Startup News Digest 06/26/26
The Big Story: California tees up AI data disclosure bill, adding to the state patchwork
As many state legislatures wrap up their sessions for the year, startups that develop and deploy AI are left with a growing patchwork of rules depending on where they’re based, where their users are based, what features they offer, and what industry they’re in. And the handful in states still in session could continue to add to this patchwork, including California, where lawmakers are teeing up a bill that would require developers to identify, track, and record copyrighted works used to train generative AI models.
At a hearing this week in front of the California’s Senate Judiciary Committee, witnesses and lawmakers questioned the unintended consequences of AB 412, the state’s training data disclosure proposal. In a letter to lawmakers earlier this month, Engine expressed concerns that the bill would create unreasonable record-keeping costs and open startups up to ruinous legal liability. Because large language models are often trained on vast datasets pulled from varied data sources—and because copyright protections can extend to any expressive work—developers have no efficient way to isolate any registered copyrighted material in those vast datasets. At the same time, the Copyright Office does not provide an automated way to search for registration information. During this week’s hearing, lawmakers and witnesses were skeptical of the private right of action in the bill, which would allow rightsholders to sue if AI developers are unable to provide information about whether their training data sets include the rightsholders’ works. The bill would force startups to spend their limited time and resources building an impractical database and responding to rightsholders requests, or risk ruinous legal costs.
In a blog post this week, Engine explored the emerging trends in state AI lawmaking, including broad cross-sector frameworks losing momentum, narrow high-risk rules advancing, the solidification of a frontier model framework, and the laser focus on chatbots and kids safety. As states continue advancing varying AI legislation, policymakers should avoid creating overly burdensome or conflicting requirements that make it harder for startups to build—and build with—AI. And ultimately, Congress should pass a federal framework that creates uniform protections for consumers and consistent obligations for startups.
Policy Roundup:
Competing visions for ‘kids safety’ online. Key House lawmakers introduced legislation this week that marks a significant shift in the debate about how Internet companies should have to identify and differentiate services for young users. The new Kids Internet and Digital Safety Act from the bipartisan leadership of the House Energy and Commerce Committee contains several measures that have already been considered by the committee—including around data collection and use, design features, and adult content—but changes in this version of the bill mean that startups would likely have to verify the ages of all of their users in order to comply with the heightened requirements and protections for young users. At the same time, the Trump administration is working with Senators to advance a more extreme version of the rules regarding Internet companies’ design features, while the bipartisan leadership of the Senate Judiciary Committee are attempting to attach narrower but still concerning online safety bills to the must-pass defense authorization. As Engine has long explained, any proposal that requires startups to verify users’ ages creates unreasonable financial burdens and threatens users’ privacy, security, and free expression.
FCC reviews broadband deployment rules. On Thursday, the Federal Communications Commission (FCC) advanced a review of state and local policies that may delay broadband infrastructure deployment or impose excessive fees, with the goal of promoting universal access to high-speed Internet service. The FCC also voted to seek comment on potential actions related to the E-Rate program to heighten online safety for children using E-Rate-funded services. However, such changes could impose unnecessary burdens on schools and service providers that would undermine the program’s core mission of expanding connectivity. Any re-evaluation of the E-Rate program should avoid overly broad regulations that could limit access to educational content that would help foster innovation and support future entrepreneurs.
House examines SBA innovation office. The House Small Business Committee convened a hearing Wednesday examining the role of the Small Business Administration’s Office of Investment and Innovation, including its work overseeing Small Business Investment Company, Small Business Innovation Research (SBIR), and Small Business Technology Transfer (STTR) programs. These programs help startups access capital, research and development funding, and commercialization support, making them important tools for helping early-stage companies.
Lawmakers examine AI and workforce training. The House Education and Workforce subcommittee on higher education and workforce development held a hearing this week on modern apprenticeships and how AI is reshaping the skills workers need across ecosystems. Members and witnesses discussed how apprenticeships, upskilling, and technology-enabled training tools, including AI tutoring and virtual reality, can help workers build new skills while helping employers develop stronger talent pipelines.
On the Horizon:
TUE 06/30: The House Judiciary subcommittee on courts, intellectual property, artificial intelligence, and the Internet will convene a hearing to examine intellectual property and the Internet at 10:00 AM ET.
TUE 06/30: The House Energy and Commerce subcommittee on communications and technology will convene a hearing to examine oversight of the National Telecommunications and Information Administration at 10:00 AM ET.
TUE 06/30: The House Energy and Commerce subcommittee on commerce, manufacturing, and trade will convene a hearing to examine legislative proposals related to U.S. technology leadership and global competitiveness at 2:00 PM ET.
WED 07/01: The House Small Business Committee will convene a hearing to examine small businesses and the American dream at 10:00 AM ET.
Startup Roundup:
#StartupsEverywhere: Raleigh, North Carolina. Scale Social, a Raleigh, North Carolina-based startup, helps brands capture authentic user-generated content (UGC) by integrating technology into mobile apps or activating via on-site quick response (QR) codes, building a centralized library of real customer moments with full marketing rights. We sat down with Founder and CEO Runbin Dong to discuss his journey from IBM Watson and a family dumpling business to founding an AI-native startup, the challenges posed by the H-1B visa system, and how the R&D tax credit and Qualified Small Business Stock (QSBS) exemption can shape a tech startup's journey.