The Big Story: Transatlantic data deal a priority ahead of U.S.-EU summit
Ahead of the U.S.-European Union summit later this month, President Joe Biden is renewing the administration’s focus on negotiating a new deal to let U.S. companies that operate in Europe, especially startups, store and process EU users’ data in the U.S. At the summit, the two governments must address policy-related obstacles to transatlantic digital trade, including the invalidation of the last data flow deal as well as likely impacts from other EU proposals around digital taxes, artificial intelligence, and online platforms and marketplaces.
Last summer, citing concerns about U.S. surveillance, the EU’s highest court struck down a previous transatlantic data transfer deal. That deal, called Privacy Shield, was a replacement for an earlier Safe Harbor agreement which had been invalidated for the same reasons in 2015. And when Privacy Shield was struck down, it also created additional legal scrutiny for other legal mechanisms for data transfer. In total, this has created substantial legal uncertainty for U.S. companies with EU users, and without some comparable data transfer arrangement, it could lead to what would effectively be data localization requirements, creating insurmountable compliance burdens for most U.S. startups looking to scale their user bases abroad. As OnFleet’s Mikel Carmenes Cavia explained, the Privacy Shield invalidation “was catastrophic for our company” as it “forced [us] to make major investments in building out a cloud environment within the EU.”
While the court decisions and the absence of a lasting agreement have a dramatic impact on the ability of U.S. companies of all sizes, especially startups, to collect, store, and use data from European users, the EU’s concerns stem from U.S. government collection of data. European Commission Vice President Věra Jourová said earlier this week that the U.S. government should restrict its national security agencies’ access to foreign data if it wants to reinstate transatlantic data flows. “We have to be absolutely sure that there is no mass surveillance of data of Europeans when it travels to the U.S.,” she said.
Startups need the Biden administration and EU officials to prioritize negotiating an agreement to replace Privacy Shield and create legal certainty for companies with EU users. But, as we’ve explained in the past, Congress has a chance to help startups compete abroad by reforming controversial surveillance programs to put in place reasonable privacy protections so that future transatlantic data flow agreements can stand up to legal scrutiny.
Policy Roundup:
SCOTUS narrows computer crime law. The Supreme Court ruled this week rejecting a broad reading of the Computer Fraud and Abuse Act, a 1996 law that criminalizes unauthorized computer activity and has been used by prosecutors to pursue criminal charges and increase penalties. Engine joined an amicus brief late last year urging the court to reject a broad interpretation, because such a broad construction of the CFAA could harm startups, competition, and research activity.
Administration announces small business programs aimed at closing racial wealth gap. On Tuesday, President Biden and HUD Secretary Marcia Fudge appeared in Tulsa, OK for the 100th anniversary of the “Black Wall Street” massacre. The administration announced plans to boost access to federal contracts for small disadvantaged businesses over a period of five years, totaling $100 billion. Biden also provided details of his infrastructure plan, including $31 billion for programs to boost capital access for small businesses and provide “socially and economically disadvantaged" firms with technical assistance so they can better seek federal contracts.
USTR introduces, suspends DST retaliation. The Biden administration announced Wednesday retaliatory tariffs on goods from Austria, India, Italy, Spain, Turkey and the United Kingdom—countries that have imposed discriminatory Digital Services Taxes—but suspended them for six months to allow time for a negotiated settlement. In May, USTR held hearings, inviting testimony on the impacts of the unilateral measures which aim to tax mostly large, American companies. Engine submitted comments in response to the investigation, urging the administration to push back on the measures, which stand to “result in passed down costs that increase the price of services that these companies provide to small businesses and startups.”
European Parliament Committee holds discussion on AI Act. On Wednesday, the Internal Market and Consumer Protection Committee of the European parliament held a discussion with European Commission Executive Vice-President Margrethe Vestager on the Commission’s proposed AI Act. The new rules, as proposed, would create potentially insurmountable barriers for American AI startups to operate in the EU.
Startup Roundup:
Recognizing the contributions of Asian American and Pacific Islander (AAPI) entrepreneurs. This week marks the end of AAPI Heritage Month. As the nation recognizes the contributions of the AAPI community to American society, it is important to highlight the ongoing impact of AAPI entrepreneurs and startup founders while also acknowledging the unique, unwarranted barriers many face. Approximately 10% of all U.S. businesses are owned by Asian Americans, Native Hawaiians, or other Pacific Islanders. And many now-household names and emerging companies that helped us survive the pandemic—such as YouTube, DoorDash, Peloton, and Zoom—were started by Asian American founders. Yet, in many ways conversations about diversity and inclusion in tech “miss[] the barriers to career advancement and the daily insults many [Asian Americans] face;” Asian-owned small businesses suffered disproportionately during the pandemic; and Native Hawaiian and Pacific Islander founders often forgo even seeking the financing they need because they expect to be turned down.
As we reflect on the important contributions of AAPI innovators, Engine wanted to take the opportunity to celebrate just some of the exciting work underway by AAPI founders through our #StartupsEverywhere series. When Anne Kim—co-founder and CEO of Secure AI Labs (SAIL)—saw, first-hand, significant obstacles to obtaining the patient data needed to support all forms of biomedical and health-related research, she decided to create a new way to share that data. SAIL’s technology allows researchers, universities, and hospitals to share and use data while preserving patient privacy, in turn enabling stronger, more innovative research based on comprehensive data sets. And OPT Industries, founded by Jifei Ou, is pioneering ways to leverage additive manufacturing and 3D printing technology, and creating innovative new ways to put it to work at scale for mass production. Working with an interdisciplinary team, OPT is bringing together advanced product development and manufacturing, with prospects to improve product quality and specialization, manufacturing time, and supply chain issues. Policymakers and the broader startup ecosystem must continue to uplift the next generation of AAPI founders and remember the numerous, daily contributions of AAPI entrepreneurs all across the country.
#StartupsEverywhere: Washington, District of Columbia. Headquartered in Washington, D.C., Markup LLC is reinventing the way lawmakers draft, record, and analyze public policy. We spoke with the Co-Founder of Markup LLC, Andrew Baluch, to learn about his startup’s work in the public policy space, how the pandemic has shifted Congress’s processes, and some of the ways that lawmakers can be more efficient through the use of technology.
Startup Policy Seminar Series: Access to Talent & Your Startup. Join Engine on June 9 at 4 p.m. ET where, together with an expert panel, we will explore the current landscape of workforce mobility & immigration public policy, particularly focusing on how these issues impact startups and how startups can get involved in these policy debates. The event will feature a discussion moderated by Engine’s Policy Manager, Jennifer Weinhart, and several expert panelists. You can RSVP here.
