The Big Story: Privacy bill stumbles, but startups still need a uniform federal framework
On Thursday, the House Energy and Commerce Committee canceled a scheduled markup of several bills, including data privacy legislation called the American Privacy Rights Act (APRA). The bill, led by Committee and Subcommittee Chairs and Ranking Members Reps. Rodgers (R-Wash), Pallone (D-N.J.), Bilirakis (R-Fla.), and Schakowsky (D-Ill.), would establish federal data privacy rules, preempt some state laws, broaden children’s privacy requirements, and enable individuals to sue over alleged violations. It faced opposition from some members of Congress, industry groups, and civil rights groups, leading to the cancellation. Startups still need a uniform federal data privacy standard that works for them, and although APRA falls short of that, Congress must keep working to establish a cohesive national data privacy standard.
Over the past several years in the wake of federal inaction, nearly twenty states have enacted their own unique data privacy laws, setting up a cumbersome regulatory patchwork that startups must navigate. The patchwork is increasingly expensive—with startups already spending hundreds of thousands on privacy compliance, and each additional state tacking on $15,000 to $60,000 in costs. A federal data privacy law could end the patchwork by preempting state laws. APRA includes preemption language, but it would leave in place many types of state laws, effectively adding to the regulatory patchwork rather than streamlining it. APRA also poses many other problems for startups, by limiting how they can innovate, prompting them to determine the age of their users, and opening them to bad faith litigation.
Data privacy is a complex, but universally regarded legislative priority, making it essential that Congress continue to work with stakeholders—especially startups—to arrive at a workable, passable solution. For startups, that federal privacy framework is one that creates uniformity, promotes clarity, limits bad faith litigation, accounts for the resources of startups, and recognizes the interconnectedness of the startup ecosystem. When Congress returns from the July Fourth recess, lawmakers should endeavor to improve and move a workable privacy bill.
Policy Roundup:
Deluge of harmful digital services taxes on the horizon. Global negotiators look likely to miss a self-imposed Sunday deadline to agree to text to adopt the OECD-brokered global tax deal. As a result, individual countries will likely begin imposing harmful digital services taxes (DSTs). DSTs are generally imposed on large, mostly U.S.-based companies, but startups that rely on their services often bear the ultimate burden of the taxes. Several countries have already begun steps to implement DSTs in anticipation of the deal failing, with Canada’s Parliament passing a DST earlier this month. We recently joined others calling on the U.S. Trade Representative to respond to Canada’s DST, and we urge policymakers to continue efforts to finalize the tax deal.
Music industry trade group sues generative-AI music startups. On Monday, an industry group representing major record labels filed separate copyright infringement suits against generative-AI music startups Suno and Udio. Both lawsuits allege that the startups produce convincing music imitations by training their AI models with copyrighted recordings. Suno and Udio have already argued that using copyrighted recordings to train AI is permissible under the fair use doctrine. The startups’ arguments appear to be supported by precedents allowing the use of copyrighted works in the making of new works. The lawsuits underscore the importance of policymakers creating certainty for startups. This can be achieved by supporting frameworks that recognize the inclusion of copyrighted material in training data as lawful and noninfringing.
Supreme Court rulings set to shake up agency rulemaking, enforcement. Two separate Supreme Court decisions this week will reduce the powers of federal administrative and enforcement agencies, impacting a broad range of policies important to the tech and startup ecosystems. In Loper Bright Enterprises v. Raimondo, the court overruled Chevron, meaning that courts will become more skeptical of agency rulemakings authorized by an ambiguous statute. This decision could have wide-ranging impacts on administrative agencies and recent agency actions impacting the ecosystem like those on net neutrality, AI, and student loans. Meanwhile, SEC v. Jarkesy found that the Securities and Exchange Commission’s use of an in-house court violated the Seventh Amendment right to a jury trial. That ruling could spell trouble for other agencies that use their own administrative courts, like the Federal Trade Commission.
New report reveals marked increase in digital trade barriers. This week, the Organization for Economic Co-operation and Development (OECD) released a report showing an alarming 25 percent increase in barriers to digitally-enabled services trade over the previous decade. The report points to measures impacting communication infrastructure and restricting cross-border data flows as driving those increases and notes the role of varying regulatory frameworks in creating trade barriers. Those factors resonate with the experiences of U.S. startups, who have faced increased costs and lost customers as the result of data localization and encountered duplicate expenses as the result of divergent regulatory regimes. Policymakers must prioritize addressing these barriers by pursuing robust digital trade policies that support global competitiveness for U.S. startups.
Policy should support immigrant entrepreneurs. Immigrant entrepreneurs are vital—these founders and their companies drive job creation and economic growth, producing innovative products and services—and they have founded more than half of the nation’s billion-dollar startups. But limited visa pathways for both founders and high-skilled talent needed by startups threaten the U.S. innovation ecosystem and the country risks losing groundbreaking companies and critical talent to more immigrant-friendly nations. As Immigrant Heritage Month draws to a close, policymakers should increase the pathways for immigrants to start or work at companies in the U.S.
Startup Roundup:
#StartupsEverywhere: San Diego, California.Consumer weather models are too coarse for farms and conservancies that are large enough to occupy their own microclimates. Dr. Carlos Gaitan started Benchmark Labs to solve this problem, leveraging artificial intelligence to create custom weather models for farmers and conservators—helping them increase their crop yield and better manage their land. Carlos recently sat down with us to discuss Benchmark Labs, his experience as an immigrant founder, the value of government funding for startups, and how policymakers should approach AI policy.
