The Big Story: Controversial California legislation threatens AI innovation
California lawmakers will be deciding the fate of a sweeping AI bill that threatens to significantly slow down AI development at a hearing next week. The bill, SB 1047, aims to prevent “critical harms”—which includes things like the creation of chemical, biological, radiological, or nuclear weapons—by creating a broad preclearance regulatory system that will damage innovation far from the defined (and unlikely) harms. Rather than consider the bill directly, the Assembly Appropriations Committee placed the bill on the “Suspense Calendar” at a hearing this week, and will decide whether to advance it next Thursday when it considers the bills on the suspense calendar. Earlier this week, Engine sent a letter to Assembly members urging them to oppose the legislation given the consequences of the legislation for startups and the availability of open source AI models many rely upon.
Startups are innovating with AI across nearly every industry and sector of the economy, and legislation like SB 1047 threatens to derail that progress. If enacted, SB 1047 would burden the development of artificial intelligence by creating new regulatory hurdles, discouraging openness, imposing unreasonable levels of liability on developers, and expanding the AI regulatory patchwork. This is problematic for startups because they are building their own AI models, innovating with open source AI resources, or utilizing existing closed models, where startups benefit from competition in model development both from a cost and quality standpoint. The bill’s impact on open source AI has been particularly concerning for the startup ecosystem, since open models reduce costs and barriers to AI innovation for startups.
The bill has faced opposition from a wide array of stakeholders including academics, congressional leaders, venture capitalists, industry leaders, and think tanks. The bill comes alongside other states considering AI legislation—as we detail in a new blog post this week—and risks contributing to a burdensome AI regulatory patchwork that could further harm startups. Policymakers should instead focus on legislation that supports the growth of AI innovation and the widespread dissemination of its benefits.
Policy Roundup:
Proposed bills could boost capital access for underrepresented founders. This week, the Denver Post and Atlanta Journal-Constitution highlighted the need for more capital pathways for underrepresented founders, spotlighting two bills—the Community Development Investment Tax Credit Act and the Expanding American Entrepreneurship Act—that policymakers could pass. These, and other similar measures to support startup founders of color, are particularly important in light of attacks on funds that benefit diverse populations. A diverse startup ecosystem is critical to innovation, as Zaneta Kelsey, CEO and co-founder of Access Mode, highlighted to the Denver Post, “the more innovation that we have in our country, the stronger we will be.” Kelsey earlier joined over 100 underrepresented founders from across the country in writing to Congress in support of the bills.
Net neutrality rules suspended by court decision. This week, the Sixth Circuit Court of Appeals issued a stay on the Federal Communications Commission's recent attempt to restore net neutrality rules, pausing enforcement of the rules until the court reconvenes this fall. These rules are crucial for preventing Internet service providers from blocking, throttling, or engaging in paid prioritization of Internet data. The court's decision, citing the "major questions" doctrine and the recent decision overturning Chevron, argued that such significant regulatory decisions need clear congressional authorization. Consequently, the enforcement of net neutrality rules will be on hold until the court reconvenes this fall. Startups depend on equal access to a free and open Internet free from competitive disadvantages in an uneven playing field.
UN report shows how trade barriers impact women-led businesses. This week, the United Nations Conference on Trade and Development released a report detailing the adverse impact of non-tariff barriers to trade on women who lead digital businesses. The report highlights how high costs from increased regulatory burdens and limited access to compliance resources disproportionately affect women-led firms and hinder their ability to compete in the global market. The report underscores the need for policymakers around the globe to reduce barriers to digital trade and ensure opportunities for underrepresented groups to thrive internationally.
Congressional Research Service report highlights the impact of age verification. This week, the Congressional Research Service published an analysis of the Kids Online Safety and Privacy Act, which recently passed the Senate. The analysis notes the potential constitutional issues with the bill and underscores how some Internet services may need to implement costly age verification technology. Earlier this week, Engine released additional resources explaining how requirements to determine the age of Internet users affects startups and their users.
Startup Roundup:
#StartupsEverywhere: Brooklyn, N.Y.Terrament's journey began with a commitment to enhancing sustainable energy solutions and a desire to overcome the limitations of traditional energy storage methods. By leveraging shaft-digging technology from the mining industry, Terrament developed an innovative approach to replicate the energy storage capabilities of pumped hydro without needing mountains or water. We chatted with Founder Eric Chaves about how policymakers can support startups in the energy and climate space, the importance of government grant programs, and his vision for the future.
