TLDR: Across the country, small- and medium-sized companies rely on and benefit from balanced and certain intellectual property (IP) laws to innovate and build better businesses. That’s why this week’s celebration of World Intellectual Property Day provides a timely opportunity for U.S. policymakers to better appreciate the importance of such balance and certainty when crafting policy that applies to the emerging startups that are critical hubs of global innovation.
What’s Happening This Week: Yesterday marked World Intellectual Property Day, an event organized by the World Intellectual Property Organization (WIPO). This year’s theme focused on highlighting the critical role small and medium-sized enterprises (SMEs)—such as startups—play in the economy and how they interact with IP systems as they seek to innovate and build successful, competitive businesses. According to the World Bank, SMEs account for 90 percent of worldwide businesses and over 50 percent of global employment. And U.S. startups make outsized contributions to both innovation and economic and job growth. Indeed, Engine’s new report on “The State of the Startup Ecosystem” shows an increasing number of successful and maturing startups across the U.S., with startup exits increasing in number and value by nearly 400 percent and nearly 1900 percent respectively from 2003 to 2018.
These are among the many clear indications of why it’s so important to support SMEs and the innovative startups with whom Engine works. And World IP Day is a reminder of the many ways policymakers can ensure startups enjoy the balanced, certain IP frameworks they need to succeed.
Why it Matters to Startups: Trademarks, high-quality patents, or copyrighted works may be an important part of the path to success for many startups—these assets can provide a foundation for those looking to gain a foothold in the market and attract investment. Yet to fully understand how startups interact with the IP system, it is essential to remember that IP extends well beyond the people and companies that own patents and copyrights. For example, a low-quality patent or an improper or overly-aggressive copyright claim can create substantial barriers to innovation and competition, especially for nascent tech companies. A well-functioning IP system must be balanced to promote the interests of all stakeholders, ranging from IP owners, to innovators who choose to forgo formal IP protection, to end-users and customers deploying new technologies.
It is critical that policymakers provide entrepreneurs and startup founders with the resources and legal clarity needed to navigate the IP system. As we noted in letters last month, when it comes to the patent system, Congress must work to achieve this balance by emphasizing patent quality and stemming abuse of the IP system. This should include ensuring that the patent office and startups each have access to the resources they need to prosecute valid, high-quality patents. Especially given the importance of patent protection for some companies and some products—as Sarah Fletcher, the Co-Founder of Stylaquin explained—to facilitate the path to high-quality assets, the “government should consider setting up programs to help reduce some of the financial burdens of the patent process” for startups.
Policymakers should likewise ensure that startups can access affordable, efficient alternatives to costly litigation when they are accused of infringing low-quality patents. For example, the patent office can improve quality and allow startups to defend frivolous cases by taking a second look at patents and cancelling those that should not have issued. Indeed, as Joshua Montgomery, the Founder of Mycroft AI—a startup that offers open-source voice assistant technology—recently told us, officials should prioritize steps to strengthen such patent review and better ensure that “a company targeted by a patent abuser [has] an alternative path to challenge a bad patent.” Otherwise, emerging tech companies operating on thin margins have to waste valuable time and money on frivolous cases. As Tony Hyk, the CEO of digital health startup TheraTec, highlighted: abusive litigation is a significant nuisance that forces companies “to pause [] development and spend resources defending the meritless suit.” By improving the quality of issued patents and making it less lucrative to leverage low-quality patents, policymakers can provide startups with the IP protection they need while avoiding the threat of potentially ruinous litigation.
When it comes to copyright law, startups that encounter user-generated content online need policymakers to focus on balanced, commonsense legal frameworks like the notice-and-takedown and safe harbor frameworks in U.S. law. Under the Digital Millennium Copyright Act (DMCA), startups understand how to respond to claims of infringement online and can proceed with confidence that they should not be automatically liable when their users are accused of infringement they have no knowledge of or involvement in. Upsetting this existing balance would shift the ground underneath today’s startups and could create insurmountable roadblocks for future companies. Indeed, as Ryan Heafy—the Co-Founder and COO of hyper-local media startup 6AM City—noted, changes in this area of copyright law would disadvantage smaller companies the most, as “large shift[s] in policy might not have a significant impact on large companies that can accommodate change, but it could unintentionally result in a negative impact on entrepreneurs and the small business community.”
The White House’s next major decision regarding IP may well be President Biden’s choice for the incoming Patent and Trademark Office Director. It’s critical that this administration break from the policies of the prior administration and nominate a director who will balance the interests of all stakeholders, including startups. As Engine noted in a letter to the Biden administration earlier this year, this should include selecting a nominee who will prioritize quality, stem abusive litigation, and embody “the diversity we want to see in the nation’s innovation ecosystems.” Likewise, as a letter from several public interest groups reiterated yesterday, the next Director should appreciate that “the patent system is supposed to serve the public, not a few technology and pharmaceutical companies that hold thousands of patents.”
As we continue to celebrate World IP Day this week, we hope that policymakers will keep in mind the ways in which the U.S. startup ecosystem depends upon balanced IP frameworks to thrive. Startups are a vital component of our nation’s innovation economy, and it is critical for lawmakers to weigh their interests, concerns, and needs in policy debates. By recognizing the value of balanced, certain IP frameworks, policymakers can help ensure that startups have the support needed to contribute to the nation’s economic success.