The Big Story: SHOP SAFE bill advances despite potential to harm e-commerce startups and small businesses
In a first vote this week, the House Judiciary Committee advanced the SHOP SAFE Act, a bill that would create substantial costs and risks for e-commerce startups—making it harder for them to compete—and erect new barriers for entrepreneurs and small businesses who want to sell goods online.
As we have noted, the SHOP SAFE Act would amend trademark law with the purported goal of combatting unsafe counterfeit goods sold online. But it would create a dramatic shift in e-commerce, especially for startups, without a clear indication it would deter known counterfeiters set on duping U.S. consumers. Under the bill, e-commerce companies (broadly defined) would have to proactively review all third-party posts to try and decide whether they potentially contain use of a counterfeit mark, and they would have to defend against costly litigation when their users are accused of trademark infringement. These are tasks and costs that big platforms can take on, but SHOP SAFE would create substantial barriers for innovative startups looking to launch and compete in the e-commerce space—thereby entrenching the large, established incumbents.
In a letter to the Committee, Engine reiterated how SHOP SAFE could have an outsized, negative impact on e-commerce startups, especially considering how rarely they encounter alleged trademark infringement (if at all). Others have likewise noted that the bill would disproportionately burden startups operating in the e-commerce space making it harder for them to innovate, compete, and succeed. At the same time, SHOP SAFE would also restrict the options available to small businesses and digital entrepreneurs selling online—because it would reduce e-commerce offerings, make it harder to post online, and force sellers to disclose potentially private information.
During this week’s Committee vote, many members raised these concerns, so while the bill did advance, there may still be opportunities to fix it. Hopefully Congress will seriously consider necessary changes—and listen to the startup and small business perspective before moving forward.
Policy Roundup:
Biden administration takes step forward in immigration. This week, the Biden administration took a step in protecting Dreamers by issuing a proposed rule to “preserve and fortify” the Deferred Action for Childhood Arrivals (DACA) program. The effort comes on the heels of a federal ruling in Texas which found the program to be illegal, halting the ability of new applicants to gain legal status, and after failed efforts to include a pathway to citizenship for Dreamers through the budget reconciliation process. This week’s proposed rule contains similar eligibility requirements to those included under DACA issued in 2012. While the proposed rule is welcome and expected, it is critical that policymakers take action to broadly protect Dreamers, including by creating a pathway to citizenship. Dreamers are essential to the American STEM talent pipeline and are significant contributors to the U.S. startup ecosystem. Failure to provide certainty for these individuals is not only the wrong thing to do, but is a step backward for the innovation ecosystem.
Engine signs letter to lawmakers regarding Qualified Small Business Stock (QSBS) treatment. On Thursday, Engine joined a letter to House leadership, urging them to reconsider efforts to curtail the QSBS treatment for certain taxpayers in the proposed reconciliation bill. Qualified Small Business Stock treatment limits capital gains taxes for investors in qualified small businesses, which can include founders and employees. The provision incentivizes investment in startups, including in their earliest stages, and helps startups attract talent by supporting equity ownership. Curtailing the QSBS treatment risks disincentivizing this investment, particularly amidst pandemic recovery, and would punish those who invested in QSBS in the past by abruptly changing the playing field for those investments.
Engine calls for certainty in cryptocurrency. We submitted a letter this week to Senator Pat Toomey (R-Pa.) in response to the Senator’s call for legislative proposals around cryptocurrency technologies. Startups are a major part of the growing cryptocurrency ecosystem in the U.S., and it is vital that lawmakers keep innovators in mind when regulating and crafting legislation.
Restoring the America Invents Act would support startups and combat invalid patents. This week, Senators Patrick Leahy (D-Vt.) and John Cornyn (R-Tex.) introduced the Restoring the America Invents Act, a bill that would promote patent quality, stem abusive patent assertion, and help startups better access tools to combat invalid patents. Building upon the success of the 2011 Leahy-Smith America Invents Act—which has contributed to innovation, economic growth, and job creation—this legislation would further advance those goals, and we applaud the Senators’ efforts to promote a patent system focused on quality and supporting true innovation.
Trade and Technology Council shows promise, leaves work to be done. The U.S.-EU Trade and Technology Council took place Wednesday in Pittsburgh, despite tensions that had clouded the lead-up to the meeting. Policymakers from the U.S. and EU discussed a range of issues, from AI to technology platform governance, and laid out an ambitious set of goals to guide the Council’s working groups ahead of the next meeting due in the spring. Increased collaboration between the U.S. and Europe promises to reduce barriers to trade, but as we noted in a blog post ahead of the meeting, policymakers must be careful not to enshrine regulatory approaches that uniquely burden startups and small companies.
Startup Roundup:
#StartupsEverywhere: Los Angeles, Calif. Tomodachi is a social learning platform that enables students to create unique content and present work to audiences beyond the classroom. It was started by a wife and husband duo, Na Xue and Ken Lo, with the mission of creating meaningful educational connections and providing a global, inclusive learning environment. We had the chance to speak with Na Xue—a former educator and co-founder of Tomodachi—about the origins of the company, regulatory challenges in EdTech, and the challenges women founders can face when building their startups.
