The Big Story: Startups should be prominent voice in merger guidelines re-write.
This week, Engine submitted comments in response to a request for information (RFI) from the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division on merger enforcement. The agencies issued the RFI in January as they move toward re-writing the merger guidelines, guidance that outlines how the agencies will analyze prospective mergers, which is traditionally relied on by the agencies, companies, and courts alike. Sound merger enforcement that mitigates illegal anticompetitive behavior is important for startup success, but policymakers must balance those potential harms with the benefits of acquisitions. If the new guidelines are too restrictive, they risk burdening legal transactions—including those of startups, thereby limiting startups’ exit opportunities and stemming the flow of capital in the startup ecosystem.
In our submission, and in a joint submission with other members of the technology and entrepreneurship community, Engine highlighted startups as key stakeholders in competition policy, the importance of acquisitions in the startup ecosystem, and the need for any new guidelines to be objective, administrable, grounded in sound economic theory, and based on legal precedent.
Being acquired is the most common form of successful startup exit, and founders have this in mind as they consider goals for their company. Acquisitions provide incentives to innovate, create a return on investment, and promote investment in new startups as capital and talent tend to remain in the ecosystem. They are also especially important to the growth of the startup ecosystem in places outside of the major U.S. technology hubs like Silicon Valley, Seattle, New York, Los Angeles, or Boston where large exits via IPO are typically out of reach. As the agencies evaluate the merger guidelines and necessarily seek to minimize harmful anticompetitive conduct, they must not unduly burden the ability of startups to exit via acquisition.
The agencies’ effort comes amid a broader push to remake competition policy—the FTC rescinded earlier merger guidance last fall, legislation introduced in Congress would bar acquisitions by select companies, and President Biden last year issued an Executive Order on the topic. It’s critical that the startup perspective be front and center for these policymaking conversations. But the agency has faced recent criticism—including from minority commissioners, lawmakers, academics, and others—about its efforts to bring in outside voices, and the agency’s scheduled listening sessions on the merger guidelines re-write only giving participants two minutes to speak, limiting the opportunity to provide substantive feedback. As the process moves forward and the FTC drafts new guidelines, the agency should seek further substantive input from stakeholders through a public comment period.
Policy Roundup:
New York Times Editorial Board endorses positive patent reforms. This week, the New York Times published an in-depth editorial with prescriptions for improving the U.S. patent system. Among other things, it notes patent examiners need more time and resources to review applications before issuing patents, addresses how invalid patents “gum up the wheels of innovation” and the need to restore tools for clearing them out, and calls on policymakers to create more opportunities for public engagement in the patent system. While the piece was primarily focused on the role patents play in drug prices and access to medicine, these ideas and proposals mirror points Engine has raised, and hold promise for tech startups and small businesses across the country.
Connecticut is on the path to creating a privacy law. Connecticut became the latest state to gain traction on the path to a state privacy bill this week when the state Senate passed Senate Bill 6, a privacy bill modeled after the Colorado Consumer Privacy Act. As it stands the bill offers, among other things, consumer rights to data portability, access, delete, and opt-out of data collection. Engine has advocated for the creation of a federal privacy bill that protects consumers and guides startups with a clear set of rules to follow.
Obama talks misinformation, Section 230 reforms. During a speech at Stanford University this week, former President Barack Obama took aim at social media companies, calling on them to do more to curb disinformation and provide transparency into how they amplify content online. Obama also discussed reforming Section 230, the foundational Internet law that lets companies of all sizes host and moderate content in ways that make the most sense for their communities of users. As we’ve often discussed, Section 230 is a critical protection for startups, which face unique challenges when it comes to content moderation.
Global tax deal continues to face uphill battle. As efforts continue across the world to implement a global tax deal, outstanding issues remain. This month, Kenya announced plans to double its digitals services tax (DST) to 3% beginning in July, just a year after the DST’s implementation. The tax covers a number of services, including over-the-top services like television streaming, downloadable digital content, and electronic data management. Kenya has opposed the consensus framework, in part because the country would be forced to scrap its DST. Engine has repeatedly stated that, while many DSTs target large companies, the impact of the taxes could cause a trickle-down effect that will result in an increase in the cost of services, like digital advertising, on which startups rely. Other issues surrounding the deal remain, including the top-up tax found in the Pillar 2 model rules.
Ninth Circuit confirms data scraping public websites is legal. This week, the Ninth Circuit Court of Appeals affirmed its earlier decision that data scraping of publicly available information does not violate the Computer Fraud & Abuse Act. In the hiQ Labs v. LinkedIn case, LinkedIn asserted that hiQ Labs had violated the CFAA by collecting information from their site without authorization. However, the Ninth Circuit found that authorization is not required because LinkedIn’s user data is publicly available. By agreeing with the analysis of a similar Supreme Court case, the Ninth Circuit has curbed further abuse and expansion of the CFAA which could stifle innovation and security research.
Startups and content moderation event next Wednesday. Join us for the Nuts and Bolts of Content Moderation: the Rest of the Internet on Wednesday, April 27th at 3:30 p.m. This virtual event—the second in a series hosted by Engine and the Stand Together Trust—will feature startup founders discussing how they grapple with content moderation issues as well as an interactive component where the audience will have to make content moderation decisions. Learn more and register here.
Startup Roundup:
#StartupsEverywhere: Tysons, Virginia. Enployable is a new AI-powered platform that matches job openings with potential candidates through systems that identify cultural and personal priorities for all parties involved. Based in Tysons, Virginia, Founder and CEO Laura Truncellito walked us through the company’s platform and goals, the importance of building equitable artificial intelligence systems, and how she thinks policymakers can support AI startups.
