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There’s been a great deal of misinformation floating around about the inter partes review process (IPR) and how it impacts American inventors and innovators. So, ahead of today’s U.S. Patent Office Oversight (USPTO) Oversight Hearing with USPTO Director Andrei Iancu, IA wanted to correct some common myths about the U.S. patent system and IPR.

• MYTH: The Patent Trial and Appeal Board (PTAB) is a death-squad.
• FACT: Of 8,340 petitions, only 16 percent have resulted in an invalidation of all claims of a patent.1United States Patent and Trademark Office, Trial Statistics IPR, PGR, CBM, March 2018 USPTO 
• MYTH: PTAB has invalidated hundreds of patents found valid by district courts.
• FACT: 3,056 patents challenged in IPRs through Q3 were also involved in lawsuits. Of the 3,056 patents, only 43 IPR cases – 1 percent – have resulted in different outcomes.2 Cornell Law Review, “The Direct Costs From NPE Disputes,” 2014 
• MYTH: The U.S. has an inefficient intellectual property and patents system.
• FACT: The U.S. ranked #1 overall in the U.S. Chamber International IP Index.3 U.S. Chamber International IP Index, Sixth Edition, February 2018 US Chamber of Commerce 
• MYTH: IPR dramatically reduced R&D investment.
• FACT: R&D investments in the software and internet industry grew faster than any other industry in the years following the Alice decision.4 Strategy & Analysis, Software-as-a-Catalyst, Winter 2016, Issue 85, October 25, 2016 Strategy & Analysis Venture capital funding for startup software and internet companies in the three years following the Alice decision increased by 88 percent compared to the three years prior.5 PwC MoneyTree Report, Q1 2018 PwC 
• MYTH: Patent evaluations are down and validity is uncertain.
• FACT: From FY 2012 to 2016, filings increased 15%. In 2016, more than 650,000 applications were filed—the highest number ever. In 2016, the PTO issued over 334,000 patents, also the highest number ever.6United States Patent and Trademark Office, Performance and Accountability Report, 2016 USPTO

On October 13, Governor Jerry Brown signed into law Senate Bill 182, a bill which marks a big step forward for ridesharing in California. SB 182 will ease administrative and financial burdens on transportation network company (TNC) drivers by allowing them to obtain only a single business license in order to operate in the entire state.

California’s current business licensure requirements do not meet today’s reality of internet-enabled ridesharing. Drivers for TNC platforms are inherently mobile and often cross through multiple municipal jurisdictions when picking up and dropping off riders. As a result, drivers unknowingly may have been subject to different business licenses, fees, and requirements as they drive through multiple cities. These licensing laws did not anticipate the advent of internet-enabled ridesharing and have created serious compliance burdens for Californians who are using these platforms to help make ends meet.

SB 182 provides the solution by allowing TNC drivers to obtain a single business license where they are domiciled in order to operate in California.

SB 182 also protects the privacy of drivers by preventing the personal information they’ve submitted to a local jurisdiction to get a business license from being disclosed on a public website. Combined, these changes will help modernize the state’s business license laws to meet the realities of the digital age and protect workers in the 21st Century workforce.

Internet-enabled ridesharing has made transportation more affordable, convenient, and accessible than ever before. SB 182’s updates to existing business license requirements will ensure that outdated business license laws do not put this important economic lifeline at risk for drivers throughout California.

Internet Association was pleased to sponsor SB 182 and sincerely thanks Senator Steven Bradford for his great leadership throughout the legislative process and Governor Jerry Brown for approving the measure.

Internet Association believes in the power of cloud computing to improve government processes and maximize the impact of each taxpayer dollar. IA is proud to represent world-class cloud providers with a relentless focus on helping federal, state, and local governments do just that. That’s why it was disappointing to see the Securities and Exchange Commission (SEC) recently issue a Request for Information that failed to even acknowledge the possibility of a cloud-first approach.

Since 2011, the Cloud First policy for government procurement has directed U.S. agencies to prioritize secure cloud solutions when making new investments. This mandate reflects the fact that leading cloud providers offer best-in-class capabilities for achieving not only cost savings and efficiency gains, but real security advantages. It is therefore no surprise that Congress doubled down on the cloud push with 2014 legislation, or that the current administration is embracing public cloud services as it pursues urgent cybersecurity goals.

But cloud adoption still lags across federal departments and independent agencies. While this transition may at one time have seemed daunting, today it is clear that the true costs and risks lay in failing to move forward.

Public cloud solutions from federally-certified providers enable agencies to focus on their missions even as they improve asset utilization, consolidate duplicative systems, and gain speed and agility in provisioning IT resources. They allow agencies to benefit from private sector innovation while removing barriers to their own experimentation and erasing constraints around limited or inflexible technical capacity. And this typically occurs as costs fall, a key objective given growing public dismay that too much of the federal government’s $80 billion-plus IT budget is spent simply maintaining obsolete systems.

Today it is well understood that leading cloud providers offer superior built-in compliance and audit controls, continuous security upgrades, and a wealth of industry-recognized certifications. The size and scale of these vendors also ensures constant security innovation and protection against attacks that would cripple a smaller network of data centers.

Both public and private entities like the CIA and Financial Industry Regulatory Authority (FINRA) have turned to commercial cloud providers for this very reason. FINRA, a private body protecting investors from fraud and other wrongdoing in the securities industry, relies on these tools to securely process 37 billion records each day. FINRA’s move is part of a wider push into the cloud by the financial services industry and its overseers. These groups often manage vast quantities of sensitive information and come under frequent cyber-attack. Rather than go it alone, they have endorsed the security and operational gains offered by public cloud options.

Federal agencies managing similar data sets ought to take note. As they plan their own cloud transitions and structure solicitations, these bodies must also favor outcomes-based targets over needlessly prescriptive dictates. Government clients should always request adequate documentation and be able to structure cloud-hosted applications and data based on their unique risk management priorities. But dictating technical procedures from the start prevents industry from achieving the desired ends through proven best practices.

As expectations rise and budgets shrink, agencies can no longer afford to simply default to yesterday’s technology. Public cloud solutions offer a compelling answer. Those planning IT expansions owe it to their internal stakeholders and to the taxpayer to closely consider them.

“At Internet Association, we stand behind the goals of SESTA [the Stop Enabling Sex Traffickers Act of 2017]. We want to see an end to sex trafficking online.”

That quote, given as testimony by IA’s own Abigail Slater during yesterday’s Senate Commerce Committee hearing, reflects our collective commitment to end online sex trafficking.

Fortunately, yesterday’s hearing showed positive signs of things to come, with both lawmakers and industry actors indicating they are open to compromise in order to achieve the mutual goal of ending child sex trafficking. It is essential that any bill allows Internet Association members to continue their significant efforts with law enforcement, anti-trafficking groups, and victims to confront this problem without unforeseen new liability.

IA reaffirmed in testimony yesterday its commitment to working with the Senate Commerce Committee, sponsors of the bill, and individual Members on how we can improve language in SESTA. We also stand ready to support legislation to make it easier for victims of these crimes to seek justice and hold perpetrators accountable in criminal and civil court.

The internet industry is not alone in looking for solutions that can improve SESTA. In fact, a bipartisan group of key Senate Commerce Committee Members used yesterday’s hearing to call for compromise on SESTA. Lawmakers, including Commerce Committee Chairman Sen. John Thune (R-SD), Sen. Maggie Hassan (D-NH). Sen. Todd Young (R-IN), and Sen. Brian Schatz (D-HI) highlighted the need for the legislation to achieve its desired effects while avoiding unintended consequences that would make solving the problem harder.

The internet industry stands ready to support a SESTA compromise that enables the crucial and ongoing fight against sex trafficking online. Internet Association looks forward to our continued engagement with lawmakers on this critical issue as we find ways in which all well-intentioned parties can agree on the details of legislation.

Today, Internet Association will testify before the Senate Commerce, Science, and Transportation Committee on an critical issue to our nation: the effort to combat sex trafficking.

Internet Association member companies are 100 percent committed to the fight against sex trafficking. Criminal actors like Backpage.com must be fully and quickly brought to justice for their horrific crimes.

IA supports the goals of Stop Enabling Sex Traffickers Act of 2017 (S. 1693). The internet industry is actively working with the Senate on amendments that will ensure justice while also allowing the good actors IA represents to continue their efforts with law enforcement and NGOs to stop sex trafficking online. This can include targeted amendments to SESTA that allow victims to seek justice against perpetrators and bad actors that knowingly facilitating sex trafficking.

Legitimate internet companies are partners in the fight to combat sex trafficking. Technology is part of the solution to this problem, and our members have a long track record of working with law enforcement, anti-trafficking groups, and victims to stop illegal activity. Some examples of how we work together are provided in our testimony, and represent only a small snapshot of our companies’ work, which includes:

• Robust community guidelines, internal policies, and proactive enforcement practices to remove content that promotes sex trafficking;
• Working with law enforcement in all 50 states to actively take down illegal content and bring offenders to justice; and
• Partnering with non-governmental organizations to help combat sex trafficking.

These efforts harness both significant financial resources from IA members and their engineering talent to help develop technological tools used to combat this heinous crime. For instance, the Spotlight tool developed by Thorn with support from several IA member companies. Spotlight is a web-based application used to detect and help rescue victims of sex trafficking. Today, Spotlight is used by 4,000 law enforcement officers at over 700 agencies nationwide. More importantly, it has been used to identify over 2,000 perpetrators of sex trafficking.

The internet industry remains committed to the fight to end human trafficking. We do not have to choose between justice against Backpage.com and protecting legitimate online services. This is not a binary choice.

There is also no single solution to this terrible problem. The fight against trafficking requires a multipronged approach and a committed partnership between the government and private sector to succeed. We look forward to continuing our work with Congress to improve SESTA to ensure victims get justice and we can ensure there are no future victims.

One of the most important parts of the internet – and what makes it so attractive and useful to so many people – is the ability to search for and store information at the click of a button. Intermediary liability safe harbors play a critical role in making that possible.These safe harbors protect internet platforms (called intermediaries) – such as Google, Dropbox, Facebook, Snap, among others – from being held liable for the content of their users, ensuring consumers can experience the internet that we’ve come to know and love.

Put in place in 1996 and 1998 respectively, Congress established two intermediary safe harbors – Section 230 of the Communications Decency Act and Section 512 of the Copyright Act enacted by the Digital Millennium Copyright Act – to create space for innovation and spur investment to further develop the internet’s capabilities.

So what would happen if they disappeared?

New economic analysis from NERA Economic Consulting took a look at the very question by estimating the impact of reducing the protections offered by safe harbor laws.

The analysis finds weakening intermediary liability safe harbor protections would significantly reduce economic activity in the internet sector, causing the U.S. economy to lose 4.25 million jobs and nearly half a trillion dollars in the next 10 years. That’s equivalent to giving away the annual GDP of Iceland, Jamaica, and Nicaragua combined and firing all McDonald’s workers in the U.S each year.

As one of America’s most dynamic and successful industries, the internet sector is driving economic growth, doubling its share of the U.S. economy between 2007 and 2014. Reducing liability protections not only hurts the internet sector; it harms the entire U.S. economy.

To quantify the impact of making intermediaries responsible for all user content, researchers used consumer surveys focused on two internet intermediary services – search engine and cloud storage – to calculate the average decrease in consumer use of these services and resulting estimated decrease in revenue. The findings? The fall in consumer demand due to more advertisements (in search engines) and higher costs (for cloud services) would result in a combined 10 percent revenue drop for these services, resulting in lost jobs and reduced economic activity.

But internet intermediaries include far more than these two services; they span data storage, internet access, internet telephony, cloud computing, social media, internet advertising, and e-commerce to name a few. The NERA analysis applies the 10 percent revenue drop as an indicator of the economic impact to the entire internet sector, of which search engine and cloud services make up only 18 percent.

By applying the findings to all intermediaries, the study finds that without internet liability:

• The U.S. economy would lose an estimated $44 billion in GDP & more than 425,000 jobs each year. That’s equivalent to giving away the annual GDP of Iceland, Jamaica, and Nicaragua combined and firing all McDonald’s workers in the U.S.
• Internet startups would face higher entry costs, limiting innovation. Without intermediary liability safe harbors, startups – and the VC’s that fund them – won’t be able to test new ideas without facing unreasonable liability and high expenses.
• Consumers would face higher costs and worsened online user experience. It is economically and technologically unfeasible for platforms to screen third-party content at scale. Loss of the intermediary liability safe harbors would mean fewer and worse services online.

Safe harbor protections were put in place for a reason. With a thriving internet economy, American businesses and consumers are able to connect with billions of people to access and share information. Even more, they are now depending on services such as ride-sharing apps, e-commerce sites, and social media – all of which are enabled by an internet that allows for free expression and content creation.

Safe harbor laws provide a foundation for innovation and drive economic growth. Preserving them is key to ensuring the best internet and economy for America.

Read NERA’s full report here.

In 2014, the Supreme Court issued a key opinion in Alice Corp v. CLS Bank International that rejected low-quality patent claims that failed to meet legal criteria. Recently, certain interest groups – dissatisfied with the requirement that patents not cover abstract ideas or simple business methods on a computer – have started shopping the idea that Congress should “fix” recent court cases like Alice. Judicial application of Section 101 to nascent technologies consistent with the law is not new: for over 100 years, from the telegraph to the internet, courts have successfully applied the abstractness exception to provide patentees’ guidance on appropriate tests for subject matter eligibility. Below, we clear up a few of the rumors swirling around Section 101 post-Alice and sum up the reasons legislation is unnecessary and misguided.

Myth: Alice undermined patent rights.

Fact: Alice confirmed Section 101 of the Patent Act plays an important role in ensuring that patents encourage innovation rather than hinder it by focusing on real advances in technology rather than broad, vague business methods and abstract ideas.

Alice didn’t change the law: it restored balance and quality standards intended to provide patent protection for truly useful, novel ideas under Section 101.

Section 101 of the Patent Act defines patent-eligible subject matter: “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” is patent-eligible. Software and servers that implement novel and useful processes that provide a technical solution to a technical problem, for example, are eligible for patenting under Section 101. For over 150 years, Section 101 has been key to the notion that abstract ideas and laws of nature cannot be patented because they can be used by all to foster unique inventions.

In Alice, the Supreme Court struck down the validity of patent claims that recited a non-technical abstract idea under the judicial exception for abstract ideas under Section 101. Many of the patent claims invalidated citing Alice cover simple, non-technical ideas that were performed using the routine functions of a computer or the internet, like upselling to customers in an online store, buying an airline ticket online, sending emails with package tracking information or managing a bingo game. In sum, “doing it on a computer” for abstract ideas doesn’t qualify for a patent.

Although these patents might have described using a computer or the internet, they did not contain any inventions or technical advances that improved the operation of a computer.

Myth: The test for subject matter eligibility is too unpredictable post-Alice.

Fact: The courts have provided clear guidance on testing for abstractness, ensuring that patent applicants, the public, and the Patent and Trademark Office can focus on high-quality patents.

The courts have provided the public and the PTO clear and appropriate guidance. They have distinguished between ineligible claims that simply recite results accomplished by software, and eligible claims that specify the inventor’s method for achieving a result and technical contribution.

There is no need for Congress to legislate: in fact legislation attempting to provide specific industries with endless, low-quality patents would create confusion by upending the discernable test put forward in the courts and providing a new source of fuel for trolls seeking to crush innovation.

Myth: Software is no longer patentable under current law.

Fact: Software remains patentable under current law, and the PTO continues to issue large numbers of software patents. What isn’t patentable are abstract, vague ideas that don’t meet legal standards.

Courts have confirmed that technical software inventions are patent-eligible following the holding in Alice. For example, as the Court of Appeals for the Federal Circuit recently explained in Enfish, LLC v. Microsoft Corp., software remains patentable following the Alice decision when the patent fulfills its intended purpose of protecting innovation by claiming an advance that improves the operation of a computer by providing a technical solution to a technical problem.

More recently, in McRo v. Bandai Namco Games, the Federal Circuit found software claims directed to a technological improvement over existing software animation techniques were patent-eligible. Many other cases have also found that technical software inventions are patentable. PTO continues to issue software patents, and is additionally ensuring that examiners have guidance on how to properly evaluate claims to make sure they meet the standards reiterated by Alice.

Myth: Legislation to clarify Alice would be helpful to innovators and simply restore previous law.

Fact: Attempts to legislate on subject matter eligibility would create a new wave of the vague, abstract patents that fuel patent trolls and in turn stifle true innovation.

Several groups have proposed legislation to “clarify” the Alice decision, including a recent proposal by the Intellectual Property Owner’s Association that would vastly expand the ideas that can be patented… to basically everything. What wouldn’t be patentable under this proposal? Only inventions that “exist solely in the human mind.”

This extreme, sweeping change to Section 101 would mean that only the use of patents to attempt mind control are ineligible. Low quality patents invalidated in unanimous cases like Bilski and Alice would become patent eligible, and overly broad patents asserted by patent trolls but invalidated under Section 101 since Alice would survive too, like the patents on distributing free photographs with embedded advertising, managing a bingo game, and optimizing retail prices.

Broad claims that tie up the use of abstract ideas in any field are bad for innovation because they grant a monopoly where no investment in R&D or other technological contribution has been made to society. When asserted, these patents tax companies that did the work and made the investment to develop and bring new products and services to market while fueling patent trolls that are stifling innovation.

Calls for legislation are unnecessary and misguided. Instead, Congress should focus on efforts to fight patent abuse and promote innovation.

On April 26 each year, the World Intellectual Property Organization celebrates “World Intellectual Property Day.” This year, WIPO explains the theme as “explor[ing] how innovation is making our lives healthier, safer, and more comfortable, turning problems into progress…at how the intellectual property system supports innovation by attracting investment, rewarding creators, encouraging them to develop their ideas, and ensuring that their new knowledge is freely available so that tomorrow’s innovators can build on today’s new technology.”

It is no accident that the United States is home to the most creative and advanced technology industries in the world. From our founding, our nation’s leaders recognized that delicate balance in IP necessary to foster tomorrow’s innovators:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. – US Constitution 

To achieve this balance, the law must rightly reward creators and innovators with protection for novel, useful ideas and unique expressions, while at the same time considering the public’s interest in accessibility of works and the ability to build upon prior works for the future.

A timely and critical example of achieving this balance is in the post grant review procedures set forth in 2011’s America Invents Act. Recognizing that low quality patents ultimately stifled innovation by shifting resources away from development and into frivolous litigation, Congress provided the Patent and Trademark Office with new procedures to quickly and fairly weed out patents that should’ve never been granted in the first place. Prioritizing high-quality work over pure quantity of patent claims provides reward for truly novel ideas while allowing innovators to fuel tomorrow’s advancements without trolls getting in their way. The result is a balanced system that fosters new technological advancements.

Another longstanding and foundational example of balance in the copyright context is fair use – a doctrine that provides important flexibilities for content to be reproduced for criticism, comment, news reporting, teaching, scholarship, or research. Industries relying on fair use generated $4.6 billion in revenue according to a 2011 report, and this foundational doctrine serves as a touchstone to the US internet economy. Fair use facilitates access and expression, including in the form of follow-on works that in turn fuel further creativity.

Policymakers work is far from done on maintaining this delicate balance;

in the face of new technologies, there are constant threats both domestically and in global markets to upend these efforts. Lawmakers must remain committed to the best policies for the public interest in innovation and creativity, rather than the narrow interests of specific industries.

Today, the Office of the US Trade Representative (USTR) released the 2017 National Trade Estimate (NTE) Report. The NTE is the administration’s annual review of significant foreign trade barriers. For this year’s report, IA submitted comments on key barriers in nearly 60 countries that impede U.S. small businesses, manufacturers, and users from leveraging the internet to export their goods and services abroad. We were pleased to see USTR address many of these barriers to internet-driven trade in this year’s report.

Why do digital trade barriers matter to U.S. economic growth and employment? The internet economy is responsible for 6 percent of U.S. GDP and more than 3 million American jobs. The U.S. has an incredible $159 billion trade surplus in digitally-deliverable services. Digital trade has added up to 2.4 million jobs to the U.S. economy. Yet this critical trade-enabling function of the internet is under threat, as internet services and apps face barriers and discriminatory treatment in foreign markets. Countries are increasingly implementing policies that limit the free flow of data, require data be stored in certain locations, use unbalanced intellectual property frameworks to block or limit U.S. exports, apply legacy public utility regulations to online services, or unreasonably impose liability on platforms that power trade for hundreds of thousands of U.S. small businesses. Removing these barriers can unlock significant U.S. economic growth through trade for nearly every sector of the U.S. economy.

IA welcomes this year’s NTE report and is encouraged by the administration’s commitment to digital trade as highlighted by the release of USTR’s “Key Barriers to Digital Trade” fact sheet. For the first time, USTR considered a number of new barriers to digital trade, including “unreasonable burdens on internet platforms for non-IP-related liability for user-generated content and activity.” In addition, USTR identified a number of specific market access barriers they will focus on in the coming year, including EU measures on “ancillary copyright” and “neighboring rights,” EU copyright filtering obligations, unreasonable intermediary liability obligations in countries like Thailand and India, application of legacy regulations to so-called “over-the-top” internet services in Indonesia and Vietnam, Chinese restrictions on U.S. cloud service providers, China’s extensive blocking of legitimate websites, and many other emerging digital barriers.

IA looks forward to working with USTR in the coming year to tackle these critical barriers to digital trade.

by: Abigail Slater, Internet Association General Counsel

IA attended ICANN58 in Copenhagen last week and was grateful to the ICANN board and staff to be included in a panel discussion with EU data protection commissioners and the Council of Europe.  The purpose of the panel was to discuss EU data protection principles and their application to the WHOIS database in particular.

For those who work in the domain name system (DNS) space, the publicly available WHOIS database is the glue that holds the internet together.  It is probably the most centralized function in an otherwise decentralized network, and it needs to be.  Imagine a world in which we had no way of pinning down who owns a website: is it the company that has poured billions of dollars (or any other currency) into building the business, or is it a Russian cyber hacker?  Thanks to WHOIS, we can sort the good guys from the bad.  WHOIS also plays a critical role in defending the network from attack, including denial of service attacks.  And we know that when the DNS is under attack, many of the internet applications we have come to rely on to get through the day can be badly impacted, sometimes even on a global scale.  

Because the WHOIS database is so critical to the DNS, it was even included in the 2009 Affirmation of Commitments between the U.S. government and ICANN, which have since become part of ICANN’s bylaws.  The Affirmation of Commitments laid the foundation for last year’s successful transition of ICANN’s IANA function from U.S. government control to the multistakeholder ICANN community, an important goal supported by the Internet Association and its members.  

WHOIS serves an important – even critical – role in holding the internet together, but it’s not perfect. Among the loudest critics of WHOIS are EU privacy enforcers who are concerned that a publicly available database containing personally identifiable information (“PII” in privacy-speak) is a red flag under EU data protection law.  This concern came to the fore at ICANN this week when several EU data protection commissioners and the Council of Europe came to ICANN for the first time.  On the panel, the EU privacy advocates explained at a high level the data protection principles they apply in their roles.  They also explained that these principles are soon to be backed up by massive fining powers (up to 4 percent of global revenues) when a new EU data protection law kicks in next year, making it time for the ICANN community to sit up and listen to them.  Unfortunately, however, the data protection officials did not apply those principles to ICANN in general or WHOIS specifically.  

Also on the panel, Internet Association argued that in order to join issue with the ICANN community on WHOIS and to provide legal certainty to businesses, guidance from the data protection commissioners beyond talking about general principles should be provided soon (and preferably before massive fines are levied).  We also argued that we live in a world of competing equities, and while data protection is an important equity, so is the stability and security of the DNS from a DoS attack – something that has equally negative consequences for consumer privacy.  Similarly, there are important equities at stake in WHOIS beyond data protection, since it is a key tool used to combat fraud and trademark infringement.  Ultimately, however, the number one equity at ICANN – ICANN’s core mission – is protecting and preserving a stable and resilient DNS.  At the end of the day, this is the equity that comes before all others and WHOIS is the glue that binds the DNS together.  

The EU data protection enforcers’ position raises several questions for the ICANN community: how will their law apply to WHOIS?  What is its reach?  What data is implicated when much of WHOIS is populated by technical jargon and not sensitive personal data?  Will the data protection commissioners take into account the critical role that WHOIS plays under ICANN’s bylaws in holding the DNS together when they enforce their data protection law?  Will they weigh competing equities such as protecting the network from DoS attacks and other forms of fraud and abuse?

We are grateful to ICANN for including us in this important discussion and we look forward to hearing more from the ICANN community and staff on this issue.  As the IANA transition taught us, having an honest, bottom-up conversation about important issues is the best and only path forward for the community and its stakeholders.