The Big Story: Biden’s regulatory freeze is a mixed bag for startups. President Joe Biden’s decision to institute a 60-day regulatory freeze on new or pending rules from federal agencies and executive departments could significantly impact the U.S. startup community. As the Biden administration undertakes this assessment, which gives officials the opportunity to review proposed regulations from the previous administration, federal officials should take care to refrain from holding up any policies that would expand and enhance entrepreneurship, while taking a closer look at rules that would prove detrimental to innovation and competition.
It has become tradition for new administrations to put pending rules on hold in order to give the incoming president time to reconsider (and modify or even recall) rules proposed or issued in the final days and months of the previous administration. Biden’s regulatory freeze covers a final rule from the Department of Homeland Security that would have effectively replaced the H-1B visa lottery with a system that prioritized petitions with the highest salaries. The entrepreneurial community has expressed concern that this rule—as well as other steps taken by the previous administration—would harm U.S. innovation and global competitiveness by forcing high-skilled workers to seek tech-related work in other countries. The Biden administration has already taken action to roll back several restrictive immigration policies implemented by the Trump administration, and the tech community is hopeful that DHS and the administration will rescind this harmful rule.
The regulatory freeze also puts on hold controversial regulations from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that would have required banks and other financial services to record and verify personal information from U.S. customers and their counterparties for cryptocurrency transfers from exchanges to private wallets. Crypto startups and other advocates are concerned that the regulations could limit access to decentralized services and subject users to additional financial scrutiny.
However, some of the rules that are currently frozen would benefit entrepreneurs and the broader U.S. tech sector, and it’s critical that the Biden administration factor in those advantages when reviewing these rules. For example, earlier this month, the Department of Labor (DOL) released a final rule clarifying the process for classifying workers as either independent contractors or employees. While this rule is now on pause, the topic it addresses, and the guidance it could provide, is important to many startups. As we noted in comments to the DOL last year, “the ability to hire independent contractors to meet a startup’s skills and talent needs is critically important.” The DOL’s final rule gave startups the clarity that they needed to make the best talent and staffing choices for their companies.
And the regulatory freeze also affected new rules from the U.S. Securities and Exchange Commission that would have raised the limit on regulation crowdfunding from $1.07 million to $5 million, giving early-stage startups more access to investment opportunities. Policymakers should quickly review and approve those regulations so that regulation crowdfunding is a more viable option for a greater number of startups. As the review of these and other rules continues, we hope that the White House will consider the broader impact that these regulations will have on the startup community—particularly for those entrepreneurs who have been seriously affected by the pandemic.
Policy Roundup:
Organizations warn against changes to Section 230. A coalition of more than 70 civil rights and social justice organizations sent a letter to Congress and the Biden administration this week calling on policymakers to refrain from broad changes to Section 230 in the aftermath of the Capitol riot, saying that efforts to revoke the law “would make it more difficult for web platforms to combat the type of dangerous rhetoric that led to the attack on the Capitol.” The letter comes as some policymakers—including Commerce Secretary nominee Gina Raimondo—have voiced support for Section 230 reforms.
Startup community would be most affected by a repeal of Section 230. Although policymakers have framed much of their criticism of Section 230 around the actions of large Internet companies, U.S. startups would be most affected by any changes to or a repeal of the law. As the CEO of MeWe, Mark Weinstein, wrote in a Wall Street Journal op-ed this week, “[r]evoking Section 230 would significantly harm smaller companies like mine and new startups that compete with the tech giants.”
Internet companies brace for domestic terrorist content. Tech companies are digging in for a protracted fight against online domestic extremist networks, increasing efforts to remove harmful and conspiratorial content from their websites and working more closely with law enforcement agencies. The expanded content moderation efforts are pushing far-right actors to more discreet messaging apps and services, leading to concerns that policymakers will force tech companies to build encryption “backdoors” into their services, which would disproportionately harm new and small startups.
Acting FCC chair inspires hope for net neutrality renewal, but not right away. President Biden’s appointment of Jessica Rosenworcel last week to serve as interim chairwoman of the Federal Communications Commission renewed calls for the federal agency to quickly reinstate the net neutrality rules that were repealed in 2017. The FCC’s 2015 Open Internet Order helped keep the Internet a level playing field by requiring Internet Service Providers to treat all lawful Internet traffic the same, and also ensured that startups and other emerging companies could compete on a level playing field against larger competitors. But the agency is currently deadlocked with two Democrats and two Republicans, making action on the matter unlikely until President Biden appoints another commissioner.
Engine submits comments to USTR on global review of IP frameworks. This week, Engine submitted comments to the Office of the United States Trade Representative in response to the agency’s request for input regarding its Special 301 Review into countries that deny adequate and effective intellectual property protections, or that deny fair and equitable market access to U.S. companies that rely on IP protection. As we note in our comments, “[b]alanced, certain, and consistent IP frameworks are critical for innovation and for facilitating startup growth and competition globally.”
Startup Roundup:
#StartupsEverywhere: Traverse City, Michigan. Arrowhead Incubator is working to advance social and economic welfare through the empowerment of Native American entrepreneurs, small businesses, and industry. We recently spoke with Shiloh Slomsky, the Executive Director and Co-Founder of Arrowhead Incubator, to learn more about the organization’s work providing business ideation education, growing Native American entrepreneurship, and the policy challenges faced by Native American entrepreneurs.
