The Big Story: Engine defends key Internet law to Congress
This week, a key House committee heard testimony from Engine about how a critical Internet legal framework enables Internet platforms of all shapes and sizes, especially startups, to host content and build online communities. The hearing—held by the Energy and Commerce subcommittee on communications and technology—focused on a proposal to sunset that legal framework, Section 230 of the Communications Decency Act, which would leave startups open to ruinous litigation.
Section 230 is a law from 1996 that prevents Internet platforms that host user content from being held liable in court for that user content. It creates a faster, more efficient way to reach the inevitable conclusion—that platforms ultimately wouldn’t be held liable for user content they can’t logically be expected to know about—by allowing platforms to get cases dismissed early in the litigation process. As Engine Executive Director Kate Tummarello explained in her testimony, Section 230 is especially critical for startups who host user-generated content—including comments, messages, reviews, photos, files, and more—and don’t have the time and resources to fight expensive and drawn-out legal battles.
While often discussed in the context of large social media companies, Section 230 applies to anyone on the Internet that hosts content created by someone else. Startup platforms already invest significant resources in content moderation to keep their corners of the Internet healthy, safe, and relevant for their users. Repealing Section 230 would push platforms to scale back content moderation efforts to avoid having knowledge of user content, which could give rise to liability. Or they would over-remove user content to eliminate anything that might give rise to liability, which risks the removal of lawful, beneficial user speech and content from vulnerable communities that the platform might otherwise host. And they would still have to worry about spending hundreds of thousands of dollars in court if they got sued over user content, even if they ultimately won the lawsuit.
Lawmakers are understandably focused on making the Internet a place where "free expression, prosperity, and innovation" can flourish. However, as Kate highlighted, Section 230 is critical to those goals. Sunsetting it without a clear alternative framework risks a contentious, drawn-out process with no guarantee of a replacement framework that supports startups and user expression.
Policy Roundup:
Federal privacy bill advances to full committee. At a markup on Thursday, the House Innovation, Data, and Commerce Subcommittee advanced a comprehensive data privacy bill to the full committee by voice vote. A new version of the bill, the American Privacy Rights Act, was released ahead of the markup, making changes to definitions and adding parts of the Children’s Online Privacy Protection Act 2.0. At the markup, Rep. Jay Obernolte (R-Calif.) highlighted shortcomings of the definition of small business in the bill, echoing issues raised by Engine and startups themselves. Startups are burdened by the patchwork of privacy laws and need a uniform privacy law that works for them. Lawmakers should continue to improve the bill ahead of consideration by the full committee.
Immigration bill fails to advance in Senate. On Thursday, Senate Republicans blocked a bipartisan border security bill, marking the second failed attempt to pass the bill this year. The bill, which required at least 60 votes to advance, would have addressed immigration concerns at the border but faces few prospects for success going forward. Congress has repeatedly failed to address needed changes to the U.S. immigration system over the past several years, including those that would strengthen STEM talent pools, welcome foreign-born innovators into the U.S., and provide a permanent solution for Dreamers. Immigrants are critical to the innovation ecosystem, and Congress should work to craft frameworks that embrace high-skilled talent.
Banking lobby wins could boost startup financing. This week, a Wall Street Journal report insists the Federal Reserve and other banking regulators are easing back on proposed 20% capital increases for major banks after intense lobbying. Proposals to require banks to hold more capital stand to hurt startups and their access to debt financing—making the cost of capital more expensive and would lead to banks extending fewer loans. The report comes on the heels of the House Financial Services Committee’s advancement of legislation to raise the asset threshold for certain banking regulations. Capital requirements are beneficial for startups, as they enable banks to extend more loans. Many startups rely on debt financing to grow their companies—and some founders, particularly founders of color, already face challenges accessing bank loans. Significantly increasing capital requirements for banks could pose further harm to underrepresented founders in the startup ecosystem.
House passes crypto legislation in bipartisan vote. On Wednesday, the House passed H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (FIT21), legislation that would establish a clear regulatory framework for digital assets. This legislation is crucial for startups, as it eliminates regulatory confusion and will increase trust by protecting consumers using digital assets. The legislation now moves to the Senate where it is uncertain if it will be taken up.
