U.S. GOVERNMENT PUBLISHING OFFICE

30–697 WASHINGTON : 2019

INNOVATION NATION: HOW SMALL BUSINESSES 

IN THE DIGITAL TECHNOLOGY INDUSTRY USE 

INTELLECTUAL PROPERTY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JULY 11, 2018 

Small Business Committee Document Number 115–083 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
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HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

JOHN CURTIS, Utah 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARKE, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Dwight Evans ................................................................................................. 2 

WITNESSES 

Mr. Frank Cullen, Vice President of U.S. Policy, The Global Innovation Policy 

Center, U.S. Chamber of Commerce, Washington, DC ..................................... 4 

Mr. Morgan Reed, President, ACT/The App Association, Washington, DC ........ 6 

Mr. Christopher Mohr, Vice President for Intellectual Property and General 

Counsel, Software & Information Industry Association, Washington, DC ...... 8 

Mr. Chris Israel, Executive Director, Alliance of U.S. Startups & Inventors 

for Jobs, Washington, DC .................................................................................... 9 

APPENDIX 

Prepared Statements: 

Mr. Frank Cullen, Vice President of U.S. Policy, The Global Innovation 

Policy Center, U.S. Chamber of Commerce, Washington, DC .................. 23 

Mr. Morgan Reed, President, ACT/The App Association, Washington, DC 33 

Mr. Christopher Mohr, Vice President for Intellectual Property and General Counsel, Software & Information Industry Association, Washington, DC ..................................................................................................... 40 

Mr. Chris Israel, Executive Director, Alliance of U.S. Startups & Inventors for Jobs, Washington, DC ..................................................................... 57 

Questions for the Record: 

Questions from Representative Radewagen to Mr. Frank Cullen and Answers from Mr. Frank Cullen ...................................................................... 61 

Questions from Representative Radewagen to Mr. Chris Israel and Answers from Mr. Chris Israel ......................................................................... 63 

Additional Material for the Record: 

Institute for Women’s Policy Research ........................................................... 66 

Innovation Alliance .......................................................................................... 69 

Letter from Joshua Landau, Patent Counsel, Computer & Communications Industry Association ............................................................................ 71 

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INNOVATION NATION: HOW SMALL 

BUSINESSES IN THE DIGITAL TECHNOLOGY 

INDUSTRY USE INTELLECTUAL PROPERTY 

WEDNESDAY, JULY 11, 2018 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 11:06 a.m., in Room 

2360, Rayburn House Office Building. Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, King, Luetkemeyer, Brat, 

Kelly, Fitzpatrick, Marshall, Evans, Clarke, Adams, and Schneider. 

Chairman CHABOT. Good morning. The Committee will come to 

order. 

Today, the Small Business Committee will examine how small 

business owners in the digital technology industry use intellectual 

property protections to help their businesses and the issues they 

face when navigating the intellectual property process. 

Digital technology allows small businesses to sell their products 

and services all over the world. In fact, 84 percent of small businesses use at least one major digital platform to provide information to customers. Digital technology also plays a vital role in the 

American economy, and the United States is the largest technology 

market in the world. 

The tech industry accounts for approximately $1.6 trillion in direct economic value in the United States, and net tech employment 

accounted for over 7 percent of the overall workforce in 2017. 

As we learned from our hearing on intellectual property in May, 

intellectual property plays a vital role in protecting creative and innovative products and ideas, both here in the United States and 

abroad. America’s intellectual property is worth $6.6 trillion, and 

intellectual property-intensive industries employ over 45 million 

Americans. Our nation’s small business owners are essential to 

producing new, creative, and groundbreaking products and ideas 

that strengthen our nation’s economy. In fact, entrepreneurs and 

small business owners have generated about 70 percent of new jobs 

over the last 2 decades, and small businesses represent about 96 

percent of employer firms in manufacturing industries with a high 

number of patents. Intellectual property also accounts for 52 percent of all merchandise exports in the United States. 

However, the process for obtaining intellectual property protections can be daunting, even for the most experienced small busiSBR002 with DISTILLER

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ness owner. It can also be very expensive to hire professionals to 

traverse the intellectual property process. 

Because of their limited financial abilities, small business owners 

are vulnerable to their innovations being stolen, both here in the 

U.S. and internationally, which can be financially devastating. 

The FBI has found that intellectual property theft costs billions 

of dollars every year to America’s businesses, and thieves are targeting small business owners and startups because of their limited 

abilities to fight back. 

To combat this problem, this Committee unanimously passed 

H.R. 2655, the Small Business Innovation Protection Act of 2017 

this past March, and I am pleased to report that it passed the full 

House yesterday. 

This bipartisan legislation, which was sponsored by Mr. Evans 

and co-sponsored by Mr. Fitzpatrick on our Committee, would leverage existing resources at the SBA and the U.S. Patent and 

Trademark Office to better assist small business owners and expand the agencies outreach efforts to provide small businesses with 

the resources they need to address intellectual property issues. 

Today, we will hear from experts on intellectual property and the 

digital technology industry on the role that intellectual property 

plays for this vital and growing industry. I look forward to hearing 

how intellectual property helps small digital technology businesses 

and what we can do to foster America’s creative small businesses 

moving forward. 

And I would now like to yield to the Acting Ranking Member, 

Mr. Evans, for the purpose of making an opening statement. 

Mr. EVANS. Thank you, Mr. Chairman. Good morning. 

Digital technology has become a vital part of nearly every industry. Over the past 3 decades, the tech sec has created 23 percent 

new businesses than the private sector as a whole. Technology innovation bolsters our economy making IP protection a vital part of 

the process. 

Protecting the intellectual property rights for technology innovation can support long-term job growth, increase exports, and drive 

development. New business ventures rely on a system in which the 

ideas are protected. 

Intellectual property is a $6.6 trillion industry that accounts for 

over 1/3 of total U.S. gross domestic product, and small firms make 

up the vast majority of firms and intellectual property intensity industries. In fact, startups in high-tech hubs account for more than 

40 percent of new jobs each year. These businesses have an enormous stake in ensuring the continued growth of intellectual property. 

Patent protection helps innovators recoup the costs of research 

and development, capitalizing on their inventions, create jobs and 

grow the economy. It is also essential to ensure the availability of 

businesses to ensure their rights to both at home and abroad. 

Doing so is critical to protect the American economy’s interests. 

In 2016, Customs and Border Patrol received $1.3 billion of intellectual property rights infringement goods across our borders. This 

theft can have a deep impact on small businesses that may have 

limited time and resources. This is especially true among women, 

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minorities, and other underserved business owners who already 

face obstacles obtaining IP protection and funding. 

More than 80 percent of patents do not include women. This gap 

is likely because of the unrepresentation in the science, technology, 

engineering, and math fields. GDP per capita could rise up to 3.3 

percent with the inclusion of more women and African-Americans 

in the initial stage of the process of innovation. Congress must address the inclusion of unrepresented groups to allow for additional 

small business growth. 

This hearing will allow Committee members to hear from entrepreneurs on opportunities for growth in the digital technology industry and to understand what additional measures are needed to 

ensure their long-term success. 

I thank our witnesses for being here, and I yield back the balance of my time. And I thank the Chairman. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

And I will now announce that if Committee members have opening statements prepared, that they be submitted for the record. 

Without objection, so ordered. 

And I would like to take just a moment to explain our lighting 

and timing rules. Basically, pretty simple. We operate under the 5- 

minute rule. You all get 5 minutes. We all get 5 minutes to ask 

questions, and there are some lights to assist you. The green light 

will be on for 4 minutes and then the yellow light will come on to 

let you know you have a minute to wrap up. And then the red light 

means stop. So you do not have to stop midsentence, but if you 

would stay within those parameters to some degree we would 

greatly appreciate it. 

And I would now like to introduce our distinguished panel this 

morning. Our first witness will be Frank Cullen, who is the Vice 

President of U.S. Policy at the U.S. Chamber of Commerce’s Global 

Innovation Policy Center. Mr. Cullen direct the center’s domestic 

programs in promoting and protecting intellectual property rights 

in both the online and physical markets. He has extensive experience speaking on intellectual property issues, and we welcome you 

here today. 

Our next witness will be Morgan Reed, who is the President of 

ACT, the App Association, a trade association representing over 

5,000 app makers and tech companies. Mr. Reed specializes in intellectual property, security, privacy, connected health, digital 

trade, and business development. He also has experience as a coder 

and business owner and has testified before Congress in the past. 

And we welcome you here, Mr. Reed. 

And our third witness will be Christopher Mohr, who is the Vice 

President for Intellectual Property and General Counsel at the 

Software and Information Industry Association, or SIIA. SIIA represents over 800 companies in the software and information industries. Mr. Mohr acts as SIIA’s chief legal officer and principal 

spokesperson on intellectual property issues and has appeared before legislative, judicial, and administrative bodies on intellectual 

property issues, including the Supreme Court of the United States. 

So we welcome you here, Mr. Mohr. 

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And I would now yield to the acting Ranking Member for the 

purpose of introducing our fourth and final witness. 

Mr. EVANS. Thank you again, Mr. Chairman. 

It is my pleasure to introduce Mr. Christopher Israel, executive 

director of the Alliance for U.S. Startups and Inventors for Jobs, 

a coalition of inventors, startups, and research businesses that depend on patents. Prior to his role, Mr. Israel served as the U.S. coordinator for international IP enforcement and also served at the 

Commerce Department. He received his B.A. from the University 

of Kansas and his M.A. from George Washington University. I welcome Mr. Israel. 

Thank you, Mr. Chair. 

Chairman CHABOT. Thank you very much. 

And Mr. Cullen, you are recognized for 5 minutes. 

STATEMENTS OF FRANK CULLEN, VICE PRESIDENT OF U.S. 

POLICY, THE GLOBAL INNOVATION POLICY CENTER, U.S. 

CHAMBER OF COMMERCE; MORGAN REED, PRESIDENT, ACT, 

THE APP ASSOCIATION; CHRISTOPHER MOHR, VICE PRESIDENT FOR INTELLECTUAL PROPERTY AND GENERAL COUNSEL, SOFTWARE & INFORMATION INDUSTRY ASSOCIATION; 

CHRIS ISRAEL, EXECUTIVE DIRECTOR, ALLIANCE FOR U.S. 

STARTUPS & INVENTORS FOR JOBS 

STATEMENT OF FRANK CULLEN 

Mr. CULLEN. Thank you, Mr. Chairman. And also, I want to 

thank the Ranking Member Vela ́zquez for the opportunity to testify 

at this important hearing. 

The U.S. Chamber of Commerce’s Global Innovation Policy Center is working around the world to champion intellectual property 

rights that are vital to creating jobs, saving lives, advancing global 

economic growth, and generating breakthrough solutions to global 

challenges. 

The U.S. Chamber of Commerce is the world’s largest business 

federation, and more than 96 percent of our member companies are 

small businesses with fewer than 100 employees. 

As members of this Committee know well, small businesses employ more than half of all Americans, and the Chamber is proud 

to represent millions of these businesses. 

Intellectual property, or IP as I think you all well know, is an 

umbrella term covering copyright, patent, trademark, and trade secrets. It is often the secret sauce that gives a new up-and-coming 

company its competitive edge. The loss of that edge through theft 

or other appropriation invites unfair competition that can devastate even the largest company, much less a small one. 

The critical importance of IP was recognized in the Constitution 

where Article I, Section 8, Clause 8 provided that Congress shall 

have the power 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.’’ 

Now, this set forth the fundamental policy approach that has 

undergirded America’s rise to the largest economy in the world. 

This formula is straightforward: allow authors and inventors to 

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tions and they will have an incentive to create, invent, and distribute to the benefit of all. 

This formula is as true today as it has ever been. Yet, any commercial project carries the risk it will fail or not become commercially successful. And of course, there is the added risk that even 

if successful, copycats may attempt to free ride on the work of others and offer fake products at an artificially low price. This is precisely the form of unfair competition that IP protections are designed to prevent. 

As Steve Jobs said, from the earliest days of Apple, ‘‘I realized 

that we thrived when we created intellectual property. If it were 

not protected, there would be on incentive for us to make new software or product designs.’’ 

And it is worth noting that Apple, like so many other small businesses, started with an idea and the creative genius of two young 

inventors working in their garage. 

By allowing innovators and creators the opportunity to run a 

business on their talent and ingenuity, IP rights drive U.S. competitiveness and economic growth. The Chairman noted the impressive economic numbers. The Department of Commerce estimates 

that more than half of our exports, $842 billion, and almost 40 percent of all U.S. GDP can be directly tied to IP-intensive industries. 

And for the past 6 years, GIPC has published an annual International IP Index. As we look over the course of our report, we see 

one clear pattern: strong IP environments tend to enjoy greater levels of research and innovation output. And as a top-scorer in its 

overall IP system, the United States has a competitive advantage 

over other countries. 

Now, every market requires equitable rules, but an environment 

of overbearing regulation can strangle business growth, especially 

for small businesses with lightly and tightly limited resources. A 

marketplace that has no rules invites abuse and theft to the detriment of businesses and consumers alike. 

As former Fed chair Alan Greenspan said, ‘‘Market economies require rules of law.’’ A system of intellectual property protections is 

one of the reasonable rules that creates an environment of fairness 

and promotes innovation and job growth. 

Free trade agreements can also provide protections of IP rights 

for small business owners, creators, and inventors. 

Now, in the digital environment and the technology that accompanies it, we have seen a great enhancement of the ability of businesses to connect with their customers far beyond the reach previously thought possible. They have provided new media for creative expression and new tools for innovators. However, this technology can be a double-edged sword. 

While thousands of small businesses now have the opportunity 

to compete in the global marketplace, they are at risk of having 

their products ripped off by unscrupulous criminals. 

So one of the problems we have as the Chairman alluded to is 

that most small businesses when they start out do not factor IP 

protection or an IP strategy into their business plan. They need to 

have education about these fundamental forums of IP protections 

and how copyright, patents, trademarks, trade secrets can really 

benefit them. 

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Obviously, we understand that we are doing business in the online environment and there are threats from counterfeiters. It not 

only affects a small businessman but it also potentially affects consumers. So it is important that the brand that has been established 

in a new up-and-coming company is not undermined by either the 

theft or by subpar products being put into the marketplace by 

criminal elements. Because when that brand is really reduced in 

terms of its value, it hurts both the company and ultimately the 

consumer’s access to new products. 

Obviously, I have additional information in my written testimony, and I welcome the Committee’s questions. Thanks again for 

this opportunity to testify. 

Chairman CHABOT. Thank you very much. 

Mr. Reed, you are recognized for 5 minutes. 

STATEMENT OF MORGAN REED 

Mr. REED. Chairman Chabot, Ranking Member Evans, and distinguished members of the Committee, my name is Morgan Reed, 

and I am the president of The App Association, a trade association 

representing more than 5,000 app makers and connected device 

companies in a $950 billion industry. 

The app economy employs 4.7 million Americans and is outpacing nearly every other sector of the economy. In fact, we have 

over 500,000 open jobs waiting to be filled. 

As our 2018 state of the app economy report, which you all have, 

shows, smartphones are the single most rapidly adopted technology 

in world history. Device ownership grew from 0 to 3.4 billion people 

in just a decade. 

The broad reach of cloud plus mobile structure creates the conditions for rapid adoption and gives our member companies in all 435 

congressional districts, including yours, access to markets around 

the world. 

Let’s take a moment to dig into that because it is easy for everyone to sit on the panel and say, well, we represent a lot of people, 

but let’s give it some specificity. 

So Chairman Chabot, in your district, we have Canned Spinach 

Designs. My friend, Andrew Savitz, built a company there that is 

a design and development firm, but they have also built a cool mobile app that allows large companies to offer discounts and benefits 

to their employees that they can pass on to their family. 

Congressman Evans, in your district we have NEAT. NEAT extracts key information from your receipts and documents and integrates it with popular accounting and business software. 

Congressman Luetkemeyer, in your district we have got CSPI. 

They do online banking services and they tie in the ability to take 

that picture of your check and they tie it back to your mobile app. 

That is the company that helps make that all possible. 

Congresswoman Adams, in your district we have my friend, 

Douglas McDowell, who runs a company called Century One. They 

allow Microsoft data professionals to monitor, diagnose, and optimize the products in the environment and in the cloud for mobile. 

Congressman Schneider, in your district, we have got Pathfinder. 

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corporates mobile tech, and they are doing it for both small and 

large companies. 

Congressman Kelly, Next Gear Solutions, great product. They 

have built a mobile app that helps people who go in and solve— 

if you have a house that has had a fire or a flood, they are building 

the mobile app that allows the onsite professional to take pictures, 

instantaneously take notes, figure out how to resolve the problem, 

fix your house, get your family back in as quickly as possible. 

Congressman Marshall, we have got Media Dime Solutions that 

builds a ton of mobile apps. They are in the Kansas First. They do 

website and graphics as well. 

I have folks for everybody here, but as I am looking at my clock, 

I figure I would shorten it up a little bit and say that is the reality 

of the world we are living in. We are here to talk IP. That IP is 

not just in Silicon Valley. It is in every single one of your districts. 

And a big part of that comes from the IP protections that are 

available. Our member companies not only rely just on copyright 

but also patents, trademarks, and trade secrets. And I would like 

to thank all of your for your support of the trade secret acts that 

passed last year. 

One of the things to understand is how does it matter? Software 

is especially dependent on copyright. I know members of the Committee here are well aware of music and movie piracy, and that 

anti-copyright voices claim the problem is with the business model 

of copyright holders. 

For my members they have heard, if you provide the app for free, 

nobody can steal it. I am here tell you today that free is not cheap 

enough. No matter what business or pricing model our members 

choose, piracy still occurs. 

You might be thinking, how is that even possible? How do you 

steal a free app? Well, I will tell you. 

One of our members had—one of their apps was downloaded 

160,000 times for their free app. And yet, none of the revenue came 

to him. Well, free apps are usually monetized through advertising. 

In this case, a pirate took his app, moved it to a different ad network that fed the money back to the thief, not our member. To 

make matters worse, our member’s app featured video components, 

so every time it was viewed through the pirated version of the app, 

our member was charged by his hosting service. Essentially, he 

was paying for the privilege to be robbed. 

Beyond copyright, I want to talk for a moment about the importance of patents to our companies and their beneficiaries. We have 

members who have patents but all of our members depend on patented technologies. 

I know many of my panelists will be talking about the USPTO, 

but I want to take a moment to talk about standards. Over the 

past 20 years, the United States has led the way in protecting IP 

and preserving fair, reasonable, and nondiscriminatory licensing 

terms for standards that allow companies to make innovations. 

Standards create the foundation for technology advancements and 

interoperability competing products while still maintaining fair, 

reasonable, and nondiscriminatory paths to compensation. We need 

to preserve a strong, voluntary standard system to ensure that enSBR002 with DISTILLER

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trepreneurs can create the next great innovation on top of those 

great standards. 

Small businesses benefit the most from an effective standard system because it enables them to specialize and go head-to-head with 

big companies. 

We urge members of the Committee to support the current voluntary standard system and the balance it strikes for IP rights 

holders. 

I thank you for the hearing and look forward to your questions. 

Chairman CHABOT. Thank you very much. 

Mr. Mohr, you are recognized for 5 minutes. 

STATEMENT OF CHRISTOPHER MOHR 

Mr. MOHR. Thank you, Mr. Chairman. 

Mr. Chairman, Ranking Members of the Committee, on behalf of 

SIIA, thank you for the opportunity to appear today. 

SIIA is the principal trade association of the software and information industries. We represent over 700 companies that develop 

and market software and digital content for business, education, 

and consumers. 

IP is at the core of SIIA’s mission, and the association was founded on advocating for and enforcing its members’ intellectual property rights. That priority has remained even as we have grown to 

represent 800-plus members, including software and cloud companies, financial information and database providers, educational 

technology companies, and online publishers. 

Some of our member companies were born digital. They created 

and designed their business model for the internet. Others either 

have or are transitioning from an analog existence to an online one. 

Some members fund innovation by selling subscriptions. Others 

fund it by advertising. Others fund it by selling copies. 

For all of our members, intellectual property and the integrity of 

that property has always been at the core of what they do, and it 

is growing in importance for all of our member businesses, especially the small ones. 

The pace of innovation is accelerating. Patents continue to be 

granted in record numbers. It took over 200 years for the United 

States to issue 9 million patents. It took 3 years to get to 10 million. That growth trend is reflected all over the country. 

For example, according to PTO statistics, in your home state of 

Ohio, there were approximately 108,000 utility patents granted in 

the years between 1963 and 2002. Between 2003 and 2015, about 

half that time, there have been 150,000 utility patents granted. 

According to statistics compiled by the Copyright Alliance, Ohio’s 

residents have registered about 76,000 copyrights. There seems to 

be an IP deluge, not a drought. 

And that flood of innovation has been good for software and technology businesses of all stripes. 

In your home state, Mr. Chairman, again, these are according to 

Copyright Alliance stats, the software industry supported nearly 

80,000 jobs and contributed $13 billion to the Nation’s GDP. 

And that has bled through to R&D. Since the Supreme Court’s 

software patent decision in 2014, R&D spending for software grew 

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at a 27 percent rate, faster than the growth of all other industries, 

at least between 2014 and 2015. 

For software and services, there are estimates that the R&D 

spending will grow to be about 24 percent of all R&D by 2020. And 

since 2014, the number of jobs created by software developers has 

increased 14 percent. 

That is a very convoluted and probably over-statistical way of 

saying that Congress should be taking a bit of a victory lap. 

The IP laws created by Congress are the engine that drives innovation, and from the standpoint of SIIA members, whether you are 

talking about copyrights, trademarks, patents, or trade secrets, 

that engine is purring. These laws are working to incentivize invention in the creation of expressive works while preventing acts 

of unfair competition against businesses small and large. 

From a patent standpoint, the AIA, combined with the Supreme 

Court’s decision in Alice, has helped to mitigate the still existing 

problem of patent litigation abuse. Bills like the one that you 

passed yesterday and your BIG Data for IP Act also help. 

SIIA opposes rolling back either of these improvements, especially given the deluge of patents and growth in the software industry that is occurring under existing law. 

With respected to copyrights, the substance of the law is working 

well, but administrative improvements would improve small business access, specifically by modernizing the Copyright Office. 

On the whole, it is our view that current law is working very 

well. 

Thank you again for the opportunity to appear before you today, 

and I look forward to the Committee’s questions. 

Chairman CHABOT. Thank you very much. 

Mr. Israel, you are recognized for 5 minutes. 

STATEMENT OF CHRISTOPHER ISRAEL 

Mr. ISRAEL. Thank you, Mr. Chairman. 

I would like to thank you and Ranking Member Vela ́zquez, Mr. 

Evans, members of the Committee, for this opportunity to be here 

today. 

I tis an honor to participate in this important hearing focused on 

the role of intellectual property in supporting small business development and growth. 

I am here on behalf of the Alliance for U.S. Startups and Inventors for Jobs (USIJ). USIJ is a coalition of over 30 startup companies and their affiliated executives, inventors, investors that depend on reliable patent protection as a foundation for their business. 

It is difficult and perilous to start a new company from scratch. 

For companies built around a new inventory or committed to solving a complex problem, it also requires investors with a very strong 

appetite for risk. 

The U.S. patient system is designed to incentivize and reward 

this risk. 

Unfortunately, over the past 15 years, we have seen the foundations of the U.S. patent system eroded by court decisions and 

changes in U.S. law. This has resulted in the U.S. falling form 

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number one to number 12 in terms of IP strength according to the 

U.S. Chamber. 

We believe there is a very strong correlation between the patent 

system and the willingness of entrepreneurs and investors to take 

risks on big breakthroughs and complex problems. USIJ is releasing today the results of a study we conducted on the trends in venture capital investment from 2004 to 2017, which I have included 

in my testimony. 

I will touch on a few of the key conclusions and offer some recommendations on how Congress can the administration PTO can 

strengthen the U.S. patent system to better support startups in key 

tech sectors. 

To be clear, not all small businesses and startups depend on patents for their success. Many do not, and some even find patents a 

burden. But companies that invest heavily in R&D to create breakthroughs in strategically critical technologies do depend on patents 

to protect them from predatory behavior of would-be competitors 

anxious to copy any new product or technology once it is proven 

workable. 

As the U.S. patent system has slipped from the strongest in the 

world to number 12, we have seen the elimination of injunctive relief for patent owners, significant limitations on the ability of inventors to even obtain patents in key areas of life sciences and software, and a procedure at the U.S. Patent and Trademark Office 

that allows an open-ended opportunity for anyone to challenge any 

valid U.S. patent multiple times and often without any business 

reason for doing so. 

So how is the market reacting to all of this? As you might expect 

in some ways, even though total venture capital in the United 

States has increased nearly fourfold over the last 15 years, the portion committed to small businesses and important technology sectors has declined significantly. 

In 2004, 21 percent of all venture capital funding in the United 

States went to the following strategic patent-intensive sectors: 

internet networking, wireless communications, semiconductors, 

drug discovery, and medical devices. In 2017, only 3.2 percent of 

venture capital funding in the U.S. went to these sectors. 

So who are the beneficiaries of this relative decline in funding for 

strategically critical technology? In 2004, 11 percent of all venture 

capital in the United States went to the following sectors: social 

network platforms, business-to-consumer technologies, financial 

services, and software apps. By 2017, 33 percent, 1/3 of all venture 

capital in the United States went to these sectors. 

While the latter group has certainly led to some interesting products and services, created a lot of jobs, and led to some very wellknown and ubiquitous global companies, these are not typically the 

sectors that are generally investing heavily to push the outer 

boundaries of science and technology to remain competitive in the 

global market. 

These declines are fairly shocking unless one believes that the 

U.S. can maintain its technological leadership with minimal investment in startups that are working in the areas of new drug discovery, networking equipment, cybersecurity, AI, medical devices, 

biotech, semiconductors, computer hardware, and a host of other 

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core industrial sectors, while 1/3 of the funding for new companies 

in the United States goes to apps, social media, and online shopping and banking platforms. 

The good news is that there are some specific things Congress 

and the USPTO can do immediately to revitalize the U.S. patent 

system for inventive small businesses. These include passage of the 

Stronger Patents Act. I would like to thank Ranking Member 

Vela ́zquez and Mr. Norman for cosponsoring that piece of legislation. Providing statutory clarity for patentability for life sciences 

and software inventions under section 101 of the Patent Act. 

In addition, PTO can make some needed reforms to change its 

post-grant review procedures. We strongly support the pending rule 

change to discontinue use of the BRI standard for claim construction. Patent owners should be allowed reasonable opportunity to 

amend their claims during a post-grant review proceeding. And 

USPTO should address serial attacks on patents held by small 

companies by larger competitors working in collaboration and with 

surrogates. This has become a major problem for technology 

startups. 

Mr. Chairman, I appreciate the opportunity to participate in this 

hearing and look forward to all the questions. 

Chairman CHABOT. Thank you very much. 

And I will now recognize myself to begin the questioning. I am 

recognized for 5 minutes. 

And I will begin with you, Mr. Cullen. In your experience, how 

much information on intellectual property do startups and small 

business owners typically need when developing their companies? 

Mr. CULLEN. Well, at the very least, they need to understand 

which type of IP is going to be most applicable to their business. 

So education about what can benefit them in terms of their business plan and their product is essential. Obviously, there are costs 

associated with IP protections and that has to be factored into their 

business plan as well. These are widely divergent. For instance, at 

the Copyright Office, for $55 you can get a copyright, but it is 

much more expensive if you are going to see a patent. You are talking thousands of dollars. So you have to really figure out what is 

the appropriate IP for you, what the terms are in terms of how 

long that IP protection will last, whether or not it is going to be 

relative to your business domestically or abroad, and whether you, 

of course, are going to do business in other markets. So education 

about all the types of IP that are out there and what is most applicable to your business model is probably the most fundamental 

thing you need to do. 

Chairman CHABOT. Thank you very much. 

Mr. Reed, I will turn to you next if I can. What are the best practices to combat online piracy and counterfeiting for app developers? 

And also, how do you fix the problem that you mentioned where 

the fellow had his free app not only stolen, but then he is getting 

charged for every one of its uses and the thief is getting the advertising revenue as well? 

Mr. REED. Well, I think there are a couple of things. And I want 

to take a piece of what Frank just opened with. We always tell the 

story when we talk to our small business members about IP and 

we say it this way, if I walk up to you and I say, who in your office 

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handles your intellectual property? I always get a shrug or I am 

not sure. And if I say to the business owner, who in your office is 

in charge of birthdays, they always know who is in charge of birthdays. And what we say is your IP needs to be at least as important 

as who is in charge of birthdays on the calendar. So build a binder, 

start collecting everything. Your employee agreements. Anything 

else that you are doing. What are your vendor agreements? 

One of the stories we have is one of our members lost $3 million 

because one of his vendor agreements said that any work that he 

did for them was owned by the company that he was doing the 

work for. It is a completely reasonable thing. He did not know it 

was in his agreement. It cost him $3 million on acquisition. 

So at a minimum, the way I would address your question is 

make IP at least as important as birthdays. Know who handles it, 

know who is in charge of it, and how you are collecting it. 

On to your larger question, on what do we do to protect. We have 

actually seen that there have been some real market improvements 

by the platforms here in the United States. Apple, in particular, 

has done a really good job of allowing our members to contact them 

and let them know about an application that is stolen or pirated 

or contains pirated content and get on top of it. 

Globally, we still have a larger problem. We see that as an area 

of real concern. Around the world, jailbreaking phones or side loading applications is much more common than it is in the United 

States, and that is a real avenue. Unfortunately, it is also an avenue for 97 percent of the malware that is out there on mobile devices as well. 

So quick answer, platforms are doing a fairly good job. They can 

get better. We also work with TAG on the advertising revenue. The 

acronym escapes me. It is the group for the advertisers that works 

on presenting click fraud and advertising fraud, but it is a problem 

that we are all working on and we are working on together because 

it is costing us millions of dollars. 

Chairman CHABOT. Thank you very much. 

Mr. Mohr, I will turn to you next. How important is it for software companies to have intellectual property protections? And 

which protections would you consider to be the most important for 

your members? 

Mr. MOHR. It is critical. There are two, I think, that are most 

important. And that would be copyright and patent. And we have 

been historically extremely involved in enforcing our members’ 

rights against pirates. And I think to riff off of what my friend just 

got into, there is another angle to piracy now because a lot of what 

happens sometimes is that your relationship with the software 

company is far more interactive than it used to be say 15 years 

ago. It is no longer the case where you load a CD into your computer and then never think about it again until you need something better. 

Instead, what happens is there is an ongoing relationship with 

the software provider. When that software is altered and pirated, 

what happens then is the creation of consumer protection problems. There is intellectual property harm, of course, when if you 

are trying to sell copies and someone is ripping them off, then you 

have a revenue problem but that problem is internal to you. There 

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is an external problem now with people whose data or other information could be compromised. 

The second thing is with respect to patent protection. Our members have patents. They have many, many, many patents. Their 

primary concern is that the system from a defensive standpoint 

prevents bad patents from being enforced. And that has two components, at least, maybe more. 

The first component is on the front-end to ensure that applications are properly examined and good patents are issued. The second is after issuance, if the PTO makes a mistake that there would 

be a procedure by which those patents can be officially challenged. 

We believe that procedure exists under the AIA. 

Chairman CHABOT. Thank you. I think I am going to have to 

cut you off there because my time has expired. And I apologize for 

not getting to you, Mr. Israel. 

The gentleman, the Ranking Member, the gentleman from Pennsylvania is recognized for 5 minutes. 

Mr. EVANS. Thank you, Mr. Chairman. 

Mr. Israel, women, racial minorities, and low-income individuals 

seem to be significantly underrepresented in the innovation ecosystem. This is extraordinarily alarming as these individuals will 

face challenges in other areas of business capital. What steps 

should Congress take to help narrow the gaps? 

Mr. ISRAEL. Thank you, Mr. Evans. It is a great question, and 

we would look forward to and welcome any opportunity to work 

with you and your colleagues to address it. We have got some really groundbreaking women members of our organization who have 

spent years and years building and creating companies. So there 

certainly is a huge opportunity for progress here. 

You know, we think, just kind of fundamentally getting back to 

the first principal of ensuring that the patent system and the IP 

system, we are removing as many barriers as we can to get as 

many creative entrepreneurs into the system as possible. I think 

working with major universities and research institutions are such 

a great source of diversity and tremendous ideas and entrepreneurs, so I think we have talked about and would look forward 

to developing some ideas. Maybe working with larger research institutions and universities in every state in the country to help accelerate some of that integration of women and minority entrepreneurs and match them up with the venture capital and the support that they need to build great companies. 

Mr. EVANS. To you, Mr. Reed or Mr. Cullen, specifically, what 

can Congress do? Tell me what you think Congress can do. 

Mr. REED. I will give you a couple of examples. As I said in my 

opening testimony, we have 500,000 unfilled jobs. Unfilled. Not 

prospective, not hopeful, jobs that we do not have people for. So 

specifically, we see there are two items that we have been working 

on. One is we have got to get the K-12 education around this area 

earlier on. We would love to see a grant program, even a low dollar 

one, that helps to open the door so that when my members who 

want to donate time to educate students have a pathway into a 

school—right now when you knock on the door to say, hi, I am here 

to teach computer science, there is not even a person to talk to. 

You talk to the vice principal and they say, well, we do not even 

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have any way to even incorporate you into our curriculum. So there 

is the potential for a small, low dollar grant from the Department 

of Education to help those schools bring in the entrepreneurs, my 

members, and Chris’s, into those schools. 

The second area is my membership, we recently had 50 CEOs 

come to D.C. Many of them visited you. And I did a survey of the 

room and I said, how many of you are currently employing people 

who do not work in your office? One hundred percent. We had 100 

percent of my members currently have employees that are not in 

their main office. And so that gets into issues around broadband 

access and how do we better utilize spectrum, like TV white spaces 

so that we can actually have people in other places. 

I testified in another hearing with a gentleman from Mississippi 

where he was training coders in Mississippi. And I said to him 

then and I would say it now, if you train the people and give them 

the talent, if they have got broadband, I will employ them. 

So when you ask the question of what Congress can do, we need 

better help on the education side and we need to make sure that 

spectrum is available for broadband in places that do not naturally 

have it. They are either rural or low income, and let’s make that 

change. 

Mr. EVANS. Mr. Cullen? 

Mr. CULLEN. Thank you, Mr. Evans. And as my colleague said, 

it is a great question. 

Certainly, I echo what my colleagues have said on the panel. 

Education is key, and we certainly commend the Committee for its 

work in passing important legislation this week which provides resources to USPTO and more resources to agencies such as the SBA 

and others to develop programs that can reach out to undeserved 

individuals who are trying to start businesses and really have the 

opportunity to employ Americans. So from our standpoint, we very 

strongly support legislation that provides those resources, whether 

it is in education or it is at agencies such as the USPTO or Small 

Business Committee, and we think we need to see more of that. 

Mr. EVANS. I am going to stop with you real quick. I have only 

got like 51 seconds and this is for the panel. 

We have heard conflicting information regarding the health of 

our Nation’s existing patent system. How do we reconcile these 

views and balance the needs of truly innovative firms on both sides 

of the issue? 

Mr. CULLEN. Well, we believe that innovation is driven when 

you have a strong IP system. It helps support it and drive it. And 

clearly, you need to have clarity in the patent system and you need 

to have a patent system that really is going to work for the inventors and the folks who really have to be able to assert those rights. 

From our standpoint, we think that predictability and a clear patent system is the most important. 

Mr. MOHR. I think given the 9 seconds, 8 seconds left, as I said 

in my opening testimony, we want to make sure that the standard 

system is preserved and the intellectual property within the standard system both correctly rewards the people who invent it but also 

makes it a pathway to be used by everyone. 

Mr. EVANS. Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you very much. 

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The gentleman’s time has expired. 

The gentleman from Missouri, Mr. Luetkemeyer, who is Vice 

Chairman of this Committee, is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Reed, I appreciate the shout out to CSPI. I actually know 

those gentleman personally. We actually are a customer of theirs. 

They are a true American dream story. They are three guys who 

started out as Burrows Repair, office repairmen, and Burrows decided to contract out the repair work and they became their own 

little company to contract with Burrows and then they went off and 

developed this product and now they are nationwide and mega, 

mega, mega millionaires. So I am in the wrong business, obviously. 

But thank you for that. 

One of the questions I have got is with regard to, you know, the 

administration is concerned right now with trade, and one of the 

things that is involved in trade is protection of intellectual property. I know Mr. Reed, you talked about it a little bit, and then Mr. 

Cullen, you talked about it a little bit in your testimony, what are 

other countries doing to protect their inventors, their copyright 

stuff that is different from ours that we could use to help us, help 

our people? And how do we protect our people here from what is 

going on in the international little world of espionage here to go 

take our intellectual property where we—I do not know what the 

percentage is but I am sure we do most of it here in this country 

versus everybody else? 

Mr. CULLEN. Well, thank you again for the question. It is an 

excellent one. Obviously, more needs to be done across the board 

and globally. American does lead. Our IP that the Chamber releases shows quite clearly the benefits of a strong IP system. 

Now, you have seen different types of IP protections in different 

types of countries. Some of the things we do here in the United 

States vary a little bit. We have in the past looked at different 

ways to protect copyright in the online environment. Other countries have taken stronger measures to protect copyright in the online environment, such as in Great Britain and in other markets. 

Mr. LUETKEMEYER. Should we not be taking a lead like that 

or are they off the charts with the way they are doing it? 

Mr. CULLEN. Yeah. We are not advocating legislation. What we 

are saying is that there is still a significant problem that needs to 

be addressed. Some of this can be addressed through voluntary 

agreements between businesses and some of this can be addressed 

through simply educating consumers about what other legal choices 

are available to them. But when it comes to actual IP protections, 

one of the things we stress is that in our index you will see the 

clear benefit to having an overall strong IP system that covers the 

broad range of IP, and we would suggest that countries that have 

that type of system in place will be the most innovative. 

Mr. LUETKEMEYER. Mr. Reed? 

Mr. REED. I will echo mostly what Frank said. I think one of 

the interesting parts that you saw all of us look at each other when 

you asked that question, because it is an interesting formation of 

a question we had not really thought about. Because the United 

States is such a leader on intellectual property, on trade, we tend 

to be the people in the room saying how do we do the most for 

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Americans, and the rest of the world tends to be saying, well, you 

know, let’s find some soft edges. 

Now, that is not always true as Frank pointed out. In Europe, 

we see that there are some systems there where they are definitely 

adopting a stronger position. I think the part that makes it really 

interesting is how do we execute on what you described but make 

sure that we are not running into a situation where we create barriers. Because the reality is that the one place the United States 

has a trade surplus with every Nation in the world is in IP. And 

so we are always tentative about adopting the ideas of other countries if they are only adopting that kind of protection in order to 

squeeze out American competition. 

So we sit in an interesting catbird seat when it comes to IP. We 

are better than everyone else at it and we want to stay that way, 

and so figuring out, how do we continue to innovative is going to 

be a critical part of it. And let’s not make sure we fall into a case 

where they squeeze us out of opportunity. 

Mr. LUETKEMEYER. Yes? 

Mr. CULLEN. Just one last point. Free trade agreements can 

also play a significant role with strong IP chapters in terms of 

aligning IP protections. 

Mr. LUETKEMEYER. I think that is one of the reasons the administration is looking at these trade agreements, you know, especially with China trying to steal everything, and also, for them to 

actually come in the back door of other countries, I mean, that is 

one of the reasons we are trying to get the EU and Canada and 

all those other countries at the table to be able to talk to them 

about, hey, you know, we need to have you help us protect our industries and our IP. And it seems to be that that is a big part of 

it. 

I am about out of time here so I will yield back the balance of 

my time, Mr. Chairman. 

Chairman CHABOT. Thank you. The gentleman yields back. 

The gentlelady from North Carolina, Ms. Adams, who is the 

Ranking Member of the Subcommittee on Investigations, Oversight, and Regulations is recognized for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chairman. And thank you, gentlemen, for your testimony, and being here today. 

Mr. Cullen, as we seek to strengthen the patent system to better 

protect our inventors in the global marketplace, I believe it is 

equally important that we also strive to eliminate the gender, racial, and income gaps that currently exist here in the U.S. 

As a first step to address the gender and race gap in patenting, 

would it be helpful for the SBA, USPTO, or other relevant Federal 

agencies to examine the gender, race, and income gaps in patenting 

and their impact on the American economy, small business development, and entrepreneurship? 

Mr. CULLEN. Thank you, Congresswoman, for that important 

question. I agree wholeheartedly that anything we can do to help 

quantify that situation would be beneficial not only to those who 

are seeking opportunity but also to our economy at large. 

I can tell you without reservation that the new director of the 

USPTO, Andrei Iancu has embraced, I think, a lot of novel approaches to strengthening both the USPTO and the patent system, 

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and I am confident that if you brought that idea to his staff and 

his team that he would be willing to take a look at that, and I 

think it is a very important initiative. 

Ms. ADAMS. All right. Thank you very much. 

Mr. Israel, a recent study found that obtaining a first patent 

plays a huge role in helping startups secure venture capital and 

other financial investments. In fact, startups that obtain their first 

patent are 33 percent more likely to obtain venture capital funding 

than startups that do not receive a patent at all. It is especially 

true for startups that had not already attracted significant investment prior to receiving the patent and companies with experienced 

founders and startups located outside of the geographic areas that 

traditionally attract investors like Silicon Valley. So can you comment on these findings and give us your opinion about what Congress can do to ensure that the patent system is accessible to underserved populations of entrepreneurs? 

Mr. ISRAEL. Thank you, Ms. Adams. It is a great question and 

those statistics are well known and borne out in reality, and we 

can certainly provide specific examples of them. It is, as you say, 

a key indicator of the ability of a young company, particularly in 

a research and development intensive sector, life sciences, heavy 

technology, whether or not they are going to be able to secure the 

type of funding they need if they have got a strong patent portfolio. 

The types of companies that we work with and we see close up are 

the types that need anywhere from $100 to $250 million sometimes 

of venture funding to see their way through that initial idea all the 

way through to getting it to market and becoming a viable company. 

So if we are as a Nation in the business of leading in these big 

areas that require a lot of heavy research and development, we 

need a strong patent system that maps up to it and that allows 

those inventors to get the resources they need. 

So as I noted in my testimony, I believe we are actually falling 

short in a few key areas. When we have seen it in the trend lines 

in venture capital and where it is going and the inability of companies to get the patents that they need and secure the funding that 

they need. So we think it is essential that Congress step in and 

take up the question of patentability. Under section 101 under the 

Patent Act in areas like software and life sciences, the courts in 

some recent decisions have created some uncertainty there. We 

think it is critical that the Patent and Trademark Office, and I 

know Director Iancu is considering a number of reforms, look at 

some changes to correct how easy it is frankly for patents to be 

challenged, particularly by large companies against small startups 

who have patent portfolios, so this post-grant system at PTO we 

believe has become slanted towards and much more easy for large 

companies to target small companies and frankly take their intellectual property out and mitigate its impact in the marketplace. 

So the trend lines are there. The evidence is very clear that if 

you have a strong patent portfolio, you have to have that if you are 

going to address investors and expect them to put a risk and take 

a risk with you in your company. That is a very true thing. And 

we think it is also true that unfortunately we have slipped in some 

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tect their intellectual property to give those assurances to the investors that they are working with. 

Ms. ADAMS. Thank you, sir. 

Mr. Chair, I yield back. 

Chairman CHABOT. Thank you very much. The gentlelady 

yields back. 

And the gentleman from Virginia, Mr. Brat, who is the Chairman 

of the Subcommittee on Economic Growth, Tax, and Capital Access 

is recognized for 5 minutes. 

Mr. BRAT. Thank you, Mr. Chairman. Thank you all for being 

here with us today. 

I had a breakfast meeting today on China and North Korea, and 

had an expert speaker come to us. You know, we are all debating 

playing eight-dimensional chess with many complex issues at the 

global level. And I said, what is the most serious? Right? The 

South Sea Islands, the military buildup, the tariff piece from China 

or intellectual property? He said, intellectual property. Most significant issue. And he said, look at what we are exporting to China. 

And we are losing our competitive advantage in intellectual property, relatively speaking, not absolutely. 

And so I just want your take. Today we are discussing sort of 

micro-level issues on theft, privacy, et cetera. But if you can each 

just weigh very briefly in on the connections you see between the 

global economic competitive environment and the micro issues. I 

mean, are they related? How are they related in your minds? I 

would just love to hear the experts weigh in on the relationship between the Chinese stealing intellectual property. Does that manifest itself in what we are talking about today? And if so, how do 

you see that? 

We can start with Mr. Cullen and work on down. 

Mr. CULLEN. Thank you, Congressman. I appreciate the question. 

It has a huge impact. It has a huge impact on small businesses 

who are having their products counterfeited, or folks, songwriters 

who are having their music pirated. So from our standpoint, we 

certainly have concerns about what is happening with the theft of 

intellectual property. Almost 90 percent of counterfeited goods 

come out of China and Hong Kong. So this has a huge impact, not 

only on all these companies but on the jobs they create. So we are 

deeply concerned. 

GIPC has a dedicated program working with China. I would like 

to point out that one of the things we have to look at is the overall 

situation in China, not just how it is impacting us, and how we can 

help them move from essentially a counterfeit economy to a different type of model. And so from our standpoint, we are going to 

continue to work with our counterparts in China. There are some 

successes in law enforcement and other areas, but it is very tough 

sledding. 

Mr. REED. I am going to take a page, since he said a lot of the 

key things, I think one of the things that is important for everyone 

here to understand is that my smallest member is an international 

player. If I think about Ann Adair, in Tampa, Florida, she is a tiny 

developer shop, and yet she has tens of thousands, and even hunSBR002 with DISTILLER

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dreds of thousands of customers around the world, including in 

China. 

So one of the key elements that plays in this, all of what Frank 

said is critical, but we have to remember that what we are really 

looking for is, how do small businesses have access to that market? 

How do we help China get to the point where we are selling in to 

them? Because they want our apps. We know they want our apps 

because they are stealing them when it happens. But the point is 

there is demand, there is value, there is creation that exists there. 

And so I think what we are really looking for is how do we move 

to the state where the United States and our innovators and our 

small businesses are able to compete and provide products? Because that is the real growth possibility. 

Mr. MOHR. Just quickly, trying not to repeat what everybody 

else said because I think we would be in agreement with all of it, 

I think what you see is if you have particular economies or particular cultures in which those property rights are not respected on 

a micro level, on a macro level you are going to have problems. And 

that is exactly what is happening. There are many tools that you 

have to use to change that perception. But that is a big problem 

with a lot of moving parts let’s say. 

Mr. BRAT. And if you guys want to help give us input on those 

tools—— 

Chairman CHABOT. Could you turn your mic on, please? 

Mr. BRAT. Sorry, guys. 

The gentleman this morning said we are not pushing hard 

enough. China is also using our banking system to launder money 

through; right? And we punched them a couple time, small banks. 

And we have tremendous leverage there. 

Some of the tariff legislation right now is actually written 

through the section having to do with intellectual property. It is 

not just a tariff policy. It is through intellectual property, and I do 

not think that has gotten out. So if you all can weigh in and give 

us some input as a Committee in writing following this, what the 

levers that will be most effective to help the industry and help 

American workers, that would be great. 

And finally, Mr. Israel, sorry. 

Mr. ISRAEL. Congressman, appreciate that. And having spent 

some time with the U.S. government working on this issue, I welcome the chance to work with you. 

I think two fundamental things are true at a very high level. I 

think, as I have stated, I think over the past decade or so we have 

in a number of ways systemically weakened the U.S. patent system. Some of it has been in pursuit of wringing out litigation 

abuses and patent trolls, but the reality is we have a weaker patent system today than we did a decade ago. 

I also believe at a very fundamental level, the Chinese through 

their China 2025 strategy, which you probably spoke quite a bit 

about this morning, are strategically and tactically targeting dominance in the most critical technology sectors that exist today—artificial intelligence, robotics, life sciences. You go down the list. Computer networking, wireless. Those are exactly the sectors that the 

United States needs to have a very strong patent system in order 

to incentivize the best and brightest entrepreneurs we are going to 

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need, the type of investments we are going to need, and the type 

of strong companies that we are going to have to create to compete 

with the Chinese who are coming at us with everything they have 

got. Not all the good ideas and not all the best breakthroughs are 

going to come from big, large, multinational corporations. A lot of 

them, most of them, are going to come from small companies with 

creative ideas that need a lot of resources and need strong patents. 

Chairman CHABOT. The gentleman’s time has expired. 

The gentleman from Iowa, Mr. King, is recognized for 5 minutes. 

Mr. KING. Thank you, Mr. Chairman. I appreciate this hearing 

and the witnesses’ testimony. 

I would first turn to Mr. Israel. You said that our patent system 

protection is less than it was 10 years ago, and I agree. Could you 

identify why that is the case? 

Mr. ISRAEL. Thank you, Congressman. 

We have talked about a few of them this morning. As I noted, 

there have been some court cases that have made it extremely difficult and very unpredictable to get patents, for instance, in the 

software sector and the life sciences sector, and there is some work 

going on to examine that. 

Mr. KING. If I could, I am particularly interested in your view 

on the change that was made in patent law to shift from first to 

invent to first to file. How has that impacted our patent protection? 

Mr. ISRAEL. Well, I mean, it has brought us in line with global 

norms, but it has certainly put more pressure on small inventors 

to demonstrate to the patent office the validity and the strength of 

their patent. I would say in addition to that, a very big burden and 

challenge and obstacle that has been placed on small companies in 

particular is the post-grant review, so kind of the after-the-fact 

challenge system that exists at PTO that once you have a valid 

patent, as a company or as an inventor, you are pretty much— 

there is an open-ended ability to for anyone to come forward from 

anywhere in the world, really, and challenge those patents almost 

endlessly. And we see—— 

Mr. KING. Well, the scenario works out like this. If you are a 

garage or a home shop inventor, you generate the idea and then 

you do not have a very good system to go ahead and apply for the 

patent, and so the chance of a leak or a theft of that intellectual 

property being filed by a larger company that has got the network 

to do that happens more often than it did before. And then, even 

if you file, you are still subject to the litigation coming back at you 

from the other way. So, it advantages the large operations that 

have the administrative network and the skillsets and disadvantages the small. Would that be a fair analysis? 

Mr. ISRAEL. We believe that to be true. That oftentimes you will 

see small companies that have breakthrough technologies, as soon 

as they are ready to go to market, they are targeted by larger competitors in the post-grant review process at the PTO. 

Mr. KING. Thank you, Mr. Israel. 

And I turn to Mr. Cullen. I noted that you said we needed help 

to help China in particular move from the counterfeit economy. I 

like the phrase ‘‘counterfeit economy.’’ They have a substantial 

counterfeit economy. And then a lot of small things along the way 

as I listened to this. But I did not hear any big ideas. I heard a 

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little law enforcement here. I have been over there to beat on the 

Chinese and talk to them about what are you actually doing? And 

they assure us that they are bringing civil actions against the IP 

pirates that are active over there. And I say, hey, that is fine. What 

happens? Well, we fine them. And then once you fine them, who 

collects the money? Well, the government does. And they put it in 

their other pocket, because a lot of those are government-owned 

companies. And I said, is anybody getting any criminal charges 

against them? Well, one. Is he in jail yet? No. Or maybe not was 

more like the answer. It was not a straight answer. 

So I will bring it to this. Sitting there in the third city meeting 

in China—it happened to have been in Beijing—it occurred to me 

that each one of those meetings was exactly the same script. And 

sometimes it is not that inscrutable. It came to me that their business model was we are going to steal your intellectual property. 

And then as a cost of doing business, part of their overhead is to 

wine and dine Americans that come over there to complain. But 

they never intend to do anything about it because they are getting 

rich off of the theft of our IP. In fact, it is a multibillion dollar strategic effort to steal the creativity of America. And those numbers 

range someplace between $250 billion a year and up to $600 billion 

a year, depending on whose estimates are there. 

So from that meeting sitting over there, I am sure the Chinese 

hacked my email off my BlackBerry, but I wrote it sitting at the 

table and it was this: Draft a bill that directs a U.S. trade representative to conduct a study to determine the value of intellectual property theft stolen by the Chinese and apply a duty to all 

Chinese products coming to America in an amount equivalent to recover that loss, plus an administrative fee, and then distribute 

those proceeds to the rightful property rights owners. That is H.R. 

1048. 

Now, I want to ask you, Mr. Cullen, do you believe your organization could support a bill, such a bill? 

Mr. CULLEN. I appreciate that question, Congressman. And creative approaches to these problems are what we need. I certainly 

cannot commit that we will support the bill. I am more than happy 

to take a look at it. You know, we have a lot of engagement with 

China, and I agree with you. This problem is so vast that we need 

to see some tangible results. Our companies, as Morgan referenced, 

want to do business and access that market, but if we are having 

our intellectual property stolen, it puts our companies at great risk. 

So I appreciate the creative approach but I cannot say we will support the bill. 

Mr. KING. I would like to ask you and Mr. Reed to take this idea 

back to your people. 

Mr. CULLEN. We shall. 

Mr. KING. And contact me with a response on this. And I am 

happy to have a meeting and have a discussion to expand this further because it has gone too far, and Hollywood and Nashville did 

not want to touch it 10 years ago but now the president has this 

in his hand, so we need to get behind him and solve this problem. 

There is too much theft going on of IP and it is time to do something about it. 

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So if I asked you to do that, would you say yes, each of you gentlemen? 

Mr. CULLEN. We appreciate the opportunity to commit to it. 

Mr. KING. Thank you. And let the record show that Mr. Reed 

did as well. He nodded his head and he smiled. I think he smiled. 

Mr. REED. Yes. 

Mr. KING. Thank you very much, gentlemen. 

Mr. Chairman, I yield back. 

Chairman CHABOT. Thank you very much, Mr. King. 

Rather than go through the closing statement that I had I will 

just conclude with a real short one. Put me on that bill. Very good. 

Thank you very much. 

And we want to thank the witnesses for their excellent testimony 

here today and the great questions from both sides of the aisle, I 

think, on all this. It has been very helpful. 

I would ask unanimous consent that members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

And if there is no further business to come before the Committee, 

we are adjourned. Thank you very much. 

[Whereupon, at 12:07 p.m., the Committee was adjourned.] 

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A P P E N D I X 

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Chairman Chabot and Ranking Member Velazquez, thank you for the 

opportunity to testify at this important hearing. 

The U.S. Chamber of Commerce's Global Innovation Policy Center (GIPC) 

(www theglobalipcenter.com) is working around the world to champion 

intellectual property rights as vital to creating jobs, saving lives, advancing 

global economic growth, and generating breakthrough solutions to global 

challenges. 

The U.S. Chamber of Commerce is the world's largest business federation, 

representing the interests of more than three million businesses of all sizes, 

sectors, and regions, as well as state and local chambers and industry 

associations. The Chamber is dedicated to promoting, protecting, and 

defending America's free enterprise system. 

More than 96 percent of Chamber member companies are small businesses 

with fewer than 100 employees, and many of the nation's largest companies are 

also active members. We are cognizant not only of the challenges facing smaller 

businesses but also of those facing the business community at large. 

Besides representing a cross-section of the American business community with 

respect to the number of employees, the Chamber also represents major 

classifications of American business-e.g., manufacturing, retailing, services, 

construction, wholesalers, and finance. The Chamber has membership in all 50 

states. 
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As Members of this Committee know, small businesses employ more than half 

of all Americans, and the Chamber is proud to represent millions of these 

businesses. The U.S. Chamber launched its "Small Business Nation" campaign 

to help startups and small businesses succeed by promoting pro-growth 

policies and providing toolkits for entrepreneurs. 

Introduction 

Intellectual property (IP), an umbrella term covering copyright, patent, 

trademark, and trade secrets, is often the secret sauce that gives a new, up-andcoming company its competitive edge. The loss of that edge, through theft or 

other appropriation, invites unfair competition that can devastate even a large 

company, much less a small one. 

The critical importance of IP was recognized in the Constitution, where Article 

I, Section 8, Clause 8 provided that Congress shall have the power 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 .... " 

This elegant articulation set forth the fundamental policy approach that has 

undergirded America's rise from a fledgling agrarian nation to the home of the 

Industrial Revolution to the largest economy in the world. The formula is 

straightforward: allow authors and inventors to own the intellectual property 

rights over their creations and innovation, and they will have an incentive to 

generate and distribute, to the benefit of all. 

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This formula is as true today as it has ever been. Independent film companies 

and record labels, startup software companies, and cutting edge 

biopharmaceutical innovators all require initial outlays of cash, in some cases a 

very large amount of cash. Any project carries the risk that it will fail or not 

become commercially successful. These types of efforts also have the added 

risk that even if they are successful, copycats may attempt to free ride on the 

costs of development and offer the product at an artificially low price. This is 

precisely the form of unfair competition that IP protections are designed to 

prevent. As Steve Jobs said, "From the earliest days at Apple, I realized that we 

thrived when we created intellectual property. If it weren't protected, there'd be 

no incentive for us to make new software or product designs." 1 

And it is worth noting that Apple, like so many small businesses, started with 

an idea and the creative genius of two young people working in their garage. 

By allowing innovators and creators the opportunity to run a business on their 

talent and ingenuity, IP rights drive U.S. competitiveness and economic 

growth, and create high-quality American jobs. IP supports more than 45 

million American jobs in 81 different industries. According to the Department 

of Commerce, IP-intensive industries make up more than half of all U.S. 

exports, or $842 billion, and almo~t 40% of U.S. GDP. 

For the past six years, GIPC has published its annual International IP Index. 

The Index provides a roadmap for countries to improve their IP systems and 

promote job growth, economic development, innovation, and creativity. As we 

look over the course of the report, we also see a clear pattern. Strong IP 

1 As quoted in a biography by Walter Isaacson. 

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environments tend to enjoy greater levels of research and innovation output. 

As a top-scorer for its overall IP system, the United States has a competitive 

advantage over other countries. The Index also shows that keeping an IP 

system strong and effective requires monitoring and regularly updating policies, 

and that "doing nothing is a recipe for stagnation." 

IP and Small Business in the Digital Economy 

Every market requires equitable rules. An environment of overbearing 

regulation can strangle business growth, especially for small businesses with 

tightly limited resources. Just the same, a marketplace that has no rules invites 

abuse and theft, to the detriment of businesses and consumers alike. As former 

FED Chair Alan Greenspan once said, "Market economies require rule of 

law." 2 i\ system of intellectual property protections is one of the reasonable 

rules that creates an environment of fairness and promotes innovation and job 

growth. 

In addition to the IP laws and policies in place in various countries, free trade 

agreements (FTA's) such as NAFTA can also provide protections of IP rights 

for small business owners, creators, and inventors. 

The digital environment and the technology that accompanies it have greatly 

enhanced the ability of businesses to connect "vith customers far beyond the 

reach previously thought possible. They have provided new media for creative 

z Speech, Stanford Institute for Economic Policy Research Summit (2004) 

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expression and new tools for innovators. However, this technology can be a 

double-edged sword. 

While thousands of small businesses now have the ability to compete in the 

global marketplace, due to the reach of the internet and other technological 

advances, they have also been exposed to unscrupulous criminals who seek to 

profit at their expense and at consumers' expense. It is critical that small 

businesses understand the tools for protecting their IP and how to use them. 

Education 

Most small business owners are too busy trying to find a way to get their 

product into the marketplace or make payroll to think about IP as part of their 

original business plans. However, it is critically important that they understand 

how IP can help them succeed and which form of IP is most relevant to their 

type of business. 

Copyright 

Copyright attaches to a creative work of authorship the instant it is fLxed in a 

tangible medium of expression. Enforcement of copyright requires registration 

of the work with the Copyright Office. The process is simple and the fee is a 

relatively modest $55. But for small business creators who create many works, 

that fee can add up quickly. 

Of all the IF-intensive industries, copyright-intensive industries were among 

the first to be transformed by the digital economy. In the music context, the 

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Recording Industry Association of America has observed that, "Over the past 

two decades, digital, Internet, and mobile technologies have revolutionized the 

way we create, find and enjoy music ... " 3 

Early on, Congress recognized the need for some basic rules to deter and 

prevent copyright piracy and enacted the Digitall\1illennium Copyright Act 

(DMCA). The DMCA has two main features. One is a set of prohibitions 

designed to prevent the hacking of copyrighted works. The other is immunity 

from monetary damages for internet service providers under certain 

circumstances, providing they comply with various conditions, including 

removing access to infringing works through their systems. 

This notice and takedown system, along with the immunity from damages, has 

come under greater scrutiny in recent years. While small businesses need to 

know their rights, there is no silver bullet to stopping online piracy and 

counterfeiting. 

Trademark and Trade Secret 

Even for an emerging small business owner, trademark registration can easily 

be obtained through the U.S. Patent and Trademark Office. While it is slightly 

more complex and expensive than a copyright registration, trademark 

registration is imperative to the protection of a new brand. It is also fairly 

simple, and can be accomplished with relatively little or no assistance from legal 

professionals. 

3 RIAA, "labels at Work- The Music Business in the Digital Age" (June, 2014) 

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Trademark is different in purpose from copyright and patent; it is designed to 

provide consumers with an indication of the source of a product, and it creates 

consumer confidence. Companies build brands that consumers trust and can 

hold accountable. Counterfeiters create cheap fakes that copy legitimate brands, 

an illicit business model built on deception. 

Trade secrets are, by definition, not voluntarily disclosed. They retain their 

value only if they remain secret, and companies must take proactive steps to 

ensure these secrets are protected. Whether through hacking or industrial 

espionage, competitors steal these secrets to use them in competition with the 

victim. 

The IP thieves in these contexts are among the worst actors IF-intensive 

industries are likely to face. The criminal networks behind these thefts take 

extensive measures to conceal their identity and locate themselves in countries 

with weak TP laws and/ or enforcement. 

In order to entice American consumers, criminals prey on customers who visit 

various online retail platforms. The cooperation of these online retail platforms 

through voluntary, business-to-business arrangements known as "voluntary 

agreements" is key to combatting the criminals in the online environment. 

GJPC has investigated IP issues in the online marketplace in detail and offers 

the following conclusions: 

• Shopping on an illicit website can create vulnerabilities to malicious 

computer viruses. Even brief contact may expose consumers to 

prolonged risk of identity theft and other cybersecurity threats from 

criminal entities. 

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• While some platforms have begun working with the private sector to 

adopt swift takedown procedures and information sharing, more 

improvements are needed. 

• Online retail platforms can continue to simplify processes for rights 

holders to register and request enforcement action; reduce timelines for 

takedowns; offer rating systems to the public to track seller history 

including IP violations; monitor high-risk sellers closely; suspend repeat 

offenders; and issue penalties for sellers of counterfeit goods. 

• Recently, many online retail platforms have instituted brand registry 

programs to allow for a direct line of communication between the 

platform and the brand owner. However, these programs still present 

challenges to brands when they try to enforce their rights efficiently. 

When thousands of listings are suspected to be counterfeit on a single 

online retail platform, it is burdensome to individually enforce on each 

listing without a streamlined process. 

• Online retail platforms can work to make important information 

available to consumers and rights holders alike. Platforms could offer 

details to consumers, such as seller information, seller history, seller 

reviews, and clear product photos and specs. 

• Platforms could also offer information to brand owners, including 

listings that have been proactively and reactively removed, account 

information of sellers that have been suspended or banned from the 

platform, and the account information of repeat infringers. Automated 

tools, algorithms, and machine learning can be effectively used to 

proactively, and without many resources, address shortcomings in 

information sharing and prevent future bad actors from selling 

counterfeits on individual online retail platforms. 

Patent 

Patents are obtained through an application to the U.S. Patent and Trademark 

Office. The wording of the claims can determine whether the patent is granted 

or not and, if granted, they define the scope of the patent. It is highly advisable 

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to seck professional legal counsel for a patent application, and the fees over the 

course of the life of the patent are thousands of dollars. 

Digital tools are helping scientists in cutting edge fields like biopharmaceutical 

research to produce new and better treatments. These tools can cost upwards 

of $2 billion to develop and bring to market, so patent protection and ancillary 

laws and regulations that provide for an adequate time of market exclusivity are 

critical to maintaining the innovation life cycle. 

Computer hardware and software are also highly patent-intensive. While this 

has led to major litigation battles among industry giants, patent protection 

remains critical for small business. One need only to turn on an episode of 

"Shark Tank" to hear the prospective investors ask again and again, "Do you 

have a patent on that?" 

Businesses of all sizes benefit from a strong patent system that is characterized 

not only by predictability and consistency, but also by enforceability, all of 

which lead to confidence in patents, deterrence of infringers, and enhanced 

levels of innovation by both small and large enterprises. 

Conclusion 

As I have noted, the digital economy has created tremendous opportunities for 

small business owners to succeed, and is a source of economic growth and job 

creation that has transformed the ways companies conduct their business and 

consumers purchase goods. 

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IP can play a key role in helping small businesses succeed, both in the 

traditional marketplace and in the online ecosystem. To be successful, it is 

imperative that small business owners gain a fuller understanding of how IP 

relates to their specific business models and how they can protect themselves 

from those who would steal their products and customers. 

I strongly urge small business owners to go to the IP sections of the Small 

Business Administration, U.S. Patent and Trademark Office, and U.S. 

Copyright Office websites for a wealth of information that may literally help 

determine whether these enterprises are destined to fail or become the next 

Apple or Nike. 

I want to thank the Committee for this opportunity to testify and stand ready 

to answer any questions you may have. 

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Testimony of 

Morgan Reed 

President 

ACT I The App Association 

Before the 

U.S. House of Representatives Small Business Committee 

"Innovation Nation: How Small Businesses in the Digital Technology Industry Use Intellectual Property" 
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Small mobile software companies like App Association members use a variety of intellectual property {IP) 

protecttons to produce the innovations that keep us safe, rnake us more productive, and enhance our lives. Too 

often, we think of small software companies as victims of over!y~aggressive IP enforcement, rather than as !P 

holders themselves. But !P ownership is essential to success and innovation in the digttal economy. As our 2018 

State of the App Economy report reveals, the app economy is a $950 billion industry that employs more than 4. 7 

mil!1on Americans and reaches 3.4 billion peop1e with connected devices across the world.' As mobile access 

shifts from a value~add to a business necessity, our member companies are leveraging their IP-their patents, 

copyrights, trademarks, and trade secrets-to introduce new efficiencies that connect inventory management to 

sales departments, cash registers to the cloud, and provide the analytics and artificial intelligence that make rt all 

work better. 

We are fortunate to have an active feedback loop with many of our member companies across the congressional 

distncts you represent, and we recently conducted a survey of them to gain insight into the meaning of lP in the 

hypercompetitive app economy. Thls survey yielded some interest1ng results, including experiences and ins1ghts 

to which I wi!! refer throughout this written testimony. We found that most of our members own !P, and the issues 

they encounter have more to do with infringement of that IP than with potential infringement of others' rights. 

Simply put IP is usually at the forefront of our members' minds. Whether they're deciding whether to file for a 

patent, addressing their work being copied in a fore1gn country, with a cybersquatter, or being hit with 

a patent 1nfringement allegation, it is vitally important that the American system be accessible and useful to 

small, innovative, software-driven companies. We offer several observations about tho state of IP protections and 

recommendations for how those protections could be strengthened. 

In general, federal law provides copyright protection to software as written works.: Because copyright need not be 

granted by a federal agency. copyright is the most common form of protection our member companies use. Even 

though copyright automatically protects their work, many of our members have opted to take the additional step 

to register 1L The App Association continually reinforces to our members the importance of fully protecting !P rights 

through proactive registration of copyrights. App Association members have taken this to heart, registering various 

kinds of works. Of the member companies that say they registered at least one copyright just under half of them 

registered their code, a litHe loss than a quarter registered a graphic, and tho rest registered other kinds of written 

work. 

infnngement can into question whether copying a fret~ app is really theft. Some of U1em have 

sim1!arly argued if a developer wants to avoid copyright infringement, the app should be provided for free in 

the app store, This way, they argue, nothing is lost if it's copied. and infringers have no incentive to copy it in U1e 

first place because it is free. Nothing could be further from the truth. Our members are no strangers to copyright 

tnfnngoment, even when they offer the1r content tor tree to !ogit1mate consumers. The theft ot froe content happens 

so many are left to believe the phrase "free is not cheap enough." In a particularly egregious 

member faced had a pirated copy of its free app downloaded 

t!1ousands of times by foreign consumers. Many may believe an download of a free app IS tlarm!ess, but this 

1's simpty untrue. The revenue from this member's app-and that of other free apps-depended on an ad network. 

In this instance, the piro.ted app successfully posed as the legitimate app to the ad network. and all the ad revenue 

assoc1ated with the downloads of n1e pirated content was illegally routed to the Infringing company. What's worse, 

our member's app included a video component, so each of the views-even those generated by the pirated 

app-added to our member's hosting service bilL In short, a foreign pirate stole our member's legitimate content, 

resulting in it a substantial portion of its ad revenue wh!le forcing it to subsidize the pirate's business. Sadly, 

this scenario is too cornrnon, 
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Fortunately. industry-led efforts to curb t11e practice 

are producing results. The Trtlstworthy Accountability Group has developed certification 

companies throughout the digital advertising supply chain designed to help industry collectively ad-supported 

piracy, as we!! as to combat ma!ware, stop ad fraud and increase transparency.;' The TAG Certified Against Piracy 

Program not only recognizes the IP thef1 problem, but effectively addresses the harms that come with such 

IP theft. Research conducted by Ernst & Young (E&Y) in 2017 found that anti-piracy steps taken by the digital 

advertising industry through the TAG certification have reduced ad revenue for pirate sites by between 48 and 61 

percent. notable progress against E&Y's earlier finding ot the $2.4 billion problem of lnfrlngtng content. 

Webs1tes and apps that host pirated content often do so to lure people with free content to infect their devices or 

computers with ma!ware, The malware then enables the copyright pirate to hijack the user's device to make it chck 

certam links or ads, send sensitiVe data, or perform other functions as part of a "botnet" network, The problems 

are so intrinsically linked that about one in three websites that host pirated content successfully infect the web 

VISitor's computer with malware. Put another way, internet users are 28 times more Hkely to encounter malware 

from sites with pirated content '

1 

In other cases, bad actors use fraudulent ads posing as legitimate ads to implant malware directly onto a user's 

computer, a practice known as ~ma!vertis!ng. ··Although th1s so~ca!!ed ''Invalid traffic" (!VT) has historically been 

more prevalent on desktop displays than mobile platforms, we the migration of the threat as our interconnected 

world continues to move to mobile has substantially occurred, Research measuring the efficacy of TAG's Certified 

Against Fraud Prograrn has shown that, among TAG-certified ad distribution channels, the IVT rate fell 83 percent. 

to just 1.48 percent for display ads. while the ;ndustry average outside of TAG-certified channels is about 8.83 

percent" 

As part of TAG's continued fight against ad-supported piracy, it l1as compiled a continually updated list of pirated 

mobile apps that advertisers should avoid. TAG certification programs are important private sector initiatives that 

inspire confidence in the cornpan1es that depend on ad revenue to survive and grow. For consumers, successful 

industry-led efforts like this are vital to inspire trust in the mobile ecosystem. 

In yet another example, a European app developer copied one of our American member's educational apps 

almost exactly, but they made a few m1nor alterations to avoid an infringement claim. The App Association 

assisted with the company's initial ou\reach to the infringing but the 

continued to sell its app. Ultimately, our member raised the Store platfoml. The platform 

helps companies resolve !P disputes under its terms of service which require an app pubhsher to attest to owning 

or licens1ng relevant IP to publish their app in the App Store.6 It was clear that the infringing company was in the 

wrong, and Apple barred its content from the platform. We were happy to help our member navigate the process 

and avoid costly litigation. And this conflict offered a learning experience for our other members. as we b!ogged 

about the process and shared tips and best practices for other software companies that encounter this kind of 

copyright infringement. 

dispute resolution functions provided by platforms !ike Apple's are essential to help small business innovators 

reach a resolution without incurnng devastating legal costs. Ensuring the infringer does not reappear with similarbut still infringing-content under a different name is often a difficult problem for platforms to solve, and thankfully 

!here is robust competition between platforms on these kinds of services for app developers. 
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Copyright intnngernent 

example, Representatives Jeffries and Torn Marino introduced Small Claims 

Enforcement Act of 2017 (CASE) Act this congress, which would establish a small claims court at the Copyright 

Office owners' infrfngement claims. For small businesses, the dollar amounts in copyright claims 

are often low. would offer a less resource intensive avenue for copyright enforcement t!1an t11ose 

avflllable through the court system. 

In gHneral, the most dlfficult-to~reach infringers are overseas in jurisdictions that struggle with the rule of law, which 

enables pirates to hone their pirating skills through tria! and error in app stores and websites without having to 

deal with law enforcement. A small claims option in the United States would help alleviate the cost burdens for 

infnngement that occurs domestically, but it might not address the problem of reaching infringers overseas, The 

App Association actively supports the development of b!latera! or multilateral agreements to 1ncentivize foreign 

JUrisdictions to develop and implement responsible IP enforcement mechanisms, We urge this committee to 

examine ava1!able resources for small businesses to enforce copyrights overseas and evaluate whether these 

resources could be enhanced or streamlined. 

Roughly one in three App Association members have filed or been granted patents for software or hardware. 

Although copyrights are common and useful in the software context, they provide narrow coverage, 

only the precise written software code. A patent, on the other hand, would cover the actual functions of a 

program. For example, one of our members has a pending patent application for machine learning routing for web 

and mobile applications that relies heavily on JavaScript. Another member has patented an automated device 

registration system that has "laid for the internet of things (loT] industry," as highlighted in 

our recent blog commemorating the U.S. and Trademarl< Office's (USPTO) 10 millionth patent.' The CEO 

of another App Association member company owns a patent for technology that facilitates vehicle-to-vehicle 

cornmunication, Our members rely on a wide variety of patents-and their utility beyond copyright protectionwhich speaks to the importance of patent protection for small, software-driven companies in the mobile economy. 

Though patents have great nnportance to our members, many have encountered difficulty navigating the USPTO's 

patent application process. Delays tn prior art reviews are frustrating, and our members often recount the difficult 

decision-making process when trying to determine whett)er to protect novel Inventions by patenting them. The 

costs are great, particularly for software patents. According to !PWatchdog, attorney fees a software 

patent can reac!1 of $16,000, while a "relatively simple'· invention like an umbrella costs 

between 

Notwithstanding the resource issuAs involved with applying for patents, we also believe that any effort to 

streamline application processes should avoid comers. In other words, efforts to make reviews faster 

should not sacrifice the quality of the patents grants. Policyrnakers are now dealing with the fallout 

of improperly granted patents and the resources that need to be put toward improving the quality of patents. 

TI1e USPTO must strike a difficult balance in improving patent quality while maintaining reasonably expeditious 

oxaminations. 
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The existence of overly broad patents has been the most Issue for small software-driven companies 

when defending against patent assertion. Therefore, we it is important to preserve the method to invalidate 

patents that should never have been Tho American Invents Act of 2011 established post-grant review 

processes that are important to mobile software companies' ability to challenge such patents. 1::: The Small 

Business Committee could weig!l in-or ask the Small Business Administration to weigh in-on behatf of 

small businesses in discussions to significantly change the inter partes review process. The !PR process 

has been a useful and important means of reviewing the validity of patents that are overly broad and weaken the 

patent system for both JP !lo!ders and licensees. 

are extremely Important to small software companies in the mobile economy. 

MPEG, and USB are necessary for the networks, programs, and devices App 

Association members use to reach thelr customers and clients. When members of standards-setting organizations 

(SSOs) work to have their patented technologies adopted as part of a standard, they must clearly state that they 

own patents on the technologies before a consensus technical standardlzatJon comrntttee decides whether to 

incorporate it into the standard. Once accepted, the technology is potentially a standard~essential patent {SEP), 

In other words, any company that wants to make an innovative product or service using a standard must license 

those patents, or risk liability for infringement. SSOs also require SEP owners to license their SEPs on tem1s that 

are "fnir, reasonable, and non-discriminatory (FRAN D)" to any willing licensee. These crucial offset the 

inherent anticompetitive issues associated wit!l the ability to demand licensing royalties from 

Wldely~accepted standards like Wi~Ft. We believe SEP owners would otherwise be free to abuse their posit1on by 

"holding up" standards implementers' ability to use the standard by leveraging the necessity ol the standard to 

charge supra-competitive license fees, clearly antitrust concerns. Without transparency in standardization 

processes and without the FRAND commitment abusive licensing activity has and will continue to occur 

in the marketplace. The vigilance of U.S. antitrust authorities !n this regard is essential to ensure unfair licensing 

practices by SEP owners do not harm consumers and the small businesses that create the mobile software 

products and services they want and need. 

The App Association has long advocated for policymakers around the world to uphold the existing global 

consensus that antitrust authonties hold SEP owners to their voluntary FRAND promises, as a matter of 

competition policy. The App Association has even created a separate coalit1on called All Tl1ings FRAND (ATF), 

wt)ich has a steenng committee of tech 1nnovators directly impacted by FRAND abuse, 11 and ATF works closely 

w1th other affected industries. 1

:: The coalition reflects the sheer breadth of industries that care about the strength of 

standards, from software companies and tech manufacturers to tcch~driven automotive companies and retailers. 

In fact, auto companies are some of the largest patent owners and standards irnplementers in the world, The 

United States and countries around the globe maintain robust competition oversight of SEP licensing practices. 

In recent months. there have been signals that a new approach could be forthcoming, in wt1ich SEP owners are 

no longer held to their FRAND promises. lt is especially important for smaH businesses that U.S. compet1tion 

authorities continue the global consensus approach, because small businesses are the least able to pay exorbitant 

licensing fees for their software or hardware to run on a standard. This committee could examine opportunities to 

ensure small business voices are heard in standards policy and ongoing SEP debates. 
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Trademarks are important to our member companies' brands. respondents say they've 

registered a tradernark. Our members are cutting-edge creators find new ways to turn mobile connectivity 

into entertainment and productivity, and they work hard to build their brands and protect the image they share 

wlth consumers. lt is on!y natural that bad actors want to appropriate the success of our members' businesses 

through brand confusion. The App Association works with our members to advance their understanding of 

trademark rights and to encourage their trademark registration before a problem arises. We activefy engage in 

key international policy lora like the Internet Corporation for Assigned Names and Numbers (ICANN) to ensure our 

members can protect themselves in the global digital economy. 

Trademarks are uniquely important in the cybersquatting context. Cybersquatting refers to a situation where a 

cornpany has trademarked the narne of its brand, but an opportunistic actor-a purchased 

the domain name associated with the trademark, The cybersquatter then the domain name to 

the legitimate trademark owner at a grossly inflated price. More than 75 percent ot our members who own a 

trademark have also experienced a domain name trademark issue !ike cybersquatting. !n fact many of our suNey 

respondents said they have experienced multiple instances of cybersquatting. They sought resolutions in various 

ways. from hiring a lawyer and a costly complaint ICANN to sirnply pay1ng the inflated price. But 

unfortunately, in some cases, issue was not resolved. 

Cybersquattlng and other domain name system (ONS)·based trademark continue to create serious 

problems for our member companies. We encourage thls committee to resources, outreach, and 

dispute resolution assistance available to small businesses in their efforts to protect their brands online. Our 

members remain a common target for cybersquatters, and there may be ways for this committee to level the 

playing field lor small software companies. 

The global nature of the internet has connected our members with consumers and markets they wouldn't have 

dreamed iust a short time ago. However, this global reach has also enabled IP theft to occur anywhere 

in tho world at For this reason, one of the most important met11ods for !P owners to track and confront 

Jnfnngers is t!1rough the global databases of contact information, or the WHO!S database, which ICANN oversees. 

As <:1 member of ICANN's Intellectual Property Constituency (IPC}, we represent the views of App Association 

members as IP owners. 

The WHOIS database is crittcal parties to contact the owners of website domains. The reasons for 

contacting doma1n registrants go beyond For example, enforcement agencies use the database 

to confront companies suspected of violat1ng ant1trust. consumer protection, or drug interdiction laws. Other 

cnt1ttes use WHO!S data to contact the legitimate owner of a domain if it has been h1jacked or if there is a 

technical issue with the site. Unfortunately, with implementation of the European Union's General Data Protection 

Regulation (GDPR) U1is May, many groups publication of WHOIS data violates GDPR's 

prohibition against processing personal1nformation. ICANN is attempting to develop a GDPR-cornpliant 

means to ensure continued access to non~pub!ic WHO!S data, the European Data Protection Board responsible 

for enforcing GDPR has informed ICANN that its interim plan is not compliant with the law.~:> Po!icymakers should 

know that ICANN is working toward a solution that is fully GDPR-compfiant and should consider options to help 

!CANN meet its obligations while ensuring WHO!S remains useful for the enforcement of !P owners' rights. 
39 

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Our members rely on a diversity of IP protections, fmm trademark and copyright to patents and trade secrets, 

l commend the House Small Business Committee for holding this hearing to examtne the ways in which small 

businesses in the digital technology field use !P to su1vive and grow. Smartphones have become the single most 

rapidly adopted technology in the history of the world, but the success, growth, and utility of this mobile-driven 

phenomenon depends on the small businesses that create new front1ers of opportunity. We must 

utili:ze every means to protect ingenuity and the Ideas that wiU drive these innovations in the future. 

· http://actonline.orglwp-content!uploads! ACT _20 18-State-of-the-App-Economy-Report_ 4.pdf. 

https:!/www.copyright.govihelplfaq/faq-protecthtml. 

J vJvvw.tagtoday.net 

1 https://w\.vw.digitaldtizensa!Hance.org/c!Jentup!oadsidirectory/Reports/digitalbait.pdf. 

https://docs.house.gov/meetings/IFIIF17 120180614/1 08413/HHRG-115-IF17-Wstate-ZaneisM-20180614.pdi. 

"Apple's policy for developers: https:l/develooer.apple.comlapp-store/review/guidelinesl#intellectual-property: 

Apple content review complaint portal: https://www.apple.com/!egaVinternet-services/itunes/appstorenotiCesl#?lang=en. 

http:1 /actonline.org/2017/08/30/omg-someone~copied-my-app-what -do-i-do-now/. 

~ htip:l /actonline.org/2018/06/19/patent -miUion-ce!ebrating-ten-mi!!ion-idens-and-the-importance-of-1ntel!ectual-property/, 

'http:i/www.ipwalchdog.com/2015104/04/the-cost-of-obtaining-a-patent-in-the-uslid~564851, 

'' Pub. L No. 112-29. 

https://allthingsfrand.coml. 

.,. http://actonline.orglwp-contentluploads/05302018_Multi-Assn_DOJ-SEP-White-Paper _FINAL pdf 

·-1 https:!/www.icann.org/en/system/fi!es/correspondenceije!inek-to-marby~ 11 apri B~en.pdf. 
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SIIA Accelerating Innovation in 

Technology, Data & Media 

Statement of Christopher A. Mohr 

Vice President for Intellectual Property and 

General Counsel 

Software and Information Industry Association 

Before the House Committee on Small Business 

July 11, 2018 
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I. Introduction 

Mr. Chairman, Ranking Member, and members of the 

Committee, on behalf of the Software and Information Industry 

Association (SIIA) and its members, thank you for this opportunity 

to testify before you today on the benefits of the intellectual 

property. 

SIIA is the principal trade association of the software and 

information industries and represents over 800 companies that 

develop and market software and digital content for business, 

education, consumers, the Internet, and entertainment. SIIA's 

members range from start-up firms to some of the largest and most 

recognizable corporations in the world, and one of SIIA's primary 

missions is to protect their intellectual property and advocate a 

legal and regulatory environment that benefits the software and 

digital content industries. SIIA member companies are market 

leaders in many areas, including but by no means limited to: 

software publishing, graphics, and photo editing tools; 

corporate database and data processing software; 

financial trading and investing services, news, and 

commodities exchanges; 

online legal information and legal research tools and; 

newsletter, journal and educational publishing. 

I am here today to talk about the many small businesses 

who are members of SIIA. Some are what you would consider pure 

"software companies." Others are publishers that have or are 

transitioning from a subscription and paper model to a digital 

model. In many respects, these businesses were, are, or are 

gradually becoming technology companies. 

Small businesses depend on a sound and uniform 

intellectual property system. And I am happy to say that that 

system exists. According to the Patent and Trademark Office's most 

recent studies, intellectual property-intensive industries accounted 

2 
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for 27.9 million jobs and over 38 percent of GDP. 1 Those working in 

these industries earned wages roughly 46 percent higher than those 

in non-IP intensive areas. 2 And fixed investment into intellectual 

property products is decidedly on an upward slope: 

In 2015 alone, R&D investments in the software and internet 

industry grew faster than any other industry: "[s]oftware & 

Internet [R&D spending] grew at over 27%, far greater than the 

growth of all other industries from 2014 to 20 1~."' And that 

spending is increasing as a percentage of R and D generally, from 

U.S. Patent and Trademark Office, Intellectual Property and the 

U.S. Economy: 2016 Update, at ii (20 16), available at 

See id. 

3 
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15% of total R&D spending in 2010 to 24% in 2020.4 Companies 

that reported faster revenue growth than their competitors 

allocated more R&D investment to software. 5 That same positive 

trajectory is on the startup side as well: since 2014, venture capital 

funding for startup software and internet companies is up by 88% 

compared to the three years prior. 6 And in 2016, venture capital 

raised $41.6 billion for startups, the highest amount in 10 years. 7 

The picture of the American IP system is a resoundingly 

healthy one. Rand D, venture funding, startup activity and even 

the number of patent filings have been on a steady climb since 

2012.8 Current law both incentivizes innovation and creativity and 

protects brands and competitive advantages from unfair 

competition. 

In what follows, I will lay out an overview of the four kinds 

ofiP that SIIA members primarily rely on: patents, copyrights, 

trademarks, and unfair competition. We hope to give you some 

flavor of how those rights help our businesses grow from small ones 

to large ones. 

4 (PWC. 2016 Global Innovation 1000. October 2016). 

5 PWC, 20lf:i Global Innovation 1000, October 2016. 

6 PwC I CBinsights MoneyTreeTM data explore, available at 

http://www.pwc.com/moneytree (showing that U.S. VC funding for 

internet and software companies totaled $55.13B for Q2 20 11-Q2 

2014; funding for Q3 2014-Q3 2017 totaled $104.22B). 

7 (2017 NVCA Yearbook). See also Patent Progress, Innovation is Alive and 

Well, h ttns://www .natentnrogress.org/20 li-1/02/08/innovation-a live-we 11-rd/. 

8 High Tech Inventors Alliance, Innovation is Thriving, available at 

https://does. wixstatic.com/ugd/3929b0 7 'ic 7 46db8e9e4cf9attl742lbb6 Hee02. 

ruJJ. 

4 
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I. Patents and Copyrights 

The patent and copyright laws emanate from the grant of 

power in Article I, Section 8, clause 8 of the Constitution, which 

permits Congress to establish exclusive rights to authors and 

inventors for limited times. The Founders included that provision 

for two reasons: first, to unleash innovation by creating incentives 

to invent and create; and second, to create those incentives in a 

uniform fashion-in the words of the Federalist papers, "The states 

cannot make effectual provisions for either of the cases [patent or 

copyright]". 9 In other words, the Founders (as well as the 

Congress) envisioned a free-market system where everyone 

operated within the same, uniform set of rules. 10 The calibration of 

particular policies, however, is Congress's task, and it has executed 

that task admirably. 

A. Patents 

Congress passed its first patent law in 1790--one year after 

the Constitution was ratified. 11 At that time, an inventor would 

apply to the Secretary of State (Thomas Jefferson), the head of the 

Department of War (Henry Knox) and the Attorney general 

(Edmund Jennings Randolph) for a patent for their invention. 12 If 

the invention contained something new and useful, the inventor 

could exclude others from making, using or vending the invention 

for a period of fourteen years. 13 In exchange, the patentee had to 

disclose his invention to the public. 

The Secretary of State no longer examines patents. Times 

have changed. Nonetheless, our modern statute still contains the 

basic outlines of that first effort in the sense that there is an 

9 

10 

11 

12 

13 

The Federalist No. 43 (Madison). 

E.g., 17 U.S. C. §§ 106; 504; 35 U.S.C. § 271. 

Patent Act of 1790, 1 Stat. 109 (1790). 

ld. § 2. 

Id. § 1. 

5 
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administrative application process-though a much more complex 

one-followed by a patent grant from the executive branch. 14 And it 

still represents a quid pro quo: the inventor discloses the workings 

of a process or device in sufficient detail to enable a person skilled 

in the art to make and use the invention once the patent has 

expired.15 That same disclosure and drafting warns those in a 

particular industry of the exact boundaries of the patent grant. 16 

Once the term of the patent-now 20 years-expires, those in the 

art are free to use the invention. 17 

Patentable subject matter consists of technological 

contributions except for abstract ideas, laws of nature, and natural 

phenomena. 18 The light bulb, prescription drugs, sewing machines, 

telephones-all of these were the subject of patents obtained 

through the same general process. An applicant applies for a patent 

grant by submitting his proposed patent to the U.S. Patent and 

Trademark Office. That application includes relevant prior art, a 

description (explaining how the invention works and why it's 

worthy of protection) and claims that describe the scope of the 

exclusive rights which the inventor is claiming. 19 There are certain 

14 See generally Oil States Energy Servs., LLC v. Greene's Energy 

Grp., LLC, 138 S. Ct. 1365 (2018) (describing the evolution of the 

examination process). 

15 E.g., Universal Oil Prod. Co. v. Globe Oil & Ref. Co., 322 U.S. 471, 

484, 64 S. Ct. 1110, 1116, 88 L. Ed. 1399 (1944). 

16 See id; see also generally Johnson & Johnston Assocs. Inc. v. R.E. 

Serv. Co., 285 F.3d 1046, 1052 (Fed. Cir. 2002) (describing the role of the 

patent claims). 

17 35 U.S. C. § 154. Design patents, which provide protection for 

ornamental features and not functionality, last for fourteen years. 

18 Alice Corp. Pty. v. CLS Bank Int'l, 134 S. Ct. 2347, 2354, 189 L. Ed. 

2d 296 (2014). 

19 See 35 U.S. C.§ 111; see also generally 1 Moy's Walker on Patents§ 

3:5 (4th ed.) (describing what must be put in a patent application). 

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limits-the invention cannot, for example, be obvious to one skilled 

in the art, and it is the PTO's job to ensure that the applicant's 

invention was not anticipated by what had come before.2o And 

there is sometimes a back and forth between examiner and 

applicant, the extent of which varies by case.21 The result of that 

process is the right to exclude others from making, using or selling 

a particular invention. 22 

For well over two centuries, the courts, Congress, and the 

Executive branch have administered this system, with Congress 

passing the laws, the Executive deciding whether patents should 

issue, and the courts determining infringement. While many of the 

substantive doctrines that exist today bear great similarity to those 

that existed at the time of the Founding, the administrative 

practice has greatly changed. In 1790 and 91, there were only 36 

patents granted. 23 In 2015, there were 629,647 patent applications 

20 E.g., 35 U.S.C. § 103 (stating that a patent may not be obtained "if 

the differences between the claimed invention and the prior art are such 

that the claimed invention as a whole would have been obvious" to a person 

of ordinary skill in the art). 

21 See generally 1 Moy's Walker on Patents§ 3:2 (providing short 

overview of the application process, and an estimate). 

22 35 U.S.C. § 27l(a). 

23 U.S. Patent and Trademark Office, U.S. Patent Activity, 1790 to the 

Present, available at 

https://www.uspto.gov/web/offiees/ac/ido/oeip/taflh counts.htm. Statistics 

on the number of applications 

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filed. 24 In that same year, over 300,000 patents were granted, and 

there are over 2,000,000 patents currently in force. 25 

Making sure that such a large volume of applications meets 

the statutory requirements represents an enormous administrative 

challenge. Examiners can spend on average only 19 hours 

examining each application through, including the initial review 

and the back and forth with the applicant. 26 Patent applicants are 

not required to look for prior art and bring it to the examiner's 

attention. Despite this, the Patent Office must grant the 

application unless it can prove that the claims do not meet the 

statutory requirements.27 

The task becomes much harder during a period of rapid 

technological change. In the early 2000s, the explosion of digital 

technology resulted in a flurry of bad patents that never should 

have been issued, especially in the areas of computer software and 

networking technology. Many of these covered abstract business 

methods are performed on a computer system or the Internet. That 

flurry of poor-quality patents resulted in a form of litigation abuse 

called patent trolling: a case in which a person buys a low-quality 

patent-such as claiming the exclusive right to settle financial 

transactions with a "data processing system"-threatens litigation 

24 U.S. Patent and Trademark Office, U.S. Patent Statistics Chart 

Calendar Years 1963-2015, available at 

https://www .llSpto.gov/web/offices/ac/ido/oeipltaflus stat. htm. 

25 See generally Dennis Crouch, The Number of US Patents in Force, 

Patently-0 https:/ /pa tt' ntlvo.com/patonL/20 14J l 0/number-paten tsforce.html; 

26 Frakes, Michael D., and Melissa F. Wasserman. Is the time 

allocated to review patent applications inducing examiners to grant invalid 

patents? Evidence from microlevel application data, Review of Economics 

and Statistics 99.3 (2017): 550-563. 

27 Oil States Energy Services, LLC v. Greene's Energy Group, LLC et 

al., 584 U.S._ (2018) (No. 16-712 ), Br. for Intel et al. as amici curiae in 

support of respondents, at 29-32. 

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and settles for less money than it would cost to determine the 

patent's validity through the trench warfare of federal litigation. 28 

Small business and startups in the tech sector were 

especially hard hit as they attempted to establish businesses with 

an Internet presence.29 At the height of the litigation epidemic, 55% 

of unique defendants had revenues of $10 million or less. 30 This is 

not surprising because small businesses are less able to take on the 

burden of fighting bad patents in litigation. As academic studies 

have reported, patent litigation, even the threat of litigation, and 

the pressures to negotiate a settlement, can have severe negative 

impacts on small businesses. 31 

28 Alice Corp. v. CLS Bank Int'l, 34 S. Ct. 2347 (2014). 

29 See Appel, I., Farre-Mensa, J., & Simintzi, E., Patent Trolls and 

Small Business Employment. Harvard Business School (20 17), available at 

https://papers.ssrn.eom/sol3/papors.cfm?abstraet id=2887104. Bessen, The 

Evidence is in: Patent Trolls Do Hurt Innovation, Harvard Business 

Review, (Nov. 2014), available at https://hbr.org/2014/07/the-evidence-is-inpat.ent-trolls-do-hurt-innovation; Bessen & Meurer, The Direct Costs from 

NPE Disputes, 99 Cornell L. Rev. 387 (2013), available at 

h t.tps://sc hol a rsh ip .law. com ell. eel u/ cgilviewcontent. cgi ?refere r= https://www. 

goog1e.com/&httpsredir=l&article=4620&context=c1r; Cohen, L., Gurun, U., 

& Kominers, S.D. Patent trolls: Evidence from targeted firms. National 

Bureau of Economic Research, (2014) (No. w20322), available at 

h~tps://pdfs.semantie8cholar.org/Gbbe/l912f1820afab07cdlba24ec119e2efe92 

20l.pdJ. 

30 Chien, C., Patent Trolls by the Numbers , available at 

https://digitalcommons.law.seu.edn/egi/vieweontent.egi?referer=ht.tps://www 

.google.eom/&htt.psredir=l&artiele=H)lO&context=facpubs. 

31 See Chien and Feldman, R. (2013), Patent demands & startup 

companies: The view from the venture capital community, 16 Yale J. L. & 

Tech. 236 (2013); Bessen, J., Ford, J., & Meurer, M. J. The private and 

social costs of patent trolls. 34 Regulation 26 (2011), available at 

http://www.bu.edu/law/workingpapers-archive/documents/bessen-fordmeurer-no-ll-115rev.pdf. 

9 
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Congress responded by passing the America Invents Act, 

legislation designed "to establish a more efficient and streamlined 

patent system that will improve patent quality and limit 

unnecessary and counterproductive litigation costs."32 The creation 

of an inter partes review (IPR) proceeding was a centerpiece of that 

reform effort.33 Although not as expensive as years of fighting in 

federal court, they are not cheap-the average cost of bringing a 

proceeding has been estimated as the low-to-mid six figures.34 By 

Congressional design, the procedure requires that the petitioner 

front-load the substance of its case at the petition stage, acting as a 

deterrent against frivolous petitions. These proceedings balance 

the patent law's incentives and the need for certainty against the 

strong federal policy that unpatentable inventions belong in the 

public domain. SIIA strongly supports the both AIA's inter partes 

procedures, the continuing evolution and clarification on patent 

subject matter eligibility by the Supreme Court and the cumulative 

goals of improving patent quality to strengthen the U.S. Patent 

system. 

A high·quality patent, defined as a patent that meets all the 

statutory requirements, is the sine qua non of a healthy patent 

system. The largest drain on innovation that our members face is 

32 H. Rep. No. 112-98 (part I), at 40 (2011). 

33 Id. at 39 ("The decisions reflect a growing sense that questionable 

patents are too easily obtained and are too difficult to challenge. Recent 

decisions by the Federal Circuit reflect a similar trend in response to 

these concerns. But the courts are constrained in their decisions by the 

text of the statutes at issue. It is time for Congress to act.") (internal 

footnote omitted); 35 U.S.C. § 321(c), 311. 

34 Rational Patents, Blog, IPR: Effectiveness vs. Cost (June 17, 

2016), available at https://www.rpxcorp.com/2016/06/17/iprs-ba1ancingeftectiveness-vs-cost/. 

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litigation abuse from non-practicing entities. 35 Despite some 

progress from recent court decisions and the AlA, our members still 

receive threats on highly suspect patents. 

This activity remains a problem, and there is little return to 

the innovation ecosystem. Roughly half of the patent suits filed are 

filed by trolls, 36 and the mean legal cost of defense for small and 

medium size businesses is estimated to be at about $420,000. 37 A 

recent survey of U.S. business fond that "Patent licensing demands 

almost never result in technology transfer or new innovation in the 

computer industry, particularly when NPEs are doing the 

asserting." 38 In contrast, when such demands come from operating 

companies, computer industry representatives are willing to change 

their products or create new ones. 39 And ironically, there is 

evidence that the threat tends to come right at the point when a 

35 The behavior of these entities is well-summarized by the FTC. See 

generally Federal Trade Commission. Patent Assertion F~ntity Aetivitv: An 

FTC Studv, at 3-5 (2016). 

36 See Feldman, Robin and Lemley, Mark A. "The Sound and Fury of 

Patent Activity," Stanford Law and Economics Olin Working Paper No. 521 

n. 16 and accompanying text (citing, inter alia Christopher A. Cotropia et 

al., Unpacking Patent Assertion Entities (PAEs), 99 Minn. L. Rev. 649, 651-

52 (2014); Robin Feldman et al., The AlA 500 Expanded: The Effects of 

Patent Monetization Entities, 17 U.C.L.A. J. Law & Tech. 1, 37 (2013).). See 

also generally Colleen V. Chien, Patent Trolls by the Numbers (Santa Clara 

Univ. Legal Studies Research, Working Paper No. 08-13, 2013), 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2233041. 

37 Feldman, Patent Demands and Initial Public Offerings, 19 Stan. 

Tech. L. Rev. 52, 56 (2015) available at 

https: I /repositorv. uchas tings .eel u/ egi/viewconten t .c:gi? referer=&h t tpsredir= 1 

&article=2·117 &c:ontext=facultv scholarship. 

38 Feldman, Robin and Lemley, Mark A. "The Sound and Fury of Patent 

Activity," Stanford Law and Economics Olin Working Paper No. 521 at 

(2018) at 6, available at 

.h.ttnEiJ/Ii.iill.e.t:?. •. B.:?.rn.<::mn/~QJ:?.fwmet·§,G.fm?.?..bf:!tr?&:Lid=.::;lJ~!i?.HB.I?). 

39 See id. at 51. 

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small business is about to expand and at one of its most vulnerable 

points-when it's seeking to enter the public capital markets. 40 

Despite the overall healthy picture of the software business, troll 

activity represents a tax on innovation. That tax is obviously a 

problem for large businesses but is an even bigger one for small 

ones. 

SUA fully supports efforts to improve patent quality. Mr. 

Chairman, we commend you for helping to ensure that the PTO has 

the tools to do its job and maintain patent quality. SUA supports 

your legislation, the BIG Data for IP Act, (H.R. 5887) which ensures 

that the PTO keeps control over collected user fees, and will help 

the PTO give examiners access to more prior art. This kind of 

bipartisan, practical approach to legislation will only improve and 

strengthen our intellectual property system. At the same time, 

SUA strongly opposes proposals, such as the STRONGER Patents 

Act (S.1390/H.R. 5340) and the recently introduced Restoring 

America's Leadership in Innovation Act (H.R. 6264) that would roll 

back both Supreme Court decisions and the advances made through 

the AIA. Both would eviscerate the IPR process right and the 

Supreme Court's advancements to the patent system at the time 

when they are showing some success in improving patent quality 

and lowering the amount of NPE litigation. 

B. Copyright 

If a healthy patent system represents the engine of 

invention, then copyright is the engine of expression. Like its 

patent cousin, the copyright system is firing on all cylinders, and its 

40 See Robin Feldman, Patent Demands and Initial Public Offerings, 

19 Stanford Tech. L. Rev. 52, 54 (2016) (noting that the author's "results 

provide evidence of a tactical strategy among monetizers to pursue demands 

against companies during one of the most public and vulnerable periods of a 

company's development -the completion and aftermath of its IPO. The 

results were particularly striking for companies in the information 

technology industry that went public."), available at 

h ttps://repository. uchastings.(>d u/egi/viewcon ten t.cgi ?referer=&httpsredir= 1 

&artide=2417 &conl:ext=faeultv scholarship. 

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purpose is to harness the forces of capitalism to foster creativity. 

In 2016, the core copyright industries, defined as motion pictures, 

books, periodicals, software and video games, contributed $1.2 

trillion dollars to the U.S. economy, or 6.88 percent of GDP. 41 Those 

industries have grown faster than the economy generally, and 

employees in the core copyright industries are 21 percent better 

compensated than workers in other industries. 42 

Copyright has also been around for a long time Congress 

passed the first Act in 1790, which protected the reproduction 

published maps, books and charts. 43 The modern copyright act 

protects any "original" work of authorship from the moment of 

fixation and grants the copyright owner the exclusive right to 

reproduce, distribute, adapt, publicly perform and display its 

works. 44 Unlike a patent, the copyright's existence does not depend 

on administrative action-it attaches automatically. 

But there is an important limitation: the registration of a 

copyright is a prerequisite for filing a suit in federal court. 45 The 

main problem with the copyright system right now is not the 

substance of protection, but the administration of the registration 

and record-keeping process. Registration itself is not a terribly 

burdensome process. It can take ten months or more for the 

copyright office to issue a registration-an eternity in a world of 

41 Stephen Siwek, Copyright Industries in the U.S. Economy: The 

2016 Report, at 5 (2017), available at ht.tps://iipa.org/reports/copyrightindustri~)s-us-m:onomy/. 

42 Siwek, supra, at 8, 11. 

43 1 Stat. 124 (1790). 

44 17 U.S. C. §§ 102, 106 (scope of protection and list of exclusive 

rights, respectively). 

45 17 U.S.C. § 411. Registration before infringement commences also 

entitles the copyright owner to statutory damages and attorneys' fees. 17 

u.s.c. § 412. 

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digital infringement. 46 Records reflecting registration and 

recordation of copyright ownership also enables the ready licensing 

of works of all kinds-from photographs to articles, and motion 

pictures. 

As the Office responsible for administering all matters 

relating to copyright, few other government offices are more 

important to the growth of creativity and commercial activity in our 

nation than the U.S. Copyright Office. The ability of our nation's 

independent creators and small and large businesses to promptly 

register and record their copyright interests with the Office, and of 

the public to obtain copyright information that enables them to 

license copyrighted works creates new industries and spurs the 

economy, which in turn assists our global competitiveness and 

technological leadership. 

Despite the critical nature of the services provided by the 

Office, many of these services have failed to keep pace with 

technology and the marketplace. While the Office should be held 

accountable for its shortcomings to some extent, in truth many of 

these deficiencies have been caused by many years of budgetary 

neglect and structural deficits that would make it difficult for any 

agency to merely keep pace, to say nothing about modernization. 

Many of the challenges confronted by the Office can be 

traced back to the fact that the Copyright Office resides in the 

legislative branch, within and under the "direction and supervision" 

of the Library of Congress. As a department of the Library, the 

Office is obligated to use the Library's information technology 

systems, which are antiquated, incompatible and impractical in 

regard to the Office's underlying objectives and mission. 47 

46 U.S. Copyright Office, Registration Processing Times, available at 

https://www.eopyright.gov/registration/docs/proeessing-times-faqs.pdf. 

47 See Hearing, The U.S. Copyright Office: Its Functions and 

Resources, House Comm. on the Judiciary, Feb. 15 2016, Testimony of the 

Software and Information Industry Association (Keith Kupferschmid, VP 

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SUA's members, whether database companies, business-to· 

business publications, or specialized publishers, depend on these 

rights. For them-and SUA--modernization of the Office is a top 

legislative priority. We supported S. 1695, narrowly tailored 

legislation which made the Register a presidential appointee, as 

well as broader legislation that takes the Office out of Library 

control. 

II. Trademarks and Trade Secret Protection 

Patents and copyrights are exclusively federal intellectual 

property-the states cannot interfere with the federal scheme. But 

there are other kinds ofiP-also very important to SUA memberstrademarks and trade secrets-that are protected by both state and 

federal law, and which are important to SIIA members as well as 

almost any other kinds of business. In what follows, I will very 

briefly mention their federal aspects. 

Unlike patents and copyrights, the federal trademark and 

trade secret statutes emanate from Congress's power under the 

Commerce clause in Article I, section 8 clause 3. In general terms, 

they protect intangible assets from misappropriation. 

A. Trade Secrets 

A trade secret is among the most common types of 

intellectual property protection. In order to be treated as a trade 

secret, its owner must take reasonable steps to ensure its 

confidentiality, and the information has to have some independent 

economic value. 48 Famous examples include Coca Cola's secret 

for Intellectual Property and General Counsel), available at 

http s:/ lind ieia ry .house. gov/wp -eonten t/up loa ds/20 1 ()/02/Kup ferseh mid-ST LA-

'l'estimonv.pdf. 

48 See 18 U.S. C. § 1839(3); see also generally Jaeger, 1 Trade Secrets 

Law § 3:34 (describing the definition of trade secret under the Uniform 

Trade Secrets Act). 

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formula, the recipe for Mrs. Fields Chocolate Chip Cookies, and 

how books get onto the New York Times bestsellers list. 49 

For SIIA's members, trade secrets remain an important 

component of intellectual property protection. Trade secrets law 

protects customer lists and source code-two of our members' crown 

jewels. SIIA supported enactment of the Defend Trade Secrets Act 

of 2016, which provided nationwide discovery and a federal remedy 

for trade secret misappropriation. We have also opposed the 

mandatory disclosure of source code as a condition of doing 

business in foreign countries. 

B. Trademark Protection 

Trademark protection has existed-and continues to exist--

as a matter of common law for hundreds of years. Federal 

trademark protection accrues simply by being the first person to 

use a word in association with particular goods or services, and it 

prohibits others from adopting confusingly similar marks. 50 

The trademark can (but does not have to be) registered with 

the U.S. PTO through an administrative process that is not as 

difficult as a patent application, but still can be quite complicated. 

A trademark owner applies to the office for a registration, 

supplying a drawing of the mark and examples of how that mark is 

being used in commerce. A trademark examiner then will look at 

the samples as well as other registered marks to determine 

whether the applicant has met the statutory requirements, 

including avoiding confusion with other registered marks being 

used for the same general kinds of businesses. Correspondence 

typically ensues, and the process typically takes six months to a 

49 10 Trade Secrets We Wish We Knew, available at 

https://money.howstuffworks.com/10-trade-seerets:J.htm. 

5° Famous trademarks (e.g., household names) are also protected from 

dilution, which does not require a showing of confusion. See generally 15 

U.S. C.§ 1125(c) (federal dilution statute); 4 McCarthy on Trademarks and 

Unfair Competition§ 24:67 (5th ed.) (providing overview). 

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year. 51 A business that gets that registration enjoys certain 

advantages, including nationwide priority, the ability to stop 

infringing imports at the border, and presumptions as to validity. 52 

For small businesses, this can be quite important. 

Trademarks ensure that the producer of a good under a brand is 

associated with its quality. That goodwill is among the most 

valuable assets of a business, and trademark law protects it from 

free-riding. 

III. Conclusion 

All of these laws-patent, copyright, trademark and trade 

secrets-work together to create incentives that spur our members' 

creativity. We hope that this overview has been helpful to the 

Committee. 

Thank you again for the opportunity to present our views. 

Respectfully submitted, 

,r-1 ../.. /1 ,A Ckt;:.,ft.ffJ- 2T 

Christopher A. Mohr 

Vice President for Intellectual 

Property and General Counsel 

51 See, e.g., Section l(a) Timeline, available at 

https://www. uspto. gov/tra demark/trademark -timelines/section-1 a-time lineapplication-based-use-commerce (PTO describing time frames for different 

parts of the trademark application process when the applicant is using the 

mark in commerce). 

52 See generally 3 McCarthy on Trademarks and Unfair Competition § 

19:9 (5th ed.) (describing the benefits of federal registration). 

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Innovation Nation: How Small Businesses in the Digital Technology Industry Use 

Intellectual Property 

Testimony of 

Chris Israel 

Executive Director 

Alliance of U.S. Startups and Inventors For Jobs 

Before the 

Committee on Small Business 

U.S. House of Representatives 

Wednesday, July 11, 2018 

Chairman Chabot, Ranking Member Velazquez and Members of the Committee, 

It is an honor to participate in this important hearing today focused on the role of 

intellectual property in supporting small business development and growth. 

I am here on behalf of the Alliance for U.S. Startups and Inventors for Jobs (USIJ). USIJ is 

a coalition of over 30 startup companies and their affiliated executives, inventors and 

investors that depend on reliable patent protection as a foundation for their businesses. 

It is difficult and perilous to start any new company from scratch. For companies built around 

a new invention or committed to solving a complex problem, it also requires investors with 

a strong appetite for risk. To incentivize risk from inventors and investors that results in true 

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technological breakthroughs, we have the promise of patent protection to help ensure 

returns despite this risk. 

Unfortunately, over the past 15 years we have seen the foundations of the U.S. patent 

system eroded by court decisions and changes in U.S. law. The results should alarm 

members of this committee. 

USIJ is releasing today the results of our study of trends in venture capital investment from 

2004-2017 that I have included in my testimony. I would like to touch on a few of the key 

conclusions of our study and offer some recommendations on how Congress and the 

Administration can strengthen the U.S. patent system to better support startups in key 

technology sectors. 

To be clear, not all small businesses and startups depend on patents for their success. 

Many do not and some even disdain patents as a burden. But companies that invest heavily 

in R&D to create breakthroughs in strategically critical technologies do depend on patents 

to protect them from predatory behavior of would-be competitors anxious to copy any new 

product or technology once it is proven workable. 

Over the past 15 years, however, a concerted effort often under the guise of fighting "patent 

trolls," has resulted in the elimination of injunctive relief for patent owners, significant 

limitations on the ability of inventors to even obtain patents in key areas of life sciences and 

software, and a procedure at USPTO that allows an open-ended opportunity for anyone to 

challenge any valid U.S. patent, multiple times, and often without any business reason for 

doing so. 

So how is the market reacting to all of this? As you would expect. 

Even though total venture capital investment in the United States increased nearly fourfold 

over the past 15 years, the portion committed to small businesses in important technology 

sectors has declined significantly. 

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In 2004, 21% of all venture capital funding in the U.S. went to the following strategic, patentintensive sectors: 

• Internet networking and software 

• Wireless communications 

• Operating system software 

• Semiconductors 

• Drug Discovery 

• Medical Devices 

In 2017, only 3.2% of all VC funding in the U.S. went to these sectors. 

So, who are the beneficiaries of this relative decline in funding for strategically critical 

technologies? 

In 2004, 11% of all VC funding in the U.S. went to the following sectors: 

• Social network platforms 

• Software apps 

• B2C technologies 

• Financial services 

By 2017, 33% of all VC funding in the U.S. went to these same sectors. 

While the latter group has certainly led to some interesting products and services, and some 

very well-known and ubiquitous global companies, these are not sectors that are investing 

heavily to push the outer boundaries of science and technology to remain competitive in a 

global market. 

These declines are shocking unless one believes that the U.S. can maintain its technological 

leadership with minimal investment in startups that are working in the areas of new drug 

discovery, networking equipment, cyber security, AI, medical devices, biotechnology, 

semiconductors, computer hardware and a host of other core industrial sectors, while onethird of the funding for new companies in the U.S. goes to apps, social media, and online 

shopping and banking platforms. 

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The good news is that there are some specific things Congress and the USPTO can do 

immediately to revitalize the U.S. patent system for inventive small businesses: These 

include: 

Passage of the STRONGER Patents Act 

Providing statutory clarity for patentability of life sciences and software 

inventions under Section 101 of the Patent Act. 

In addition, USPTO can make some needed reforms to its post-grant review procedures: 

• We strongly support the pending rule change to discontinue use of the BRI 

standard for claim construction. 

Patent owners should be allowed reasonaole opportunity to amend claims 

during IPR proceeding. 

USPTO should also address serial attacks on patents held by small 

companies by larger competitors working in collaboration and with 

surrogates. This has become a major problem for technology startups. 

Mr. Chairman I appreciate the opportunity to participate in this hearing and !look forward 

to your questions. 

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Dear Chairman Chabot: 

Thank you for the opportunity to testify before the House Cortunittee on Small 

Business on the important issue of How Small Businesses in the Digital Technology 

Industry Use Intellectual Property. It is my pleasure to provide the following 

responses to the additional questions from the Committee. 

Questions from Representative Radewagen: 

1. Why are patents important to startups? What role can patents play in reinvigorating 

startup formation? 

Patented technology remains a critical tool for startups and small businesses. Whether 

it is a more efficient technique, added functionality, or an entirely new product, 

patented inventions are often the unique competitive advantage that sets products, 

technology, and companies apart from their competition. Without the ability to 

prevent free-riders from copying these breakthroughs and using them in competition 

with the innovator, small businesses would be at a distinct competitive disadvantage. 

Patent protection,. and in some sectors ancillary laws and regulations, that provide for 

an adequate time of market exclusivity are critical to maintaining the innovation life 

cycle that allows for startups and small businesses to grow. 

2. Doesn't the decline in U.S. patent strengt.h relative to other countries affect the 

ability of entrepreneurs to attract capital from U.S. investors? What should Congress 

do about it? 

Investing in innovation is risky business. The research may not pan out or it may not 

be marketable. In order to secure up-front capital, investors must have confidence 

that if the research yields a marketable product, that the patent system will ensure an 

opportunity to recoup their investment and profit from the risk. Uncertainty in the 

U.S. patent system undercuts that confidence for investment, especially for sectors 

like the biopharmaceutical industry, with tremendous upfront costs. Businesses of all 

sizes benefit from a strong patent system that is characterized not only by 

predictability and consistency, but also by enforceability, all of which lead to 

confidence in patents, deterrence of infringers, and enhanced levels of innovation by 

both small and large enterprises. The U.S. Chamber of Commerce is encouraged that 
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the new U.S. Patent and Trademark Office Director, Andrei Iancu, is actively working 

to address the uncertainty businesses and startups currently face. 

3. A recent study found that obtaining a first patent plays a huge role in helping 

startups secure venture capital and other external finance. In fact, startups that obtain 

their first patent are 53 percent more likely to obtain venture capital funding than 

startups that don't receive a patent at all. This is especially true for startups that hadn't 

already attracted significant investment prior to receiving the patent, companies with 

inexperienced founders, and startups located outside geographic areas that 

traditionally attract investors, like Silicon Valley. Can you comment on these findings? 

What can Congress do to ensure that the patent system is accessible to underserved 

populations of entrepreneurs? 

Investment is the lifeblood of our cycle of innovation and it should be reasonably 

available to all would-be inventors. The U.S. Chamber of Commerce supports 

Congress and the U.S. Patent and Trademark Office in providing reduced patent fees 

for independent inventors to facilitate those inventors' ability to obtain patents and 

thereby continue to create and innovate. Congress can help by ensuring that the U.S. 

Patent and Trademark Office can continue to afford such discounts for independent 

inventors by ensuring the USPTO is fully funded. USPTO is funded entirely by user 

fees, but in the past there have been instances where those fees where diverted away 

for unrelated government expenses. USPTO should be allowed to keep their current 

authority to set their own fees and be confident that the revenue received from these 

fees is not diverted, so it can be reinvested into our cycle of innovation. 
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Answers to Questions for the Record Following a Hearing Conducted by the House Committee on 

Small Business: 

Innovation Nation: How Small Businesses in the Digital Technology Industry Use Intellectual 

Property 

On July 11, 2018, the House Committee on Small Business convened a hearing at which Chris Israel, 

Executive Director of the Alliance for US. Startups and Inventorsfor Jobs (USJJ) testified. After the 

hearing Representative Aumua A mat a Coleman Radewagen submitted the following questions. This 

document provides USIJ's responses. 

Representative Radewagen: 

Question: Why are patents important to startups? What role can patents play in reinvigorating 

startup formation? 

Response: It is difficult and perilous to start any new company from scratch. The process requires 

visionary people willing to give up secure jobs, take risks and join companies that have a significant 

probability of failure. It also requires investors with a strong appetite for risk who are willing to invest in 

an often distant prospect of returns sufficient to justify such risk. For technologies having a long 

development cycle, these prerequisite conditions simply cannot exist without the security provided by a 

properly functioning patent system. 

Enforceable patents are essential to startups for two very fundamental reasons: 

First that protect startups and small companies from the predatory behavior of would-be 

competitors anxious to copy any new product or technology once it is proven workable. 

Second, enforceable patents are also essential to allow those startups to attract the capital needed 

to build companies that can bring new and disruptive products to market. Without enforceable 

patents, there is simply no reason for investors or entrepreneurs to take the risks involved in 

challenging entrenched market players. Which, of course, is why some of large entrenched 

incumbents have labored so tirelessly for the last 15 years to eliminate the threat of upstart 

entrepreneurs invading their markets. 

Question: Doesn't the decline in U.S. patent strength relative to other countries affect the ability of 

entrepreneurs to attract capital from U.S. investors? What should Congress do about it? 

Response: Yes, it most certainly does. We appreciate the fact that the Committee dedicated 

significant time to this question during the hearing and this follow up question certainly adds an 

additional focus. We believe it is beyond dispute that the U.S. patent system has been weakened 
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significantly over the past decade. 

During this time, the combined impact of a Supreme Court that appears demonstrably hostile to the 

enforcement of patents, a Department of Justice that openly promoted the interests of patent infringers 

over those of patent owners in the context of standard setting, and the devastating impact on investors 

and entrepreneurs of post-grant proceedings created by the America Invents Act has undermined the 

willingness of investors and entrepreneurs to undertake high risk, long tenn investments that depend 

upon patents. If our country wants to retain its leadership and dominance of science and technology and 

if our patent system is to serve its salutary promise of encouraging investment and innovation in the most 

important new technologies, it is imperative that we restore this lost confidence in our patent system. 

While the patent system in the U.S. has become less supportive of startups and venture capitalists 

focused on R&D intensive disciplines such as life sciences, artificial intelligence, semiconductors and 

communications technology, our competitors have strengthened their patent systems to prioritize these 

industries. Here are some useful statistics to consider: 

China has surpassed the U.S. and now is the global leader in patent applications. 

The U.S. has fallen to 12'" in the world in terms of the ranking of the strength of our patent 

system. 

The U.S. share of global venture capital funding was 81% in 2006, we slipped to 54% in 2017. 

China has absorbed much of this investment. Six of the top ten venture capital investments 

(measured by size of the investment in U.S. dollars) in 2017 were in Chinese startups. 

The 2018 Bloomberg Innovation Index put the U.S. in 11'" place. We were ranked #I as recently 

as 2013. 

USIJ strongly supports the STRO!::!QER Pll!ents Act introduced by Representatives Steve Stivers and 

Bill Foster. This bipartisan bill would significantly strengthen the U.S. patent system by implementing 

measures to make it easier, less costly and more predictable for all inventive businesses to protect their 

patents. In addition, we are very supportive of the leadership of U.S. Patent and Trademark Office 

Director Andrei lancu. He has spoken frequently of the need to reestablish the strength of the U.S. patent 

system and made some early decisions which confirm this commitment, including a proposed rule 

change that would discontinue use of the "broadest reasonable interpretation" ("BRI") standard for 

construing claims in such proceedings and instead would use the standard applied by district courts in 

assessing the validity of an issued patent, namely the standard set forth in Phillips v. AWH Corporation, 

415 F.3d 1303 (Fed. Cir. 2005) (en bane). 

Question: A recent study found that obtaining a first patent plays a huge role in helping startups 

secure venture capital and other external finance. In fact, startups that obtain their first patent are 53 

percent more likely to obtain venture capital funding than startups that don't receive a patent at all. This 

is especially true for startups that hadn't already attracted significant investment prior to receiving the 

patent, companies with inexperienced founders, and startups located outside of geographic areas that 

traditionally attract investors, like Silicon Valley. Can you comment on these findings? What can 

Congress do to ensure that the patent system is accessible to underserved populations of entrepreneurs? 

Response: In a very complex and competitive environment for startups to attract the necessary 

capital, retain high-quality talent and commercialize a product in the marketplace, extensive research has 

clearly demonstrated that patents are a key differentiator. A 2015 study by the U.S. Patent and 
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Trademark Office found that startups that secure enforceable patents for their core innovations have 55'V.> 

higher employment grovvth and 80% higher sales growth five years later. Startups with a strong patent 

portfolio also pursue more, and higher quality. follow-on innovation. Getting patents early in a 

company's life cycle also boosts a startup's subsequent growth and innovation hy facilitating access to 

funding from VCs, hanks, and public investors. 

Specifically, regarding the impact that patents have on startups' ability to attract funding, the USPTO 

report adds this compelling data: 

"We find that a patent grant increases a startup's chances of securingfondingfrom VCs by 47%, 

and of securing a loan by pledging the patent as collateral by 76%, within three years of the 

patent decision. A patent grant also more than doubles the odds of the startup raisingfonding 

from public investors through an !PO. The effect of patents on raising VC funding is strongest for 

startups that (l) had raised little or no VC funding before the USPTO 's decision, (ii) were 

founded by inexperienced entrepreneurs, {iii) are located in areas where attracting investors' 

attention is harder, and (iv) operate in the IT sector. " 

Question: You testified that USIJ's members include tech-based investors and entrepreneurs, as well 

as venture capitalists that rely on strong patent rights to ensure they can recoup their investment oftime 

and treasure in the research and development (R&D) process. Can you expand on why strong patent 

rights are important to your members? Why are strong patent rights so important to R&D companies and 

other businesses that rely on patent licensing to commercialize their inventions? 

Response: USJJ's members work in a number of complex technical disciplines including 

biotechnology, solar energy, advanced wireless technologies and medical devices. It is not uncommon 

for startups in these areas to require in excess of $200 million in venture funding to even get to a place 

where they are ready to enter the market. This path can also take years and involve hundreds of 

employees working to solve complex problems such as how to build and sustain solar panels on 

communications satellites- a real problem tackled by our member Solar Juncti_Q!!. Without patent 

protections, this investment and these companies simply would never exist and we would lose all of their 

invention and job creation. 

Patent licensing is indeed an important function that both facilitates significant business collaboration 

and drives substantial R&D. Some companies are simply very good at invention and innovation, but do 

not excel at manufacturing and marketing products. This is very evident in the information 

communications space. There are a handful of household names that aggregate and assemble countless 

technologies into the smartphones and other electronic devices we rely on everyday. However, there are 

hundreds of other companies that have invented the capabilities these devices rely on and are necessary 

in order for innovation and growth to continue. They must be able to rely on strong patent protection as 

a foundation of an effective licensing system. Here again, we believe that reforms such as the 

STRONGER Patents Act and an IPR process that is more balanced for patent owners will ensure that 

those who invent new technologies with the goal of licensing them to larger implementers can operate 

fairly and on equal footing. 
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The Need to Promote Gender Diversity 

in Entrepreneurship, Innovation, and Patenting 

Written Testimony Submitted to the Honse Small Business Committee 

Jessica Milli, Ph.D. 

Institute for Women's Policy Research 

July 11, 2018 

The Institute for Women's Policy Research conducts and communicates research to inspire 

public dialogue, shape policy, and improve the lives and opportunities of women of diverse 

backgrounds, circumstances, and experiences. IWPR was founded by labor economist and 

MacArthur Fellow Heidi Hartmann, and has an interdisciplinary staff of scholars in economics, 

sociology, and psychology. As a nonpartisan organization, IWPR ensures the independence of 

its research through rigorous internal and peer review processes. 

IWPR has been researching issues related to diversity in innovation since 2016 when it released 

Equity in Innovation: Women Inventors and Patents. Since then, IWPR has been conducting 

follow-up research to be released in two forthcoming reports: Innovation and Intellectual 

Property Among Women Entrepreneurs, and Closing the Gender Gap in Patenting. Innovation, 

and Commercialization: Programs Promoting Equity and Inclusion. 

JWPR's research finds that women patent inventions at much lower rates than men, which means 

that potential innovations to improve technology, treat illness, and improve everyday life are 

being left on the table. IWPR's 2016 report found that under 20 percent of all U.S. patents list 

one or more women as inventors, and just under eight percent list a woman as the primary 

inventor. The study also cited research showing that patents secured by inventor teams that 

included both women and men are cited more often in other patent applications than singlegender teams. Including women on an R&D project may lead to higher quality, more useful 

patents, yet at the current rate of progress, men and women will not reach parity in patenting for 

over three quarters of a century-in the year 2092. 

Part of the disparity in patent holdings is due to the relatively low application rates of womenbetween 2000 and 2016, female inventors submitted just one third the number of patent 

applications as their male counterparts. Once applications have been filed, however, patent 

allowance rates are closer to parity. Another part of the issue is women's underrepresentation in 

patent-intensive science, technology, engineering, and mathematics fields, such as engineering 

and computer science. In 20 I 0, women held just 19 percent of engineering degrees and 21 

percent of computer science degrees. Other challenges, such as the need for policies and 

programs to help female scientists maintain work-life balance and to learn about and finance the 

patenting process. 

1200 18th Street. NW Suite 30 I • Woshington. DC 20036 + !202! 785-S 100 + www.iwpr.org 
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Previous research has found that intellectual property rights, including patents, can play an 

important role in business success. Many lenders consider patent ownership, or at least having a 

patent application filed, an important factor in making their funding decisions: patent holders are 

more likely to receive private equity financing from venture capitalists and typically receive 

funding more quickly than entrepreneurs who do not hold patents. Patents have also been linked 

to greater market value among established businesses. Higher rates of patenting or other 

intellectual property holdings among women business owners could improve their access to 

financing and help them achieve their growth aspirations and maximize revenues. Further, new 

IWPR research shows that intellectual property rights may be associated with higher firm 

revenues-women-owned businesses that had a patent pending had average revenues more than 

16 times higher than those firms without intellectual property rights, for example. 

These findings suggest that women's underrepresentation among IP holders may put them at a 

disadvantage as business owners. IWPR's research shows that women have made substantial 

progress in increasing their representation among business owners, increasing their share from 

16.8 percent of all employer firms in 1997 to 20.8 percent in 2015, yet many women business 

owners lack access to start-up capital, including venture capital, which can be crucial to the 

success of their business ventures. And while women-owned businesses already engage in 

research and development activities and produce innovative products at rates nearing or 

surpassing those of men-owned firms, they are less likely to hold intellectual property rights, 

suggesting that their innovative power could be better marshalled to benefit their businesses and 

promote economic and social progress more broadly. 

A diversity of standpoints helps promote multidimensional and more rigorous approaches to 

solving social problems. When significant portions of the population are not represented in the 

innovative process, social and economic progress suffers. The exclusion of women, people of 

color, and members of other disadvantaged groups from invention, patenting, and 

entrepreneurship leaves a vast reserve of untapped potential that could be harnessed to help find 

solutions to the pressing issues of the day. 

IWPR's latest report makes several research-based recommendations to help close the gender 

gap in patenting. First, we should increase wome.n and girls' access to programs that support 

innovation activities and entrepreneurship in highly profitable industries. Programs that 

encourage women's business ownership can present data on industry segments most likely to 

provide strong business returns, along with information on how to enter those fields. In addition, 

communities, universities, and the public sector can implement programs likely to encourage and 

increase women's participation in intellectual property development activities. 

IWPR's report, Closing the Gender Gap in Patenting, Innovation, and Commercialization: 

Programs Promoting Equity and Inclusion, profiles seven programs working to increase gender 

and racial/ethnic diversity in innovation and entrepreneurship, and identifies common program 

elements and promising practices. Programs featured in the report use a variety of approaches to 

promote relationships between women inventors and investors, provide education and coaching 

on the patent application process and other research and development activities, and guide 

women and communities of color through the process of commercializing innovation, to include 

market analysis, developing prototypes, and preparing pitch presentations. In addition, 

introducing girls and young women to inventing and intellectual property development through 

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science and math classes, after-school programs, and summer camps can highlight the benefits of 

developing intellectual property later in life. 

We should also test and implement strategies to overcome implicit bias on the part offunders 

and investors. Women business owners' lower levels of funding can restrict the types of 

innovation firms can pursue, and IWPR's research shows that difficulty receiving funds is one of 

the primary reasons that women-owned businesses close. Venture capitalists and other investors 

have a major role to play in enabling women-owned firms to development intellectual property 

and other innovations, and in helping women-owned businesses thrive more broadly. Investors 

should pursue intentional strategies to minimize the influence of bias in their investment 

decisions. For example, following formal or informal guidelines or quotas for investing across 

gender or racial/ethnic lines could help investors ensure they make equitable investment 

decisions. Additional research is needed to assess promising strategies for minimizing gender 

and racial/ethnic bias, unconscious or otherwise, in investment decisions. 

Organizations and institutions can also take steps to support women entrepreneurs. Funds that 

target businesses owned by women and women of color can help mitigate bias and increase 

access to capital. A number of corporations and a handful of venture funds around the country 

target women entrepreneurs with promising product innovations. Programs and initiatives 

encouraging women's innovation should take steps to actively encourage participation of 

Hispanic, African American, and other underrepresented women. 

Employers, funders, and educational institutions should also focus on increasing women's 

representation in patent-intensive STEM fields. Women' disparate participation in patenting has 

been linked to their underrepresentation in patent-intensive STEM fields such as engineering 

(Hunt eta!. 2013). By pursuing strategies to increase women's participation in these fields, from 

early childhood exposure to science, to recruiting and retaining young women in patent-intensive 

college majors, women entrepreneurs will be more likely to innovate and to encourage and 

support other women's intellectual property development. 

Finally, we need to improve data availability on women entrepreneurs, especially to allow 

disaggregation by gender, race and ethnicity. To track progress toward inclusion, large surveys 

and public agencies dealing with entrepreneurship and innovation should collect data on the 

gender and race/ethnicity of survey and program participants and make data available in a form 

that can be disaggregated. 

Progress toward gender and racial/ethnic equity in innovation would also benefit society. Diverse 

contributions are essential to identifYing and developing solutions to the pressing problems 

confronting individual communities and the world more broadly. An array of unique standpoints 

offer invaluable perspectives for innovation. By integrating more women and people of color 

into the innovation ecosystem, society will benefit from the contributions of more talented 

inventors and the ideas, products, and solutions they can develop if provided the opportunity. 

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PATENTS SUPPORT SMALL BUSINESSES AND STARTUPS TO 

BOLSTER U.S. ECONOMIC GROWTH 

Submitted by The Innovation Alliance 

A study sponsored by the U.S. Patent and Trademark Office (USPTO) and Harvard and NYU 

business schools found a direct causal link between patent activity and survival and success of 

startups in the United States. 1 Patent-holding startups in particular enjoy tremendous net benefit 

over their counterparts who fail to patent their ideas. 

Startups generate 20 percent of all new jobs in the U.S. each year.2 These startups and 

small inventors rely heavily on patent protections to promote R&D. Small businesses in the 

United States employ 37 percent of all scientists and engineers, hold over 120,000 patents, and 

patent new technology at 16.5 times the rate of larger firms. 

Patents are essential .to a startup's growth in both employment and sales. Approval of a 

startup'sflrst patent application increases its employment growth by 36 percent on average over 

five years. Startups granted a patent grow employment more than 7 percent more than 

companies without patents, and the gap only widens over time. The approval of a patent also 

improves sales grovvth over non-patent holding firms: startups with a patent grow their sales by 

an average of 51 percent more over five years than those that failed to obtain a patent. A 

separate study further found that startups that win the so-called patent "lottery" by drawing 

patentee-friendly examiners have, on average, 55 percent higher employment growth and 80 

percent higher sales growth five years later.3 Additionally, a recent paper by researchers at MIT 

found that the likelihood of growth is five times higher for startups with trademarks and thirtyfive times higher for startups that apply for patents.4 

Securing patents also enable small firms to continue innovating. Startups whose first patent 

application is approve also apply for more patents, and those subsequent applications are 

approved at a nearly 18 percent higher rate, than startups whose first patent application is 

rejected. Moreover, subsequent patents for such firms are of higher quality, with 69 percent 

more citations for its patents than firms whose first application was rejected. 

Startups that obtain a patent arc more likely to go public or be acquired. A successful 

patent application increases a firm's likelihood of going public by over 150 percent. Patents also 

increase the likelihood a startup will be acquired by 84 percent over non-patent holding firms. 

Patent-holding startups have a significantly easier time raising venture capital and other 

financing. A patent increases the probability of a startup obtaining funding by 2.3 percentage 

points which is a 53 percent higher probability than firms without patents. This effect is 

strongest for firms that had no VC funding prior to obtaining a patent, were founded by 

inexperienced entrepreneurs, and operate in geographical areas where entrepreneurs typically 

have difficulty attracting investors. 

The value of intellectual property dramatically outweighs even the most dire estimates of 

the costs of trolls. Total economic activity from patents has been estimated at over $8 trillion, 

over a third of U.S. GDP. 
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The invalidation of a patent right results in a significant decrease in future patenting by the 

inventor. The loss of a patent right due to invalidation causes, on average, a 50 percent decrease 

in future patenting in a five-year window by the patentee. Moreover, losing a patent right 

sharply increases the probability that a small firm exits the market entirely. Patent rights 

therefore affect not only the level of innovation by existing firms, but also bear upon the survival 

of entrepreneurial firms . 

5 

The value added by IP-intensive industries increased substantially in both total amount 

and GDP share between 2010 and 2014. IP-intensive industries accounted for 

$6.6 trillion in value added in 2014, up more than $1.5 trillion (30 percent) from $5.06 

trillion in 2010. Accordingly, the share of total U.S. GDP attributable to IP-intensive industries 

increased from 34.8 percent in 2010 to 38.2 percent in 2014.6 

In total, IP-intensive industries directly and indirectly supported 45.5 million jobs in 2014, 

about 30 percent of all employment. IP-intensive industries directly accounted for 27.9 million 

jobs either on their payrolls or under contract in 2014, and indirectly supported 17.6 million 

more supply chain jobs throughout the economy. 

Private wage and salary workers in IP-intensive industries continue to earn significantly 

more than those in non-IP-intensive industries. In 2014, workers in IP-intensive industries 

earned an average weekly wage of$1,312, 46 percent higher than the $896 average weekly 

wages in non-IP-intensive industries in the private sector. This wage premium has largely grown 

over time from 22 percent in 1990 to 42 percent in 20 I 0 and 46 percent in 2014. Patent- and 

copyright-intensive industries have seen particularly fast wage growth in recent years, with the 

wage premium reaching 74 percent and 90 percent, respectively, in 2014. 

A separate study that examined the economic contribution of university inventions found 

that academic patents significantly impact U.S. industry gross output.7 Between 1996-2015, 

academic patents, and the subsequent licensing to industry, bolstered U.S. industry gross output 

by as much as $1.33 trillion in 2009 U.S. dollars, U.S. GDP by up to $591 billion, and supported 

up to 4.2 million person years of employment. · 

1 Joan Farre-Mesa, Deepak Hegde, & Alexander Ljungqvist, The Bright Side of Patents, USPTO Working Paper 

NO. 2015-5 (Jan. 20 16), available at http://papers.ssm.com/so13/papers.cfm?abstract_id=2704028. 2 Ryan Decker et al, The Role of Entrepreneurship in US Job Creation and Economic Dynamism, J. Econ. 

Perspectives, vol. 28, no. 3, at 3, available at http://econweb.umd.edu/-haltiwan/JEP DHJM.pdt: 3 Joan Farre-Mensa, Deepak Hegde, Alexander Ljungqvist, What is a Patent Worth? Evidence from the US. Patent 

"Lottery", Nat'! Bureau ofEcon. Research Working Paper No. 23268 (2017), 

https:/ /papers.ssm.com/sol3/papers.cfm?abstract_id=2941246. 4 Catherine Fazio et al., A New View of the Skew: A Quantitative Assessment of the Quality of American 

Entrepreneurship (20 16). 5 Alberto Galasso & Mark Schankerman, Patent Rights, Innovation and Firm Exit (2017). 6 Econs. & Statistics Admin. & United States Patent & Trademark Office, Intellectual Property and the US. 

Economy: 2016 Update (20 16), http://copyrightalliance.org/wp-content/up1oads/20 16/l 0/DOC-Report-lntellectualProperty-and-the-Economy-20 l6.pdf. 7 Lori Pressman et al., The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-

2015 (2017). 
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The Honorable Steve Chabot 

Chairman 

House Small Business Committee 

U.S. House of Representatives 

Washington, DC 20515 

Julyl7,2018 

The Honorable Nydia Velazquez 

Ranking Member 

House Small Business Committee 

U.S. House ofRepresentatives 

Washington, DC 20515 

Dear Chairman Chabot and Ranking Member Velazquez: 

The Computer & Communications Industry Association (CCIA) respectfully submits this 

statement for the record to the House Small Business Committee in regards to the Committee's 

hearing held on July 11, 2018, "Innovation Nation: How Small Businesses in the Digital 

Technology Industry Use Intellectual Property." 

CCIA is an international association that represents companies of all sizes in the high technology 

sector, including in computer software, e-commerce, telecommunications, Internet products 

services, semiconductors. CCIA members 1 include some of the largest patent holders in the 

world and collectively generate more than $540 billion in annual revenues. Many CCIA 

members also have venture capital arms designed to help startups develop their own 

transformative technologies2

, as well as offering non-venture services employed by many 

startups.3 Through these funds and services, CCIA members both invest in and enable new 

technologies like artificial intelligence, automated drug discovery, autonomous vehicles, highperformance networking and computing, and more. 

We write to correct certain errors and omissions in the testimony of Mr. Chris Israel, a witness at 

the hearing on behalf of the "Alliance of U.S. Startups and Inventors for Jobs" (USIJ) and to 

establish that he draws a conclusion unsupported by his data. These errors and omissions lead to 

an incorrect impression about the trajectory of venture funding in critical areas of technology, 

and an incorrect conclusion regarding the impact of changes in patent law on venture funding. 

In summary: 

• Much of the USIJ data is either incorrectly labeled, misleadingly labeled, or references an 

entirely different area of technology from the one it claims to describe. 

• USIJ categorizes the importance of different sectors inconsistently, placing web browsers 

on par with pharmaceuticals while denigrating office software. 

• USIJ omits relevant context that explains specific changes in VC funding. 

• USIJ links declines in funding to events that occurred after the declines had already 

happened. 

1 A full list of our members is available at https://www.ccianet.org/members. 2 See, e.g., GV (Google), Intel Capital (Intel), the Alexa Fund (Amazon), GPU Ventures 

(NVIDIA), and Samsung Ventures (Samsung). 3 See, e.g., Amazon Web Services, Google Cloud, and the NVIDIA GPU Cloud (forthcoming). 
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When viewed in light of the additional information provided below, CCIA believes that it is clear 

that venture capital funding remains healthy and that the attempt to blame patent Jaw for illusory 

declines is contrary to both data and logic. 

I. USIJ Has Provided Mislabeled Data 

In reviewing the USIJ testimony !!·om Mr. Israel, CCIA determined that USU provided a graphic 

describing the amount ofVC funding provided to '·drug discovery" startups.4 This graphic is 

reproduced below. 

However, this data does not match the data provided by Pitchbook!NVCA, which USIJ has 

identified as the source of its data. It appears that USIJ labeled the data for "drug delivery" 

startups as that for "drug discovery" startups. "Drug delivery" is defined as "researchers and 

developers of medication delivery methods", while "drug discovery" is defined as "researchers 

and developers of new drugs.''5 

Below, we have provided a graphic illustrating the percentage of total VC funding for drug 

delivery and drug discovery. 

4 USIJ Testimony, Appendix at 14. 5 NVCA/Pitchbook Yearbook 2018 at 65. 
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As is clear from the graphic, when the cotTect data is examined drug discovery funding is both 

significantly higher than drug delivery funding and has maintained approximately consistent 

funding at between 3-5% of the total VC funding invested over the entirety of the studied 

timeframe. No sustained decline is observable. 

As USlJ correctly notes, total VC funding has nearly quadrupled over that timeframc, meaning 

that drug discovery funding has seen a steady increase over time. 

2. USIJ Omits Important Data 

The USIJ testimony provides the correct data for investment in "pharmaceuticals." However, the 

use of this label obscures important information. Specifically, NVCA/Pitchbook reserves the 

"pharmaceuticals" category for investment into "manufacturers and distributors of established 

drugs/ pharmaceuticals."" In other words, "pharmaceuticals" is essentially defined as production 

of well-known drugs. Such production does not fall within "sectors that are investing heavily to 

push the outer boundaries of science and technology." 

As discussed above, USIJ failed to provide the correct data for drug discovery. In addition, USIJ 

completely omitted a critical area oflife sciences investment-biotechnology. Biotechnology is 

the area of investment which produces new biologic drugs and has been one of the largest areas 

of recent VC investment. The graphic below illustrates the percentage of total VC funding 

provided within the areas of biotechnology, drug discovery, and pharmaceuticals. 

6 See NVCA/Pitchbook Yearbook 2018 at 65. 
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Drug discovery funding has received a steady percentage of all VC funding throughout the 

relevant timeframe. While pharmaceuticals have declined somewhat by percentage, this decline 

is more than made up for by the increased funding given to the promising new biological 

treatments enabled by biotechnology. 

Taken as a whole, the percentage of overall VC funding given to the discovery of new drugs and 

manufacture and distribution of existing drugs has not exhibited an increasing or decreasing 

trend over the reviewed timeframe; in fact, it reflects a shift into development of new drugs and 

technology and away from investment in known drugs. USIJ has omitted the data that would 

illustrate this shift from his testimony. 

3. USIJ Mislabels Categories 

In another example, the USIJ testimony refers to ''medical devices."7 However, in the 

supporting appendix USIJ has provided a graph illustrating the "medical supplies" category. 8 

"Medical supplies" refers to "medical supplies that would be considered non-durable" and 

includes "syringes, diabetes supplies, bandages, and protective wear."9 Investment in actual 

medical devices is tracked in the categories "diagnostic equipment", "monitoring equipment", 

and "therapeutic equipment," 10 none of which are described in the USIJ appendix. While 

7 USIJ Testimony at 3. 8 USIJ Testimony, Appendix at 15. 9 See NVCA/Pitchbook Yearbook 2018 at 65. 10 See NVCA/Pitchbook Yearbook 2018 at 64-65. 
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bandages incorporate complex technology, they are not typically described as medical devices. 

The reference in his testimony to "medical devices" is thus inappropriate and is not supported by 

the data in his appendix. 

Similarly, USIJ refers to "surgical devices." This category only reflects devices used in surgery 

and does not include supporting equipment such as ultrasound machines ("diagnostic 

equipment"), heart-rate monitors ("monitoring equipment"), or pacemakers ("therapeutic 

equipment.") 

Finally, USIJ labels one graph with the category "app software." 11 NVCA/Pitchbook does not 

provide an "app software" categorization. NVCA/Pitchbook does provide a category for 

"application software", but that category refers to developers of software for specific tasks or 

applications-examples might include Microsoft Office, Oracle's JD Edwards applications, and 

Adobe Reader-as well as being the catch-all category for software not placed within other 

categories. 12 It seems trivially apparent that the modern meaning of "app" is incorrectly applied 

here. The data reports 4% of all VC funding in 2004-four years prior to widespread availability 

of third-party 'apps'-being dedicated to "app software." 

4. USIJ Inconsistently Categorizes The Importance Of Software Sectors 

The mislabeling of"app software" discussed above is particularly important given USIJ's 

identification of "Internet software" as patent-intensive "strategic software." NVCA/Pitchbook 

defines "Internet software" as "software for accessing and manipulating internet content" which 

"includes internet browsers, and file transfer protocol (FTP) programs." 

While Web browsers and file-transfer programs are useful software, it is unclear what logic USIJ 

is applying that would label a Web browser patent-intensive "strategic software" but would not 

apply the same logic to other basic computer software like word processors and PDF readers, 

found in the "app software" category the USJJ testimony describes as "non-strategic software" 

that does not require invention protection. 

5. USIJ Has Provided Data Of Unknown Provenance 

There are other graphs which are of undetermined provenance. 

For example, the USIJ testimony refers to a general "B2C" category. NVCA/Pitchbook data 

does not appear to contain any such categorization. There is an umbrella "consumer products 

and services" category, but that category encompasses everything from office supplies to 

consumer electronics to food to transportation and automotive. Of note, critically important 

advances like autonomous vehicles would be included within this category. 

11 USIJ Testimony, Appendix at 22. 12 See NVCA/Pitchbook Yearbook 2018 at 66. 
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This is not the only category which appears to refer to a categorization other than that used by 

NVCA/Pitchbook. "Networking equipment" also appears to be absent from the 

NVCA/Pitchbook categorizations. 

Given the errors in the data with correct provenance, the failure to identify the source of this data 

gives rise to questions about its accuracy. 

6. The USIJ Data Lacks Important Context 

In several cases, the USIJ data lacks context related to the venture capital environment, the 

industrial environment of a specific sector, or relevant individual venture capital investments. 

While the USIJ testimony acknowledges that VC funding has increased nearly 400% over the 

timeframe he describes, it presents data as a percentage of total VC. Because of this, sectors that 

have seen consistent increases in VC investment are shown as decreasing. For example, even in 

drug delivery (the category USIJ misidentifies as drug discovery) funding has seen a steady 

increase. While drug delivery has shifted from approximately 0.75% of total VC funding to 

0.4% of total VC funding, the fourfold increase in total VC funding over this timespan has 

resulted in drug delivery funding increasing from $151.5 million to $364.63 million. By 

presenting data only in percentages of the total amount spent, increases in funding for an industry 

are presented as decreases. 

Some of the data also fails to support USIJ's explicit linkage of the decline in investment to 

patent policy. As described above, the "networking equipment" data might potentially refer to 

"connectivity products" or "fiberoptic equipment." However, the decline in these arenas is 

unlikely to be linked in any way to patent policy. In fact, the decline appears likely to be related 

to the over-investment and collapse in this sector in the early 2000s. Telecom companies poured 

money into building new infrastructure and built so much over-capacity that there were 

insufficient customers; many collapsed. 13 The decline in investment reflects this collapse. 

USIJ also provides a graphic illustrating "production semiconductors", which are defined as 

"owners and operators of semiconductor foundries"-"companies that manufacture 

semiconductors, but are not involved in their design." 14 The decline in this category is tied to 

two changes in the semiconductor industry over that timespan, neither of which is related to 

patent policy. 

First, there has been a general shift in the semiconductor industry business model. 

Semiconductor companies used to vertically integrate, both designing and producing their own 

chips. This model is vanishing, replaced by the "fabless" model in which companies design 

chips and have a foundry fabricate the chip for them. The separation between design and 

fabrication allows each entity to focus and specialize on the aspects of technology they excel at. 

13 See, e.g., Starr, The Great Telecom Implosion, The American Prospect (Sep. 8, 2002) available 

at https://www.princeton.edu/-starr/articles/articles02/Starr-Telecomlmplosion-9-02.htm. 14 NVCNPitchbook Year book 2018 at 66. 
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With the exception of a few companies like Intel and Samsung, most modern semiconductor 

companies are fabless. 

Second, the cost of creating a new fab to produce chips has grown enormously. Modern fabs 

cost billions or tens of billions of dollars just to build the facility, with billions more required to 

develop new technology and to actually operate the fab. 15 That amount is simply beyond the 

reach of venture-funded startups. But a semiconductor startup can relatively easily contract out 

for the manufacture of a chip they designed, using the fabless model. These paired changes 

explain the entirety of the decline in investment in the production semiconductor sector. 

Changes in a given industry are not the only external factors of relevance to VC investment. 

USIJ provides a graph illustrating VC funding for consumer finance. However, this data does 

not appear to be reflective of a general trend towards consumer finance. The sharp increase in 

2015 is essentially entirely due to a large investment in a single company, SoFi. A significant 

portion of the increase over background activity in 2017 is also due to SoFi. Absent these 

investments in a single company, consumer finance VC levels appear to have remained roughly 

consistent over the study period. 

7. USIJ's Conclusion Is Unjustified By Its Data 

USIJ's ultimate conclusion is that "the elimination of injunctive relief for patent owners, 

significant limitations on the ability of inventors to even obtain patents in key areas of life 

sciences and software, and a procedure at USPTO that allows an open-ended opportunity for 

anyone to challenge any valid U.S. patent, multiple times, and often without any business reason 

for doing so" have led to significant declines in VC investment. 16 USIJ suggests that the 

appropriate response is to pass the STRONGER Patents Act, revise patentable subject matter, 

and roll back AlA procedures like IPR. This conclusion is unsupported by the USIJ's own data, 

and his own data implies that passage of STRONGER Patents, revisions to patentable subject 

matter, and the rollback of the AIA would create new declines. 

Examining the graphs provided for the sectors USIJ identifies as of particular importance, the 

vast majority of the decline occurs in the 2004-2008 timeframe. From 2011 onward, investment 

in many of the sectors USIJ identifies as more important is roughly level. 

As members of this Committee are no doubt aware, the AIA was passed in 2012. Asserting that 

declines in investment17 experienced prior to 2012 are due to a law passed in 2012 is simply 

incorrect. Similarly, the major decisions in patentable subject matter eligibility in life sciences 

were issued in 2012 and 2013. Asserting that declines in investment in life sciences, the majority 

15 See, e.g., Ellis et al., TSMC Ready to Spend $20 Billion on its Most Advanced Chip Plant, 

Bloomberg Tech (Oct. 6, 2017), available at https://vvww.bloomberg.com/news/articles/2017-

1 0-06/tsmc-readv-to-spend-20-billion-on-its-most-advanced-chir-plant. 

16 USIJ Testimony at 2. 17 This presumes that such declines are real, which is questionable at best for the reasons set forth 

above. 
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of which occurred in the 2004-2008 timeframe, are attributable to decisions made in 2012 and 

2013 beggars belief. 

Given the increase in investment that occurs roughly co-extensively with the AlA and patentable 

subject matter decisions, the causal link between patent law and VC funding suggested by this 

data is that the AlA and patentable subject matter decisions in the 2010-2014 timeframe have 

actually increased investment. 

Finally, USIJ is flatly incorrect in its statement that injunctive relief for patent owners has been 

eliminated. While the eBay case unanimously determined that no presumption of injunctive 

relief applies, replacing it with the same equitable injunctive test that is applied in every other 

area of law, injunctive relief remains a regular remedy issued by district courts in patent cases. 

But even ifUSIJ were correct that injunctive relief became unavailable in 2006, that still would 

not explain why the declines in investment in his data began two years prior to that date. 

USIJ's data simply does not support its conclusions. 

8. New Areas Of Technology Are Important 

The USIJ testimony complains that there's been an increase in investment in social networks, 

platforms, software apps, B2C technologies, and financial services. It claims that "these are not 

sectors that are investing heavily to push the outer boundaries of science and technology to 

remain competitive in a global market." That claim is incorrect as well. 

For example, social network and platform companies have invested billions of dollars in 

developing new software improving the performance of databases and new technologies that 

enable more efficient data centers for large-scale computing. Without that kind of technology, 

data centers like the ones that are enabling current advances in AI 18 and drug discovery19 aren't 

feasible. In fact, next week the National Institutes of Health will hold a workshop in which 

participants hear from "leading industry experts and scientists who are employing AI/ML in 

biomedical research settings."20 

Social networking and platform companies have also invested in basic AI research, producing 

tools like TensorFiow (Google) and PyTorch (Facebook). These tools are then released to the 

public for public usage. The direct products produced by these investments also have follow-on 

impacts, enabling others to push the outer boundaries of science and technology. Many small 

startups working in AI right now are creating new technologies built on a machine learning 

substrate. But that machine learning substrate likely utilizes one of the AI tools produced by a 

18 See, e.g., MCubed Session on Reinforcement Learning (RL): a gentle introduction with a real 

application, available at https://www.mcubed.london/scssions/reinforccmcnt-lcarning-rl-gcntleintroduction-real-application/. 

19 See, e.g., Mullin, Rise of the srnartish machines, Chemical and Engineering News (Apr. 2, 

20 18), available at https://cen.acs.org/articlcs/96/i 14/Rise-smartish-machincs.html.html. 20 See NIH Workshop: Harnessing Artificial Intelligence and Machine Learning to Advance 

Biomedical Research, announced at https://datascience.nih.gov/communitv/2018biomedAI. 
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