Startup News Digest 09/18/26
The Big Story: House leaves town with broader AI questions unresolved
For startups building and using AI, the growing debate over the technology could determine whether they have the clear rules and access to tools they need to continue innovating. Amid increasing focus on risks from advanced AI, House lawmakers left town this week after passing just one AI-related bill meant to prevent infrastructure costs from being passed on to ratepayers, while leaving broader questions about AI policy unresolved. As policymakers grapple with questions ranging from AI safety to infrastructure, their approach will shape who can participate in the AI ecosystem—and they must ensure the rules they write work for the startups building AI, building with AI, and using AI across virtually every corner of the economy.
Policymakers at the local, state, and federal levels—and abroad—are exploring potential interventions as the debate over advanced AI has intensified following calls from some AI leaders for a “slowdown” in frontier AI development. Some responses have been extreme, including proposals to permanently ban certain AI development and making it a felony punishable by up to 20 years in prison. Key Senate leaders have expressed a desire to move forward in a bipartisan way, even as the chamber has little time left before its pre-election recess. Meanwhile, President Trump has signalled his opposition to hindering U.S. leadership in AI with stringent regulations. And the renewed focus has put top AI companies on opposite sides of the debate as well.
These debates are responding to concerns about potential harms from increasingly capable AI systems, but how policymakers ultimately decide to approach the issue can reverberate well beyond the largest model developers. Regulating who can develop AI models could undermine competition and create regulatory moats, as some startup advocates pointed out this week. More broadly, startups frequently build on foundation models developed by other companies, meaning policies that increase the cost to access those models can make it harder for startups to build and compete. Startups are already using AI in a wide range of applications, from helping patients navigate healthcare costs to improving how residents interact with local governments, and policymakers must take them into account even when considering policies that appear to only apply to the biggest AI developers.
Policy Roundup:
Brief argues recommendation algorithms should be First Amendment-protected. This week, Engine joined TechNet in filing an amicus brief to the Ninth Circuit Court of Appeals, explaining how a lower court erred in ruling that curating content using an algorithm is not eligible for First Amendment protection. Startups regularly use recommendation algorithms to organize content on their services—sometimes as their entire service—and the brief underscores how the lower court’s ruling would leave the core of startups’ businesses unprotected to government mandates about what content to present and in what order.
Congress passes new unilateral tariff authority. The House passed a Russia sanctions package this week that, alongside new sanctions, would give President Trump authority to impose tariffs of up to 100 percent on major purchasers of Russian oil and gas. The new authority is poorly defined and creates another avenue for the administration to impose tariffs with little friction, which could be wielded in ways that undermines the certainty startups depend on to drive decision making and remain globally competitive.
States continue pushing for discriminatory digital taxes. This week, Maryland appealed a state Tax Court ruling that struck down its first-in-the-nation digital advertising tax, keeping the legal fight over the levy alive. The appeal comes as lawmakers elsewhere, including in Pennsylvania, consider their own approaches to taxing digital advertising. The proposed Pennsylvania tax has no revenue-based applicability threshold and would be based on gross receipts, not profit, meaning startups with business in the state face higher costs for services they rely on, and be directly impacted with tax liabilities even if they don’t yet make a profit.
Senate committee advances bill addressing government coercion over online content. This week, the Senate Commerce Committee advanced the Justice Against Weaponized Bureaucratic Overreach to Networked Expression Act (JAWBONE Act) for consideration by the full Senate. The bill would target “jawboning,” aiming to prevent the federal government from coercing Internet, AI, and other platforms into removing or changing lawful content. Startups have few resources and generally lack experience responding to government requests or informal pressure to act on lawful content on their services.
Push for digital tariff ban at global trade forum. At the World Trade Organization’s Public Forum in Geneva this week, stakeholders continued pushing for tariff-free electronic transmissions following the lapse of the longstanding global moratorium earlier this year. The moratorium has been foundational to ensure access for startups that sell globally, and policymakers should work toward a durable agreement that prevents digital tariffs and provides greater certainty for companies expanding into international markets.
On the Horizon:
WED 09/23: The Senate Small Business and Entrepreneurship Committee will hold a hearing examining the role of entrepreneurs and small businesses in communities across the country at 2:30 PM ET.
Startup Roundup:
#StartupsEverywhere: Gig Harbor, Washington. Seattle-area startup Sound Games is building a distribution platform like Shopify for games, streamlining indie developers’ simultaneous launches across various storefronts. We sat down with co-founder Mike Schmid to talk about his journey from the App Store to building his own platform, the challenging landscape of raising capital in the current gaming market, and the operational burdens of navigating state-by-state compliance for a remote startup.