The Big Story: States begin 2025 with AI push
State governments are starting 2025 with their eyes on artificial intelligence as new legislative sessions kick off across the country. States including California, Texas, Virginia and others are advancing efforts to regulate AI with varied focuses, likely leading to a patchwork of rules with unnecessary complications for startups. Complying with varying sets of rules disproportionately burdens startups, creates barriers to entry in the development and deployment of AI, and stifles innovation.
In California, the state's privacy enforcer, the California Privacy Protection Agency is considering regulations on automated decision-making technologies (ADMT)—AI used to make or support decision making in areas like finance, health, education, and more. In comments this week, we warned the agency that the proposed rules would create tens of thousands of dollars in both initial and ongoing compliance costs, threaten to worsen the quality of ADMT, and undermine the competitiveness of startups. For example, the rules would require covered businesses to offer alternatives when consumers opt out of ADMT, forcing startups to navigate impractical alternatives like building a manual version of their service (the difference between having AI scan thousands of resumes or hiring humans to read each resume) or avoiding the California market. The agency will close the comment period and hold a public hearing on February 19 before proceeding to next steps in the regulatory process.
Several other states are on track to consider a range of proposals that could reshape AI. Lawmakers in states like Connecticut, Massachusetts, New York, Texas, Virginia, have each put forward “comprehensive” AI bills. Other proposals in states like South Carolina and Virginia have focused on more narrow issues around digital replicas. If enacted, these incongruous state-level proposals would lead to a complex patchwork of AI regulations, mirroring the challenges posed by inconsistent state data privacy laws and increasing compliance requirements for startups navigating multiple jurisdictions. Policymakers should focus on clear, consistent national frameworks that account for the unique challenges startups face while advancing initiatives such as expanding AI resources and strengthening the AI talent pool to ensure they can continue to compete and innovate.
Policy Roundup:
New AI export rules from Biden Administration spark concern. The Commerce Department unveiled a rule on Monday restricting the export of advanced computing chips integral for AI development, arguing the rule is necessary for national security. The tech industry has been critical of the rule, underscoring how it could stifle the semiconductor industry, undermine supply chains, and incentivize reliance on AI infrastructure from adversarial nations rather than U.S. entities.
Efforts to overturn the Corporate Transparency Act continue. This week Congressional Republicans introduced legislation to repeal the Corporate Transparency Act (CTA)—a law that requires companies to disclose beneficial ownership information to the government. The CTA is currently stayed due to a lower court injunction and the Supreme Court is expected to imminently rule on the future of the law.
AI copyright battle heads to court. On Tuesday, a district court heard OpenAI’s motion to dismiss The New York Times’ copyright lawsuit, where OpenAI claims that its use of copyrighted content in training data is protected by fair use. Engine has argued that startups should be able to include copyrighted content in training data, as the current uncertainty leaves startups leveraging AI vulnerable to costly and time consuming lawsuits over claims of infringement.
Business groups sue to stop change to M&A enforcement. Last Friday, the Chamber of Commerce and other trade associations sued the Federal Trade Commission to block the agency’s expansion of the premerger notification process. Unless it is blocked, the revamped rule will add burdens to certain acquisitions, which are a key exit path for startups.
On the Horizon
MON. 1/20: President-elect Donald Trump and Vice President-elect JD Vance will be sworn in at the Capitol at 12:00 PM ET.
WEDS. 1/22: The House Ways and Means Committee will convene a hearing to share their input on tax-related policy issues at 10:00 AM ET.
THURS. 1/23: The Communications and Technology Subcommittee will convene a hearing assessing wireless technology in the U.S. at 10:00 AM ET.
Startup Roundup:
#StartupsEverywhere: Tusla, Oklahoma. Edna Martinson is bringing high-quality practice and assessments in English Language Arts and Mathematics to students everywhere. With over two million monthly active users, the eponymous Boddle characters are in the hearts and minds of students and teachers alike. We sat down with Edna to discuss content moderation, access to technology in the classroom, and policies impacting EdTech.
