[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
INTELLECTUAL PROPERTY 101: HOW SMALL
BUSINESS OWNERS CAN UTILIZE INTELLECTUAL PROPERTY PROTECTIONS IN THEIR
BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MAY 16, 2018
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-072
Available via the GPO Website: www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
30-056 WASHINGTON : 2018
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 GONZALEZ-COLON, Puerto Rico
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
JOHN CURTIS, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, 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
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Ms. Michal Rosenn, General Counsel, Expa, New York, NY........... 4
Mr. David Graham, CEO, Code Ninjas LLC, Pearland, TX, testifying
on behalf of the International Franchise Association........... 6
Mr. Rick Carnes, President, Songwriters Guild of America, Inc.,
Brentwood, TN.................................................. 7
Ms. Joan Fallon, DC, Founder and CEO, Curemark, Rye, NY.......... 9
APPENDIX
Prepared Statements:
Ms. Michal Rosenn, General Counsel, Expa, New York, NY....... 28
Mr. David Graham, CEO, Code Ninjas LLC, Pearland, TX,
testifying on behalf of the International Franchise
Association................................................ 31
Mr. Rick Carnes, President, Songwriters Guild of America,
Inc., Brentwood, TN........................................ 38
Ms. Joan Fallon, DC, Founder and CEO, Curemark, Rye, NY...... 42
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
The Authors Guild............................................ 49
Coalition of Visual Artists.................................. 51
Rachel King, CEO, GlycoMimetics, Inc......................... 54
Keith Kupferschmid, Chief Executive Officer, Copyright
Alliance................................................... 61
INTELLECTUAL PROPERTY 101: HOW SMALL BUSINESS OWNERS CAN UTILIZE
INTELLECTUAL PROPERTY PROTECTIONS IN THEIR BUSINESSES
----------
WEDNESDAY, MAY 16, 2018
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:02 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, King, Luetkemeyer, Brat,
Kelly, Blum, Norman, Velazquez, Evans, Lawson, Adams,
Espaillat, and Schneider.
Chairman CHABOT. The Committee will come to order.
Good morning.
Today, the Small Business Committee will examine how small
business owners have used intellectual property protections to
help their businesses and the issues they face when navigating
the intellectual property process.
Intellectual property plays a vital role in protecting
creative and innovative products and ideas. 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 more than 63 percent of the new jobs over the last
two decades, and small businesses represent about 96 percent of
employer firms and manufacturing industries with a high number
of patents.
Intellectual property protections also help small
businesses grow. Studies have shown that small business owners
can earn 32 percent more in revenue compared to their
counterparts who have no intellectual property protections.
Firms with intellectual property rights also pay, on average,
20 percent more in wages.
However, the process for obtaining intellectual property
protections can be daunting, even for the most experienced
small business owner. Studies have shown that small business
owners are not always aware that they should be protecting
their innovative products and ideas through intellectual
property protections and those that are aware of their
intellectual property rights do not always know how to navigate
the process.
It can also be very expensive to hire professionals to
traverse the intellectual property process. As this Committee
knows all too well, most small business owners cannot afford to
hire an army of experts to guide them through many processes,
including the sometimes difficult process of obtaining these
protections.
This leaves them vulnerable to their innovations being
stolen, both here in the United States and internationally. And
if someone steals their ideas, it can be financially
devastating for the small business owner. 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. This bipartisan legislation would
leverage existing resources at the SBA and the U.S. Patent and
Trademark Office to better assist small business owners and
expand the agency's outreach efforts to provide small business
with the resources they need to address intellectual property
issues.
Today, we will hear from small business owners and their
representatives who have been on the ground utilizing
intellectual property protections. I look forward to hearing
how intellectual property has helped their businesses and what
we can do to foster America's creative small businesses moving
forward.
And I would now like to yield to the Ranking Member for her
opening statement.
Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Many of our most successful ventures in America started as
a note on a napkin, a schematic on a whiteboard, or a dream by
an entrepreneur. When these ideas blossom into new products and
services, they create jobs, a critical component of a healthy
economy.
The success of these new ventures requires a system that
effectively protects entrepreneurs' ideas from being unfairly
copied and stolen. Businesses that develop new products need
assurances that the economic value of their innovations will be
maintained.
At the same time, we must ensure businesses know how to
obtain those protections and enforce them. Doing so helps
entrepreneurs reach global markets and the working capital they
need to get off the ground.
Because of our entrepreneurs' creativity, the United States
is an unparalleled global leader when it comes to new ideas. In
fact, nearly 45 million American jobs are supported, directly
or indirectly, by industries with an intellectual-property
focus. This includes small firms that are independent
television and movie producers, video game designers,
songwriters, and manufacturers. Collectively, this trillion-
dollar industry constitutes a significant aspect of our
Nation's economic success.
Unfortunately, the full potential of this creative field
has not been realized. Many more small firms could launch and
contribute to this sector if they only knew how to protect
their intellectual property.
As the internet continues evolving, the situation has
become more complicated. While the internet has empowered
artists, retailers, and researchers to rapidly disseminate
their ideas, services, and goods, it has also created
opportunities for bad actors.
For small innovative firms, many of which already face
challenges accessing capital, it is vital their investment be
protected from counterfeits and piracy. Without such
protections, these entrepreneurs will be unwilling to assume
the risk necessary to produce the next market-disrupting
invention, thereby hampering growth.
This is especially true among women, minorities, and other
underserved businessowners, who already face obstacles
obtaining IP protections and funding. Not only do women-owned
startups receive just 10 percent of all global venture dollars,
they are awarded just 18 percent of U.S. patents. Addressing
this disparity must be part of that conversation. Today's
hearing will examine how the system for protecting intellectual
property can foster innovation and parity among entrepreneurs.
I thank our witnesses for being here.
And, Mr. Chairman, I would like to also acknowledge Mr.
Schneider, who is the father of our colleague Brad Schneider.
I yield back.
Chairman CHABOT. Thank you.
The gentlelady yields back.
And if Committee members have an opening statement
prepared, I would ask that they be submitted for the record.
And I will take just a moment to explain our lighting
system. It is pretty simple. You get 5 minutes to testify. And
the green light will be on for 4 of those minutes. The yellow
light will come on and let you know you have a minute to wrap
up. And then the red light will come on. And we would ask you
to stay within that, if at all possible.
And I would now like to introduce our distinguished panel
here this morning.
Our first witness is Michal Rosenn, who is General Counsel
for Expa. Expa is a startup studio that helps entrepreneurs
build and grow their business. Expa has incubated 15 startup
companies and advised and invested in 25 other companies across
the country since 2014. Prior to her time at Expa, Ms. Rosenn
was General Counsel at Kickstarter, a crowdfunding platform.
And we welcome you this morning.
Our next witness will be David Graham, who is the CEO of
Code Ninjas, a franchise aimed to educate kids on computer
coding. Mr. Graham has almost 20 years' experience as a
professional software developer and entrepreneur and founded
Code Ninjas in 2016. Code Ninjas began franchising in 2017,
last year, and Mr. Graham is testifying today on behalf of the
International Franchise Association.
And we welcome you here as well.
Our third witness will be Rick Carnes, who is the President
of the Songwriters Guild of America, Incorporated, or SGA. SGA
represents over 5,000 songwriters all across America. Based in
Nashville, Tennessee, and a small business owner himself, Mr.
Carnes has successfully co-written number one songs for various
country artists.
And we welcome you here as well.
And I would now like to yield to the Ranking Member for the
purpose of introducing our fourth and final witness this
morning.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
It is my pleasure to introduce Dr. Joan Fallon, the founder
and CEO of Curemark in Rye, New York.
She filed her first patent application in 1999 and has
worked to research autism and related disorders and bring them
to commercialization. Before Curemark, Dr. Fallon worked as a
pediatric chiropractor for 25 years, specializing in pediatric
development.
She has a B.A. from Franklin & Marshall College, a D.C.
degree from Palmer University, and completed her work for MSC
in clinical investigation from Harvard University's joint
program with Massachusetts General Hospital.
Welcome, and thank you for testifying with us today.
Chairman CHABOT. Thank you very much.
And, Ms. Rosenn, you are recognized for 5 minutes.
STATEMENTS OF MICHAL ROSENN, GENERAL COUNSEL, EXPA, NEW YORK,
NEW YORK; DAVID GRAHAM, CEO, CODE NINJAS LLC, PEARLAND, TEXAS,
ON BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION; RICK
CARNES, PRESIDENT, SONGWRITERS GUILD OF AMERICA, INC.,
BRENTWOOD, TENNESSEE; AND JOAN FALLON, FOUNDER AND CEO,
CUREMARK, RYE, NEW YORK
STATEMENT OF MICHAL ROSENN
Ms. ROSENN. Thank you.
Chairman Chabot, members of the Committee, thank you for
the opportunity to appear before you today. I hope to give you
some insight today into the value that startups bring as
today's small businesses and into the experiences that we have
with the patent system and the intellectual property system.
Chairman CHABOT. Would you mind pulling the mic a little
closer?
Ms. ROSENN. Sure.
Chairman CHABOT. Thank you.
Ms. ROSENN. So my name is Michal Rosenn. I am general
counsel of Expa. As the Chairman explained, Expa is a startup
studio that helps the world's best entrepreneurs bring their
ideas to life. We are a group of about 20 people. I am in New
York; a bunch of us are in California, as well as in Vancouver.
And we are bringing together founders, designers, and people
with great ideas and giving companies that are at their
earliest stages the foundation, the resources, and the funding
to turn their ideas into businesses.
Expa has incubated more than 30 startups from across the
country. These include Current, which is a parent-controlled
debit card that allows teens to build their financial skills;
Spatial, which is a company that is building revolutionary
virtual-reality-based collaboration tools; and Shift, which
helps veterans find careers that match their skills, values,
and potential and connects those veterans to today's most
promising companies. We are proud to be creating and supporting
the businesses that will drive tomorrow's economy.
The startups and small businesses like these Expa companies
rely on the immense value that the patent system provides to
entrepreneurs. It is a system that is meant to reward true
innovation by allowing a patentholder to reap the benefits of
her work while providing a service to the public in sharing her
discoveries.
Now, filing for patents is a long, arduous, and very
expensive process. It is difficult and can be frustrating. But
when the process works well, you are rewarded with a valuable
asset, both for your business and for society.
Now, reforms made by Congress, the Patent and Trademark
Office, and the courts over the last few years have helped to
increase the strength and integrity of the patent system,
increasing the likelihood that the system does work well.
Unfortunately, though, these reforms haven't been quite enough
to prevent an insufficiently rigorous patent review process and
subsequent abuse of the system.
That is why, for many startups and small businesses, the
only interaction that they are ever going to have with the
patent system will come through predatory patent litigation,
the dreaded patent trolls.
One of our companies recently went through this process
when it was named, alongside dozens of other companies, as a
defendant in a patent infringement suit. Instead of focusing on
a big upcoming product launch, the team had to divert its
attention to find a law firm and to fight the charge that they
were violating a vague patent.
Luckily, Expa was able to draw upon some of its resources
and help them get the complaint dismissed by showing that the
company didn't even use the underlying technology that the
plaintiff was alleging in the complaint. Unfortunately, we know
that this is not going to be the last patent troll suit that
Expa companies are going to face.
Before joining Expa, I was at Kickstarter, and during my
time there, we faced five patent troll suits, directed both at
us and at the creators and independent entrepreneurs that were
using our site. Kickstarter was lucky enough to have the
resources to fight these suits. Expa's companies are at earlier
stages of their business lives and don't have the same funds to
stand up to patent trolls. But they at least can take advantage
of a network that will help guide them through the terrifying
world of patent litigation that opens up when you get that
first demand letter.
Most small businesses do not have access to these kinds of
resources. They find themselves facing these threats alone, and
they are forced to either pay a settlement or face years of
very costly litigation. These situations have a major impact on
businesses, leading to changes in strategy, diversion of
resources, deferred hiring, and even complete shutdown in some
cases.
This is the reality that startups and small businesses face
because of the proliferation of low-quality patents. When
patents are unreasonably vague or incomprehensible, they allow
the kind of predatory and extortionist behavior that I have
been describing to you.
Some recent developments have helped to improve patent
quality: the PTO's post-grant review process that allows bad
patents to be challenged after they have been granted; and the
Supreme Court's Alice decision, which helped clarify that
abstracts ideas and processes can't be patented. But we still
have a long way to go, and we are heartened by the attention
that you and the rest of Congress are paying to this important
topic.
Now, today's small businesses may look different than those
of yesterday. There are startups and technology companies that
are in co-working spaces rather than storefronts. They are
using the internet to reach not just their local communities
but a global audience.
But startups still share so many of the same experiences,
excitements, and struggles that small businesses have faced in
every generation. They are a few people putting everything they
have into bringing an idea to life. They are balancing
checkbooks, stretching dollars, and working around the clock to
build their businesses.
Whether that business starts as a small grocery store in
Cincinnati and goes on to become the largest supermarket chain
in the U.S. or starts by building computers in a garage in
California and goes on to become the world's largest technology
company, the potential of small businesses we know is vast.
And as startups and technology-based companies make up an
ever-growing part of the small business landscape, it is
incumbent on all of us to protect true innovation and to allow
these businesses to flourish free from the threat of predatory
litigation.
Thank you for your time, and I look forward to your
questions.
Chairman CHABOT. Thank you very much.
Mr. Graham, you are recognized for 5 minutes.
STATEMENT OF DAVID GRAHAM
Mr. GRAHAM. Thank you.
Chairman Chabot, Ranking Member Velazquez, and members of
the House Small Business Committee, thank you for this
opportunity.
My name is David Graham. I am the CEO of Code Ninjas, the
fastest-growing and largest kids coding franchise in the United
States. At our centers, kids learn to code using video-game-
based curriculum in a fun, safe, and inspiring learning
environment. In March of 2017, we started franchising to expand
our brand, and we have grown to more than 250 centers in more
than 30 States. None of this would have been possible without
the franchising business model and the IP protections it relies
on.
Small businesses actually constitute a large majority of
franchisors and franchisees. The common denominator in
franchising is that we rely on the small business model and use
economies of scale to grow. In Code Ninjas' case, we use
franchising to teach youth STEM education at an accelerated
rate.
Because franchisees are individual owners, ensuring brand
protection is key to ensuring the customer's experience is
consistent. The only way to give legal effect to brand
consistency is through intellectual property protections. In
other words, franchising should be understood as a system of
licensing intellectual property where the franchisees are small
businesses that hire, fire, and set the hours of their own
people but the brand controls the look and feel of that system
so the customer experience is consistent.
Because of the Lanham Act and its requirement that
licensors police the use of intellectual property licensed to
third parties, franchisors have the right and obligation to
determine how their marks are used and to do so in a way that
protects the consuming public.
This means that we need a standardized set of training
materials, branded uniforms, sales processes, and even jargon
to use with the parents so that Code Ninjas isn't distilled
into a simple curriculum that can be found online. In fact, one
of our trademarks is the term ``Kids Have Fun, and Parents See
Results,'' and this is the soul of our brand. This is to say
that intellectual property protections are vital to the
franchising model.
But there are some areas IP law falls short.
First, some States make franchise disclosure document
registration relatively easy because they exempt franchisors if
the brand has federally registered and approved trademarks.
This could be done nationally and would save everyone time,
effort, and money.
Second, we have seen a number of companies apply for
trademarks that would have confused our brand with theirs. The
government should provide immediate feedback when someone
attempts to register a mark so we can identify copycats.
Third, we have seen international copycats who are
essentially squatting on our brand. These squatters are able to
game the system in part because there are no implicit
protections for URLs that contain our U.S.-registered
trademarks.
Fourth, we need to strengthen our protections against
misleading advertisements. One competitor used our trademark of
Code Ninjas in their advertisement in an effort to funnel
people into their own company. There aren't strong protections
to help us remedy this IP infringement, and this is especially
true for social media platforms, where there is zero
protection.
Finally, we need clarity on the confusing joint employer
standards. For example, I am concerned if I provide certain
training materials to my franchisees, which are important
materials for brand consistency and that add real value to
their small businesses, that those provisions and those
materials could be construed as creating a joint-employer
relationship. I hope that Congress will continue to call for
clarity in this area.
Thank you for your time and for hearing my perspective on
these important IP protections, and I look forward to your
questions.
Chairman CHABOT. Thank you very much.
Mr. Carnes, you are recognized for 5 minutes.
STATEMENT OF RICK CARNES
Mr. CARNES. Thank you.
The Songwriters Guild of America thanks the Committee for
this opportunity to testify on the importance of strong
copyright laws to small business, specifically the small
business of creating musical works.
Our copyrights are our only product. We don't sell T-shirts
or concert tickets. We just sit in a room all day, slumped over
a guitar, trying to create magic on a blank page. And sometimes
we have a good day, and on those days we write a song that
perhaps puts our kids through college or buys a new pickup
truck or a refrigerator.
And, by the way, my name is Rick Carnes. I am president of
the Songwriters Guild of America, the Nation's oldest and
largest songwriting organization run exclusively by and for
songwriters. I have been fortunate enough to have had a long,
long career and have had number-one songs recorded by Garth
Brooks and Reba McEntire and hits by Alabama and Steve Warner
and even, I am proud to say, Dean Martin, among others.
Yet, despite my success and good fortune, I am reminded
every time I see unauthorized copies of my songs posted online
just how perilous the profession of songwriting is in the
digital music age.
The copyright protection enshrined in the Constitution has
allowed the U.S. to become the world's commercial and artistic
leader in the creative industries. But every generation or so,
the government has to address whether or not those protections
are still actually working--like back in the 19th century, when
British and Irish sheet music was brought into the U.S. without
copyright. It made American songwriters have to compete with
royalty-free songs from abroad.
During this period, the U.S. lost its greatest pop
songwriter of the century, Mr. Stephen Foster, who died in
poverty in the Bowery in New York City with only 38 cents and
two song titles in his pocket. As a result of such tragic
cultural losses, the U.S. now respects foreign copyrights and
our copyrights are valid in other countries. There was a
problem, Congress fixed it, and we all prospered thereby. Let's
let that lesson not be forgotten.
The digital age has brought new challenges and exposed
serious flaws in what has today become an antiquated copyright
system that is no longer protecting our songs online and, thus,
isn't allowing us to achieve fair remuneration for our works
since we are forced to compete with pirated copies of our own
songs. What other small business has to price its goods based
on competing with outright theft?
The government could certainly help in protecting
songwriters with the elimination of unnecessary safe harbors
for wealthy digital music distributors, the sunsetting of 75-
year-old consent decrees on our performance right
organizations, and, finally, enforcing antipiracy laws.
But in the meantime, our best hope is self-help. The SGA
supports the development of content delivery networks that give
consumers better and safer access to music online at fair rates
of remuneration for creators. And SGA is pleased to see that
the Music Modernization Act is addressing some of these issues
and was recently passed in a unanimous vote in the House.
But there are other practical legislative fixes that
songwriters, as small business people, need immediately. The
single greatest issue of importance to the songwriting
community which remains fully unaddressed in the Copyright Act
is that, in order to enforce our rights against infringers,
songwriters literally need to make a Federal case out of it, at
an average cost of nearly $350,000 per Federal suit. Since
precious few songs ever earn that much money, songwriters are
left with a right but no remedy.
Strangely, if my neighbor borrows my $60 lawnmower and
wrecks it, I can take him to small-claims court, and Judge Judy
will make him pay for it. But if that same neighbor takes my
entire life's work and posts it online for free, he can just
thumb his nose at me and laugh, reposting it as many times as I
can ask the infringer's network to have it taken down.
Towards correcting that, the SGA has worked with the
Copyright Office and the Congress to craft the bipartisan
Copyright Alternative and Small-Claims Enforcement Act of 2017
to establish a small-claims venue in which to address such
copyright infringement problems in a way that would make
copyright more accountable, responsive, and efficient.
Individuals would benefit from the small-claims process, as it
would allow them to resolve copyright issues in an economically
feasible way, which would be attractive to both plaintiffs and
defendants.
It is for these reasons that the SGA respectfully requests
that the House Small Business Committee consider cosponsoring
the CASE Act--long-overdue legislation that would provide small
business owners who devote their lives to creating value and
copyrighted works with a remedy to protect those works.
Once again, I want to thank the Committee for giving us
this opportunity to discuss the way that copyright helps to
foster the small business community of songwriters. I look
forward to answering your questions. Thank you.
Chairman CHABOT. Thank you very much.
Ms. Fallon, you are recognized for 5 minutes.
STATEMENT OF JOAN FALLON
Ms. FALLON. Good morning. I want to thank you, Chairman
Chabot, Ranking Member Velazquez, and members of the Committee,
for this opportunity to speak with you today about the
juxtaposition of intellectual property and small and startup
businesses.
One of the hallmarks of small and startup businesses is
that they often have aspirations to be larger ones with
economic and social impact that are the backbone of job
creation, economic independence, and prosperity.
Great ideas are ones that solve problems. Protecting those
ideas so they can mature for the benefit of others is key when
we consider the growth and scalability of small business. The
protection of ideas, designs, and innovation takes many forms,
including patents, trademarks, and copyrights. The existence of
patents and intellectual property was a vision held by our
forefathers, and they created those rights under our
Constitution.
I am the founder and CEO of a bio-pharma company called
Curemark, located in Rye, New York. Curemark is currently
working on an enzyme replacement drug for autism. The company
was founded in 2007, but I personally have been working on the
science since 1998. As a company, we have conducted two FDA
Phase 3 clinical trials at 33 sites across the U.S. We plan to
meet with FDA later this year to discuss our findings and to
file a new drug application.
Curemark, like almost all other startups, has transitioned
through a process of discovery, validation, and scale. We would
not exist as a company today if it were not for our
intellectual property protection. Our IP has allowed us to
protect our findings, raise money, demonstrate efficacy, and
put forth the novel science which hopefully will benefit
millions of American children.
Curemark, since inception, recognized not only the need to
patent its discoveries but to develop and execute on a well-
rounded IP strategy. The extraordinary length of time
pharmaceuticals require to develop, become validated through
benchtop testing and human clinic trials, obtain regulatory
approvals, and bring a drug to market requires the creation of
an environment for relentless discovery and innovation.
The issuance of a patent, in my opinion, is one of the most
egalitarian processes that exists in our country. Patents are
granted without regard for race, age, gender, socioeconomics,
education, geography, or even living status, because, yes, even
a deceased person can be granted a patent if their heirs apply
for one.
In the early days of our republic, women did not share in
equal rights with men to own property, to vote, or to have a
separate economy. Despite this, they could still be granted a
patent, thus rewarding their innovation and creativity equally
despite their inability to benefit from it financially.
Today, there remains a significant dearth of women
patentholders. Recent statistics from the Institute for Women's
Policy Research shows that 18.8 percent of all patents list at
least one woman, but only 7.7 percent of all patents list a
woman as the primary inventor. The National Bureau of Economic
Research makes the case that, if the patenting gap were closed
just between women and men, it will result in an increased GDP
of 2.7 percent.
Further, the research shows that there is a socioeconomic
patenting disparity as well, where children in the top 1
percent of income distributions are 10 times more to be
inventors than children with below-median-income parents.
We also know that children exposed to innovation are more
likely to be inventors, and where they live influences that
exposure. Eighty percent of the patentholders live in the 100
largest metro areas in this country. The need for innovation
and intellectual property, however, exists in rural and
manufacturing communities as well.
A U.S. Chamber of Commerce report found that in IP-
intensive industries workers make, on average, higher wages.
Additionally, IP drives each State's manufacturing exports,
leads to increased R&D investment, and stimulates and protects
innovation. We also know that companies that have intellectual
property are more likely to receive venture capital.
In conclusion, I would like to state that the intellectual
property belongs to all Americans. Innovation is a foundational
principle of our great Nation, and I believe that the Federal
Government is key in fostering innovation. I propose that we
set up Federal offices of innovation in every State, thus
making the patent process accessible to everyone.
We need to encourage and teach innovation and design
thinking in our schools so that young people nationwide,
regardless of whether they have an idea for a new blockchain
technology, a new method for growing corn, or for a car that
runs on water, have the opportunity to realize these ideas.
The USPTO, the SBA, and the U.S. Congress form a powerful
platform, and, together, we can change the face of our Nation
through our innovation.
Thank you again for giving me the opportunity to speak with
you this morning. I look forward to your questions.
Chairman CHABOT. Thank you very much.
And I will begin with myself. I recognize myself for 5
minutes.
And I will begin with you, Ms. Rosenn, if I can. What
advice would you have for startups or other small business
owners when it comes to intellectual property protections? What
do you think they ought to be looking out for? What experiences
have you had that you could give folks out there?
Ms. ROSENN. Sure. Thank you, Chairman.
So, yeah, I think, with my experience at Kickstarter and at
Expa, I have a lot of experience working with people at the
earliest stages of their businesses. At Kickstarter, it was
creators and entrepreneurs who were putting their projects on
the site, and at Expa, as I mentioned, we are working with the
earliest startups.
And the thing that I would recommend most is start thinking
about these things early and to draw upon all the resources
that their community and that the government provides.
And why I am so heartened that we are having this hearing
today is to know that the government is paying attention to
this and exploring ways that they can provide additional
resources to the smallest businesses, the people who don't
already know how to take advantage of the protections that the
Patent Office and others provide for them.
So I would tell them to think about patents, trademarks,
and copyright protections as a core asset of their business to
consider at the same level as their product and to think about
how they can really take advantage of the existing resources,
as well as push for additional ones, so that they can build
their businesses on the value of their intellectual property.
Chairman CHABOT. Thank you very much. Thank you.
Mr. Graham, could you describe the process that you went
through as a small business owner to obtain a trademark for
Code Ninjas? Where did you start? What resources did you use as
you went through the process?
Mr. GRAHAM. Sure.
First of all, we had counsel already set up for our
franchising, and they counseled us to go ahead and start the
trademark process as early as possible.
As I mentioned earlier, in certain States, you can go
through the registration process for your FDD a lot easier if
you have a registered trademark nationally. So it is a bit of a
chicken-or-egg problem because to get a trademark you have to
be in business, but we needed one to be in business. So it was
a bit of a contest to see which came first for us.
That said, you know, there wasn't a lot of resources--I
would agree with her that there weren't a lot of resources as a
small business person to get in front of this problem without
going to a lawyer and basically having them settle it up for
us.
Chairman CHABOT. Okay. Thank you.
Mr. Carnes, I will go to you. Could you walk us through the
process of obtaining copyright protection, you know, in your
industry, the songwriting industry? How long does it take, how
much does it typically cost, and that sort of thing?
Mr. CARNES. It has changed a lot recently, because, in the
past, we basically had music publishers that took care of all
the paperwork for us and we just spent time in a room writing.
But now, since the internet has sort of decimated the
middle class of songwriters, most songwriters are self-
published, and so we have to do a lot of that paperwork
ourselves. So you have to register the song at the Copyright
Office, you have to register with the performing rights
organizations, you know, issue mechanical licenses. It is a
pain. I mean, there are a lot of different rights in copyright,
so it has become very complicated now.
Chairman CHABOT. Okay. Thank you very much.
And, Ms. Fallon, I probably have just enough time for you.
We had a hearing here, just last week, actually, on people
who have some sort of developmental disability, and two of the
main ones that we were dealing with were autism and Down
syndrome. And some were as an employee, some were as
entrepreneurs themselves. And, in some instances, one in
particular, you know, the father was very involved in his son,
who had Down syndrome and had a very successful sock company.
And so I am just interested in--you mentioned autism and
the drug that you are working on. In fact, my chief of staff,
her daughter has autism, and it is something that they work on,
and she informs me about the struggles that they have to go
through.
So how is the autism drug that you were talking about?
Where are you at in that, and how do the prospects look?
Ms. FALLON. Thank you for that.
Our drug is an enzyme replacement. So what I found early on
was that there is a large group of children with autism, on the
spectrum, who are missing a particular enzyme that digests
protein. And the children have very self-selected diets, that
they don't usually eat protein. And so the physiology of it is
that it breaks down protein and frees up amino acids that are
used to make neurotransmitters. And that is sort of a very
succinct way of describing that.
But supplementing the children has been done now for almost
10 years, and we have ongoing trials, open-label trials.
Chairman CHABOT. Thank you. I am not sure what you just
said, but I am going to tell my chief of staff about it.
My time has expired, and I will now--the Ranking Member,
Ms. Velazquez, has 5 minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Dr. Fallon, in our meeting last year, you got me thinking
about equity within the patent system. And that is one of the
reasons I introduced H.R. 3517, the Women Inventor Development
and Equity Act.
Dr. Fallon, we all know that women already face challenges
accessing venture capital at a higher rate than men. So how can
not holding a patent further compound this existing barrier?
Ms. FALLON. Thank you, Congresswoman Velazquez.
I believe that holding a patent actually is a sort of
third-party verification of the fact that you have a novel idea
or a novel discovery. And I think that is something that you
can actually hold out to investors. It is one thing for you to
talk about it; it is another thing to show that the USPTO
believed that this was novel.
Ms. VELAZQUEZ. Thank you.
And do you support legislation that will require the
federal government, specifically USPTO, to collect data on
gender, race, and income gaps in patenting and their impact on
small business and entrepreneurship?
Ms. FALLON. I believe if we don't know the extent of the
gap, then we are going to have problems fixing it. So, yes, I
do support that.
Ms. VELAZQUEZ. Thank you.
Mr. Carnes or Mr. Graham, piracy continues to constrain
your industries. Can you discuss how your industry is
addressing this problem on its own and what Congress can do to
alleviate the problem?
Mr. CARNES. Yes. We have always advocated for safe and
easily accessible alternatives to piracy, because so many times
the excuse for piracy is, well, we couldn't find this song
online that we could pay for, so we just stole it. And it has
taken, you know, almost two decades to get those businesses
built and up and running because those businesses are competing
against free.
So it would have really helped to have more enforcement on
the government side to make those businesses more profitable.
So that would be, you know, the way that we mostly handle them.
Ms. VELAZQUEZ. Thank you.
Mr. Graham?
Mr. GRAHAM. Piracy is a concern within franchising, and our
small business specifically would be related to around what I
call squatters making attempts at our URLs internationally. So
codeninjas.eu, for example, is held by somebody that registered
after our trademark went through. And yet, when we go into the
EU, we will have to pay them, you know, basically a ransom in
order to get our own domain back, where we should have had a
mechanism built within the government or within the ICANN or
some other entity to go ahead and register those
internationally so that when we--especially ones that are
geographically based, like the EUs and the dot-co-dot-UKs and
that that kind of thing, we should be able to get our own
domains.
Ms. VELAZQUEZ. Thank you.
Ms. Rosenn, you mentioned slow processing times and high
costs for patents. Can Congress or the USPTO do anything to
ensure small firms are not hindered by this process or cost?
And are there any models in other countries that we can look
to?
Ms. ROSENN. Thank you for the question, Ranking Member
Velazquez.
I think that the best thing that this Committee and
Congress can do is work on the educational resources that are
available to small businesses and really direct it to the
specific needs of small businesses and startups.
And, you know, hiring lawyers is always going to be
expensive. We want the patent system to be rigorous. We want to
make sure that the patents that get through are high-quality.
So that is going to take time and, therefore, money.
But there is a lot of room for the Small Business Committee
to represent the interests of startups and small businesses and
to work together with the Patent Office to make educational
resources available.
I don't currently have any other foreign models available,
but I will look into that get back to you.
Ms. VELAZQUEZ. Thank you.
Mr. Chairman, I yield back.
Chairman CHABOT. Thank you.
The gentlelady yields back.
The gentleman from Missouri, Mr. Luetkemeyer, who is the
Vice Chairman of this Committee, is recognized for 5 minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
Interesting discussion today. I thank all of you for being
here.
It is a little frustrating, I know, as a small business
person, to have your, you know, heart and soul poured into
whatever product or song or research you have done and then see
somebody run off with it and beat you to the punch to the
marketplace. We need to make sure we, you know, find a way to
protect those folks from that.
Ms. Fallon, you made a comment a while ago that you even
patent the discoveries. So, in other words, just to make sure I
understand what you are saying here, that you patented the
process by which you were able to discover the enzyme that was
the problem.
Ms. FALLON. Uh-huh.
Mr. LUETKEMEYER. But then, I guess, would you patent then,
also, the drug or the cure for this situation? Is that what you
do?
Ms. FALLON. Thank you, Congressman. Yes, absolutely, in
addition to the makeup of the drug and how it is manufactured.
So there are multiple places where we have patents around this.
Mr. LUETKEMEYER. So the fact that you patented a discovery
process or whatever it was, how you found this, would protect
your ability, then, to figure out how to find a cure for it. Is
that why you patent that? Is that how that works?
Ms. FALLON. Yes, it was the relationship between the low
level of an enzyme that is missing and then the replacement of
it and the results of that.
Mr. LUETKEMEYER. Okay.
Mr. Carnes, I kind of figure out that you pretty well know
when somebody is infringing on your patents, because you hear
the tune somewhere or somebody will give you a heads-up on it.
But, Mr. Graham and Ms. Rosenn here, how do you find some
of these other folks that are infringing on your patent in a
timely enough fashion that you can get out in front of it
before these folks destroy your product or your service,
whatever it may be?
Mr. GRAHAM. Yeah, so that is a very proactive outreach, you
know, using the USPTO website, using different resources. We
hire a firm, actually, to protect our assets in that way----
Mr. LUETKEMEYER. Well, that would be my question. You
almost have to have somebody who sits there and patrols,
actually, whatever is going out there in the world in your----
Mr. GRAHAM. Yes, that is exactly right.
Mr. LUETKEMEYER.--in your industry to be able to protect
it, no?
Mr. GRAHAM. That is exactly right.
And if I could make another request, get one of her guys to
go ahead and build a better user experience on that USPTO
website. That would be great.
But one of those features that I think would be good is if
we could put in, like, a Code Ninjas--the term, and then if
either ``code'' or ``ninjas,'' in my example, ever gets
registered again, I would just get a simple email. I mean, that
would be a very easy system to put into place, and it would
notify us reactively, instead of us having to go the proactive
approach.
Mr. LUETKEMEYER. Mr. Carnes, I think you mentioned it costs
about $350,000 to defend yourself on an average suit. Is that
what you just said?
Mr. CARNES. Yes. We have to make a Federal case out of
every infringement suit.
Mr. LUETKEMEYER. How does that affect the ability to
protect your copyrights?
Mr. CARNES. It virtually makes it impossible.
Mr. LUETKEMEYER. The average songwriter can't afford to do
that, can he?
Mr. CARNES. Not at all.
Mr. LUETKEMEYER. Do you find a sugar daddy somewhere, or do
you find a----
Mr. CARNES. No. Actually----
Mr. LUETKEMEYER.--distributor somewhere that wants your
song and wants to protect it? Is that how you do it?
Mr. CARNES. Well, if you have major publisher, like, you
know, a record label publisher or something, and they look at
the infringement and they deem it so egregious that it is worth
spending the $350,000 to go after it, they would have the
resources to do that.
But I would point out that in the last 20 years, as far as
I know, the only, you know, big piracy infringement suits were,
like, launched by the RIAA, and neither one of them really
netted any return. I mean, they proved that there was piracy,
but there was no money there to recoup the $2 million, in one
case, that the suit cost.
Mr. LUETKEMEYER. Oh, my gosh.
Ms. Rosenn, how do your entrepreneurs, your incubator folks
there, how do they afford to fight this? Or what is your
average cost, I guess I should say?
Ms. ROSENN. Sure. I think, actually, for most of our
companies, they are too early-stage to even get to the point
where they are fighting this. But they are working on building
their trademark portfolio, for example, and their patent
portfolio as they build their businesses.
And, as Mr. Graham said, a service provided by the PTO that
monitors new registrations and allows you to be aware when
there are new trademark registrations that might possibly
infringe on yours would certainly be helpful.
I would actually argue that, in the patent context, it is
not the threat of infringement that is the biggest issue for
small businesses. It is people who actually weaponize their
patents and seek infringement anywhere they can or a potential
argument for infringement. And those are the sort of patent
trolls that I was describing before.
Mr. LUETKEMEYER. Okay.
I want to get one more question in quickly here.
Ms. ROSENN. Sure.
Mr. LUETKEMEYER. You made a comment a while ago with
regards to needing more resources.
Ms. ROSENN. Uh-huh.
Mr. LUETKEMEYER. What do you mean when you say that they
need more resources? Define ``resources'' for me.
Ms. ROSENN. Sure. So what I was describing is really
educational resources.
Let me back up and say that, really, they across the board
would need more money, you know, more affordable lawyers, more
education.
But if we are talking specifically about what the
government can provide, that would be education and outreach
and guidance specifically aimed at small businesses and
startups for filing patents, for filing for trademarks, for
working through that process and----
Mr. LUETKEMEYER. So you are talking about maybe a how-to
manual whenever you apply for a patent, how to do this all?
Ms. ROSENN. Whether that is a how-to manual or specific
people within the PTO who are there as people that small
businesses can reach out to as, kind of, guides through that
system, I think there are a lot of opportunities there.
Mr. LUETKEMEYER. I thank the Chairman for indulging me.
Chairman CHABOT. Sure. Thank you.
The gentleman's time has expired.
The gentlelady from North Carolina, Ms. Adams, who is the
Ranking Member of the Subcommittee on Investigations,
Oversight, and Regulation, is recognized for 5 minutes.
Ms. ADAMS. Thank you, Mr. Chairman. And I want to thank you
and the Ranking Member for holding this meeting.
And thank you for your testimony. It is a very interesting
topic. It is certainly one of concern to me. I am a visual
artist. And I have just seen, over the years, works actually
being hijacked in various ways, especially with the internet
now and folks putting their work out there. So I just wanted to
say that. And I appreciate, you know, your interest and what
you are doing with your businesses.
My first question is for Ms. Fallon.
As a first step to address the gender and race gap in
patenting, would it be helpful for the Small Business
Administration to examine the gender, race, and income gaps in
patenting and their impact on small business and
entrepreneurship?
Ms. FALLON. Yes, I believe absolutely. I think that to
solve a problem you need to understand what it is and to look
underneath the hood, as it were, to understand that gap, where
it exists, and also why it exists.
Ms. ADAMS. Thank you.
According to the Institute for Women's Policy Research,
even among college graduates, African Americans and Hispanic
Americans hold nearly half as many patents as Whites, about 1
percent each. African-Americans and Hispanic Americans also
apply for patents at nearly half the rate of Whites.
Professor Cook at Michigan State has also estimated that
including more women and African Americans in the innovation
pipeline would increase U.S. GDP anywhere from 0.65 to 3
percent.
Are we wasting economic potential by letting gender,
income, and race determine which of our children will
participate in the innovation pipeline? And what steps should
Congress take to help narrow the gaps?
And this question is for anyone on the panel who would like
to speak to it.
Ms. ROSENN. Sure. Thank you, Congresswoman Adams.
I think you are absolutely right, and this needs to be a
collective effort from all industries and government.
I think that the pipeline issue, as with so many questions
of diversity and inclusion, is at the core of what the problem
is. If we don't have people who are being educated in STEM
fields, if we don't have people of color and women who are
adequately represented among startups, we are not going to have
an equal representation within the patent system either.
And so I would love to see more industries working
together. I am very heartened by the fact that the tech
industry is one where there has been enormous attention to
diversity and inclusion, and rightfully so, and I would love to
see that done more broadly. And realize that it is truly
systemic.
Thank you.
Ms. ADAMS. Thank you.
Mr. Graham?
Mr. GRAHAM. Yeah, so the tech industry has changed over my
career. Obviously, the nerds had it going pretty good there for
a minute, and then the word got out it was a pretty good job.
So everybody is getting on board with being a computer
programmer or in some kind of STEM. And we love that, to be
honest with you.
This has been a fascinating journey, because, you know,
over 60 percent of our franchisees are women or minorities. So
we are proud of the fact that we are able to bring a tech-based
education system to help more people get in there and fill that
pipeline.
We are teaching kids, you know, for jobs--by 2035, 70
percent of the jobs that will exist then don't even exist
today. So automation, all kinds of different things are coming,
and we are preparing kids of all backgrounds for that next
generation.
Ms. ADAMS. Do you focus in on women in particular?
Mr. GRAHAM. We don't have a specific focus, but they are
certainly very involved with what we are doing. They come from
the education background typically, so we are kind of bridging
two worlds, technology and education.
Ms. ADAMS. Okay.
Yes, sir.
Mr. CARNES. Growing up in Memphis in the 1960s, I can
certainly tell you how much including African Americans in the
copyright community can boost the local economy--not just local
but national too.
Ms. ADAMS. Uh-huh.
Mr. CARNES. And, as a visual artist, I would like to remind
the Committee that the CASE Act would certainly help
photographers. My daughter is a professional animator. I mean,
that is one thing that would really help, if the Committee
would cosponsor the CASE Act.
Ms. ADAMS. All right. Well, I certainly support it.
Did you want to comment? You have 22 seconds.
Ms. FALLON. Yes.
Talent exists in every corner of this country. And I think
finding that talent, encouraging that talent, and encouraging
that innovation is really our job. And so I absolutely support
looking for that talent and innovation.
Ms. ADAMS. Great. Thank you.
Mr. Chairman, I yield back.
Chairman CHABOT. Thank you very much.
The gentlelady yields back.
The gentleman from Iowa, Mr. Blum, who is the Chairman of
the Subcommittee on Agriculture, Energy, and Trade, is
recognized for 5 minutes.
Mr. BLUM. Thank you, Chairman Chabot.
Thank you to our panelists for being here today.
And I would like to compliment my colleague Ms. Adams on
her wonderful hat today. Very nice. Very nice.
Mr. Graham, I wrote down here you mentioned a better user
interface with government software. That is kind of an
oxymoron, you know. We had an executive from Silicon Valley
here in Washington a year ago talking about IT in the Federal
Government, and his quote was, ``I felt like I went back in
time.''
Mr. GRAHAM. I agree with his sentiment. Yes.
Mr. BLUM. I have a question, Ms. Rosenn, for you. You
mentioned in your testimony, I believe, patent trolls.
Ms. ROSENN. Yes.
Mr. BLUM. I am a part-owner of a software company. I have
been in software--some small, some bigger, some went public--
over the last 20, 25 years.
Ms. ROSENN. That is great.
Mr. BLUM. To me, it is almost like legalized extortion, in
that you can get a letter--and we have, our company has--get a
letter that says, you know: You are violating this innocuous
patent we have never heard of because you--I will use an
extreme to make an example--because you used the word ``the''
on your opening page of your software. Cease and desist
immediately, or pay us money.
Now, to me, it is almost like a big-business-versus-a-small
business thing. And we all know that the complex favors the
large. So big companies don't have problems with excessive
regulations, and big companies can do these types of things to
small companies, because we don't have a bevy of attorneys and
lawyers that can fight for us. And it is a very frightening
thing, and it can bring some small businesses to their knees.
Can you comment, please, on patent trolls?
Ms. ROSENN. Yeah. Thank you, Congressman.
As you mentioned, this is an enormous issue for the
smallest businesses. And it really is those businesses that
find themselves crippled by these demand letters that they
receive.
And what has happened is that, up until 2011--and the
America Invents Act was passed in 2011 and really helped the
situation progress, and we have seen patent trolls fall, to a
certain extent, since then. But, like I said, there is still a
ways to go, and we would like to see more reforms, but----
Mr. BLUM. What do we need to do specifically? Congress.
Ms. ROSENN. Sure. What I would like is to protect the
innovations that have passed. So, you know, protect section 101
and the Supreme Court decisions that I mentioned, like Alice,
that clarify that abstract ideas can't be patented.
So, at Kickstarter, we were sued by someone who had a
patent for, essentially, crowdfunding for music. And, you know,
this is an abstract idea, and we went through a 4- or 5-year
court battle, spent millions of dollars, and eventually got
that patent invalidated based largely on that Supreme Court
decision, which said that this is just an abstract idea that
you added a computer process to; that can't be patented.
So it really important to protect----
Mr. BLUM. How much money, if I can--I am sorry to
interrupt. How much money was spent on that effort,
approximately?
Ms. ROSENN. It was about $4 million. Yeah. So----
Mr. BLUM. Go ahead.
Ms. ROSENN. Sure. And, like I said, Kickstarter was lucky
enough to be able to afford that. Very, very few businesses are
that lucky and sometimes shut down simply because they can't
afford to pay the settlement fees, the sort of extortionist
fees that are charged.
So these are usually people who are taking the patent
system and weaponizing it. Hence----
Mr. BLUM. Exactly. Exactly.
Ms. ROSENN. Hence, our a tool to build a business, to
protect ideas that you are developing in the course of building
a business and to help you build something larger than that.
What we are seeing with patent trolls is that they are
using the patent system to secure an idea solely to monetize
that idea. Right? And usually those----
Mr. BLUM. It reminds me of someone buying a drug that there
is only one available in the country and then raising the price
100-fold.
Ms. ROSENN. It is very similar to that.
Mr. BLUM. It kind of reminds me of that very thing. Would
you agree?
Ms. ROSENN. Absolutely. Absolutely. I think it is abuse of
a system that is really, at its core, trying to accomplish
something good for society and for small businesses and
entrepreneurs everywhere. But we see that, like every system,
it is prone to abuse.
And, you know, I am heartened by Congress and the
government generally taking steps to protect against that kind
of abuse.
Mr. BLUM. It is an issue, especially in high tech.
Ms. ROSENN. Thank you, Congressman.
Mr. BLUM. Anyone else, quickly, briefly, want to comment on
patent trolls?
Ms. Fallon, you are grinning.
Ms. FALLON. I haven't seen one yet. But I--thank goodness.
But I also want to comment on your comment on the hat,
because the first patent for a woman that was issued to a woman
was for a hat.
Mr. BLUM. For a hat.
Ms. FALLON. Yes.
Mr. BLUM. Excellent. Well, thank you for adding that on.
Mr. Chairman, I yield back the time I do not have.
Chairman CHABOT. Thank you very much. You probably knew
that anyway, didn't you, Mr. Blum?
Mr. BLUM. Yeah, I knew that.
Chairman CHABOT. Okay. Thank you very much.
See, we learn all kinds of new things in this Committee.
The gentleman from Pennsylvania, Mr. Evans, who is the
Ranking Member of the Subcommittee on Economic Growth, Tax, and
Capital Access, is recognized for 5 minutes.
Mr. EVANS. Thank you, Mr. Chairman.
Good afternoon.
Ms. Rosenn, you mentioned resources. And I have a bill,
House Resolution 2655, that talks about leveraging Small
Business Administration resources and partnership in terms of
this relationship. Can you speak a little bit to this
particular bill?
Ms. ROSENN. Yeah, of course. Thank you, Congressman.
I think that this bill is exactly the type of thing that we
want to see: collaboration across the different parts of
government to make sure that different voices are heard so
that, whether you are working with the Patent and Trademark
Office and making sure that, you know, fees for the post-grant
review process are lower for small businesses than they are for
the biggest businesses, for example, or making sure that the
voices of small businesses are represented where these
conversations happen in the executive branch, in other parts of
the legislative branch, in the Judiciary Committee--so I think
that the Small Business Innovation Act is an example of the
system working and ensuring that voices are heard across the
board.
So I thank you for your work on that, and I would love to
see that passed and more bills like that.
Thank you.
Mr. EVANS. Thank you.
Mr. Graham, could you discuss the franchise disclosure
document procedure and why this continues to be a roadblock for
franchises in some States?
Mr. GRAHAM. Yes.
So, whenever you go into franchising, you have a Federal
disclosure document. This isn't a contract. This is just a
disclosure saying, here is the state of our business and here
is how things are going to go, generally speaking; here is the
nature of the relationships of our different companies and how
they work together; and if you have any history, what is the
history of the performance of franchisees in the past, so that
they get a full picture of the nature of your company and what
you are about and what they are about to buy into. You know,
most of these people are spending a large portion of their
money that they have ever earned.
So it is important. It is an important document. And we
don't think that document needs to go away. We just need to
make sure that all the States consistently allow us to register
across those States.
So, for example, in Illinois or California or a few others,
it is very difficult for us to get that registration without
putting up unnecessary bonds that--I could see it restrict
other franchises from being able to operate in that State.
Mr. EVANS. Thank you.
I want to go back to Ms. Rosenn.
Basically, the BIO organization, led by a former colleague
of mine, a Pennsylvania colleague, Jim Greenwood, had written a
letter of support, in consistent support, of innovation in
America.
And I am reviewing the STRONG Patents Act, and, though I
have not cosponsored, I believe that it is critical that we
continue to work to make our system of intellectual property
stronger and more efficient.
And, to that end, one of our witnesses--I should say, Ms.
Fallon talked in her testimony about the fairness of the patent
system. Can you speak to that, about the fairness of the
system?
Ms. FALLON. Yes. I can only speak from my own experience,
but I believe that it has been an enormously fair and
egalitarian system and that novel works can get a patent and
that we have the opportunity to present that novel piece and
have it validated by the USPTO.
So I feel very strongly about the fact that it is
egalitarian and that everyone should avail themselves of it if
they need to.
Mr. EVANS. Thank you, Mr. Chairman. I yield back the
balance of my time.
Chairman CHABOT. Thank you very much.
And the chair would note that the legislation that the
gentleman mentioned, 2655, that Ms. Rosenn indicated is good
legislation, was introduced by Mr. Evans, and one of the
principal sponsors on this side was Mr. Fitzpatrick, both
gentlemen from Pennsylvania. And it shows, again, the
bipartisanship of this Committee, and I want to commend both
gentlemen for their work on this.
And it passed this Committee unanimously, actually. And we
are working with the Judiciary Committee, because there are
some judiciary issues in it, to try to get it to the floor and
get it passed into law.
So thank you for that.
And the chair would now recognize the gentleman from South
Carolina, Mr. Norman, for 5 minutes.
Mr. NORMAN. Thank you, Mr. Chairman.
Thank all of you for taking the time to come.
You know, we all get back to the fact that, as you say, Ms.
Rosenn, it has been weaponized. To be able to afford the legal
cost alone, for small business, is almost impossible. I am a
small business owner, and it is a serious issue. And as I go
around my district, going into different companies, it is a
growing problem that is not going to go away.
Mr. Carnes, in your world, walk me through, to get a
copyright, the timing, dollars that it typically costs and the
steps that you would take in your world.
Mr. CARNES. Okay. Well, in terms of cost, I think it is,
like, $60 or something to register one song at the Copyright
Office. But you can do several songs at once, you can, you
know, make it, like, 12 songs, and you can keep the fee steady.
So it is not that expensive.
It is kind of time-consuming. And the process is--you know,
after writing all day, you don't want to come home and then
spend your time copyrighting things. And I have written
thousands of songs, literally, and only, you know, a handful of
them really make any money. So you have a tendency not to
copyright everything until you see that it is going to be
recorded, and sometimes that can be a problem.
So the system works pretty well. I mean, it could be
streamlined some.
Mr. NORMAN. And what position does a songwriter have who
just doesn't have any copyright protections? Is it really, as
you say----
Mr. CARNES. Well, publication is supposedly, you know, a
copyright. Like, if you take the song and put it up on YouTube
or something like that, that public, you know, expression of
that is publishing the song. So basically that gives you a
copyright. However, you do need to register your copyrights.
Mr. NORMAN. Okay.
And, I guess, is it pretty widespread that when you go into
the music industry, a songwriter, you need to be doing this? I
mean, does the education----
Mr. CARNES. Oh, yes. The education, unfortunately, comes
after the fact, most of the time. You know, you start out
writing and you just put stuff out there, and then out of the
blue somebody records something, and then you start realizing,
Hey, I am supposed to get money, right? How do I do that? I
mean, I didn't know anything about performance rights, I knew
nothing about sheet music, grand rights--there are, like, six
rights or something--until I started getting stuff recorded.
And because copyright has evolved with technology over the
years, it has become more and more complex, so it is hard to do
the education. The Songwriters Guild has a foundation that does
that. Other songwriting groups have a foundation that, you
know--the Copyright Office does it.
So we get the word out as much as we can, but, you know,
most of these writers start out writing when they are 16 and 17
years old, and they have other interests in life than reading
the Copyright Act.
Mr. NORMAN. Right. Okay. Thank you.
And, Ms. Fallon, you had mentioned at Curemark you had
foreign patents. How difficult was it to navigate that process?
Ms. FALLON. Thank you for that question.
It is very difficult, because in some places you have to
have them translated. You have to have the references
translated that are cited against you during the prosecution.
So it can be a very, very costly process to have them in
multiple countries.
Mr. NORMAN. And how did you know where to go to begin the
process--I guess, who to go to?
Ms. FALLON. Well, our patent attorneys are very skilled in
having colleagues in different locales across the world, and so
we utilize their services. And we also looked at areas where we
felt that we could get protection and that the protection would
be valid and hold.
Mr. NORMAN. Great. Thank you so much.
Thank all of you for taking the time.
I yield back, Mr. Chairman.
Chairman CHABOT. Thank you very much.
The gentleman yields back.
The gentleman from Florida, Mr. Lawson, who is the Ranking
Member of the Subcommittee on Health and Technology, is
recognized for 5 minutes.
Mr. LAWSON. Thank you, Mr. Chairman.
And welcome to the Committee.
And I was just sitting here thinking about intellectual
properties and especially when you say you can get a patent
across the world, that must be quite expensive, to be able to
do that. And from the songwriting standpoint, I have a couple
of songs, but nobody really wants them, you know, but----
Mr. CARNES. I feel your pain.
Mr. LAWSON. So, getting to my point now, I introduced H.R.
2702, Commercialization Assistance Act of 2017. This bill
promotes the third phase of the program that allows startups to
engage in Federal research and development.
In listening to you all this morning, how can the Federal
Government, particularly SBA, better promote IP rights with
regards to small firms?
It is a question for everybody there, because I think that
is where it really comes to the heart of everything.
Ms. Fallon?
Ms. FALLON. I think that having access to information, as
Ms. Rosenn said, is very important, and understanding that
patent protection is really key to, sort of, protecting your
ideas and being able to go further in your development.
And I think that a lot of startups--because I do a lot of
advising of startups. And they don't always--it is the thing
that gets put on the back burner, because it is so expensive.
And it is sort of an unknown, in some cases, to the
entrepreneurs.
So I think that having education, having access to lawyers,
maybe pro bono lawyers, who could help with that process would
be enormously helpful. I had a brother who had been through it
all, and so he was enormously helpful to me in understanding
and teaching me about the process.
Mr. LAWSON. Great.
Anyone else want to respond to it?
Ms. ROSENN. Sure, Congressman. Thank you for the question.
I think the Federal Government can actually look to some
local governments for initiatives that are addressing these
issues. And there is one in New York City, for example, called
the Women Entrepreneurs Fund that is really focusing on
directing funds and creating programs for women entrepreneurs
to address some of the inadequacies that exist.
And so, you know, to the extent that the intellectual
property system prevents unique challenges to underrepresented
groups like women and like minorities, I think that there are a
lot of local efforts like those that serve as wonderful models
for creating resources, directing funds, creating programs
specifically addressing those groups.
Mr. LAWSON. I am going to try to get in one more question.
Does the SBA really understand--when you are seeking funding in
small firms for intellectual things that are related to
intellectual properties, do you have much problem accessing
capital?
Anyone care to respond to it?
Mr. Graham?
Mr. GRAHAM. Do you mean specifically as it relates to
getting trademarks and patents----
Mr. LAWSON. Right.
Mr. GRAHAM.--getting a loan from the SBA in order----
Mr. LAWSON. Right. Is the SBA pretty reasonable on that
aspect of it?
Mr. GRAHAM. We have never taken an SBA loan as a
corporation, and our franchisees use our own trademark. So that
is not something that we would have addressed.
Generally speaking, the SBA does give us many of our loans
that we get for franchisees to start their own companies, but
that doesn't relate to exactly what you are asking. And that
process is pretty onerous, but, still, it also has some great
things that they can use their capital as--they can spend their
capital as they are applying and things like that that are
really great for the SBA.
Ms. ROSENN. I----
Mr. LAWSON. Okay. Mr. Chairman, I yield back.
Chairman CHABOT. Did somebody want to answer?
Yeah.
Ms. ROSENN. Yeah, I was just going to add, so, coming from
the technology sector, I think that we don't make enough use of
the SBA. And I think there is enormous opportunity for the SBA
and the technology and startup world to collaborate, because,
as I mentioned, all startups are small businesses, and they are
not really aware of the resources that the Federal Government
already provides. So I hope to see more collaboration along
those fronts.
Mr. LAWSON. And just before I yield back, earlier on, you
talked about the internet and all of the aspects going on. How
can you control it, intellectual properties, by people having
so much access to everything you are doing? I mean, I don't
understand how you can control it. I really don't.
Ms. FALLON. We had a trademark for a drug name which we put
through the FDA process. And, of course, that is not given to
you or allowed to be used by FDA until after the drug is
approved, but it goes through the process. We had a full
trademark on it. And someone just put it up on the internet for
something on eBay or on Amazon, selling a sleep aid, over-the-
counter sleep aid. Once that name is out there, associated with
anything--nutraceutical, pharmaceutical, et cetera--it denied
us of our name. And we had no recourse.
Mr. LAWSON. Well----
Chairman CHABOT. Thank you very much.
Mr. LAWSON. I yield back, Mr. Chairman.
Chairman CHABOT. Thank you.
The gentleman's time had expired.
The gentleman from New York, Mr. Espaillat, is recognized
for 5 minutes.
Mr. ESPAILLAT. Thank you, Mr. Chairman.
Good morning. And I want to thank Chairman Chabot and
Ranking Member Velazquez for holding this very important
hearing on the connection between intellectual property and
small businesses.
Intellectual property is the result of hard work and
innovation that drives many small businesses. It is ideas that
transform and streamline information connectivity, lifesaving
medicine, and health intervention and, in many cases, are part
of a chain of continuing the reliance on small businesses to
drive and create products that we can all rely on.
Protection from bad actors seeking to take advantage of
small business products is harmful to their success and
longevity. And I am glad that we are having this hearing to
explore some of these particular issues.
Dr. Fallon, my congressional district has a large number of
recipients both for public and private grant moneys through
Federal agencies like FDA, CDC, and NIH for biomedical research
and development. We have some of the finest medical
institutions--New York Presbyterian Hospital, Mount Sinai
Hospital, Montefiore, and other hospitals--and some of the
finest academic institutions--Columbia University, Yeshiva
University, City College, et cetera. So it is a hub for
research. And, in addition to that, we also have the Audubon
Biomedical Science and Technology Park, which is an incubator
for startups and emerging companies that do research.
So I am concerned--I also sit on Foreign Affairs. And I am
concerned about the predatory practices of even rogue countries
that are out there violating intellectual property rights, and
even our own country is concerned about that.
So how can we protect small businesses from these predators
when we are even concerned about countries like China violating
rampantly, you know, the intellectual property rights of our
companies and other companies across the world?
How can we then protect small businesses from this kind of
predatory practice where they--at any moment, one of these
incubators that we have in the Audubon Park could be subject to
a violation of their intellectual property rights. What
measures could be taken?
If we can't handle this at the broader level, how can we
protect small businesses down on the ground in each and every
one of our districts?
Ms. FALLON. And that is a very good question. Thank you,
Congressman. I don't know the answer. I think that is an answer
that we all search for.
I know, for us, we have been very quiet about what we are
doing and not done a lot of external talking about it, only
because then it attracts attention so that people will be
looking at that. And I think that is something that we live
with every day, you know, concern about whether that is going
to come into our realm.
So I don't really have an answer for you except to say that
I think that things like the America Invents Act and, you know,
the Track One applications, where you get protection right away
in a year, that is really helpful, instead of having it wait a
couple of years, going through the process, so you know whether
you have a patent or not. And I think those kinds of things are
really important for companies like mine.
Mr. ESPAILLAT. I don't know if any of the other panelists
would like to weigh in.
Ms. ROSENN. I would love to speak to that.
So I think when you are talking about foreign threats to
intellectual property, certainly efforts like the TPP, which
attempted to address these issues specifically in Asia--you
know, not everything in the TPP was perfect, for sure, but to
tackle those issues and to sit down with the countries where
this intellectual property infringement is happening and try to
work out the start of a solution, I think, is one good way to
address these.
And I would just add that--the importance of protecting the
reforms that have already taken place here within the United
States and making sure that the Supreme Court decisions, that
section 101, that the post-grant review process, and the
America Invents Act are all protected.
I know that Congressman Evans mentioned the STRONGER Act.
That bill would roll back a number of those protections and
leave small businesses and startups vulnerable again, as
vulnerable as they used to be. So shoring things up at home is
really important as well.
Thank you.
Mr. CARNES. I would like to just add, no intellectual
property has been more threatened over the last 20 years,
particularly by the internet, than music and movies. And what
we learned in this process has been very valuable: You have to
start off with a safe, legal alternative that is easily
accessible; you have to have education; and then you have to
have an effective deterrent to the crime.
So, if you can get those three things in place, you can
have some control, even in an environment where rampant copying
is in place.
Mr. ESPAILLAT. Thank you, Mr. Chairman, for extending
additional time.
Chairman CHABOT. Absolutely.
The gentleman's time has expired.
And we want to thank the panel for being here today.
I think all of the members that had questions on both sides
got to ask them. And whether it is patents or trademarks or
copyright or trade secrets, all of these protections are vital
to helping our innovative small business owners thrive and grow
our nation's economy.
And I would like to thank our four very distinguished
witnesses here this morning and now into this afternoon for
shedding some light on how this Committee can play a role in
strengthening those protections and assisting small businesses
all across this country.
So thank you very much for that.
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 12:00 p.m., the committee was adjourned.]
A P P E N D I X
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