ACT Chairman Mike Sax testified before the Senate Finance Subcommittee on Trade in a hearing on trade in the digital economy. His 
testimony was so compelling that Chairman Wyden said that Mike should be the test case for small businesses navigating the regulatory challenges to compete in the cloud.
Here’s Mike’s prepared testimony.
Chairman Wyden, Ranking Member Crapo and distinguished Members of the Committee, my name is Mike Sax and I would like to thank you for holding this hearing on international trade in the digital economy.
I am here today wearing two hats. In my “day job” I am an independent software developer who makes his living creating and selling software for multiple platforms. My livelihood depends on my ability to write compelling applications and reach customers in a purely digital marketplace. In addition, I also serve as Board Chairman for the Association for Competitive Technology (ACT), which represents over 3,000 small business software developers.
Through discussions with other ACT members, I can assure the committee that increased access to global markets is vital for American entrepreneurs and small IT companies. Ninety-seven percent of all exporting companies are small and medium-sized enterprises and we account for twenty-nine percent of U.S. exports by value. In order to succeed, our companies need free and fair trade opportunities.
In many ways, the interests of small and large technology companies are aligned on these issues. Most trade issues that harm large firms like SalesForce and Intel have the same effect on our small firms, but are amplified by the fact we do not have the same legions of lawyers and trade experts. Additionally, issues that have a more direct affect large platform companies like Intel, SalesForce, Microsoft, and Apple have trickledown effects for those of us who develop on those platforms. Trade restrictions that limit access to markets for companies like Microsoft or Apple hurts our members too because it limits our potential customer base.
One emerging issue that affects companies both large and small is cloud computing. Cloud computing refers to applications and services accessed remotely over the Internet. Anyone who uses Web-based email, such as hotmail or gmail, has been using cloud computing. Advancements in broadband speed and mobile devices allow developers to provide new services to customers, making the cloud the biggest growth area in our industry. Unfortunately, the legal system has not kept pace with technology. Developers face multiple and conflicting international laws for privacy, data storage and payment methods. To the extent that we can harmonize these three areas of concern, our members will find tremendous opportunities in the cloud to export their software and services to consumers in other countries.
Small developers also face a “protectionism 2.0” problem, encountering different rules for software sales based exclusively on country of origin. One of the most obvious examples is China’s computer games rules. Today, a Chinese company that develops a video game can directly market and sell their product within China, without extensive government review or involvement. However, games developers from the U.S. must have their product reviewed by two separate agencies under two separate review processes before it can be marketed legally in China. While the American developer incurs administrative costs during a lengthy delay, if the game proves popular in the U.S., pirated copies will be widely available in China months before the dual review process is completed.
The international patent system also presents serious problems for small businesses interested in protecting their innovations. For example, protecting an invention in the European patent system is TEN TIMES more expensive than in the U.S. The problem is that the European Patent Office provides a uniform patent application process for up to 40 European countries, but it does not provide uniform laws for patentability and enforcement. This means, small firms must translate every patent into each European language and be prepared to defend every court challenge in the host country’s language. Consequently, most small firms simply do not get patent protection in Europe. Adoption of a unified European patent, currently under consideration in Europe, would hopefully address some of these concerns.
Finally, many nations use onerous joint venture requirements to make it more difficult for U.S. business to sell products in their countries. Some require companies to have a local partner who owns more than half of their company. Others allow for 100% foreign ownership, but make it difficult to sell products locally, or require significant sums of money to be “banked” before agreeing to allow the sale of software or services. We hope that USTR and others will continue to urge our trade partners to do away with these kinds of barriers.
In this discussion of innovation, my personal story may be instructive to the Committee. Feeling the constraints that stifled entrepreneurs in Europe, I emigrated from Belgium to Oregon in 1994 on an investor visa. I invested my personal savings in Oregon because the U.S. offered a dynamic software market with low barriers to entry for start-ups and a strong intellectual property system.
My story is not unique, but it has become a talking point for leaders in the EU seeking to reclaim Europe’s position as an innovation hub. During the recent European Commission Patent Conference, a Belgian cabinet minister highlighted my decision to move to the U.S. as an example of why Europe must update its patent system to retain innovative and successful entrepreneurs.
Europeans and innovators from other countries long for a business environment like ours which fosters growth and innovation. They erect trade barriers abroad because they cannot compete with our resources and ingenuity. The U.S. must confront to these obstacles to ensure that the global marketplace remains dynamic and competitive.
The future of the digital economy looks bright for American small businesses, and developers will continue to find success, as long as these challenges do not go unanswered.
Thank you for your time and consideration on this important topic and I look forward to any questions you may have.