ICYMI- Rackspace seeking wins in D.C. with lobbyists

My San Antonio
Rackspace seeking wins in D.C. with lobbyists
Posted: march 25, 2013 11:15

For most of Rackspace Hosting Inc.’s existence, its executives thought they could avoid the political machinations of Washington.  After all, San Antonio-based Rackspace is an Internet company, and if there’s one thing that has avoided almost all forms of regulation since its creation, it’s the Internet.

Then, in late 2011, the proposed Stop Online Piracy Act hit, threatening significant federal regulation. Under the act, the federal government would have had extensive powers to crack down on the theft of intellectual property over the Internet. Movie, television and music producers would’ve been SOPA’s big winners.

Critics, including Rackspace CEO Lanham Napier, blasted the bill as a flawed measure that could lead to censorship of the Web and create technical vulnerabilities.

The bill’s main sponsor was U.S. Rep. Lamar Smith, then-chairman of the House Judiciary Committee — and one of Rackspace’s hometown members of Congress. Accusing SOPA’s detractors of spreading misinformation, the San Antonio Republican said in January 2012 that “it’s disappointing that some critics appear not to have read the bill, while others have an interest in stopping SOPA because they benefit from working with rogue sites.”

Rackspace, a cloud-computing and Web-hosting company, responded to the bill by doing something it had never done: It hired lobbyists to argue its case. In 2011, it spent nothing on lobbyists; the next year, it spent $376,000.

While SOPA is now off the table — thanks largely to a dogged industry campaign to stop it — Rackspace isn’t backing off its federal lobbying effort. Instead, it’s shifting focus to patent law reform and continuing to raise its profile in Washington. Indeed, the homepage of the Washington Post’s website featured three prominently placed Rackspace ads Monday morning.

The company began writing checks for the services of three Texans who are familiar names here and in Washington: former Congressman Henry Bonilla, a San Antonio Republican; John Montford, a former Texas Tech chancellor and former longtime state senator; and longtime lobbyist and former Lt. Gov. Ben Barnes and his firm, according to federal lobbying disclosure filings.

“We were slow to get into the game, and mainly because things were going well,” said Alan Schoenbaum, Rackspace’s general counsel. “We weren’t being pushed in any direction by government, but that changed with SOPA.”

Rackspace wasn’t alone.

“I think that SOPA really made (Internet) companies realize that decisions that are made in Washington can have a real impact on the future of the Internet and the future of their business model,” said Michael Beckerman, president of The Internet Association, a trade group in Washington, D.C., that lobbies on behalf of major Internet companies such as Google, Facebook, eBay and Rackspace.

When reached by a reporter, Montford referred questions to Rackspace. Bonilla and Barnes could not be reached, and Rackspace declined to make any of the three available for comment.

“We wanted people that had a reputation and expertise to give us good representation,” Schoenbaum said. “In everything we do, when we hire talent … we always try to get the best that we can — quality is very important to us.”

Rackspace’s new lobbying talent comes in addition to its membership in several trade groups such as The Internet Association, the Coalition for Patent Fairness and TechAmerica.

Schoenbaum said the company likely will spend about the same amount on lobbying in 2013 that it spent in 2012.

Before hiring the big guns, Rackspace did most of its own lobbying on Capitol Hill, said retired longtime Congressman Charlie Gonzalez.

“The way I remember it is that they ran a lot of their own interference” during the SOPA fight, Gonzalez said. “You had officers — that are Rackspace officers — that were contacting, meeting with staff, talking with me and such.”

But, Schoenbaum said, “Rackspace executives are as involved in legislative matters on an as-needed basis, but they spend a very small fraction of their time on legislative issues.”

SOPA died in early 2012

Now, Rackspace says it’s maintaining its presence in Washington to support a variety of efforts, including making changes to how the United States awards and enforces patents.

The fight over patents has been one of the driving issues in the technology community in the past few years, as litigation over who owns what rights to which technologies has dominated the industry. Under current law, if a company receives a patent, it has exclusive control of whatever technology it patented for 17 years.

“A patent can be like a monopoly on a whole area of technology,” said Daniel Nazer, an attorney and policy analyst with the Electronic Frontier Foundation, which campaigns for consumer rights and protections online. “So if a patent is too broad or shouldn’t have been issued, it can really lock up people’s ability to compete and create.”

A burning topic in debates over patent reform has been “patent trolls” — individuals or companies that specialize in acquiring patents and suing other companies that use technology covered by patents they own, a practice known as “patent trolling.”

For instance, clothing retailer J.C. Penney has been sued more two dozen times for patent infringement in the past few years for a variety of reasons, including that there are drop-down menus on the company’s website, Nazer said.

He said patent trolls are now responsible for about 60 percent of patent litigation, up from about 5 percent 10 years ago, and that about 5,000 companies are sued every year for alleged patent infringement. And because the cost of defending a patent lawsuit costs nearly $2 million on average, Nazer said that most of the time, companies will settle to make the antagonist go away.

Schoenbaum said patent trolls are responsible for the bulk of Rackspace’s litigation costs, though he wouldn’t put a dollar figure on how much they cost the company. Rackspace did not disclose how much it spends on litigation in its most recent annual report, filed March 1 with the Securities and Exchange Commission.

Rackspace, the EFF and others have backed a bipartisan bill — known as the SHIELD Act — that would make patent trolls pick up the tab for the legal bills that defendants incur if the trolls lose in court.

In February, President Barack Obama called for additional patent reform to stop trolling.

“The SHIELD Act is designed to level the playing field and take away the trolls’ unfair advantage,” Schoenbaum wrote in a blog post on Rackspace’s website.

He then urged friends and customers of Rackspace to lobby their members of Congress to support the measure.

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