The Big Story: Senate advances Internet regulation rife with unintended consequences
The Senate voted Thursday to move forward with a legislative package that could dramatically alter how startups design their products and interact with their users. The proposed legislation is a well-intentioned effort to improve the Internet for young users, but it carries serious negative consequences for First Amendment-protected expression, user privacy and cybersecurity, and startup competitiveness. Industry organizations, civil liberties organizations, libraries, social issue advocates, academics, and young Internet users themselves have all underscored their significant concerns about the legislation. Surrounding the vote, Senators on the right and left each underscored how the bill could lead to censorship of discussions on topics like climate change, reproductive health, LGBTQ+ issues, and gun rights. Policymakers should instead pursue measures to address problems online that do not carry these unintended consequences.
The package consolidates three previously stagnant bills along with an unrelated measure that has already been approved by both chambers of Congress. One of the proposals in the package requires Internet platforms to design their products in ways that prevent harm to young users, including by keeping them from seeing user-generated content that could contribute to mental health issues, such as anxiety. To meet the bill’s requirements in practice, companies will effectively need to know which users are minors, likely leading them to rely on expensive and often privacy-invasive age verification technologies, even if the bill does not specifically mandate use of those technologies. Implementing age-verification systems places substantial financial and operational burdens on startups, weighing on their growth and competitiveness. By contrast, the companion bill in the House seemingly recognizes the difficulties age verification of estimation would cause for small businesses, as it ensures smaller companies continue to be subject to clear, bright-line standards, rather than vague new standards created by the Senate version.
Also this week, the Biden-Harris Administration released a report focused on best practices for parents and tech companies to address online risks to children, while acknowledging the complex trade-offs associated with age assurance and verification technologies that pose high costs for startups. Policy conversations about protecting children online should acknowledge those trade offs and pursue alternative solutions. A recent CNN survey revealed that most young women Internet users abroad are seeking more resources for digital literacy and awareness campaigns, suggesting that policymakers prioritize educational resources and initiatives, which could help support young Internet users without risking privacy, expression, and startup competitiveness.
Policy Roundup:
U.S. says text falls short as multilateral digital trade negotiations reach next step. On Friday, the co-conveners of a World Trade Organization multilateral effort on e-commerce announced they had reached a “stabilized text,” meant to enable countries to proceed with their domestic processes for joining the agreement. The effort, the Joint Statement Initiative on E-commerce, covers several important digital trade topics for U.S. startups, including trade facilitation measures and a permanent moratorium on the imposition of customs duties on digital transmissions. However, exceptions in the text leave the door open for countries to restrict cross border data flows, which raise trade barriers and costs for startups. In a statement following the release, the U.S.—one of a handful of countries not signing the communique accompanying the text—said “the current text falls short and more work is needed.”
Broadband subsidy program ruled unconstitutional. On Wednesday, the U.S. Court of Appeals for the Fifth Circuit ruled that the $9 billion Universal Service Fund (USF), a critical digital equity program, is unconstitutional. The court held that the universal service fee is a tax, so the FCC violated the nondelegation doctrine by giving control of the fund to the Universal Service Administrative Company. Both the Sixth and Eleventh circuits have upheld the USF’s legality, making an FCC appeal to the Supreme Court certain. The USF is imperative for bridging Internet access gaps and ensuring the Internet remains a level playing field for startups.
Federal judges issue divergent rulings on non-compete ban. Just weeks after a Texas judge partially blocked the Federal Trade Commission’s upcoming noncompete ban, a Pennsylvania judge on Tuesday upheld the rule as within the scope of the FTC’s authority. The broad nationwide ban on non-compete agreements is set to take effect on September 4, with the court in Texas set to make a final ruling in August. Restrictive non-compete agreements limit startup growth by preventing startups from hiring key talent and deterring potential founders from initiating new businesses. It is imperative policymakers act to ban noncompete agreements nationwide by passing the Workforce Mobility Act, particularly amidst continuing legal battles and the demise of Chevron deference.
New report demonstrates harm to startups of various digital taxes. The Hinrich Foundation released a report this week outlining the adverse effects several types of digital taxes could have on small businesses, including startups that trade across borders. As global governments increasingly propose and implement digital taxes to capture other streams of revenue, smaller businesses will be disproportionately burdened. These businesses have fewer resources to both cope with an increased tax burden and navigate multiple international tax jurisdictions. U.S. policymakers must advance a trade agenda that addresses harmful digital tax policies, like digital services taxes or imposing tariffs on data flowing across borders.
House hearing spotlights role of trade agency in patent disputes. On Tuesday, a House subcommittee held a hearing to review the role of the International Trade Commission (ITC) in patent infringement litigation. Since the eBay v. MercExchange ruling, the ITC has become a popular forum to bring suits due to its ability to quickly grant exclusion orders against patent infringing U.S. imports. Patent trolls have increasingly been misusing the ITC, and the overturning of Chevron provides Congress with an opportunity to reconsider the ITC’s patent jurisdiction. Addressing abusive patent litigation is an essential step policymakers can take to support startups and maintain a fair innovation ecosystem.
