Why VCs Are Against the Protect IP Act

IT Management

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The Protect IP Act introduced by Senator Patrick Leahy in May is receiving a lot of criticism. The bill, which in full is called Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011, hopes to crack down on the illegal online sale of counterfeit goods.

Hollywood is in support of the bill and believes that it would help prevent unauthorized downloading and streaming. The tech community, however, strongly criticizes it saying that it would be harmful to the future of the Internet. Specifically, Google, Facebook, Yahoo, as well as a number of other tech companies and venture capitalists have openly stated their opposition to it because they feel it would limit innovation.

Do you think the Protect IP Act would hurt the tech industry? Let us know your thoughts.

According to Brad Burnham of Union Square Ventures, the bill doesn't "balance the interests in a way that serves the interests of consumers." He, along with several other venture capitalists, sent a letter to Congress outlining their concerns.

For them, the biggest problem with the proposed bill is the "private right to action." As he explained to us, this clause would allow anyone who felt that his property online had been misused receive an injunction from court and, without any due process, shut the site down.

"The problem with that is there is no real recourse... and it will create a very significant, chilling effect on people who were trying to experiment with new forms of content," he said.

Burnham went on to say that, if the bill goes through, startups would feel the greatest impact since it would be difficult for them to innovate freely.

"Most startup companies are not in any position to fight legal battles. Most established intellectual property rights' holders do nothing but fight legal battles," he pointed out.

"I think that [the bill] would be tilting the playing field very much in the favor of existing intellectual property rights' holders - the problem with that is they don't have the same incentive to innovate."

In a post he wrote, he referenced a study from McKinsey that found that the Internet has played a significant role in economic growth. It found that the rate at which innovation can take place through the Internet has allowed society to achieve the same economic impact that took 150 years in the original industrial revolution.

Burnham believes this report proves the value of the Internet and that this value would be destroyed if the Protect IP Act were to pass. As an alternative, he said that while the Digital Millennium Copyright Act (DMCA) has its problems, "it is a framework that has been tested."

A group of law professors from over 100 universities have also come out against the bill saying that it is "unconstitutional" and that it violates the First Amendment.

At this point, the bill has passed the Senate Judiciary Committee, but Oregon Senator Ron Wyden has placed a hold on it.