Spoiler Alert: Season five of HBO’s “Silicon Valley” wrapped up last week with Pied Piper once again averting disaster and maintaining control over their decentralized internet startup. The company is moving into new office space to house hundreds of engineers and support staff, including legal, accounting, H.R., and government affairs. When Richard Hendricks, Pied Piper’s naive CEO, asks why they need a government affairs team, he’s told they will need to deal with things like the National Security Agency, who called last week about inserting a backdoor into the company’s product.
“Silicon Valley” is no stranger to wonking out with episodes on everything from patent trolls to the Children’s Online Privacy and Protection Act. Will we see Richard testify before Congress — Zuckerberg style — next season? So what’s next? As a policy advocacy organization for startups which spends a lot of time on Capitol Hill, here’s the list of issues we think Pied Piper’s new government affairs team should track in Washington.
Since the NSA is already asking Pied Piper for a backdoor, let’s start there. PiperNet is an autonomous peer-to-peer network with end-to-end encryption. This distributed system makes users more secure by ensuring the internet is completely decentralized. Great for users. Bad for snoops. Ever since the FBI botched its efforts to unlock the San Bernardino shooter’s iPhone, Washington has been calling for mandatory backdoors, or more recently “responsible encryption.” That hasn’t happened yet because Washington remains torn on how exactly to weaken encryption without exposing Americans to more cyber attacks. Pied Piper should educate the NSA and lawmakers on their product and clearly express the risks that weakening encryption would create for all citizens.
Initial Coin Offering
Like many entrepreneurs looking to raise additional capital, Richard was reluctant to give up more ownership to VCs in a Series B funding round. Instead, Pied Piper bypassed the traditional funding model by launching an Initial Coin Offering (ICO). Unlike some of the more absurd ICOs in recent memory, Pied Piper’s business model lends itself rather well to digital tokenization as PiedPiperCoin allows users to purchase the computational and storage resources of its decentralized network. But as Monica, the company’s Chief Financial Officer points out, ICOs exist in a regulatory grey area. Normally, it’s illegal to sell “securities” to the general public, but it’s not clear that PiedPiperCoin is a traditional security like a stock or bond. If regulators determine that PiedPiperCoin, like other tokens issued through ICOs, are securities, Pied Piper may have committed serious violations of federal securities laws. Hopefully their government affairs team is tracking!
PiperNet is built on the principle that the company will not sell ads or user data. This pro-privacy mission should put Pied Piper in good standing with U.S. policymakers, who are concerned about tech companies’ handling user data. Nevertheless, with the imminent implementation of the General Data Protection Regulation (GDPR) in Europe, even a pro-privacy company like Pied Piper might get caught up in the internet’s ambiguous web of privacy rules. Because Pied Piper does collect some user data, including location, it could be squarely in the sights of European regulators and under strict rules about how it manages user information. Considering the penalties for violating GDPR can be as high as four percent of worldwide revenue, Pied Piper’s government affairs team should be working overtime right now to make sure regulators understand why a decentralized internet is a privacy win.
Pied Piper needs to hire hundreds of engineers. Even if it could poach those 63 engineers from Hooli, Pied Piper is going to quickly realize that it will be hard to find enough qualified engineers in the Bay Area. One potential solution would be to recruit the best and the brightest engineers from around the world. But for the sixth year in a row, the government reached the cap on H-1B applicants after one week. Pied Piper’s government affairs team should immediately start advocating for the Startup Visa Act, a bipartisan bill introduced by Sens. Moran (R-KS) and Warner (D-VA) that would help alleviate the talent shortage throttling startups.
Season Four of Silicon Valley ended with Hooli’s CEO, Gavin Belson, transferring his patent on the algorithm behind PiperNet to Richard. Unfortunately, Pied Piper is not done facing down patent trolls as it did in Season Four. Startups continue to be extorted by patent trolls because weak and vague patents remain on the books. Only recently did the Supreme Court, in Alice v. CLS Bank, create sensible rules for the patentability of software, so the trolls are still out there. Pied Piper should start fighting efforts to undermine the United States Patent and Trademark Office’s efforts to invalidate bad patents. Pied Piper needs to make clear to lawmakers that allowing more vague software patents will only help patent trolls, not true innovators.
In conclusion, there are a dizzying array of political landmines to avoid when launching a decentralized internet startup. My advice to Pied Piper? You can’t avoid Washington forever, engage early and often.