better understand the effectiveness of these programs and the broader impact they have on startup communities," writes Hathway, "particularly as national and regional authorities look to them as tools for economic growth."

Unlocking the Set-Top Box. In a move aimed at promoting innovation and consumer choice, the FCC voted on Thursday to propose rules that could increase competition in the set-top box market. Did you know that pay-TV subscribers spend an average of $231 per year to rent set-top boxes from their cable provider—something that arguably could be purchased outright from a third-party for much cheaper? The problem is that there are very few meaningful alternatives on the market. The FCC’s proposal aims to change this by establishing an open platform that would allow any set-top box to work on any cable network. So a startup could develop a new set-top box that allows consumers to watch live TV, binge on Netflix, and watch reruns of their favorite shows all on that one device that they paid for once. "Let's have the cable company say, 'You want to pay me for my interface, because it does all of these things nobody else does,' rather than, 'You must pay me,' " FCC Chairman Wheeler said. "We're just trying to get to that basic American concept of competition."

Casting Doubt on Bootcamp Placement Rates. In 2015, coding bootcamps graduated over 16 thousand students with newly minted, on-demand skills. That's a 138 percent increase from the previous year and enrollment rates continue to rise. These accelerated learning programs have become an increasingly popular pathway to tech jobs, or at least so they say: many bootcamps boast job placement rates above 90 percent. However, after a closer examination of those claims, the International Business Times is skeptical of these alluring figures: "Those claims are largely un-audited by third parties and based on differing standards." As the government explores offering federal student loans to cover these new programs, this news should be taken as "more evidence that giving these schools access to federal Title IV dollars is premature and will likely lead to waste and abuse," writes an education policy analyst at New America in a follow-up post. But even that conclusion seems hasty. Instead of interpreting these inconsistencies as harbingers of abuse and exploitation, policymakers should recognize more work needs to be done in order to develop reasonable standards and promote transparency as this market matures.

NYC University Welcomes Immigrant Entrepreneurs. The City University of New York is the latest academic institution welcoming immigrant entrepreneurs to campus. In a new program called IN2NYC, 80 foreign entrepreneurs will be selected to advise professors and students at the school while working to build their own startups. And they'll do this on H1-B visas sponsored by the university. While H1-B visas are capped at 65,000, leaving companies with foreign employees to compete in an annual lottery, academic institutions are exempt from that cap. The program will begin accepting applications from entrepreneurs this spring and begin in late fall.

Principles for Europe’s Digital Ambitions. Have you visited our new Medium publication yet? We’ve been exploring Europe’s efforts to remove regulatory barriers and better integrate the U.S. and EU digital economies through its Digital Single Market (DSM) strategy. Check out perspectives on the issue from the Internet Association, Re:Create, the Application Developers Alliance, the Information Technology Industry Council, and the Computer and Communications Industry Association, and check back for posts from more stakeholders over the coming weeks!

Apple, Encryption, and the Future of Digital Security

This week, a U.S. District Court judge ruled that Apple must assist the Federal Bureau of Investigation (FBI) by providing technical assistance to help the Bureau unlock the iPhone used by one of the San Bernardino shooters. While a resolution to this litigation is far off (due to likely appeals), the case has suddenly catapulted the debate over privacy, security, and encryption into the headlines of nearly every major news outlet in the United States and beyond. And though this case is specific to Apple—the manufacturer and licensor of the hardware and embedded software—the ramifications of the final decision in the case may have a profound impact, both in the technology industry and beyond.

While this isn’t the first time that policymakers have grappled with serious questions related to encryption and digital security—just last year, the White House backed away from a proposal seeking “backdoors” into encrypted devices after a multitude of stakeholders spoke out about the dangers of such anti-security measures—it is likely the most difficult case yet involving such issues. Certainly, the FBI has a strong interest in thoroughly investigating terrorist activity and preventing such acts in the future. Technology companies also care deeply about stopping criminal activity, which is why this is such a difficult problem: though the FBI’s request is tailored to investigating a specific terrorist activity, it will ultimately weaken security standards and may lead to serious vulnerabilities that will put countless consumers at risk.

In the past, Apple has cooperated with law enforcement to unlock phones in order to gain access to information, at least when doing so was technologically feasible. This situation is slightly different, as the court order requires Apple to create an entirely new version of Apple’s operating system (OS) to allow the government to circumvent security features that Apple built into its OS to prevent brute force attacks. This software will effectively make brute force attacks on encrypted devices possible—whether it’s the FBI attempting to brute force the phone or anyone else that has access to the software. Though the FBI says it intends to use this modified OS in this situation only, the spate of high-profile hacks and data breaches over the past year (including a breach of sensitive government information) should cast doubt on any such guarantees.

And, while some may argue that Apple’s strong opposition to the FBI’s request in this case demonstrates that any future requests for similar security circumvention activities will be limited to only the most extreme circumstances, that only holds true if the company being tasked with providing access to encrypted information has the resources to mount such a robust legal challenge. The startups that are responsible for so much of the tech sector’s growth have nowhere near the legal resources needed to fight spurious requests for dangerous encryption backdoors. Establishing a precedent that obligates companies to undermine the security measures that keep millions of consumers and their data safe from criminals will only increase the chances that these security circumvention technologies are employed in spurious cases or, worse, fall into the wrong hands.

Law enforcement is fully justified in attempting to do everything possible to prevent future terrorist attacks, just as Apple is fully justified in arguing that what the FBI wants could have serious negative repercussions for the security of its users. But, the security vulnerabilities that could arise by forcing Apple to undermine the strong encryption technologies it has built into its products should make anyone think twice about establishing such a dangerous precedent.

Startup News Digest: 2/12/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

India Rules on Net Neutrality. Major tech policy news from India this week, where the country's telecom regulatory authority (TRAI) effectively banned free, but limited Internet services. Such "zero-rating" programs violate net neutrality principles, TRAI announced. The decision means Facebook can no longer operate Free Basics in India, a mobile platform that offers a small set of online services, including the Facebook app, at no cost to users through an arrangement with an Indian telecom partner. Free Basics has been the subject of controversy, in India especially, for months now. Net neutrality advocates, including Indian startups, argue Facebook and other major companies shouldn’t determine which services get preferential treatment through subsidized data plans. Yet others contend these programs simply increase Internet access in a country where only 27 percent of the population is online.

Unpacking the President’s Budget Request. On Tuesday, President Obama sent his final budget request to Congress. While the proposal was declared “dead on arrival” by Republican lawmakers, it lays the groundwork for future policies and represents a roadmap for the next Administration to espouse or eschew. In a blog post this week, Emma highlights the reasonable policies and programs in the request that would support innovation and entrepreneurship—everything from creating a $4 billion Computer Science for All initiative to simplifying our tax code to make it work better for startups. Read the full post here.

Finally, a Pro-Encryption Bill. On Wednesday, Representatives Ted Lieu (D-CA) and Blake Farenthold (R-TX) introduced legislation that would prohibit states from mandating backdoors in encrypted technologies. As we’ve noted before, backdoors are not only constitutionally questionable, but also not technologically feasible without undermining the security of the system as a whole. In recent weeks, state lawmakers in both California and New York have introduced bills that would prohibit the sale of encrypted devices that cannot be unlocked. The tech community and privacy advocates welcomed Reps. Lieu and Farenthold’s bill, although some warned it may not completely squash the state proposals. According to Amie Stepanovich at Access Now, "Proposals in New York and California are aimed at preventing the sale of devices with strong encryption. Rep. Lieu's bill only mandates limits on design or alteration of devices or products." Still, the federal proposal is a step in the right direction.

Feds OK Driverless Cars sans Humans. The National Highway Traffic Safety Administration (NHTSA) has told Google that federal law will not require a licensed human driver be present in autonomous vehicles. This is good news for Google and other driverless car manufacturers building vehicles intended to operate without humans entirely, at least some of the time. Google has even expressed to regulators that the real danger is having safety features that “tempt humans to take control.” Just a few months ago, California proposed draft rules requiring steering wheels and a licensed driver in all self-driving cars. Perhaps this move by the federal government will prompt California lawmakers to reconsider their proposal.

Judicial Redress Act Passes Congress. Congress finally passed the Judicial Redress Act this week, sending it on to President Obama for his signature. The bill, which would extend rights to judicial redress to citizens of the EU and other designated countries, has been integral to the debate around an updated safe harbor agreement. The long-awaited passage of the bill will hopefully help get the new U.S.-EU Privacy Shield across the finish line.

Principles for Europe’s Digital Ambitions. Last year, the European Commission released a public consultation focused on online platforms and intermediaries (e.g. search engines, social networks, collaborative economy platforms, etc.) as a part of its broader Digital Single Market (DSM) strategy. The DSM effort aims to remove regulatory barriers across European states to better integrate the U.S. and EU digital economies. However, the consultation appears to depart from this worthy objective, contemplating proposals that would create new burdens on startups and shrink existing intermediary liability safe harbors. American business, Internet, and public interest stakeholders weighed in on the consultation, raising some of these concerns. In a new Medium publication, Principles for Europe’s Digital Ambitions, we will be featuring posts from these commenters over the coming weeks. Read Evan’s inaugural post summarizing broad concerns here, and follow the publication for updates as the DSM conversation in Europe evolves.

Startups Caught in Immigration Limbo. The "immigration limbo" is an "all-too common phenomenon among U.S. tech startups," reports Bloomberg Business this week in a profile of several immigrant entrepreneurs and the obstacles they face in building companies in the U.S. Due to visa limitations, startup founders and employees often shuffle back and forth between their home countries and the U.S. Others are forced to return home permanently, establishing their companies elsewhere. And for those immigrants who do acquire the appropriate visas, that's often after months of paperwork as well as legal fees and other expenses that can add up to over $10,000. Without meaningful immigration reform, this state of affairs is the norm. Meanwhile, countries such as Chile and Australia are attracting global talent with special visas and tax breaks, essentially trying to "capitalize on the U.S.’s foot-dragging."

Startup Priorities in the President’s Budget Request

On Tuesday, President Obama sent his final budget request to Congress and it amounted to a whopping $4.1 trillion. In reality, the President’s budget request is typically little more than legally mandated political theater. It’s an opportunity for Democrats and Republicans to rally their bases and duke it out over fiscal strategy and funding priorities. This year’s budget request will likely go largely unfulfilled by the Republican-led Congress. In fact, it was declared “dead on arrival” by Republican lawmakers, and, in an unprecedented move, House and Senate Budget Committee leadership have elected to forgo hearings on the request entirely.

Still, if nothing more than a wish list, the President’s budget lays the groundwork for future policies and, this year in particular, represents a roadmap for the next Administration to espouse or eschew. There are a number of proposals in the President’s request worth highlighting—policies and programs that, if championed by Congress, would support innovation and entrepreneurship.

Investing in Tomorrow’s Workforce

One of the startup community’s most persistent challenges is accessing a pipeline of skilled talent in order to both help startups grow and create news ones. While the Obama Administration has been an unwavering champion of immigration reform to bolster the country’s pool of high-skilled workers, immigration represents only part of the solution (and unfortunately, neither high-skilled immigration reform nor comprehensive reform appears to be going anywhere for the time being). The other piece is ensuring that we are training tomorrow’s entrepreneurs and tech workers here in America.

The President’s budget request includes $4 billion for improved computer science education through its recently announced Computer Science for All initiative. The funding would support states’ efforts to expand CS programming and focuses largely on training teachers and expanding access to quality instructional materials. The Administration has also called on local leaders, educators, and the tech industry to get involved in expanding CS education.

The budget also proposes creating two new funds: a $75 million American Technical Training Fund, which would provide competitive grants to support evidence-based, tuition-free job training programs in high-demand fields, and a $2 billion Apprenticeship Fund, which would build on the Administration’s successful American Apprenticeship Initiative strategy and aim to spur new innovations in apprenticeship.

Finally, the budget proposes creating more than 50 new “Talent Hot Spots” that would “prioritize a sector and make a commitment to recruit and train the workforce to help local businesses grow and thrive, attract more jobs from overseas, and fuel the talent needs of entrepreneurs.” The Administration estimates that this program could create a pipeline of more than half a million skilled workers in just five years, talent that could feed entrepreneurial growth.

Expanding Broadband Access

Earlier this year, the Federal Communications Commission reported that there are still 34 million Americans (or about 10 percent of the country) who lack access to broadband at sufficient speeds. Startups depend on a healthy and competitive broadband market, and it is essential that federal policies encourage connectivity. The President’s budget request includes continued investments in existing federal programs that support the expansion of high-speed broadband to all Americans. Additionally, the budget request calls for future spectrum auctioning, which will allow for more internet service providers to participate in the mobile broadband market.

Promoting Innovation

Federal investments in research and development can help spur innovation in the private sector and the creation of new companies. The President’s budget includes $152 billion in funding for research and development, an increase over last year’s request. Much of this investment is targeted for innovative technologies such as Big Data services, supercomputing, robotics, and nanotechnology. The budget also includes $4 billion for autonomous vehicle R&D, representing an unprecedented level of investment by the federal government in this new market and a huge win for proponents of this growing technology.

Making the Tax Code Work for Startups

Finally, the budget request includes a number of proposals that would streamline and improve tax benefits for startups and entrepreneurs. The President proposes simplifying the existing Research and Experimentation (R&E) tax credit. Last year, the R&E credit was modified to allow small companies to claim it against payroll taxes, instead of income taxes. This made it available to startups, many of which could not claim the credit previously due to a lack of taxable revenue. Still, the process of applying for the credit remains complex and difficult to navigate for startups. The President’s budget proposes simplifying the credit’s formula, making it easier for startups to take advantage of.

The Administration also proposes quadrupling the amount of startup expenses (things like legal fees, office supplies, or recruiting costs) that entrepreneurs can deduct from their federal income taxes, increasing the deduction from $5,000 to $20,000. This will make it less costly to start a business and allow innovators to put more money back into their startup more quickly.

Looking Forward

The frustrating truth is that most of the President’s budget proposal won’t receive Congressional consideration. However, we hope that future policymakers can coalesce around some of the proposals outlined above, which represent reasonable policies that would encourage the growth of startups that drive our economic success and are responsible for all net new job growth in the United States. Finding common ground in today’s political climate is difficult, but it is essential to ensuring that America remains a place where the ideas of the future can grow and thrive.

U.S. Advocates Express Concern—And Some Hope—For EU’s Digital Ambitions

You can also read this post on Medium.

Operating a digital business in the European Union (EU) has long been a challenge due to the often conflicting patchwork of member state regulations that impact online enterprises. Recognizing the drag this regulatory inconsistency has on the future of the EU digital economy, the European Commission (EC) has been hard at work crafting a Digital Single Market (DSM) strategy that would further integrate the U.S. and EU economies, remove regulatory barriers across European states, and promote digital trade within the EU.

The EC’s DSM efforts are critical to growing Europe’s Internet economy, which is why many American stakeholders have welcomed parts of the DSM and European regulators’ efforts to reduce burdens on startups. But, unfortunately, the EC recently asked for feedback on policies that would have the opposite effect and harm online enterprises. Virtually every segment of the Internet community expressed alarm when the EC released a public consultation late last year regarding potential new regulations for online platforms and intermediaries.

The EC’s consultation purported to gather information on how it should regulate so-called “online platforms,” (e.g. search engines like Google or Bing, social networks like Facebook or Twitter, collaborative economy platforms like AirBnB or TaskRabbit, etc.) and in doing so, it signaled to the Internet community that it may issue regulations that, while well-intentioned, are misguided and potentially destructive. The EC’s approach to platform regulation isn’t just a problem for online intermediaries; it poses a threat to the Internet ecosystem as a whole. Not surprisingly then, the consultation saw filings from an enormous range of stakeholders — from large technology trade associations, to public interest organizations, to individual startups — all of whom express similar concerns with the EC’s approach.

Problems with the “Platform Consultation”

There are three key problems with the EC’s platform consultation.

Conceptual confusion

First, online platform regulation as defined in the consultation does not make conceptual sense. The consultation purports to concern “online platforms,” though the range of activities it sweeps into this one category reveals the central flaw in the EC’s regulatory approach. It is simply impossible to craft sensible rules that target “online platforms,” as the consultation defines that term so broadly as to encompass an almost limitless range of activities that share little in common beyond an Internet presence.

• As the Center for Democracy and Technology — a leading Internet policy nonprofit — notes in its submission, the definition of “online platform” used in the consultation “is so broad that it captures just about any website and any online application in operation in Europe and globally.”

• In purporting to regulate “business in sectors as varied as media, connected cars, financial exchange and commerce” under the same standard, the consultation seems to ignore that “the regulatory needs of those sectors are appropriately distinct from one another,” as the Computer and Communications Industry Association — a trade association representing leading technology and computing firms — explains in its submission.

• The Internet Association — another trade association representing some of the most innovative technology companies in the world — points outthe folly in this indiscriminate approach to regulation, asking, “In the physical world, one would not regulate banks, hotels, etc. in the same way, so why regulate the 21st Century version of those services in a blanket way simply because they are ‘on the Internet’?”

• The U.S. Chamber of Commerce — a business federation that represents the interests of American companies — notes in its submission that “the [online platform] definition offered misses the mark and we caution against attempting to regulate something that is inherently difficult to define. Platform is not a useful legal or regulatory category as many markets, businesses and services are ‘platforms,’ both online and off, and this essentially includes any function on the continuum between manufacturer/creator and end user.”

General purpose laws are sufficient

Second, even if it was possible to encapsulate all of these entities under a single, well-defined umbrella, the EC does not provide adequate justification for why this class of businesses and services should be subject to an entirely unique regulatory scheme in the first place. As the U.S. Chamber of Commerce notes, “Nowhere does the consultation explain why online ‘platforms’ should be treated in a distinct manner from other businesses.” Yet the consultation foreshadows a heavy-handed regulatory approach that would suppress innovation and significantly increase burdens for entities subject to the new framework.

Reducing, not increasing, burdens on intermediaries fosters speech and creativity

Finally, the consultation signals an intent to increase the liability of intermediaries for illegal third party content beyond existing general law. This is an ill-advised approach. As TechNet — a trade association representing U.S. technology CEOs and senior executives — notes in their filing, “Strong intermediary liability protections promote innovation, empower users and small businesses to use platforms to reach a global audience, and encourage free expression and the democratization of access to information.” The open Internet think tank Public Knowledge put it succinctly in its submission: “The existence of strong and clear limitations on liability for platforms has been critical to the flourishing of online platforms for user expression and speech.”

One needs only look to the intermediary liability regime in the U.S. to recognize how critical such limitations are in facilitating technology innovation. The explosive growth of the Internet sector in the U.S. — and of so-called “Web 2.0” companies in particular — is a direct result of strong laws limiting intermediary liability, such as the Digital Millennium Copyright Act and Section 230 of the Communications Decency Act. For its part, the EU has crafted a “balanced, effective and proportionate [liability regime in the EU’s E-Commerce Directive] and has promoted dynamic, competitive services in a technologically neutral way” (TechNet filing). But the implication in the recent consultation that the EC is considering rethinking this strategy to expand the liability of online platforms is incredibly dangerous for the Internet economy, as it would threaten to chill innovation and dramatically increase barriers to entry for smaller players.

The EC’s DSM effort has the potential to completely transform the transatlantic digital economy. But if implemented incorrectly, it could have a grave impact on the European innovation ecosystem and widen the gap between the U.S. and EU digital markets. The sheer number of stakeholders who responded to the EC’s consultation with concerns should raise a red flag for the Commission and convince it to reconsider its approach. Links to some of these responses are below, and over the coming weeks, a number of these stakeholders will use this platform to further outline their concerns. Check back for updates here.

Stakeholder Submissions

Large industry organizations

• Information Technology Industry Council: survey & memo

• Internet Association: survey and memo

• Computer and Communications Industry Association: survey

• U.S. Chamber of Commerce: memo

• TechNet: memo

• Internet Infrastructure Coalition: survey

• Software & Information Industry Association: memo

• Internet Commerce Coalition: survey

Key startup voices

• Engine: survey

• Apps Alliance: survey

• Copia Institute: survey

• Etsy: memo

• Vimeo: survey

• Automattic/WordPress: survey

• Kickstarter: survey

Public interest community

• Center for Democracy & Technology: survey

• Public Knowledge: survey

• Public Policy Institute: survey

• Electronic Frontier Foundation & European Digital Rights: survey

• R Street: survey

• George Mason University Global Antitrust Institute memo

• Center for Data Innovation: memo

• International Center for Law & Economics: survey and memo

• Technology Policy Institute: memo

• Re:create: survey

• Organization for Transformative Works: memo

Startup News Digest: 2/5/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

EU and U.S. Policymakers Agree on Safe Harbor 2.0. Nearly three months after the U.S.-EU safe harbor agreement was invalidated, the European Commission announced on Tuesday that negotiators had reached a framework agreement on Safe Harbor 2.0 (rebranded as “Privacy Shield”). The agreement restores stability and some certainty to the international data flows that make the Internet work. But does this tentative framework provide the future-proof, legal certainty that is essential for startups operating in the EU? And what lessons have we learned from the drama that surrounded Safe Harbor 2.0? As Evan writes, “this difficult experience should serve as a reminder of how the heavy burden of regulatory uncertainty often falls hardest on the smallest players. Startups that made user security and privacy a central part of their companies were nevertheless caught in an international dispute between national governments and multinational companies with few feasible options to stay square with laws that quickly became unclear.” Read the whole post here.

Obama Commits $4B to CS. The White House announced its Computer Science for All initiative earlier this week, pledging an impressive $4 billion in funding for computer science education in K-12 schools across the country. “Our economy is rapidly shifting, and educators and business leaders are increasingly recognizing that CS is a ‘new basic’ skill necessary for economic opportunity and social mobility,” notes the White House press release. Today, only 28 states allow CS courses to count towards high school graduation requirements. The funding, part of the president’s forthcoming budget, focuses largely on teacher training and also calls on local leaders, educators, and the tech industry to get involved in expanding CS education.

Gig Economy Workers Take a Stand. For readers in San Francisco, here’s one more reason to stay home on Sunday: thousands of Uber drivers are planning to protest recent fare cuts by disrupting traffic around the Super Bowl. This is just the latest in a growing list of campaigns by gig economy workers to collectively push back against the platforms that facilitate their work. Debate is still raging around how apps like Uber, Postmates, and Handy should treat their workers. Since most of these workers are classified as independent contractors, they are not permitted to organize through traditional unions. But that hasn’t stopped them from banding together to leverage for what they view as appropriate treatment. In recent weeks, there have been similar protests everywhere from New York to Dallas to Tampa, with no doubt more to come.

The Geography of Venture Capital. Want to know where to build your startup, or at least get it funded? A new report reveals the current geography of venture capital. Good news for the U.S.—it remains the leader in VC investments, accounting for almost 70 percent of global venture capital. The bad news? Much of that capital is still concentrated on the coasts. In fact, 40 percent of global venture investment comes from just two broad regions—the Bay Area and the Boston-New York-Washington Corridor.

ECPA Reform Progress. The startup community got some good news on Wednesday: the House Judiciary Committee will take up the broadly supported Email Privacy Act in March. The bill, which has over 300 cosponsors and support from a range of tech companies and privacy advocates, would make much needed reforms to the outdated Electronic Communications and Privacy Act (ECPA) by explicitly requiring law enforcement to obtain a warrant before accessing digital communications. The bill has languished for years due to opposition from some civil agencies (namely the SEC and FTC) who have asked for carve-outs from the warrant requirement. It remains to be seen whether changes will be made at next month’s markup to accommodate those agencies’ requests.

Hacking Patents. On Tuesday night, Engine and the Electronic Frontier Foundation hosted a discussion with patent experts on hacking the patent system. The conversation centered around the release of an updated white paper detailing things that startups can do to navigate a broken patent system without hiring an expensive patent lawyer or even filing for a patent itself. Read the full paper here.

EU and U.S. Policymakers Agree on Safe Harbor 2.0, Ending Months of Uncertainty for Startups

The European Court of Justice’s rejection last October of the European Commission’s so-called “safe harbor” agreement with the U.S. forced many American startups to grapple with a difficult choice: spend considerable time and money trying to find a different mechanism to legally import EU consumer data or sit tight and hope regulators worked it out before member states started filing lawsuits. Neither option was particularly appealing, and thankfully, the EC’s announcement this morning that negotiators had reached a framework agreement on Safe Harbor 2.0 (rebranded as “Privacy Shield”) removes some of the uncertainty startups have faced over the past three months. But does this tentative framework provide the future-proof, legal certainty that is essential for startups operating in the EU?

For those of you who are just tuning in, here’s a quick refresher: the EU’s Data Protection Directive imposes certain obligations on how entities in different countries can handle data from EU consumers. To help streamline compliance, the EC and U.S. entered into an agreement that allowed U.S. companies to self-certify compliance with the Directive and thereby legally transfer data across the Atlantic. This system worked quite well in facilitating EU-U.S. data flows, until the ECJ issued a ruling in October that U.S. laws permitting the NSA to conduct mass surveillance of consumer data violated the Data Protection Directive, thereby voiding the safe harbor and opening up the door to potential legal action against companies that continued to import EU consumer data without a different legal justification.

Policymakers in the EC and the U.S. Department of Commerce promptly got to work on a new safe harbor agreement but faced considerable time pressure, as European Data Protection Agencies were set to commence enforcement proceedings against non-compliant companies if the parties could not reach an agreement by January 31. Crafting an important international agreement in such a relatively short time frame was a challenging endeavor, and as Sunday’s deadline approached, the possibility of a world without safe harbor began to set in.

For many U.S. companies that had previously relied on the safe harbor, failing to finalize a new agreement would be an inconvenience, but hardly insurmountable. Large multinationals had many alternative data transfer pathways at their disposal, like Binding Corporate Rules or Model Contractual Clauses. Others could simply set up servers overseas and process EU consumer data locally. But, these strategies were only feasible for those with enormous financial resources and a legal staff sufficient to navigate 28 different state data agencies and regulations—resources that small, cash-strapped startups just don’t have.

Consequently, startups faced a much more dire situation, and many simply had no idea how to proceed. Some mature, better-funded startups followed the lead of larger tech companies, working up model contract clauses, often at the behest of international partners that wouldn’t proceed without such agreements. Other hoped that updates to their privacy policies and consent processes would suffice, though this was something of a legal gamble and a potential disruption to business (how many consumers enjoy having to click through new popup consent forms?). Some companies, devoid of other sensible options, planned to continue business as usual, expecting that policymakers would eventually craft a solution and hoping they were too small to draw the ire of member state regulators if no agreement could be reached.

The EC’s Tuesday announcement of a “political agreement” was therefore met with cautious optimism and relief. The hard work that the EC and the U.S. Department of Commerce put in over the past few months paid off, pulling out an agreement at the eleventh hour and returning stability and some certainty to the international data flows that make the Internet work. Going forward, consumers and companies on both sides of the Atlantic should hope that this newly formulated “Privacy Shield” will provide a simple, well-defined framework for data exchange, so long as it remains in force. But this difficult experience should serve as a reminder of how the heavy burden of regulatory uncertainty often falls hardest on the smallest players. Startups that made user security and privacy a central part of their companies were nevertheless caught in an international dispute between national governments and multinational companies with few feasible options to stay square with laws that quickly became unclear. In the end, the drama surrounding Safe Harbor 2.0 is both a win for prompt, sensible policymaking and a lesson of how policy disputes can impact the startup sector in unexpected ways.

Startup Policy Digest: 1/29/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Safe Harbor Negotiations Continue, Judicial Redress Clears Hurdle. It has been more than three months since the U.S.-EU safe harbor agreement was invalidated. But time is running out for negotiators to reach an agreement by the January 31st deadline, and top negotiators are still clashing over both substance and turf. Some good news came on Thursday when the Judicial Redress Act passed the Senate Judiciary Committee, bringing it one step closer to becoming law. While not essential to advancing an updated safe harbor agreement, many EU negotiators see passage of the bill as a show of good faith by U.S. lawmakers. Still, it does not guarantee an agreement, and until a compromise is reached, startups with operations in the EU will be scrambling to prepare for a world without safe harbor.

Stanford Report: Binge On Violates Net Neutrality. A report from Stanford Law School’s Center for Internet and Society contends T-Mobile’s Binge On data program is in violation of the FCC’s Open Internet Order. “Binge On is harming competition, innovation, user choice, and free speech on the Internet. As such, the program is likely to violate the FCC's general conduct rule and transparency rule,” writes the study’s author in a blog post. The report has been filed with the FCC, offering the agency an opportunity to more closely evaluate the program and decide whether to take action. The FCC’s Open Internet rules don’t explicitly outlaw “zero rating” programs, but the agency reviews them on a case-by-case basis whether the service harms consumers or businesses.

Student Debt a Major Barrier to Entrepreneurship. For young, aspiring entrepreneurs, paying off student loans is one of the greatest barriers to entrepreneurship, explains a new report detailing findings from a national poll of millennials—that's 18 to 34-year-olds. Nearly half those surveyed said student loans impeded their ability to pursue their entrepreneurial ambitions, perhaps one reason why rates of business ownership among this age group have declined in the last couple of decades. The report is timely, as presidential hopefuls have begun to go on record with plans to tackle student debt crisis. This report further clarifies that reducing the now $1.3 trillion in outstanding student loans should be a priority for all policymakers. The future of American entrepreneurship depends on it.

Measuring the Gig Economy. Just how big is the gig economy? A survey last month revealed an estimated 45 million adults have offered services through an on-demand platform and now the government hopes to get a better handle on those figures. In a blog post this week, Department of Labor Secretary Thomas Perez announced the Bureau of Labor Statistics and the Census Bureau will be surveying "contingent worker" arrangements as part of May 2017's current population survey. Perez writes it'll offer the government "reliable, credible insight into what’s going on" in this new economy, ultimately helping policymakers better prepare for regulating labor agreements in a changing workforce.

FAA Registers 300K Drone Users. Last week, the the Federal Aviation Administration (FAA) announced that in just 30 days, more than 300,000 people have used the agency’s online drone registration system. It is important to note that this does not mean 300,000 drones have been registered. As TechCrunch reports, “Because you essentially register yourself as a drone pilot, which allows you to affix your registration number to as many drones as you want to, the actual number of drones/quadcopters (and model aircraft and helicopters), is likely a bit higher.” Plus, there are still probably quite a few unregistered drones flying around. These numbers are seen as encouraging by the FAA, which was hit with a lawsuit challenging the registration requirement earlier this month.

Regulatory Troubles at Theranos. The Silicon Valley blood-testing startup, Theranos, valued at over $9 billion in 2014, is facing new scrutiny, this time from federal regulators. A recent inspection of a Theranos facility by the Centers for Medicare and Medicaid Services uncovered several major violations of federal law governing clinical labs. If the issues aren’t corrected within ten days, the lab could lose its certification. A series of recent journalistic investigations have revealed the company may not be as close to revolutionizing the blood-testing industry as its initial investors and supporters once thought.

So You Want to Hack the Patent System

Are you a startup or inventor wondering what to do about our broken patent system? Want to know what your options are? Check out Hacking the Patent System, an updated white paper published in partnership with EFF and students from the Juelsgaard Intellectual Property Clinic at Stanford Law School.

This paper includes important and timely advice for technology entrepreneurs attempting to navigate a dysfunctional and unfair system because, unfortunately, patent trolls remain a grave threat to startups and innovators. This is despite multiple attempts to pass reform legislation through Congress and an active Supreme Court working hard to fix a broken system. Not only does the threat of extortionary patent trolls still exist, but it’s actually getting worse. Lawsuits filed by patent trolls are up and significantly more than half of those cases are filed in the notorious Eastern District of Texas.

Despite these problems, startups often find themselves filing for patents, either because their investors tell them it’s a good idea or they plan to later use them defensively against lawsuit threats. This has led to a dangerous culture of “patenting up”—getting as many patents as possible in as short a time as possible.

To really fix the problem, a handful of things need to happen:

1. Congress must pass patent reform legislation that addresses fundamental inequities in the patent system that favor large patent holders and litigation plaintiffs.

2. Patent quality must be improved. Removing low-quality patents from the system will also remove the trolls’ deadliest weapon.

3. We must change the culture of “patenting up.” Big companies, investors, startups, and inventors need to come together to take a stand and return the system to its roots, which—as the Constitution provides—is meant to promote the progress of science and useful arts.

That all might take awhile. In the meantime, there are things that startups can do to navigate a broken patent system without hiring an expensive patent lawyer or even filing for a patent itself. We lay out some of those options here in an updated version of our Hacking the Patent System white paper, originally released in 2014. The paper takes a deep dive into alternative patent licenses: specifically, patent aggregators, patent pledges, and (new this year!) patent insurance.

Thanks to partners EFF and the Juelsgaard Intellectual Property Clinic at Stanford Law School—especially former students Marta Belcher and John Casey—for all their hard work.