The Big Story: Startups are collateral as policymakers talk past each other on tech policy
Over the last week we’ve seen several tech policy conversations where contradictory, party-line talking points are on full display that—if taken seriously as policy ideas on everything from privacy, to national security, to content moderation, and more—would make life much harder for thousands of startups across the country. Lawmakers’ competing and mutually exclusive visions for the Internet doesn’t stop them from threatening policy changes that would alter the way tech companies, including startups, have to operate, as we highlight in a new blog post.
This was evident at two hearings this week—one held by the Senate Judiciary Committee and another held by the Senate Committee on Homeland Security and Governmental Affairs. Depending on who was talking, Internet companies are either faulted for doing too little or too much—on the same issue. During the Senate Judiciary hearing, Sen. Lindsey Graham (R-S.C.) previewed an upcoming piece of legislation with Sen. Elizabeth Warren (D-Mass.) that would create a separate agency to regulate Internet companies. Graham expressed interest in an agency that could limit how companies moderate and remove user-generated content, mandate an appeals process for users who are unhappy when their content is removed, and create a licensing regime for companies that want to host user-generated content. Depending on who is in charge of that agency, the outcome would be wildly different; what one side of the aisle sees as “misinformation” and “incitement of violence” the other side sees as “protected speech” and “political organizing,” and vice versa. (And while the conversations are focused on “big tech,” we’ve long explained how the pressure around content moderation can impact startups.)
And last week, consideration of bipartisan competition legislation purportedly aimed at big tech and the challenges facing local media unraveled during a Senate Judiciary Committee meeting when diverging views on content moderation came up. The bill, the Journalism Competition and Preservation Act, has always been controversial, with public advocates, journalists, law professors, tech groups, and libraries voicing opposition. But consideration of the bill stalled in committee when Republicans added an amendment aimed at addressing alleged “censorship.”
Tech policy conversations require nuance and carefully balancing multiple perspectives to get it right. Too often, public congressional conversations fail to grapple with those tensions, focus on the conduct of only a few large companies, and lead to policies rife with unintended consequences, the burdens of which fall disproportionately upon startups. Some lawmakers and many congressional staffers have those thoughtful conversations in private. But the public grandstanding leaves startup founders disillusioned, poisons the well for productive discussions and policy ideas, and detracts from the policy changes that startups need. Startup founders often talk about the need for policymakers to take steps on several issues, including education and immigration policy changes needed to fill the STEM talent pipeline, a federal privacy framework that protects consumers and creates clear rules of the road around data collection and use, and a wide range of actions the government could take to make the startup ecosystem more equitable and accessible to underrepresented founders. Those issues may not rile up voters or go viral the way partisan talking points do, but they’re a great place to start a real policy conversation.
Policy Roundup:
Controversial California social media bills signed into law. California Gov. Gavin Newsom signed into law a pair of bills—the California Age Appropriate Design Code, AB 2273, and a content moderation practices transparency bill, AB 587—that purport to protect children online and combat hate and disinformation. Rather than achieve their aims, the bills are likely to incent additional data collection, increase reliance on age-verification technology, complicate content moderation efforts, dampen user expression, and provide a roadmap to extremists looking to skirt companies’ moderation systems. The bills are the latest in state legislative efforts nationwide—Texas and Florida, for example—of policymakers cracking down on Internet companies, despite clear constitutional problems and broader implications for the Internet ecosystem, including startups.
FTC open meeting zeroes in on independent contractors, dark patterns. The Federal Trade Commission (FTC) on Thursday voted on party lines to issue a policy statement about the gig economy, highlighting a number of enforcement priorities. Among other issues, the statement indicated concern about companies that try to exert control over employees designated as independent contractors. In the past, the administration and Congressional Democrats have signaled a desire to limit who could qualify as an independent contractor, which could impact a key source of labor for startups that can’t yet afford full-time employees. The FTC also released a staff report on “dark patterns” used in ecommerce to drive revenue and keep customers. Startups and others are paying close attention since such reports and statements often form the basis for future enforcement actions and policy priorities.
Digital asset rules, crypto oversight come into focus. Two separate Senate hearings on Thursday featuring agency heads highlighted their desire to further regulate the space and Congress’ increasing role in cryptocurrency regulation. Commodity Futures Trading Commission Chair Rostin Behnam told lawmakers that his agency is the “right regulator for the digital asset commodity market,” during a Senate Agriculture Committee hearing on S.4760, Digital Commodities Consumer Protection Act of 2022, a bill that would require crypto startups that facilitate trades to register with his agency. Securities and Exchange Commission (SEC) Chair Gary Gensler’s testimony before the Senate Banking comes after remarks last week that cryptocurrency intermediaries should register with the SEC, which would likely necessitate changes to their business models and heighten compliance costs. And on Friday, the Biden administration released its “Framework for Responsible Development of Digital Assets.” As we told the Treasury Department in comments during the development of that framework, startups need regulatory clarity as they innovate, but policymakers must avoid hindering the wide variety of innovative uses of digital assets.
Beneficial, routine data uses could be swept into FTC privacy push. In a new piece this week, NetChoice’s Jennifer Huddleston warns that the FTC’s attempt to write privacy rules could end up sweeping in “legitimate business practices.” In August, the agency started soliciting input on potential privacy rules, with nearly 100 questions on how companies currently collect and use consumer data. The notice conflates “beneficial and risky data collection practices,” Huddleston says, threatening to “eliminate many beneficial uses of data,” which would have implications for how startups are able to interact with their customers, find new users, and personalize their products.
Europe takes a step on abusive patent practices. On Tuesday, the European Parliament adopted a report about third-party litigation funding and the need for better transparency and safeguards when it comes to, e.g., hedge funds and financiers paying for and controlling lawsuits. This is particularly relevant to patent litigation, where investors often back patent assertion entities (PAEs) who file lawsuits, including against startups and small businesses. While U.S. lawmakers have yet to take up the issue of patent litigation funding, this issue overlaps with proposed transparency legislation and a Senate hearing last year when we explained how startups and small businesses stand to benefit when there is better and more information about patent ownership and who is controlling litigation. The report this week signals a positive step by Europe to curtail abusive patent practices; and a path the U.S. could also follow to help domestic innovators.
Startup Roundup:
#StartupsEverywhere: Chicago, Illinois. Grapefruit Health is a B2B tech-enabled platform helping to solve one of the biggest problems in health care: the workforce shortage. We spoke with Founder and CEO Eric Alvarez about his background in health care, the importance of startup support organizations when it comes to generating early funding, and the company's own fundraising journey.
