The Big Story: Policymakers turn attention to patent policy
Over the past weeks, there have been several indications policymakers across D.C. are thinking about the various roles patents play in innovation policy—both recognizing their potential to support innovators but also seeking to understand how low-quality patents hurt startups and small businesses.
On Tuesday, the Senate Judiciary’s IP Subcommittee convened a hearing to discuss transparency in the patent system. In testimony to the panel, Engine explained how public disclosure is central to our patent system and how startups stand to benefit when there is clearer information about who owns and controls U.S. patents. For one, startups that are patent owners derive value when others—including potential business partners, investors, customers, or competitors—know they own high-quality patents. Conversely, abusive patent litigants routinely conceal information about the patents they own, creating shell companies they can hide behind. And this tactic allows them to do more damage to startups and small businesses across the country.
This week’s hearing comes as Congress is considering legislation that could help stem abuse. This includes a bill that would bring more transparency to the patent system, as well as a bill that would promote patent quality and better-equip startups with tools they could use to fight back against low-quality patents. Concerns about abuse of the patent system touch all corners of the economy—from startups to main street, financial services, and beyond.
The Patent and Trademark Office (PTO) is also conducting a study about patent subject matter eligibility—the area of the law that says that no one can patent (or try to own) an abstract idea that would prevent other innovators from using underlying ideas in their own work. Last week, Engine presented comments to the PTO on how this area of the law—and recent cases—have come at a time when there is increased investment in startups and they contributed to a drop in abusive patent litigation. We also noted that policymakers seeking to advance the nation’s innovation ecosystem should focus on direct investment in R&D and remember that startups need to attract and retain high-skilled talent, both from across the U.S. and abroad.
Policy Roundup:
Tax provision in reconciliation bill could harm startups. Efforts to curtail Qualified Small Business Stock (QSBS) benefits could negatively impact early-stage startups and investors. While policymakers insist the proposed changes are designed to raise taxes on millionaires and billionaires, if passed, they could also reduce tax benefits for startup employees who have recently, or will exercise stock options—including those who received QSBS as part of a compensation package, a common practice at nascent startups still securing funding. The current framework also provides a favorable environment for investors, offsetting some risk that is inherent in financing early-stage companies.
Filtering mandates would stifle innovation, speech, creative pursuits. As some in Congress are looking at the role of algorithms in content moderation, a recent piece reflects on the decade-long push from Hollywood to mandate the use of imperfect algorithms to remove potential copyright infringement. While algorithms certainly have utility in the context of user-generated content sites, as we have previously noted, mandatory copyright filtering could be ruinous for startups, particularly if Congress were to establish legislation to force Internet companies to try to configure algorithms that would try to identify and remove infringing content. Those algorithms do not exist. And with no tech capable of accurately filtering out infringement, this would lead to over-removal of non-infringing content, create undue liability for startups, and stands to stifle innovation by limiting capital use and entrepreneurial focus.
“Big tech” bills threaten startup ecosystem. In a Wall Street Journal op-ed this week, serial entrepreneur and startup founder Bettina Hein argues that proposals to restrict acquisitions in the tech sector would have unintended negative consequences for startups. As Hein highlights, and as Engine has pointed out in the past, acquisitions are a critical avenue for successful exits, and enable cycles of innovation.
Latest U.S. offer in Privacy Shield talks would create independent judges. As conversations about a transatlantic data pact continue, the U.S. has proposed creating a legal framework to oversee American national security agencies with independent judges. The framework would provide European countries the opportunity to make legal requests to the U.S. government for review of data collection. The talks come after the highest EU court, citing concerns about U.S. government surveillance, repeatedly struck down agreements that let U.S. companies—especially startups—store and process the data of EU users in the U.S. Reaching a new and sustainable agreement is critical for U.S. startups’ ability to compete in Europe.
EU delays tech bills. The European Union is pushing back their target for finalizing the Digital Markets Act (DMA) and Digital Services Act—two controversial pieces of legislation that would regulate large, mostly American companies and how online content is treated—until later into 2022. The DMA would restrict the ability of certain firms to conduct M&A activity. As Engine and European startup advocates have warned, curtailing acquisitions could negatively impact the startup ecosystem as they are a “crucial metric of thriving startup ecosystems” that produce “many winners.” Policymakers should use the extra time to carefully consider the unintended consequences the bills might levy on the startup ecosystem.
New developments on unilateral DSTs. Five countries including the United Kingdom have agreed to withdraw all unilateral digital services taxes (DSTs)—and not establish any new ones—as part of Pillar 1 of a two-part solution by 136 countries of the OECD. As Engine has stated in the past, eliminating currently enforced digital services taxes must be a part of the global tax deal, protecting startups from passed-down costs associated with the imposition of the DSTs. As a result, the United States has also agreed to eliminate proposed trade actions against the countries and not impose any additional actions until either Pillar 1 goes into effect, or December 31, 2023.
Startup Roundup:
#StartupsEverywhere: Watertown, Massachusetts. TopProp is a daily fantasy sports platform designed to enable users to import existing fantasy football teams and calculate the odds of winning their matchups with friends. We spoke with Michael Zavagno and Griffin Kurzius, Co-Founders of TopProp, about what led them to build the platform and the challenges startups face when navigating different regulatory structures based on location.
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Startup Policy Seminar Series: Immigration & Your Startup. Join Engine next Wednesday, October 27 at 4 p.m. ET where, together with an expert panel, we will explore the current landscape of immigration policy, focusing on how high-skilled immigration impacts technology startups, what a startup visa would mean for the ecosystem, and why startups should get involved in the conversation. The event will feature a discussion moderated by Engine’s Policy Manager, Jennifer Weinhart. You can RSVP here.
