Startup Policy: 2020 Year in Review
TLDR: Over the course of 2020, policymakers engaged on a variety of critical issues and concerns impacting the nation’s startup community, especially around the COVID-19 pandemic, which upended daily life for millions of Americans. Small businesses and entrepreneurs affected by the pandemic called for Congress to provide nascent companies with the emergency support needed to weather the economic uncertainty. The startup perspective has also been crucial in discussions about the importance of Section 230 for small Internet companies that host user-generated content, changes to a law that provides startups with a balanced framework for addressing allegations of online copyright infringement, policies limiting access to high-skilled talent, and much more. As the end of the year draws near, we wanted to highlight just a few of the policy issues that have affected the startup community in 2020.
Pandemic Relief: Since Congress passed the CARES Act in March and first began offering Paycheck Protection Program (PPP) loans to help small businesses maintain their payrolls, entrepreneurs have remained in desperate need of emergency, long-term relief as a result of the coronavirus pandemic. Although policymakers ensured that the first round of relief helped some businesses maintain their payrolls, many startups were unable to access the aid because of their ties to larger investors, minimal payroll costs compared to the rest of their expenses, and regulatory red tape. Engine conducted several surveys of our startup network and found that entrepreneurs felt that the relief they received was insufficient to support their operations, and that more targeted support was critically needed to keep them in business.
Engine crafted a roadmap for recovery to offer more targeted, long-term policy measures to support startups in future stimulus packages. Even though lawmakers passed a COVID relief package this week, it is critical that they continue to support startups and entrepreneurs moving forward so the U.S. remains at the forefront of global innovation. As we noted in a Morning Consult op-ed earlier this month, startups “are a leading source of future paychecks in America” and will be “sorely needed as the country works to mitigate the persistent effects of the pandemic.”
Intermediary Liability Limitations: Policymakers spent much of 2020 focusing on Section 230—a bedrock Internet law that allows Internet companies of all sizes to host and moderate user-generated content without the fear of potentially ruinous lawsuits.
On one side of the aisle, Republicans—led by President Donald Trump—claimed the law needed reform to address alleged anti-conservative bias at the hands of large tech companies. In May, Trump issued an executive order on “preventing online censorship” after Twitter appended fact-checking labels to several of his misleading tweets. The order directed federal agencies, including the Federal Communications Commission, to examine Section 230’s liability limitations. FCC Chairman Ajit Pai allowed the Commerce Department petition prompted by Trump’s executive order to proceed at the agency, soliciting public comments—including ours—which flagged the numerous ways the petition misunderstood the law and the state of competition online. Republican attacks on Section 230 continued through the end of the year, with lawmakers introducing multiple reform bills and Trump threatening to veto the annual must-pass defense authorization bill if it did not include a repeal of Section 230.
Policymakers framed much of their criticism of Section 230 around the actions of the largest tech companies, but the U.S. startup community would be disproportionately impacted by changes to the law. Hasty, reactionary reform to Section 230—especially the proposals put forward by Republicans, which would essentially weaponize private lawsuits to pressure companies into hosting and moderating user content differently—would create an Internet ecosystem where only the largest, most financially secure companies could afford to host and moderate user content online.
Copyright: This year saw some policymakers paying additional attention to the Digital Millennium Copyright Act (DMCA)—a 1998 law that provides the notice-and-takedown and safe harbor framework for addressing accusations of copyright infringement online. House and Senate committees convened hearings about this area of the law, and the U.S. Copyright Office released a report on Section 512 of the DMCA. While that report concluded that the system for resolving claims of online infringement should be updated, in many ways policymakers failed to appreciate the fundamental role the current legal framework plays for startups that encounter user-generated content.
The current law provides startups with the certainty they need to survive—certainty that they will not be automatically liable when their users are accused of infringement the startup has no knowledge of or involvement in. This, in turn, allows startups to avoid crippling lawsuits, and compete against larger Internet companies. Engine provided input to House and Senate members throughout their review of the DMCA and our IP Counsel also testified before the Senate Judiciary Committee’s Subcommittee on Intellectual Property in June to explain how even minor changes to the DMCA’s framework could harm startups. She noted that proposed changes to DMCA would lead to more frequent and more costly copyright litigation for early-stage Internet companies, and explained the realities—and numerous limitations—of requiring early-stage companies screen all user posts for potential infringement.
Talent: The Trump administration pursued a number of policies this year intended to limit access to high-skilled foreign talent who make significant contributions to the U.S. technology sector. President Trump issued a proclamation in June suspending the issuance of new non-immigrant visas—including through the H-1B program—allegedly to protect U.S. jobs amidst the coronavirus pandemic. Engine led a group of 118 startups in a letter to the White House that called on the president to reconsider his suspension, noting that “only with access to a global pool of talent can companies and entrepreneurs advance new technologies and keep America at the forefront of global innovation.”
Subsequent efforts by the departments of Homeland Security and Labor to further restrict the H-1B visa program would have limited the definition of specialty occupation and narrowed eligibility for high-skilled visas, and also effectively eliminated the H-1B visa lottery by replacing it with a wage-based system. Engine joined an amicus brief with other organizations challenging both DHS’s specialty occupation requirements and DOL’s wage-based rules, and a federal judge last month struck down both department’s rules. Engine remains concerned that previous efforts to limit access to foreign-born talent will continue to disadvantage U.S. tech companies—and the country’s global tech leadership overall—and drive high-skilled workers to other nations, even under the incoming administration. As we noted in a letter to congressional leaders, “[n]ot only do current and proposed restrictions on H-1B visas limit job creation in the U.S., but the unfavorable immigration environment surrounding high-skilled immigration may lead multinational companies to transfer jobs out of the country or choose to entirely grow their endeavors elsewhere.”
Competition: State and federal policymakers ramped up antitrust investigations into large technology companies this year over alleged anti-competitive behaviors. While startups and entrepreneurs are interested in fair, economically-sound competition policy to govern the technology sector—as Engine noted in a letter to the House Judiciary’s Antitrust Subcommittee and in an op-ed earlier this year—policymakers must give startups a seat at the table to ensure that efforts to contain the largest companies will not harm competition and growth on the startup level. Much of the current conversation, however, sidesteps the fact that many startups rely on free and low-cost services from larger companies, while the backlash around mergers and acquisitions ignores the role these successful exits play in driving investments to startups.
Policymakers interested in boosting competition should focus on policies that will elevate startups, such as creating regulatory and legal certainty for small companies by passing a federal privacy framework, defending common sense liability frameworks that protect startups from bad faith lawsuits, and ensuring entrepreneurs have the access to the capital and talent they need—especially during the current economic downturn.
Congressional Startup Day: During the second week of August, Engine organized Congressional Startup Day—an annual, nationwide celebration of entrepreneurial communities that connects startups with policymakers. Although the pandemic forced many of these meetings to be held virtually, more than 40 members of Congress met with over 100 entrepreneurs in their districts and states to learn more about the issues affecting their businesses. Participating startups and entrepreneurs discussed a variety of topics with policymakers, including promoting greater access to capital, providing more support for underrepresented founders, and ensuring that startups receive the long-term support they need to weather the pandemic’s economic uncertainty.
This year’s Congressional Startup Day co-chairs were Sens. Catherine Cortez Masto (D-Nev.) and Tim Scott (R-S.C.), and Reps. Yvette Clarke (D-N.Y.) and French Hill (R-Ark.). As Sens. Scott and Cortez Masto wrote in a Fortune op-ed, the event helped to highlight the need “to increase support for these businesses to power our growth in the future, so that America can breathe new life into its innovative, groundbreaking economy.” If you are interested in participating in Congressional Startup Day 2021 in August, please contact startupday@engine.is.
