The Big Story: EU, U.S. implement framework to restore transatlantic data transfers
The European Commission adopted a needed decision this week to implement the EU-U.S. Data Privacy Framework, bringing certainty back to transatlantic data transfers and lowering barriers for startups. The long-awaited agreement ends years of uncertainty surrounding data flows needed for U.S. startups to serve EU customers thanks to the invalidation of an earlier transfer agreement called Privacy Shield. The new framework is a welcome step that will bolster the competitiveness of U.S. startups looking to serve the EU market.
The Commission’s decision this week finds that U.S. companies participating in the Data Privacy Framework provide an adequate level of data protection for EU user data, a presumption needed for companies to confidently transfer data across the Atlantic. The EU decision this week follows a U.S. executive order that amended U.S. surveillance practices that had led to the invalidation of an earlier data transfer pact called Privacy Shield. The invalidation of that earlier agreement led to diminished market opportunities and increased costs for startups, and required them to find new, more expensive methods to legally transfer data, like Standard Contractual Clauses. The privacy activist whose challenge led to the invalidation of Privacy Shield plans to challenge the new agreement as well, but the new framework is more likely to survive scrutiny than the previous agreements.
To participate in the EU-U.S. Data Privacy Framework, companies will need to self-certify to the framework principles, which should not require companies to make material changes to their practices because the concerns leading to the invalidation of Privacy Shield centered on government—not commercial—practices. Changes to U.S. government practices under the executive order additionally backstop other mechanisms for data transfer, providing additional certainty to companies that switched to e.g., Standard Contractual Clauses. Increased certainty to transfer data between the EU and U.S. will reopen opportunities for U.S. startups to compete and succeed there.
Policy Roundup:
House committee holds heated discussion on competition regulator, acquisitions. The House Judiciary Committee held a hearing this week to examine Federal Trade Commission (FTC) actions under the leadership of Chair Lina Khan—including merger policies that can negatively impact startups' ability to successfully exit via acquisition. Committee members highlighted how the FTC’s actions restricting mergers can reduce venture capital investment by reducing exit opportunities, leading to less startup success. Engine has long-underscored the crucial role exits via acquisition play in the startup ecosystem.
Senate hearing explores intersection of copyright and AI. A Senate Judiciary subcommittee convened a hearing Wednesday examining the relationship between copyright law and AI-generated content as key senators explore changes to the law in response to AI. Witnesses and policymakers explored issues around rights for AI generated works and for the use of copyrighted works in AI training data. Startups rely on current IP frameworks to enable innovation without encountering prohibitive costs, and this discussion underscores the importance of balanced intellectual property laws for promoting innovation and creativity.
Intergovernmental body extends digital tax ban. The Organisation for Economic Co-operation and Development this week announced a conditional extension of the ban on new digital services taxes (DSTs) to December 31, 2024, while negotiators continue to hammer out the details of the global tax deal. Five countries declined to approve the ban extension, including Canada, where legislation imposing a DST is set to go into effect on January 1, 2024, setting up a likely showdown with policymakers in the U.S. Engine has long-stated that DSTs can be detrimental to startups and smaller companies because they often bear the ultimate burden of the taxes. Finalizing the global tax deal is needed to create certainty for U.S.-based startups and companies because without an agreement, technology companies will likely face increasing numbers of DSTs in the near future.
Biden telecom pick advances to Senate floor vote. The Senate Commerce Committee advanced Federal Communications Commission (FCC) nominee Anna Gomez to the Senate floor this week alongside renominated current Commissioners Geoffrey Starks (D) and Brendan Carr (R). The vote comes amid a 2-2 deadlock at the agency that has existed throughout the Biden administration and left the FCC unable to advance startup priorities.
Congressional leaders call for digital asset industry input. Sens. Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) are seeking input from stakeholders—like startups—on an effort to address the tax treatment and other uncertainties surrounding digital assets. Engine has explained in the past that startups and their users need clarity when it comes to digital assets, especially as innovation grows within those industries. Additional clarity around tax and regulatory treatment of digital assets is critical to foster innovation and user adoption.
