House Intelligence Committee Releases Discussion Draft of CISPA

This afternoon, the House Permanent Select Committee on Intelligence released a revised discussion draft version (text here) of the Cyber Intelligence Sharing and Protection Act, or CISPA — a piece of important cybersecurity legislation. We in the startup community raised concerns about the bill’s broadly defined terms, which posed a potential threat to innovation. Others even drew comparisons with SOPA and PIPA. In this draft, substantive changes have been made which, in our eyes, have significantly improved the bill.

We raised concerns — specifically around the inclusion of intellectual property, definitions around private and government information, and regulatory burdens for small business — directly with the Committee and with the office of Chairman Mike Rogers (R-MI). The Committee has taken into consideration our concerns as well as others from the community and has released a revised version of the bill. The new version preserves CISPA’s stated purpose of protecting networks and systems and preventing theft of information from these networks, while enhancing clarity around the focus of the bill.

The willingness of the Committee to work with those in our community was heartening. We were able to craft legislation that protects sensitive data — such as Research and Development and financial records — without including provisions that are harmful to technology startups.

Engine is committed to acting in the best interests of our community, and that includes protection of the critical infrastructure and networks upon which our companies are built. With these changes in place, Engine no longer opposes the legislation. We will continue to monitor CISPA through the amendment process to ensure that these changes stick so that our community is protected and innovation can thrive.

User/Entrepreneur

A Kauffman Foundation study shows that innovative startups are largely founded by users who create products for their own use and then commercialize them — an inspiring statistic that bears witness to the fact that innovation is closely related to democratic entrepreneurship and economic growth.

A study released today by the Kauffman Foundation looks for the first time in any significant detail the statistics on “user-entrepreneurs” — entrepreneurs who make products for their own personal use — and found that these types of entrepreneurs were particularly prevalent in innovative startups, comprising 46% of innovative startup founders.

The study tells us what we have known anecdotally for some time - innovation is intuitive, personal, and easy to sell. User entrepreneurs are not only more likely to get venture capital financing from the outset for products they build with a business purpose than other kinds of startups, but those who create their products for personal use are also more likely to have women and minorities as founders.

Read more about the study here. We’re looking forward to seeing more research that hones in on the amazing potential of bottom-up innovation.

Shoring Up Our Safe Harbors

Today, our friends at Public Knowledge launched the Internet Blueprint, where they will be hosting new ideas for positive policymaking where people can vote up or down ideas and help them draft legislation. We encourage you to take a look at all the bills, they’re proposing. We’ve found one in particular we’d like to support, right out of the gate.

A much needed amendment to the Digital Millenium Copyright Act of 1998 has been proposed by our friends over at Public Knowledge to modernize and improve the legislation. The Strengthening and Protecting DMCA Safe Harbors Act would amend section 512 to penalize bogus takedowns — like the takedown of an anti-SOPA Techdirt post we wrote about previously.

The amendments include penalties for anyone who knowingly or recklessly misrepresents that material or activity is infringing, including liability for damages incurred by the alleged infringer and reasonable legal fees if the takedown is proven to be without merit.

The proposed legislation would require proof that the alleged infringer was served with a notice, or an explanation of why this did not occur, as a safeguard against surprise takedowns. The legislation also calls for a free, publicly accessible, and searchable database of all takedown notices and counter notices to increase transparency and guard against bogus takedowns.

Finally, the proposed amendment seeks to protect subscribers to infringing sites with due warning of takedown and prompt return of files owned, in order to protect users who subscribe to services which turn out to be infringing.

Click here to read more from PK’s blueprint for DMCA Safe Harbors.

Now that the dust has settled after the fight against SOPA and PIPA, it’s time to take positive action in becoming involved in shaping future policies that protect an open and vibrant internet, one which is safe for commerce and property, and one that fosters innovation. Legislation like the Safe Harbors amendment, and others already listed on the Blueprint are the kinds we at Engine would like to see more of, and the sooner more work can be done on these important issues, the better.

JOBS Act Announced. Let’s Get to Work.

The Senate is stalling on actions taken by the House to grow job creation, and if they won’t take them up individually, House Majority Leader Eric Cantor (R-VA) hopes the Senate can consider the bills all at once. Cantor today announced House Republicans would bundle a number of entrepreneur-friendly bills focused on aiding startups in gaining better access to markets and capital, easing regulations to allow crowdfunding, and raising thresholds for compliance. Cantor detailed the plan, dubbed the Jumpstarting Our Business Startups (JOBS) Act, in a POLITICO op-ed published earlier today.

The package includes the following bills:

H.R.2940, - Access to Capital for Job Creators Act

Passed in the House, this bill would revise regulation D offerings to relax limitations for qualified investors to sell securities. Currently, regulation D allows some businesses to sell securities without registering them with the SEC. H.R.2940 would make it simpler for startups to raise capital through crowdfunding by removing the regulation D prohibition of general solicitation and general advertising for accredited investors.

H.R.1070, S.1544 - Small Company Capital Formation Act of 2011

This bill would amend the Securities Act of 1933 to exempt from SEC regulation a class of offerings between $5 million and $50 million, with a provision to review and increase this figure biennally. The Securities Act of 1933 capped exemption at $5 million and is long overdue for an update. Increasing the breadth of exemption would make it simpler for startups to raise capital and still be in compliance with SEC regulations.

H.R.1965, S.556, S.1941- To amend the securities laws to establish certain thresholds for shareholder registration, and for other purposes.

This bill would amend the Securities Exchange Act of 1934 to increase the threshold from $1 million to $10 million for shareholder registration for an issuer of securities. As with the Small Company Capital Formation Act of 2011, this would ease regulations and make it simpler for startups to gain access to capital and still be in compliance with the SEC.

These bills are no-brainers, and what’s more, many of these provisions appear in the President’s Startup America legislative agenda, released in late January. In our view, what’s good for startups is good for job creation and the overall economy. Now let’s get them through the Senate.

What else should legislators consider this year? Tell us over at Step2 and help define the Innovation Agenda.

What’s Next?

We want to know what issues around technology and innovation are important to you. Our friends over at Techdirt have created a Q&A platform on which you can vote up the issues you care about most, and add your voice to the conversation about how to implement positive policy change.

In the fight against SOPA and PIPA, the internet community proved itself to be active, engaged, and capable of achieving real influence in Washington. A groundswell of action against these bills erupted all over the nation, and through this action, we as a community were able to directly influence the policy that affects us.

Even though we halted the beast, we still have a long way to go on making sure any future antipiracy policy is developed with reference to the needs of the internet community.

We need to get involved in these discussions sooner.  We need to bring to the table what matters to us, and get involved in shaping policy that works for us so we’re not just reacting to bad legislation.

Let us know what matters to you most, and we will work with you to help implement policy that will work for you, your company, and your future.

Visit the Techdirt/Engine Innovation Agenda thread to let us know what matters to you.

Public Parks for the Airwaves

H.R.3630 just cleared House-Senate negotiations, and a consensus has been reached regarding the spectrum related provisions of the jobs bill. The bill contains provisions to take away the FCC’s ability to set eligibility rules for the auctions, and to re-allocate unused TV frequencies — these so-called “white spaces” — as unlicensed spectrum. The deal that’s been made retains some of the FCC’s ability to preserve unlicensed spectrum, although not as much as we might have hoped.

All of this legislative language revolves around spectrum auctions, which are part of H.R.3630 in order to offset the cost of the extension of unemployment benefits. Spectrum auctions also have the keen attention of telecom companies and of tech companies, both of which are fearing the effects of a looming “spectrum crunch”. The white spaces between licensed TV frequencies are considered especially valuable “beachfront” spectrum, because of their ability to penetrate buildings, carry data traffic, and extend to rural areas. They are hotly contested; telecom companies want them for their mobile broadband services, but supporters of innovation want them to remain unlicensed so that new technologies can be developed over them as has been done in the past with services like WiFi and Bluetooth.

Let’s break this down.

The problem is, we have a limited amount of airwaves through which to conduct many different and competing services. Mobile broadband operators need to have spectrum licenses to use with an ever-growing demand for data use associated with smartphones — Apple’s Siri alone causes the iPhone 4S to require unprecedented amounts of data, even compared to other data intensive smartphones. And consumer demand for mobile broadband services isn’t likely to wane — according to AT&T, mobile data use on their network has risen by 5,000 percent in the last few years. Then there are  more traditional uses of spectrum, like cable TV networks, radio, text messaging, and cell phone lines. Then on top of that, there’s unlicensed spectrum — the “public” areas of our airwaves where innovations like  Wi-Fi, Bluetooth, and baby monitors operate. The unused TV frequencies, or white spaces, come under this unlicensed spectrum umbrella.

It might not come as a surprise that AT&T is for provisions that would take away the FCC’s ability to set limits on who can participate in spectrum auctions, at least on the surface. They are one of the largest carriers and stand to lose the most if they are blocked out or limited in the auctions. Smaller mobile carriers, including Sprint and T-Mobile, sent a letter to Congress voicing their opposition to the provision, which they said would limit the FCC’s ability to promote competition. AT&T immediately hit back with a statement saying the smaller carriers want the FCC to “stack the deck in its favor” and that the auction should be “fair and open”. Several commentators have noted that AT&T’s vehemence on the issue is slightly puzzling, given they have managed to do pretty well under the FCC’s rules so far.

Far more pressing to us, though, is what happens to those innovation-friendly white space frequencies. The unused television frequencies are more than just empty white spaces. They are the public parks of spectrum. What happens in these “public parks” is vital to innovation and long term economic growth — not to mention that everyone benefits from these spaces, including companies like AT&T that regularly use unlicensed spectrum to ease the burden on their own spectrum.

A group of 42 members of Congress, led by Rep. Anna Eshoo (D-CA) and Rep. Darrell Issa (R-CA), drafted and sent a letter urging the preservation of unlicensed spectrum, arguing that “exploring the use of beachfront spectrum, specifically in the television band, is vital given its ability to penetrate buildings, enhance rural coverage, and carry more data traffic than traditional Wi-Fi”.  The letter also noted that in the band best suited for mobile broadband, there is currently 5 times more licensed than unlicensed spectrum. Senator Jerry Moran (R-KS), a major proponent for innovation policy and who along with Sen. Mark Warner (D-VA) co-authored the Startup Act, signed the letter and reiterated the sentiment at a Wireless Innovation Alliance and White Space Alliance event, saying “America would miss an incredible opportunity to enable innovation on unlicensed bands.”

Negotiations, then, have until now been stalled by a lot of competing interests.  It looks as if Congress is opting for a middle of the road approach that hopes to satisfy all sides of the debate.  We’ll be watching to see what the the actual allocations of unlicensed spectrum will be and how this plays out for the innovation agenda.

The App Economy

When Apple opened the iPhone to third party development, it opened a “Pandora’s” box of opportunities to capitalize on (and justify the price tag on) the groundbreaking mobile device. Adding services to this new generation of mobile phones, and later tablets, has turned out to be a fertile ground — unearthing a sector of the tech industry that, according to a new study released yesterday by Technet, is responsible for just under half a million jobs. Not too shabby.

In his State of the Union address, President Obama vowed to incentivize bringing manufacturing jobs back to the U.S., and halt the unfettered loss of American jobs caused by outsourcing American jobs to offshore operations. And there has been plenty of furor in the media about conditions in Apple’s manufacturing factories in China.

As it turns out, regardless of any changes that need to be made as far as outsourcing and manufacturing, the US economy is seeing a tangible boost from the newly designated “App Economy”. The Technet study found that the total number of jobs related to the creation and distribution of apps since the 2007 release of Apple’s iPhone is close to 500,000. That includes a conservative estimate of around 155,000 tech jobs in app companies, and the same again for non-tech jobs in these companies — sales, marketing, HR. The study also cites an estimate that the App economy generated almost $20 billion in revenue last year.

While these apps aren’t always backed by venture dollars and growing companies, like Routesy for example, a majority of them have found a way to create an entirely new sector of the economy - and one that is growing at a significant rate. And while many of these newly created jobs are in the “traditional” innovation areas like San Francisco and San Jose areas, followed by New York and Seattle, other areas like Atlanta, Dallas and Philadelphia, not traditionally thought of as leading technology areas are experiencing significant growth, with even more on the horizon.

With growth in mobile devices expanding and the technological platforms getting more and more robust with each product cycle, the boundaries for the app economy are limitless, and, as the Technet study confirms, we are hopefully only seeing the beginning of the building of a new economy.

Senators Jerry Moran (R-KS) and Mark Warner (D-VA) tout their new bill S. 1965 STARTUP Act in today’s Wall Street Journal.

Happy Birthday, Startup America
Today marks the first year anniversary of the White House Startup America Initiative, and of the Startup America Partnership, a private sector organization led by AOL founder Steve Case. To mark the occasion, The White House announced a legislative agenda to harness the job-creating power of small start-up businesses. Over the past year, the two have partnered to pledge over $2 billion in initiatives to assist with small business growth. The year also saw the creation of Kauffman Foundation’s Start-Up Act, a list of proposals that lay out a “comprehensive agenda for start-ups”. Many of these proposals have made it into the State of the Union last week, including some already part of Start-Up Act:

Tax cuts for small businesses: In order to encourage entrepreneurs to keep starting the new businesses that are the lifeblood of our economy, the legislation is looking to institute a series of tax breaks for small businesses, including:
- making permanent the zero capital gains tax for small businesses in order to encourage investment in start-ups
- a 10% income payroll tax on new jobs added or raises (with a $500K cap to focus the benefits on small businesses)
- an increase in claimable deductions for start-up expenses

Access to markets and capital: Startups need access to investors in order to make the business grow and thrive.  The legislation agenda follows on from the initiatives the White House championed in conjunction with the Startup America Partnership, including:
- changing the limit on simplified Regulation A “mini-offerings” from $5 million to $50 million, meaning start-ups will have greater access to investment capital with simplified SEC filing.
- a national framework for crowdfunding, allowing start-ups to raise high numbers of small investments through an online platform - the way Kickstarter does.
- making the expensive and time-consuming process of “going public” less difficult for new companies by creating an IPO “on-ramp” - giving “Emerging Growth Companies” a larger window of time to reach full compliance with requirements for becoming public

Skilled Worker Immigration: The National Venture Capital Association conducted research which shows that foreign-born entrepreneurs are responsible for creating thousands of jobs for American workers and generating billions of dollars in sales.  As the President made clear in his State of the Union address, we need to facilitate the hiring of skilled workers from foreign countries.  One very simple way to do this (without increasing the overall number of visas) is by reorganizing the current distribution of visas, by lifting per-country caps to ease the huge backlogs for certain countries. Rep. Chaffetz’s legislation to do this has passed the House already, and should be moved quickly through the rest of the legislative process.

The Kauffman Foundation has stated definitively that startups are responsible for almost all new net growth in jobs (you can watch their short video explaining their research findings here).  And the White House is taking action in the form of this legislative agenda that addresses some of the immediate needs of startups that organizations like the Kauffman Foundation, and Startup America and our own, have been raising awareness.  We hope that this great anniversary for Startup America can serve as a catalyst for Congressional action, and not simply another date on the calendar.

Engine among others are profiled as leading the new wave of political activism in the entrepreneurial economy.

Read more at CNET.