The Big Story: EU data ruling further imperils transatlantic data flows
A decision this week by a major EU privacy regulator is adding to uncertainty over companies’—especially startups’—already tenuous ability to store and process user data from EU users in the U.S. This week, the Irish Data Protection Commission ruled that Meta’s transatlantic data transfers were unlawful, handing down a record-setting fine and setting a precedent threatening all transatlantic data flows. Following the invalidation of the data transfer pact known as Privacy Shield in 2020, Meta relied on Standard Contractual Clauses as a mechanism to transfer EU user data to the U.S., which this week’s ruling finds to be unlawful.
Startups must transfer data between the EU and the U.S. in order to serve their EU customers, but those cross-border data transfers have been subject to uncertainty and frequently upended by EU proceedings. In 2020, the data transfer mechanism Privacy Shield—a replacement to an earlier invalidated data transfer pact called Safe Harbor—was found unlawful. In the wake of its invalidation, startups faced increased costs and lost EU clients. Many startups turned to Standard Contractual Clauses—which can be expensive for startups to implement—in order to continue serving the EU market. With this week's ruling, those transfers are also called into question.
Underpinning each of the adverse data transfer decisions are issues surrounding U.S. government surveillance programs, and what the EU considers insufficient opportunities for their citizens to have redress. In this week’s decision, elements of the U.S. national security apparatus are mentioned about 200 times—with Section 702 of the Foreign Intelligence Surveillance Act making up nearly half of that—demonstrating that the decision is more about government spying than business conduct. Section 702 is up for reauthorization this year, giving an opportunity to address its impacts on businesses and international trade, in addition to civil liberties concerns raised by lawmakers.
Since Privacy Shield’s invalidation, policymakers on both sides of the Atlantic have endeavored to replace it with a new pact that could survive an eventual legal challenge in the EU. Last Spring, they announced the new EU-U.S. Data Privacy Framework, and in October President Biden signed an Executive Order making legal changes to pave the way for an adequacy finding by the EU needed to restart legal data flows. That new framework isn’t expected to come online until the fall of this year, and this week’s decision adds additional urgency and importance to making the new transfer mechanism effective.
Policy Roundup:
Congress moves a bill to clarify fundraising events for startups. This week, the House Financial Services Committee passed a bill that would help clarify regulatory ambiguities around general solicitation, making it easier for startups to publicly showcase their ideas at e.g., pitch competitions, without running afoul of securities laws. Engine submitted a letter in support of the bill, the Helping Angels Lead Our Start-Ups (HALOS) Act, sponsored by Reps. Lawler (R-N.Y.) and Gottheimer (D-N.J.). We urge Congress to swiftly pass the HALOS Act to make it easier for startups to connect with seed-stage investors at commonplace startup events.
House puts forth bipartisan immigration reform bill. This week, Reps. Maria Salazar (R-Fla.) and Veronica Escobar (D-Texas) teamed up across party lines to unveil a new immigration reform bill. The Dignity Act aims to address the crisis at the border, while providing a pathway to legal status for undocumented immigrants, providing conditional permanent status for Dreamers and DACA recipients, and training and upskilling opportunities for American workers. For the U.S. to remain a leading startup ecosystem, Congress must act to welcome foreign-born innovators—who are overwhelmingly entrepreneurial and fill important STEM talent gaps—including through legislation like the proposed and by creating dedicated channels like a startup visa.
Biden taps nominee to fill vacancy at telecom regulator. President Biden nominated Anna Gomez this week in his second attempt to fill an empty Federal Communications Commission (FCC) seat and break the 2-2 deadlock at the agency. Former nominee Gigi Sohn withdrew from the nomination process after three confirmation hearings over two years. Without a fully functioning FCC, lawmakers have been unable to advance key priorities for startups.
Broadband access bipartisan priority at telecom oversight hearing. The House Committee on Energy and Commerce held a hearing this week on the reauthorization of the National Telecommunications and Information Administration, which is the agency responsible for coordinating several important technology policy priorities, including the deployment of new broadband Internet subsidies. At the hearing, members of both parties expressed the need to ensure the funds are deployed to unserved and underserved communities in order to close the digital divide. Affordable, quality Internet access is critical to ensure entrepreneurs located anywhere in the country can launch and grow a company that reaches users across the world.
U.S. Surgeon General warns about social media. This week, U.S. Surgeon General Vivek Murthy issued a warning that social media platforms pose a threat to the mental health of children. In his advisory, Murthy pointed to potential risks arising from the amount of time that teens and young adults spend online but also acknowledged research that shows the benefits of social media and Internet use. Murthy’s warning comes on the heels of a collective push from lawmakers for platforms to collect additional user data to ascertain user age and conduct scanning of public and private user content in the name of child safety.
Startup Roundup:
#StartupsEverywhere: Austin, Texas. Modgarden is on a mission to provide city residents with an opportunity to take control of the way their food is grown. After food cured his own illnesses, Founder and CEO Aamar Khwaja wanted to find a way for everyone to access organic, healthy food, so he built tinyFarm. We spoke to him about his background on Wall Street, the unique difficulties he faces as a hardware company, and his goals for Modgarden.
