The Big Story: Senate considers next steps for AI policy
Policymakers are weighing next steps across a large range of issues that will shape the future of AI. On Wednesday, a key senate committee held a hearing to discuss the Trump administration’s AI Action Plan and the committee chairman also introduced a proposal that would let companies opt out of certain rules, minimizing regulatory burdens while developing new technologies. The Action Plan aligns with priorities Engine has long championed—including expanding AI infrastructure and reducing compliance costs—and the new legislation offers a promising starting point for a policy framework that supports startup innovation.
AI innovation requires smart policies on the wide range of issues affecting startups that use and build with AI. The hearing this week—held by the Senate Commerce, Science, and Transportation subcommittee on space and science—examined the Trump administration’s AI Action Plan as well as the evolving patchwork of state AI laws. In his testimony, Michael Kratsios—Director of the Office of Science and Technology Policy—emphasized that “a patchwork of state regulations is anti-innovation...and makes it extraordinarily difficult for America’s innovators to promulgate their technologies across the United States.”
During the hearing, Committee Chair Ted Cruz (R-Texas) highlighted steps he believes are critical to promoting U.S. AI innovation—including eliminating and preventing a state patchwork—and introduced a bill to make it easier for startups to launch innovative AI products without having to navigate complex regulatory burdens at the federal level. The Strengthening Artificial Intelligence Normalization and Diffusion By Oversight and eXperimentation (SANDBOX) Act would direct the White House Office of Science and Technology Policy (OSTP) to establish a program for developers and users of AI tools to request “waivers or modifications” to federal laws that impede their ability to use AI. Waivers or modifications would be valid for two years and could be renewed for up to ten years. Sandboxes have been used in states and other countries to promote development and adoption of new technologies, and help regulators understand how to right-size their rulebooks.
The progress on AI Action Plan implementation and new legislative proposal comes as states continue to move forward with their own AI laws. California policymakers passed legislation this week that could impact AI startups’ success and are still considering many proposals on AI before they wrap up their legislative session today. And New York Governor Kathy Hochul has several pieces of AI legislation to act on, while Colorado last month pushed back the effective date to give more time to reconsider its first-in-the-nation AI law signed in 2024. This looming patchwork of state laws is poised to undermine startups’ competitiveness, and federal policymakers should pursue a uniform framework of obligations that protect consumers while addressing the full range of issues AI startups face.
Policy Roundup:
Congress moves one year reauthorization for startup federal funding programs. On Tuesday, the House Small Business Committee unanimously passed a one-year extension to the Small Business Innovation Research (SBIR) and Technology Transfer programs (STTR), which are set to expire on September 30th. Both programs are crucial non-dilutive forms of funding that are especially important for R&D-heavy startups, and even a pause in funding for the programs would be deleterious to the startup funding ecosystem. The House approach is at odds with a longer-term extension being pursued by Senate Small Business Chair Joni Ernst (R-Iowa), whose bill would make changes to the programs and reauthorize them for three years.
The FTC goes back to the drawing board on noncompetes. The Federal Trade Commission (FTC) will not appeal the court's ruling that the Biden era Non-Compete Clause Rule, a ban on noncompete agreements, was issued without sufficient authority. Engine supported the Non-Compete Clause Rule, as it would have created more talent mobility across the country, allowing startups to build successful teams.This week, the FTC put out a Request for Information to gather public comment on the impact noncompetes have on workers and businesses. Feedback from the public could help inform the FTC’s future enforcement approaches and rule making on noncompetes at the federal level.
Appeals court signs off on California law limiting minors’ social media feeds. The U.S. Court of Appeals for the Ninth Circuit upheld parts of California’s new law regulating the kinds of features and tools Internet platforms can offer young users. The ruling allows California to enforce its requirements that Internet platforms create parental controls for young users’ accounts and obtain parental consent before offering young users “addictive feeds.” The appeals court did not address the law’s effective requirement to verify all users’ ages, which doesn’t go into effect until 2027. While the appeals court had previously paused enforcement of California’s law while it considered the challenge from industry group NetChoice, this week’s ruling largely upholds the district court ruling from last year, which allowed several parts of the law could stand but included an injunction against other parts of the law, including the prohibition on notifications for minors at certain times of the day.
FTC to scrutinize chatbots’ impact on kids. The FTC announced this week that it is investigating how AI chatbot developers are building their tools, considering safeguards, and mitigating the risk of harm to users, including children. The agency sent letters to Alphabet, OpenAI, xAI, Character Technologies, and others, asking how they make money, process inputs and generate outputs, develop and approve characters, use and share user data, and detect and mitigate potential harms.
On The Horizon:
TUE 9/16: The House Small Business Committee will convene a hearing to discuss access to capital and the role of Small Business Administration lending programs at 10:00 AM ET.
TUE 9/16: The Senate Judiciary subcommittee on crime and terrorism will convene a hearing on chatbots at 2:30 PM ET.
WED 9/17: The House Small Business Committee will convene a hearing to discuss how small businesses are growing and surviving online at 2:00 PM ET.
WED 9/17: The House Oversight and Accountability subcommittee on cybersecurity, information technology, and government innovation will convene a hearing to discuss the future of AI at 2:00 PM ET.
THU 9/18: The House Judiciary subcommittee on intellectual property, artificial intelligence, and the Internet will convene a hearing on state AI regulation at 10:00 AM ET.
THU 9/18: The House Energy and Commerce subcommittee on communications and technology will convene a hearing to discuss broadband permitting reform proposals at 2:00 PM ET.
Startup Roundup:
#StartupsEverywhere: Centennial, Colorado. Using her background in cryptography and mathematics, Gadalia Montoya Weinberg O’Bryan set out to challenge the current standard of multifactor authentication used to protect user and company data. Her company, Dapple Security, simplifies the authentication process using biometrics. We had the opportunity to chat with Gadalia about her journey to founding Dapple Security, data privacy policies, and more.
