Issues

Big Data Will Help Revolutionize The Pot Industry

Posted on by Eli Love

By Mike Montgomery

Getting a Rocky Mountain high may soon be legal in all 50 states, which means pot is fast on its way to becoming just another industry, albeit an exploding one. And as the marijuana industry comes aboveground, it’s opening a huge space for the usual disruptors — tech startups and data analytics firms.

Startups like Eaze in California began with medical marijuana, using technology to provide on-demand marijuana deliveries via an app. Eaze also provides data to help retailers predict supply and demand. MJ Freeway offers an agricultural tracking product that helps marijuana license holders manage their businesses and comply with regulations in Colorado. Both companies can be scaled up easily as more states come online with recreational use.

Dozens of other startups are devoted to finding ways to use technology to improve mundane tasks, including human resources, transportation, regulatory compliance, insurance and mobile payments.

On the analytics side, Cannabase is a Colorado-based wholesale market that treats marijuana just like any other commodity. It provides real-time market insights to wholesale growers and retailers, helping them anticipate market trends, price changes and volume fluctuations in both the medical and recreational markets. Cannabase also provides analytics to advertisers looking to market to growers and dispensaries. “Data-driven operations are the ones most likely to survive,” says Jennifer Beck, Cannabase co-founder.

Beck is talking about when marijuana is legalized across the U.S. Right now, it is still a Schedule 1 drug, regulated in the same manner as cocaine and heroin. But a trio of new bills proposed by members of the Congressional Cannabis Caucus in the House of Representatives brings federal legalization one step closer. The Regulate Marijuana Like Alcohol Act is self-explanatory, while the other bills pertain to pot-industry taxes and reforms to banking and research regulations.

Although it’s legal for recreational use in just a handful of states, marijuana already is the fastest-growing industry on the planet, according to Arcview Market Research’s 2017 report on the marijuana market. Sales hit $6.7 billion in 2016 — a 34 percent jump from the previous year. Arcview expects the legal marijuana market in North America to be nearly $23 billion by 2021 — all without federal legalization.

Those are the kinds of numbers that draw venture capital. The total amount of capital raised by cannabis companies in 2015-2016 was more than $2 billion, up 45 percent from the previous year, according to Arcview, which itself has invested $118 million in more than 145 companies.

Another cannabis VC company is Poseidon Asset Management, which has more than $15 million invested in technology firms like Headset and Wurk. Poseidon invests mostly in ancillaries — genetic research, biotech, agtech and, of course, data analytics. “The industry is evolving and that’s where technology companies come into play,” says Emily Paxhia, managing director of Poseidon Asset Management. “It’s being powered by people who are entrepreneurial in spirit and willing to participate when it’s still a little more high-risk.”

When legalization happens — and it will — companies with access to big data will have a big advantage in the multibillion-dollar market. As legalization spreads, prices will decline and the number of products will explode, making branding and marketing vital. Big data in particular is necessary to gain insight into the potential of the pot industry. “Data allows people to make informed decisions, track trends, merchandise products and advertise effectively,” Paxhia says. “From a regulatory standpoint, this is critical to demonstrate the evolution of the industry.”

Right now, the entire legal-marijuana industry is a somewhat unknown space, but soon it will be filled with unlimited data on sales, markets and consumer behavior. “The rest of the business and innovation world is infatuated with data, and there is no reason for cannabis to be the exception,” Paxhia says.

Could One Of Italy’s Most Beautiful Regions Emulate Next Silicon Valley?

Posted on by Libby Hall

Tourists flock to the region of Liguria in Italy for the area’s natural beauty. Nestled against the Mediterranean at the northern tip of the Italian boot, Liguria boasts the Cinque Terre, a string of five picturesque fishing towns connected by idyllic hiking trails.

But according to Marco Bucci, Liguria is rich in another resource: tech talent. Bucci, who is running for mayor of Liguria’s biggest city, Genova, joined Mike Montgomery and Jeff Capaccio, of counsel at Silicon Valley law firm Carr & Ferrell, a member of CALinnovates’* Advisory Board and the founder of the Silicon Valley Italian Executive Council to talk about the potential for the region.

Bucci believes that by reducing taxes, better marketing Liguria and utilizing best practices from Silicon Valley, he can help turn Genova into an Italian tech hub.

The region has home-grown potential with academic institutions as home to the Italian Institute of Technology and the University of Genova which has an excellent engineering program. The trick will be getting students from those schools to stay in the area and avoid the brain drain that has affected the area for far too long, according to Bucci. Bucci says that will be one of his top priorities if elected.

Click to listen to this podcast and don’t forget to subscribe to A Step Ahead on either Soundcloud or iTunes.

*CALinnovates does not endorse candidates.

SCOTUS Smacks Down Patent Trolls

Posted on by Eli Love

By Mike Montgomery

In all the political hoopla dominating the news lately, many people probably missed a U.S. Supreme Court decision that will actually have a huge impact on technological innovation. On May 22, the court ruled to restrict where patent lawsuits can be filed. The decision is likely to lead to a reduction in the number of cases filed by so-called patent trolls. It’s about time.

Trolls don’t build anything, employ anyone or add any value whatsoever to the economy. They simply buy up overly broad, somewhat vague intellectual property (IP) patents and use them as cudgels to bully plaintiffs into paying them to go away. Trolls count on a trial being more expensive than an out-of-court settlement.

Until this recent decision, the trolls’ favorite place to bring suits was the Eastern District of Texas, which has rules — and juries — that favor IP plaintiffs. It’s not a huge surprise that more than 40% of all patent lawsuits are filed there. One East Texas judge oversaw more patent cases than the federal judges in California, Florida and New York combined. The region became a troll haven partially by accident, but mostly by design. All those lawsuits — more than 2,500 last year in the region— bring in legal teams that spend money at area hotels and restaurants and usually even throw a few crumbs to the local legal talent.

But the SCOTUS decision sounded a death knell for their cottage industry. In the two weeks preceding the ruling, 74 patent cases were filed in the Eastern District. The week after — just four cases. The well dried up fast. That’s because the ruling in Heartland v Kraft means patent cases must be filed where the infringement took place, or where the defendant has an established business. That’s usually not East Texas.

This decision is going to make a huge difference for startups and small businesses that can’t afford to fight expensive legal cases in far-flung towns, especially when the deck already is stacked against defendants. It’s easier to settle immediately, or to just not go down that innovation path.

Patent trolls waste billions of dollars each year and ultimately hurt consumers. Studies have shown that trolls syphon off money from research and development, venture capital investments and tech startups in particular. Patents are designed to protect investment and innovation, and they work in some industries like big pharma. But the tech industry has been crying out for reform.

Unfortunately, Congress has repeatedly refused to act, despite two bills that would reform the tech patent industry. The Patent Act would make it more difficult to file troll suits, while the Innovation Act would cut down on the broad, vague language used by trolls and, more importantly, force them to pay legal fees when they lose.

Of course, action may not be as necessary now. The new ruling most likely will make it harder for trolls to consolidate cases, thereby eliminating marginal cases and potentially leading to a reduction in the number of cases filed overall.

Mike Montgomery is the Executive Director at CALinnovates.

Farming Takes Flight

Posted on by Eli Love

By Tim Sparapani

Ernest Earon was walking through a client’s farm recently when he noticed one of his company’s unmanned drones flying over the fields snapping photos. It was a heart-tugging moment for the entrepreneur. “Unexpectedly coming upon one of our aircraft, up there doing its job, was just a pretty cool moment for me,” said Earon, co-founder and chief technology officer at PrecisionHawk, a drone mapping and analytics company that helps users collect and analyze data coming from drones.

PrecisionHawk has been expanding throughout South America and Australia for years but was stymied in the U.S. by onerous regulations. After the FAA loosened those regulations in late August 2016, growers started adopting new drone technology at a breakneck pace.

It’s just one aspect of the booming “ag tech” (agricultural technology) field. Just this week, CB Insights identified more than 100 private companies in ag tech, sorting them into nine main categories including sensors, smart irrigation, and robotics and drones.

Farming has always been an information intensive industry: Growers need answers to hundreds of questions about air and soil conditions, plant stressors and optimal timing for everything from planting to harvesting. In the past, obtaining the data needed to answer those questions required thousands of hours and lots of workers. Many of today’s farms are efficient, data-gathering dynamos. Tractors have IP addresses, harvesters can measure the yield as it’s coming out of the ground, biometric sensors report on livestock health, and sophisticated algorithms help farmers manage tasks such as watering and seed ordering.

Researchers suggest the full-scale adoption of these technologies could mean an increase in farm productivity unseen since mechanization. The tractor, for example, led to a 140% jump in farm productivity between 1910 and 1950. Other mechanization, such as automatic harvesters and automatic planters that incorporated herbicides, spurred another climb of 170% between 1950 and 2010, says Michael Walden, professor of agriculture and resource economics at North Carolina State University. “That’s more than double the productivity gains in the nonfarm economy.”

Walden thinks we’re about to take another leap forward in productivity as more farmers adopt ag tech. “That’s what technology does,” he says. “It allows us to get more from less.”

Technology is important because “no one’s giving out new farmland,” says Earon. “The costs of spraying pesticides and fertilizers everywhere is too great. We have to do more with less. Farmers know the climate is changing. Everyone is looking for ways to get that leg up and continue to produce.”

Drones are a key part of the data gathering. They can cover large distances very fast, take high-resolution photos and fly over fields without affecting crops, all at a relatively low price.

“We put a lot of different sensors on them and can collect the exact insights you need to address the problem in front of you,” says Earon. “They see that the section of the field with drainage issues — which we know about because we’ve done 3D modeling — lost a lot of nitrogen because of the rain and we need to reapply it. The drone is collecting the information and providing that insight back to the grower.”

So far, adoption of data technology is highest where there are problems, such as on farms where drought or pests are present. It’s also getting easier to buy and use the technology. Drones cost as little as $1,000, and PrecisionHawk gives its software away for free. “We want as many people using it as possible so we get that feedback to help us make it better,” say Earon.

He’s already looking at a future where crops and sensors are developed together, and fewer humans are necessary to plant and harvest crops. “Farming is going to be less about driving tractors and a whole lot more about making decisions on what’s coming up next year,” he says. “Humans are not going to be involved except to manage the whole process.” There’s already a group in England attempting to grow a barley field without any human activity on the field itself using drones, driverless tractors and remote-controlled combines.

As technology takes over the rote parts of farming, different kinds of human work will be required. In fact, PrecisionHawk currently is staffing up on agronomists, geo-spacial scientists and other experts. Other drone companies in the farming space include TerrAvion, Agribotix and Skycision.

“Let the machines do what they’re good at,” says Earon. “Robots are very good at doing the same thing over and over and over again. They don’t care how hot it is. They just take good pictures.”

Humans, on the other hand, are good at using data to build new tools and figuring out new ways to use it. “We’re not putting people out of work,” says Earon. “We’re letting them do other things.”

Tim Sparapani is Senior Policy Fellow at CALinnovates.

SB 182 Will Help Move California’s Economy Into The 21st Century

Posted on by Eli Love

By Kish Rajan

If you live in any big city in California, chances are you’ve used a rideshare service to go to or from the airport. It’s become such an easy option that most of us take it for granted.

But a lot of effort goes into making that ride so easy for you. And much of that effort comes from the drivers — independent entrepreneurs who have turned their cars in to rolling small businesses.   These small business owners enjoy the freedom, flexibility and rewards of being their own bosses — even if just for a few hours per week.

And while they are experts in navigating the streets of their communities where they drive, they can often be challenged by all the government regulations they have to navigate. Los Angeles County, for example, is made up of 88 different municipalities and each of those municipalities has its own business license standards for drivers. As they drive through different towns, drivers are subject to different licenses, fees and requirements.

Driving from San Jose to Oakland a driver goes through 5 different cities. All over the state, drivers are moving through different cities every day — and running the risk of getting fined for not having the right business license.

But to expect drivers to obtain licenses from every municipality they might go through is unreasonable. Most licenses cost around $100 each and those fees start to add up creating a serious barrier to entry for new drivers who are really entrepreneurs (87% of Uber drivers, for example, say they drive because they want to be their own boss). As a state, we want to do everything we can to encourage entrepreneurship and to help give people the freedom to change jobs and build new businesses. We don’t want to burden people with unnecessary regulations.

This is as perfect example of a modern industry operating under outdated regulations. Of course it’s important that people feel like they are in the hands of licensed professional whether they’re getting a massage, hiring a plumber or getting a ride. But forcing those businesspeople to get often redundant business licenses just because they cross a municipal line is old-fashioned thinking. In today’s economy, people need to be able to go where their customers are and that’s not always in the same town.

That’s why we support SB 182. The bill would allow drivers to obtain one business license that could be used across municipal lines. Drivers would be able to move freely around the state knowing they are licensed to operate everywhere; and passengers would get the assurance that they are in a car with a driver who has a business license in addition to the stamp of approval from the rideshare company.

The bill also stands to benefit the many different municipalities of California. Instead of having the state issue the business license, it could be issued by the driver’s home town. That way, if a driver is based in Livermore but mostly picks up riders in San Francisco, Livermore would get the benefit of the licensing revenue.

SB 182 also helps protect drivers’ privacy. Some jurisdictions publicly post addresses of people who apply for business licenses. Because drivers essentially work out of their cars, their home addresses have been made public. SB 182 would ensure that when drivers apply for licenses, their addresses remain private.

This bill should be seen as a model for legislation going forward. The sharing economy (or as I prefer to call it, the personal enterprise economy) is going to continue to be an important part of our economic mix. We need to make sure our laws and regulations are updated to protect workers as well as customers. SB 182 acknowledges that the world is changing and creates smart regulations that make sense in today’s world.

Kish Rajan is chief evangelist at CALinnovates and former director of Gov. Jerry Brown’s GOBiz initiative. He can be contacted at kish@CALinnovates.org.

The Future Of Work Depends On Answering Important Questions Today

Posted on by Eli Love

By Kish Rajan

Today, many of us are trying to sort through a contradiction in how we understand our economy. Fewer people are unemployed than at any time in the past decade. But as a country, we don’t feel like we’re as prosperous as we’ve been in the past. Many people would like to blame technology for this phenomenon, pointing to chips and data as the great job killers. But as with many things in life — the truth is more complicated.

Take productivity for example. This is an important measure because increased productivity helps boost the annual GDP, and can lead to higher wages and better standards of living. Technology has been a giant boon for manufacturing productivity, which has nearly doubled in the past 20 years, with half that gain coming in the tech sector, according to a new study by the Progressive Policy Institute. Since 2007, when the current tech boom started, employment in computer and mathematical occupations — including good-paying jobs for software developers and network administrators — has grown by more than 900,000 jobs. One study found that robots added nearly a half percent to annual GDP growth between 1993 and 2007.

But then there’s the flip side. Well over half of us are in jobs that could be at least 30% automated right now, according to research by McKinsey & Company.

In the United States, middle-income households, the young and those with less education have already been hit hardest by automation. One study by Boston University found that robotics reduce the employment-to-population ratio and wages in those sectors where automation is added. According to this study, workers with only a high school degree saw their wages fall from 80% of their college-educated peers to less than 60% between 1975 to 2014.

Unsurprisingly, these low-skilled, less-educated workers are employed in occupations at the greatest risk of further automation. In fact, experts predict the number of robots performing jobs in the U.S. will quadruple by 2025, which could eliminate as many as 3.4 million jobs.

These conflicting numbers paint a picture of a world where more high-paying jobs are being created while low-paying jobs are being replaced by robots. It’s no wonder that so many people are so concerned about the future of work.

So what can we do?

Believe it or not, we have a lot of power to shape how this all plays out. The future of work is going to depend a lot on the decisions businesses and government make today. And in order for those with power to make the right decisions, we all have to be asking the right questions.

Is technology causing net job growth or net job loss? It can be difficult to tell. Different reports tell different stories. Some job categories are growing and some are shrinking, so what’s the overall effect?

And if high-paying tech-heavy jobs are growing faster than low-wage service jobs are disappearing, how do we as a nation of workers adjust? We’ve seen that government-sponsored training to move displaced workers into new tech jobs isn’t always successful. Is there a better way? And who bears the responsibility of retraining workers, businesses or the government?

How do we balance encouraging tech companies to grow while ensuring that people have good jobs? It’s important that innovators and entrepreneurs be encouraged to build the Googles and Facebooks of tomorrow, but what do we do when those new companies displace workers in other industries? And how do we make sure that those tech jobs are popping up in Peoria and not just in Silicon Valley?

These questions should be high-priority for government at every level, from city hall to the White House.

Technology has always been a convenient boogie man for politicians looking to place blame for a changing job environment. The automobile put carriage drivers out of work. TV eventually killed radio storytelling (though thanks to podcasts it’s making a comeback) and online travel companies kicked most travel agents to the curb.

But each of these innovations also advanced our society in important ways and created new jobs. There’s no reason to think the current tech revolution will be any different and when you look at the productivity numbers from the recent Progressive Policy Institute report, there’s reason for hope.

But we’d be foolish to hide our heads in the sand and deny that the landscape is changing in a way that is hurting some Americans. Finding the right balance here will be key to building an America that will prosper and offer new opportunities to all citizens.

Kish Rajan is chief evangelist at CALinnovates and former director of Gov. Jerry Brown’s GOBiz initiative. He can be contacted at kish@CALinnovates.org.

Congress Should Write Net Neutrality Into Law

Posted on by Eli Love

By Mike Montgomery

Net neutrality is a foundational principle in the digital age. But for too long its future has been uncertain due to changes in leadership and politics. That is why it’s important for Congress to do what only it can do through a bipartisan process: enshrine the principals of net neutrality into law.

Wednesday’s announcement by Chairman Ajit Pai that the FCC will open rulemaking proceedings to reverse the Title II regulations put in place by the last administration does not change the need for a law. In fact, it shows what a political football net neutrality has become.

While politicians seem disinclined to agree on anything these days, there are good reasons why they should work together on this. While net neutrality proponents were pushing for the Federal Communications Commission to regulate the internet under Title II of the Communications Act of 1934, many of them instantly suffered from buyer’s remorse when the FCC did just that in 2015.They realized that subjecting the internet to utility-like regulations may not be the best way to encourage innovation around privacy, security and new features that could not only make our lives more efficient but delight us. Companies like Netflix backtracked on their support for Title II.

The problem with Title II is that although it does, in theory, ensure that all data is treated equally and that companies can’t carve out fast lanes, it also opens the door to the internet being frozen into a time capsule that discourages network modernization, the next wave of innovation and competition among providers. The digital world moves at the speed of light. To slow that growth to the speed of bureaucracy would have serious negative effects on the burgeoning tech industry which is creating jobs faster than almost any other industry out there.

Another problem is that while the previous administration was happy to enforce net neutrality through Title II, it’s now clear that the current administration would like to keep the tenets of net neutrality in place, but toss Title II into the regulatory dustbin. Chairman Pai has shown that he’s an advocate for the principals of net neutrality — he just doesn’t agree that the internet should be regulated like a utility.

So here we go again. Proponents of each side of the argument are gearing up for another bite of the regulatory apple as the FCC reopens the debate around net neutrality. Public interest groups are preparing to raise millions by shouting fire in a crowded theater and striking fear into the hearts of consumers. Their counterparts on the right are firing up their many D.C.-based lobbyists to argue for total deregulation.

I used to refer to net neutrality as a food fight. I was wrong. It’s a holy war dressed up as the plot to Groundhog Day. As everyone ramps up the rhetoric, perhaps it’s finally time to stop doing the same thing over and over and consider another path.

If net neutrality is as important as we all think it is, then perhaps we should do more to ensure its survival. We can’t do that by watching the pendulum swing back and forth between Title II and deregulation. We can’t do it through regulations that can be eviscerated every 4 to 8 years (or whenever there’s a regime change in Washington).

We need a law.

Once again, CALinnovates calls upon Congress to take the hint and get to work.  By making net neutrality the law of the land, a political hot potato gets replaced by clarity and certainty, not just for a presidential term or two, but well into the future. And the new law must guarantee key protections for consumers and innovators that are at least as strong as those provided in the Open Internet Order.

By turning net neutrality principals into law, Congress can deliver on behalf of the American people and put this never-ending tragicomedy to rest once and for all.

Mike Montgomery is the executive director of CALinnovates, a coalition of tech companies based in California.

This piece was originally published in The Hill.

CALinnovates Calls On Congress To Enshrine Net Neutrality Into Law

Posted on by Eli Love

“Net Neutrality is a foundational principle in the digital age. But for too long its future has been uncertain due to changes in leadership and politics. That is why it’s important for Congress to do what only it can do through a bipartisan process: write into law the principles of Net Neutrality. Congressional action will provide innovators with a level playing field and industry with the certainty to make technology and investment decisions to continually upgrade our networks. If Net Neutrality is as important as we all say it is, it should be the law of the land, not a political hot potato resting on the third rail of American tech policy for another decade.” – Mike Montgomery, Executive Director

Big Music Blames Streaming For Its ‘Woes’ But Industry Is Doing Just Fine

Posted on by Eli Love

By Mike Montgomery

The annual Grammys award show is full of glamour and fantastic entertainment featuring incredibly talented artists and musicians. Grammys On The Hill, on the other hand, is the event’s corporate, big music, obnoxious cousin. Every year at this time, big music executives and a pocketful of artists descend upon Washington not to delight and amaze, but to cry poverty in the hopes of changing the laws around music licensing.

Today, the big multinational and multibillion dollar music labels will share their sob stories with members of Congress. They’ll attempt to convince policymakers that a lack of royalties for radio play hurts musicians, that songwriters deserve to make more and that streaming is harmful to music’s health.

Over the last decade, how we listen to music has transformed, giving consumers the power to choose what, when and how we listen to music — whether it’s on the radio, satellite or via streaming platforms. Innovation has changed the game. As I’ve said so often before that I’m now becoming a broken record, there’s no putting the technology genie back in the bottle.

But for the labels to be lamenting to Congress about their faded fortunes in this environment is a pretty ridiculous line of argument. Three music labels, Universal (owned by Vivendi), Sony, and Warner Music, account for 70 percent of all music revenues — meaning they still hold the purse strings.

And despite what they say, there’s more money going into that purse than at any time in recent history. The music industry reported last week that it had its best year in two decades. According to the Record Industry Association of America (RIAA), total U.S. retail sales from recorded music rose 11.4 percent last year, to $7.7 billion.

That’s great news that the labels should be celebrating. But that’s not the way the Big Three operate. They smell blood in the water and, like a pack of hungry sharks, they’re attempting to squeeze the rest of the industry in order to grab more for themselves.

They tell artists that the streaming platforms and the radio stations are to blame. They put up a united front before Congress, saying that we’re all in this together and that together we can fix the music industry.

Sadly, artists won’t realize the full benefit of growing record revenues because the music labels have done everything possible to preserve their pro-label, anti-innovation business models instead of embracing new technologies and the operational, market and marketing efficiencies they offer.

Like taxis fighting the consumer-friendly advent of companies like Uber and Lyft, record labels refuse to change. They still work “breakage” feesinto their artist deals, which was money that was originally meant to cover the cost of records or discs broken in transport. In the streaming world, that’s no longer an issue and it is but one tangible example of money that’s being funneled away from artists not by the streaming companies, but by the labels.

To find the voice of reason on all of this Grammys On The Hill have only to look to this year’s honoree: country music star Keith Urban. The Australian-born singer is one of the biggest acts in America and he’s beloved by music fans of all ages so it’s no surprise that big music would want him,not the corporate titans behind the curtain, as the face of their lobbying rodeo.

But he recently commented to Politico that he doesn’t share the same distaste for streaming platforms as his label overlords, stating that, “Owning music feels like a very foreign concept to me. Buying someone’s album feels odd to me. … But streaming to me seems to be a very obvious, fluid, quick, logical way for music to be heard in this day and age.”

And when asked about one of the main complaints of the Grammys On The Hill crowd, that they should be getting paid for radio spins, Urban very candidly said he still finds AM/FM radio to be a useful promotional tool that helps him reach fans. “A huge amount of my audience still listens to radio,” he told Politico. That’s where they get a lot of my music.”

For years, the labels have been clamoring for royalties for radio play. They claim it’s unfair that radio stations can spin hit songs and pay songwriters but not artists for the right. But if traditional radio play is so important to a huge star like Urban, the only reason the labels are seeking to alter the landscape is to further enrich themselves. This isn’t a rising tide argument. This is a testament to the self-aggrandizing nature of the record labels and their unending quest for greed.

We need to take a new look at how the big music is organized, subsidized and supported by Washington. And that should start with one simple word: transparency. Congress should ask the labels to detail how much of the $7.7 billion in revenues it took in last year went to  the artists they purport to represent. Get granular. Details are our friends.

Despite the whining from big music, what the RIAA revealed last week is that business is booming — for them. It’s time to stop catering to the record labels and create a system that is fair to everyone, rather than allowing the labels to continue telling their dirty little lies about the nature of music licensing laws.

This piece was originally published in The Hill.

Innovators Need Closure On The Apple v. Samsung Case

Posted on by Eli Love

By Tim Sparapani

The dispute between Samsung and Apple over allegations that Samsung stole Apple’s mobile phone design is like a piece of gum that you’ve been chewing for way too long. It’s time to spit it out.

There’s an enormous amount at stake for innovators in this fight over mobile phone sales, and as I’ve written many times before, this case truly matters. How, or if, damages are ever calculated for Samsung’s infringement of Apple’s rounded-corner phone design will set precedent that will influence Silicon Valley for years to come.

There’s also a real risk that if the outcome establishes the wrong formulation for calculating patent design damages, it will create a new type of design patent troll —essentially law firms that will sue companies to attempt to extort settlements from them based on allegations that they have infringing product designs.

As a reminder, here’s how we got to the point where a federal court has been told to determine anew potential damages for alleged design patent infringement. Last year, the U.S. Supreme Court decisively reset the rules of design patent cases to prevent them from spinning out of control. The court rejected Apple’s position that it was entitled to the full cost of each iPhone that wasn’t purchased because a consumer had instead opted for the infringing Samsung phone.

If the court had ruled in favor of Apple’s position, Samsung would potentially have been on the hook for an estimated $1 billion. But the court decided (to Silicon Valley’s delight) that this “total profits” damages theory was erroneous because software-powered hardware is routinely filled with hundreds if not thousands of other patented inventions that give those products their value.

While the Supreme Court wisely struck down this total profits standard, it left the job half done by tossing the case back to a lower federal court to determine the appropriate damages. That’s why the upcoming decision from the Federal District Court for the Northern District of California will establish precedent around what portion of a product is attributable to its design as opposed to its functionality.

Drawing that line is easy with something like a shovel, which is a relatively simple tool. It’s much harder to do with a complicated piece of technology like a drone, an autonomous vehicle or a smartphone. The court will need to craft a smart rule that divvies up the pie so future judges and juries can determine damages when these cases invariably come up again.

Full disclosure here: As I’ve written before, I’m an unequivocal Apple fan boy. Since the U.S. Supreme Court’s ruling, my family has bought two more iPhones, and I’m writing this piece on my new Mac. I love the design, durability and functionality of Apple’s products. Simply put, though, the risk to innovators is too high if Apple is allowed to recoup the lion’s share of its alleged losses because a lower court elevates the concept of design over product functionality.

The court’s determination will go beyond the question of how much Samsung has to pay Apple. It will lay the groundwork for rules about how we properly compensate the designers who produce iconic, paradigm-shifting product designs, particularly when those designs are only a portion of the usefulness of the product they are part of. The decision will tell us a lot about where the value lies in any new piece of technology. That’s going to be an important factor in ensuring all innovators in Silicon Valley, including coders and designers, prosper.

The longer this case drags on, the more these questions go unanswered and the more difficult it is for people who might be working on ground-breaking products to move forward.

This piece was originally published in Forbes.