Startup News Digest: 2/12/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

India Rules on Net Neutrality. Major tech policy news from India this week, where the country's telecom regulatory authority (TRAI) effectively banned free, but limited Internet services. Such "zero-rating" programs violate net neutrality principles, TRAI announced. The decision means Facebook can no longer operate Free Basics in India, a mobile platform that offers a small set of online services, including the Facebook app, at no cost to users through an arrangement with an Indian telecom partner. Free Basics has been the subject of controversy, in India especially, for months now. Net neutrality advocates, including Indian startups, argue Facebook and other major companies shouldn’t determine which services get preferential treatment through subsidized data plans. Yet others contend these programs simply increase Internet access in a country where only 27 percent of the population is online.

Unpacking the President’s Budget Request. On Tuesday, President Obama sent his final budget request to Congress. While the proposal was declared “dead on arrival” by Republican lawmakers, it lays the groundwork for future policies and represents a roadmap for the next Administration to espouse or eschew. In a blog post this week, Emma highlights the reasonable policies and programs in the request that would support innovation and entrepreneurship—everything from creating a $4 billion Computer Science for All initiative to simplifying our tax code to make it work better for startups. Read the full post here.

Finally, a Pro-Encryption Bill. On Wednesday, Representatives Ted Lieu (D-CA) and Blake Farenthold (R-TX) introduced legislation that would prohibit states from mandating backdoors in encrypted technologies. As we’ve noted before, backdoors are not only constitutionally questionable, but also not technologically feasible without undermining the security of the system as a whole. In recent weeks, state lawmakers in both California and New York have introduced bills that would prohibit the sale of encrypted devices that cannot be unlocked. The tech community and privacy advocates welcomed Reps. Lieu and Farenthold’s bill, although some warned it may not completely squash the state proposals. According to Amie Stepanovich at Access Now, "Proposals in New York and California are aimed at preventing the sale of devices with strong encryption. Rep. Lieu's bill only mandates limits on design or alteration of devices or products." Still, the federal proposal is a step in the right direction.

Feds OK Driverless Cars sans Humans. The National Highway Traffic Safety Administration (NHTSA) has told Google that federal law will not require a licensed human driver be present in autonomous vehicles. This is good news for Google and other driverless car manufacturers building vehicles intended to operate without humans entirely, at least some of the time. Google has even expressed to regulators that the real danger is having safety features that “tempt humans to take control.” Just a few months ago, California proposed draft rules requiring steering wheels and a licensed driver in all self-driving cars. Perhaps this move by the federal government will prompt California lawmakers to reconsider their proposal.

Judicial Redress Act Passes Congress. Congress finally passed the Judicial Redress Act this week, sending it on to President Obama for his signature. The bill, which would extend rights to judicial redress to citizens of the EU and other designated countries, has been integral to the debate around an updated safe harbor agreement. The long-awaited passage of the bill will hopefully help get the new U.S.-EU Privacy Shield across the finish line.

Principles for Europe’s Digital Ambitions. Last year, the European Commission released a public consultation focused on online platforms and intermediaries (e.g. search engines, social networks, collaborative economy platforms, etc.) as a part of its broader Digital Single Market (DSM) strategy. The DSM effort aims to remove regulatory barriers across European states to better integrate the U.S. and EU digital economies. However, the consultation appears to depart from this worthy objective, contemplating proposals that would create new burdens on startups and shrink existing intermediary liability safe harbors. American business, Internet, and public interest stakeholders weighed in on the consultation, raising some of these concerns. In a new Medium publication, Principles for Europe’s Digital Ambitions, we will be featuring posts from these commenters over the coming weeks. Read Evan’s inaugural post summarizing broad concerns here, and follow the publication for updates as the DSM conversation in Europe evolves.

Startups Caught in Immigration Limbo. The "immigration limbo" is an "all-too common phenomenon among U.S. tech startups," reports Bloomberg Business this week in a profile of several immigrant entrepreneurs and the obstacles they face in building companies in the U.S. Due to visa limitations, startup founders and employees often shuffle back and forth between their home countries and the U.S. Others are forced to return home permanently, establishing their companies elsewhere. And for those immigrants who do acquire the appropriate visas, that's often after months of paperwork as well as legal fees and other expenses that can add up to over $10,000. Without meaningful immigration reform, this state of affairs is the norm. Meanwhile, countries such as Chile and Australia are attracting global talent with special visas and tax breaks, essentially trying to "capitalize on the U.S.’s foot-dragging."

Startup Priorities in the President’s Budget Request

On Tuesday, President Obama sent his final budget request to Congress and it amounted to a whopping $4.1 trillion. In reality, the President’s budget request is typically little more than legally mandated political theater. It’s an opportunity for Democrats and Republicans to rally their bases and duke it out over fiscal strategy and funding priorities. This year’s budget request will likely go largely unfulfilled by the Republican-led Congress. In fact, it was declared “dead on arrival” by Republican lawmakers, and, in an unprecedented move, House and Senate Budget Committee leadership have elected to forgo hearings on the request entirely.

Still, if nothing more than a wish list, the President’s budget lays the groundwork for future policies and, this year in particular, represents a roadmap for the next Administration to espouse or eschew. There are a number of proposals in the President’s request worth highlighting—policies and programs that, if championed by Congress, would support innovation and entrepreneurship.

Investing in Tomorrow’s Workforce

One of the startup community’s most persistent challenges is accessing a pipeline of skilled talent in order to both help startups grow and create news ones. While the Obama Administration has been an unwavering champion of immigration reform to bolster the country’s pool of high-skilled workers, immigration represents only part of the solution (and unfortunately, neither high-skilled immigration reform nor comprehensive reform appears to be going anywhere for the time being). The other piece is ensuring that we are training tomorrow’s entrepreneurs and tech workers here in America.

The President’s budget request includes $4 billion for improved computer science education through its recently announced Computer Science for All initiative. The funding would support states’ efforts to expand CS programming and focuses largely on training teachers and expanding access to quality instructional materials. The Administration has also called on local leaders, educators, and the tech industry to get involved in expanding CS education.

The budget also proposes creating two new funds: a $75 million American Technical Training Fund, which would provide competitive grants to support evidence-based, tuition-free job training programs in high-demand fields, and a $2 billion Apprenticeship Fund, which would build on the Administration’s successful American Apprenticeship Initiative strategy and aim to spur new innovations in apprenticeship.

Finally, the budget proposes creating more than 50 new “Talent Hot Spots” that would “prioritize a sector and make a commitment to recruit and train the workforce to help local businesses grow and thrive, attract more jobs from overseas, and fuel the talent needs of entrepreneurs.” The Administration estimates that this program could create a pipeline of more than half a million skilled workers in just five years, talent that could feed entrepreneurial growth.

Expanding Broadband Access

Earlier this year, the Federal Communications Commission reported that there are still 34 million Americans (or about 10 percent of the country) who lack access to broadband at sufficient speeds. Startups depend on a healthy and competitive broadband market, and it is essential that federal policies encourage connectivity. The President’s budget request includes continued investments in existing federal programs that support the expansion of high-speed broadband to all Americans. Additionally, the budget request calls for future spectrum auctioning, which will allow for more internet service providers to participate in the mobile broadband market.

Promoting Innovation

Federal investments in research and development can help spur innovation in the private sector and the creation of new companies. The President’s budget includes $152 billion in funding for research and development, an increase over last year’s request. Much of this investment is targeted for innovative technologies such as Big Data services, supercomputing, robotics, and nanotechnology. The budget also includes $4 billion for autonomous vehicle R&D, representing an unprecedented level of investment by the federal government in this new market and a huge win for proponents of this growing technology.

Making the Tax Code Work for Startups

Finally, the budget request includes a number of proposals that would streamline and improve tax benefits for startups and entrepreneurs. The President proposes simplifying the existing Research and Experimentation (R&E) tax credit. Last year, the R&E credit was modified to allow small companies to claim it against payroll taxes, instead of income taxes. This made it available to startups, many of which could not claim the credit previously due to a lack of taxable revenue. Still, the process of applying for the credit remains complex and difficult to navigate for startups. The President’s budget proposes simplifying the credit’s formula, making it easier for startups to take advantage of.

The Administration also proposes quadrupling the amount of startup expenses (things like legal fees, office supplies, or recruiting costs) that entrepreneurs can deduct from their federal income taxes, increasing the deduction from $5,000 to $20,000. This will make it less costly to start a business and allow innovators to put more money back into their startup more quickly.

Looking Forward

The frustrating truth is that most of the President’s budget proposal won’t receive Congressional consideration. However, we hope that future policymakers can coalesce around some of the proposals outlined above, which represent reasonable policies that would encourage the growth of startups that drive our economic success and are responsible for all net new job growth in the United States. Finding common ground in today’s political climate is difficult, but it is essential to ensuring that America remains a place where the ideas of the future can grow and thrive.

U.S. Advocates Express Concern—And Some Hope—For EU’s Digital Ambitions

You can also read this post on Medium.

Operating a digital business in the European Union (EU) has long been a challenge due to the often conflicting patchwork of member state regulations that impact online enterprises. Recognizing the drag this regulatory inconsistency has on the future of the EU digital economy, the European Commission (EC) has been hard at work crafting a Digital Single Market (DSM) strategy that would further integrate the U.S. and EU economies, remove regulatory barriers across European states, and promote digital trade within the EU.

The EC’s DSM efforts are critical to growing Europe’s Internet economy, which is why many American stakeholders have welcomed parts of the DSM and European regulators’ efforts to reduce burdens on startups. But, unfortunately, the EC recently asked for feedback on policies that would have the opposite effect and harm online enterprises. Virtually every segment of the Internet community expressed alarm when the EC released a public consultation late last year regarding potential new regulations for online platforms and intermediaries.

The EC’s consultation purported to gather information on how it should regulate so-called “online platforms,” (e.g. search engines like Google or Bing, social networks like Facebook or Twitter, collaborative economy platforms like AirBnB or TaskRabbit, etc.) and in doing so, it signaled to the Internet community that it may issue regulations that, while well-intentioned, are misguided and potentially destructive. The EC’s approach to platform regulation isn’t just a problem for online intermediaries; it poses a threat to the Internet ecosystem as a whole. Not surprisingly then, the consultation saw filings from an enormous range of stakeholders — from large technology trade associations, to public interest organizations, to individual startups — all of whom express similar concerns with the EC’s approach.

Problems with the “Platform Consultation”

There are three key problems with the EC’s platform consultation.

Conceptual confusion

First, online platform regulation as defined in the consultation does not make conceptual sense. The consultation purports to concern “online platforms,” though the range of activities it sweeps into this one category reveals the central flaw in the EC’s regulatory approach. It is simply impossible to craft sensible rules that target “online platforms,” as the consultation defines that term so broadly as to encompass an almost limitless range of activities that share little in common beyond an Internet presence.

• As the Center for Democracy and Technology — a leading Internet policy nonprofit — notes in its submission, the definition of “online platform” used in the consultation “is so broad that it captures just about any website and any online application in operation in Europe and globally.”

• In purporting to regulate “business in sectors as varied as media, connected cars, financial exchange and commerce” under the same standard, the consultation seems to ignore that “the regulatory needs of those sectors are appropriately distinct from one another,” as the Computer and Communications Industry Association — a trade association representing leading technology and computing firms — explains in its submission.

• The Internet Association — another trade association representing some of the most innovative technology companies in the world — points outthe folly in this indiscriminate approach to regulation, asking, “In the physical world, one would not regulate banks, hotels, etc. in the same way, so why regulate the 21st Century version of those services in a blanket way simply because they are ‘on the Internet’?”

• The U.S. Chamber of Commerce — a business federation that represents the interests of American companies — notes in its submission that “the [online platform] definition offered misses the mark and we caution against attempting to regulate something that is inherently difficult to define. Platform is not a useful legal or regulatory category as many markets, businesses and services are ‘platforms,’ both online and off, and this essentially includes any function on the continuum between manufacturer/creator and end user.”

General purpose laws are sufficient

Second, even if it was possible to encapsulate all of these entities under a single, well-defined umbrella, the EC does not provide adequate justification for why this class of businesses and services should be subject to an entirely unique regulatory scheme in the first place. As the U.S. Chamber of Commerce notes, “Nowhere does the consultation explain why online ‘platforms’ should be treated in a distinct manner from other businesses.” Yet the consultation foreshadows a heavy-handed regulatory approach that would suppress innovation and significantly increase burdens for entities subject to the new framework.

Reducing, not increasing, burdens on intermediaries fosters speech and creativity

Finally, the consultation signals an intent to increase the liability of intermediaries for illegal third party content beyond existing general law. This is an ill-advised approach. As TechNet — a trade association representing U.S. technology CEOs and senior executives — notes in their filing, “Strong intermediary liability protections promote innovation, empower users and small businesses to use platforms to reach a global audience, and encourage free expression and the democratization of access to information.” The open Internet think tank Public Knowledge put it succinctly in its submission: “The existence of strong and clear limitations on liability for platforms has been critical to the flourishing of online platforms for user expression and speech.”

One needs only look to the intermediary liability regime in the U.S. to recognize how critical such limitations are in facilitating technology innovation. The explosive growth of the Internet sector in the U.S. — and of so-called “Web 2.0” companies in particular — is a direct result of strong laws limiting intermediary liability, such as the Digital Millennium Copyright Act and Section 230 of the Communications Decency Act. For its part, the EU has crafted a “balanced, effective and proportionate [liability regime in the EU’s E-Commerce Directive] and has promoted dynamic, competitive services in a technologically neutral way” (TechNet filing). But the implication in the recent consultation that the EC is considering rethinking this strategy to expand the liability of online platforms is incredibly dangerous for the Internet economy, as it would threaten to chill innovation and dramatically increase barriers to entry for smaller players.

The EC’s DSM effort has the potential to completely transform the transatlantic digital economy. But if implemented incorrectly, it could have a grave impact on the European innovation ecosystem and widen the gap between the U.S. and EU digital markets. The sheer number of stakeholders who responded to the EC’s consultation with concerns should raise a red flag for the Commission and convince it to reconsider its approach. Links to some of these responses are below, and over the coming weeks, a number of these stakeholders will use this platform to further outline their concerns. Check back for updates here.

Stakeholder Submissions

Large industry organizations

• Information Technology Industry Council: survey & memo

• Internet Association: survey and memo

• Computer and Communications Industry Association: survey

• U.S. Chamber of Commerce: memo

• TechNet: memo

• Internet Infrastructure Coalition: survey

• Software & Information Industry Association: memo

• Internet Commerce Coalition: survey

Key startup voices

• Engine: survey

• Apps Alliance: survey

• Copia Institute: survey

• Etsy: memo

• Vimeo: survey

• Automattic/WordPress: survey

• Kickstarter: survey

Public interest community

• Center for Democracy & Technology: survey

• Public Knowledge: survey

• Public Policy Institute: survey

• Electronic Frontier Foundation & European Digital Rights: survey

• R Street: survey

• George Mason University Global Antitrust Institute memo

• Center for Data Innovation: memo

• International Center for Law & Economics: survey and memo

• Technology Policy Institute: memo

• Re:create: survey

• Organization for Transformative Works: memo

Startup News Digest: 2/5/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

EU and U.S. Policymakers Agree on Safe Harbor 2.0. Nearly three months after the U.S.-EU safe harbor agreement was invalidated, the European Commission announced on Tuesday that negotiators had reached a framework agreement on Safe Harbor 2.0 (rebranded as “Privacy Shield”). The agreement restores stability and some certainty to the international data flows that make the Internet work. But does this tentative framework provide the future-proof, legal certainty that is essential for startups operating in the EU? And what lessons have we learned from the drama that surrounded Safe Harbor 2.0? As Evan writes, “this difficult experience should serve as a reminder of how the heavy burden of regulatory uncertainty often falls hardest on the smallest players. Startups that made user security and privacy a central part of their companies were nevertheless caught in an international dispute between national governments and multinational companies with few feasible options to stay square with laws that quickly became unclear.” Read the whole post here.

Obama Commits $4B to CS. The White House announced its Computer Science for All initiative earlier this week, pledging an impressive $4 billion in funding for computer science education in K-12 schools across the country. “Our economy is rapidly shifting, and educators and business leaders are increasingly recognizing that CS is a ‘new basic’ skill necessary for economic opportunity and social mobility,” notes the White House press release. Today, only 28 states allow CS courses to count towards high school graduation requirements. The funding, part of the president’s forthcoming budget, focuses largely on teacher training and also calls on local leaders, educators, and the tech industry to get involved in expanding CS education.

Gig Economy Workers Take a Stand. For readers in San Francisco, here’s one more reason to stay home on Sunday: thousands of Uber drivers are planning to protest recent fare cuts by disrupting traffic around the Super Bowl. This is just the latest in a growing list of campaigns by gig economy workers to collectively push back against the platforms that facilitate their work. Debate is still raging around how apps like Uber, Postmates, and Handy should treat their workers. Since most of these workers are classified as independent contractors, they are not permitted to organize through traditional unions. But that hasn’t stopped them from banding together to leverage for what they view as appropriate treatment. In recent weeks, there have been similar protests everywhere from New York to Dallas to Tampa, with no doubt more to come.

The Geography of Venture Capital. Want to know where to build your startup, or at least get it funded? A new report reveals the current geography of venture capital. Good news for the U.S.—it remains the leader in VC investments, accounting for almost 70 percent of global venture capital. The bad news? Much of that capital is still concentrated on the coasts. In fact, 40 percent of global venture investment comes from just two broad regions—the Bay Area and the Boston-New York-Washington Corridor.

ECPA Reform Progress. The startup community got some good news on Wednesday: the House Judiciary Committee will take up the broadly supported Email Privacy Act in March. The bill, which has over 300 cosponsors and support from a range of tech companies and privacy advocates, would make much needed reforms to the outdated Electronic Communications and Privacy Act (ECPA) by explicitly requiring law enforcement to obtain a warrant before accessing digital communications. The bill has languished for years due to opposition from some civil agencies (namely the SEC and FTC) who have asked for carve-outs from the warrant requirement. It remains to be seen whether changes will be made at next month’s markup to accommodate those agencies’ requests.

Hacking Patents. On Tuesday night, Engine and the Electronic Frontier Foundation hosted a discussion with patent experts on hacking the patent system. The conversation centered around the release of an updated white paper detailing things that startups can do to navigate a broken patent system without hiring an expensive patent lawyer or even filing for a patent itself. Read the full paper here.

EU and U.S. Policymakers Agree on Safe Harbor 2.0, Ending Months of Uncertainty for Startups

The European Court of Justice’s rejection last October of the European Commission’s so-called “safe harbor” agreement with the U.S. forced many American startups to grapple with a difficult choice: spend considerable time and money trying to find a different mechanism to legally import EU consumer data or sit tight and hope regulators worked it out before member states started filing lawsuits. Neither option was particularly appealing, and thankfully, the EC’s announcement this morning that negotiators had reached a framework agreement on Safe Harbor 2.0 (rebranded as “Privacy Shield”) removes some of the uncertainty startups have faced over the past three months. But does this tentative framework provide the future-proof, legal certainty that is essential for startups operating in the EU?

For those of you who are just tuning in, here’s a quick refresher: the EU’s Data Protection Directive imposes certain obligations on how entities in different countries can handle data from EU consumers. To help streamline compliance, the EC and U.S. entered into an agreement that allowed U.S. companies to self-certify compliance with the Directive and thereby legally transfer data across the Atlantic. This system worked quite well in facilitating EU-U.S. data flows, until the ECJ issued a ruling in October that U.S. laws permitting the NSA to conduct mass surveillance of consumer data violated the Data Protection Directive, thereby voiding the safe harbor and opening up the door to potential legal action against companies that continued to import EU consumer data without a different legal justification.

Policymakers in the EC and the U.S. Department of Commerce promptly got to work on a new safe harbor agreement but faced considerable time pressure, as European Data Protection Agencies were set to commence enforcement proceedings against non-compliant companies if the parties could not reach an agreement by January 31. Crafting an important international agreement in such a relatively short time frame was a challenging endeavor, and as Sunday’s deadline approached, the possibility of a world without safe harbor began to set in.

For many U.S. companies that had previously relied on the safe harbor, failing to finalize a new agreement would be an inconvenience, but hardly insurmountable. Large multinationals had many alternative data transfer pathways at their disposal, like Binding Corporate Rules or Model Contractual Clauses. Others could simply set up servers overseas and process EU consumer data locally. But, these strategies were only feasible for those with enormous financial resources and a legal staff sufficient to navigate 28 different state data agencies and regulations—resources that small, cash-strapped startups just don’t have.

Consequently, startups faced a much more dire situation, and many simply had no idea how to proceed. Some mature, better-funded startups followed the lead of larger tech companies, working up model contract clauses, often at the behest of international partners that wouldn’t proceed without such agreements. Other hoped that updates to their privacy policies and consent processes would suffice, though this was something of a legal gamble and a potential disruption to business (how many consumers enjoy having to click through new popup consent forms?). Some companies, devoid of other sensible options, planned to continue business as usual, expecting that policymakers would eventually craft a solution and hoping they were too small to draw the ire of member state regulators if no agreement could be reached.

The EC’s Tuesday announcement of a “political agreement” was therefore met with cautious optimism and relief. The hard work that the EC and the U.S. Department of Commerce put in over the past few months paid off, pulling out an agreement at the eleventh hour and returning stability and some certainty to the international data flows that make the Internet work. Going forward, consumers and companies on both sides of the Atlantic should hope that this newly formulated “Privacy Shield” will provide a simple, well-defined framework for data exchange, so long as it remains in force. But this difficult experience should serve as a reminder of how the heavy burden of regulatory uncertainty often falls hardest on the smallest players. Startups that made user security and privacy a central part of their companies were nevertheless caught in an international dispute between national governments and multinational companies with few feasible options to stay square with laws that quickly became unclear. In the end, the drama surrounding Safe Harbor 2.0 is both a win for prompt, sensible policymaking and a lesson of how policy disputes can impact the startup sector in unexpected ways.

Startup Policy Digest: 1/29/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Safe Harbor Negotiations Continue, Judicial Redress Clears Hurdle. It has been more than three months since the U.S.-EU safe harbor agreement was invalidated. But time is running out for negotiators to reach an agreement by the January 31st deadline, and top negotiators are still clashing over both substance and turf. Some good news came on Thursday when the Judicial Redress Act passed the Senate Judiciary Committee, bringing it one step closer to becoming law. While not essential to advancing an updated safe harbor agreement, many EU negotiators see passage of the bill as a show of good faith by U.S. lawmakers. Still, it does not guarantee an agreement, and until a compromise is reached, startups with operations in the EU will be scrambling to prepare for a world without safe harbor.

Stanford Report: Binge On Violates Net Neutrality. A report from Stanford Law School’s Center for Internet and Society contends T-Mobile’s Binge On data program is in violation of the FCC’s Open Internet Order. “Binge On is harming competition, innovation, user choice, and free speech on the Internet. As such, the program is likely to violate the FCC's general conduct rule and transparency rule,” writes the study’s author in a blog post. The report has been filed with the FCC, offering the agency an opportunity to more closely evaluate the program and decide whether to take action. The FCC’s Open Internet rules don’t explicitly outlaw “zero rating” programs, but the agency reviews them on a case-by-case basis whether the service harms consumers or businesses.

Student Debt a Major Barrier to Entrepreneurship. For young, aspiring entrepreneurs, paying off student loans is one of the greatest barriers to entrepreneurship, explains a new report detailing findings from a national poll of millennials—that's 18 to 34-year-olds. Nearly half those surveyed said student loans impeded their ability to pursue their entrepreneurial ambitions, perhaps one reason why rates of business ownership among this age group have declined in the last couple of decades. The report is timely, as presidential hopefuls have begun to go on record with plans to tackle student debt crisis. This report further clarifies that reducing the now $1.3 trillion in outstanding student loans should be a priority for all policymakers. The future of American entrepreneurship depends on it.

Measuring the Gig Economy. Just how big is the gig economy? A survey last month revealed an estimated 45 million adults have offered services through an on-demand platform and now the government hopes to get a better handle on those figures. In a blog post this week, Department of Labor Secretary Thomas Perez announced the Bureau of Labor Statistics and the Census Bureau will be surveying "contingent worker" arrangements as part of May 2017's current population survey. Perez writes it'll offer the government "reliable, credible insight into what’s going on" in this new economy, ultimately helping policymakers better prepare for regulating labor agreements in a changing workforce.

FAA Registers 300K Drone Users. Last week, the the Federal Aviation Administration (FAA) announced that in just 30 days, more than 300,000 people have used the agency’s online drone registration system. It is important to note that this does not mean 300,000 drones have been registered. As TechCrunch reports, “Because you essentially register yourself as a drone pilot, which allows you to affix your registration number to as many drones as you want to, the actual number of drones/quadcopters (and model aircraft and helicopters), is likely a bit higher.” Plus, there are still probably quite a few unregistered drones flying around. These numbers are seen as encouraging by the FAA, which was hit with a lawsuit challenging the registration requirement earlier this month.

Regulatory Troubles at Theranos. The Silicon Valley blood-testing startup, Theranos, valued at over $9 billion in 2014, is facing new scrutiny, this time from federal regulators. A recent inspection of a Theranos facility by the Centers for Medicare and Medicaid Services uncovered several major violations of federal law governing clinical labs. If the issues aren’t corrected within ten days, the lab could lose its certification. A series of recent journalistic investigations have revealed the company may not be as close to revolutionizing the blood-testing industry as its initial investors and supporters once thought.

So You Want to Hack the Patent System

Are you a startup or inventor wondering what to do about our broken patent system? Want to know what your options are? Check out Hacking the Patent System, an updated white paper published in partnership with EFF and students from the Juelsgaard Intellectual Property Clinic at Stanford Law School.

This paper includes important and timely advice for technology entrepreneurs attempting to navigate a dysfunctional and unfair system because, unfortunately, patent trolls remain a grave threat to startups and innovators. This is despite multiple attempts to pass reform legislation through Congress and an active Supreme Court working hard to fix a broken system. Not only does the threat of extortionary patent trolls still exist, but it’s actually getting worse. Lawsuits filed by patent trolls are up and significantly more than half of those cases are filed in the notorious Eastern District of Texas.

Despite these problems, startups often find themselves filing for patents, either because their investors tell them it’s a good idea or they plan to later use them defensively against lawsuit threats. This has led to a dangerous culture of “patenting up”—getting as many patents as possible in as short a time as possible.

To really fix the problem, a handful of things need to happen:

1. Congress must pass patent reform legislation that addresses fundamental inequities in the patent system that favor large patent holders and litigation plaintiffs.

2. Patent quality must be improved. Removing low-quality patents from the system will also remove the trolls’ deadliest weapon.

3. We must change the culture of “patenting up.” Big companies, investors, startups, and inventors need to come together to take a stand and return the system to its roots, which—as the Constitution provides—is meant to promote the progress of science and useful arts.

That all might take awhile. In the meantime, there are things that startups can do to navigate a broken patent system without hiring an expensive patent lawyer or even filing for a patent itself. We lay out some of those options here in an updated version of our Hacking the Patent System white paper, originally released in 2014. The paper takes a deep dive into alternative patent licenses: specifically, patent aggregators, patent pledges, and (new this year!) patent insurance.

Thanks to partners EFF and the Juelsgaard Intellectual Property Clinic at Stanford Law School—especially former students Marta Belcher and John Casey—for all their hard work.

Startup News Digest: 1/22/2015

Our weekly take on some of the biggest stories in startup and tech policy. 

Safe Harbor Agreement Nears Deadline. With a January 31st deadline looming, there is more pressure than ever for the U.S. and EU to wrap up negotiations around a “Safe Harbor 2.0” agreement. In a letter sent to U.S. and EU leaders last Friday, industry stakeholders emphasized that “the consequences could be enormous for the thousands of businesses and millions of users impacted” if a deal is not reached. But another setback came this week when the Senate Judiciary Committee postponed consideration of the Judicial Redress Act. The bill, which would extend rights to judicial redress to citizens of the EU and other designated countries, is seen as essential to advancing an updated safe harbor agreement. This delay makes it even less likely that a deal will be reached in time, the ramifications of which could disproportionately impact startups.

Another Proposal to Weaken Encryption. Another week, another misguided state bill seeking to weaken encryption. The legislation comes from a California Assemblymember whose proposal would prohibit the sale of smartphones in the state with unbreakable encryption. A similar New York bill requiring a “backdoor” for encrypted technologies was covered in last week's digest. In an opinion piece, Christian Dawson of the i2Coalition does a good job breaking down why policies like these would stifle the Internet economy. He writes, “If the U.S. government were to institutionalize backdoors, it would be a heavy burden to businesses, and an operational lift that would likely force a large number of small companies to shut their doors.” We couldn’t agree more.

Verizon Joins the Zero Rating Crowd. Tuesday morning, Verizon announced a new sponsored data program, FreeBee Data, renewing debate around “zero rating” programs and whether they violate net neutrality principles. Under the FreeBee program, content providers have the option to pay Verizon a fee to exempt their content from customers’ monthly data caps. Verizon is the third wireless provider to offer a cap-exempt data program—AT&T has been running a similar sponsored data program since 2014 and T-Mobile has its own video-specific service, BingeOn (which has come under intense fire in recent weeks). The FCC’s Open Internet rules don’t explicitly outlaw “zero rating” programs, but the agency reviews them on a case-by-case basis whether the service harms consumers or businesses. They recently requested meetings with both AT&T and T-Mobile on their programs, and have said that they were notified by Verizon about FreeBee. We’re tracking.

A Grim Outlook for Startup Financing? Recent turbulence in the global stock market may have an impact on 2016 startup financing, the Washington Post reported this week. Volatility in the public markets has many investors considering whether some growing tech startups have been overvalued, a concern that's "likely to trigger a wider pause, denying funds for the innovators that disrupt industries and create new markets." Not good. And while 2015 was a banner year for VC investment, with $72.3 billion going into venture-backed companies in the U.S., (the highest since the dot-com boom), activity slowed by the fourth quarter, suggesting changing investor sentiment. Further, tech IPOs were significantly down in 2015 as companies are treading cautiously into the public markets. 2016 may prove to be an especially important year for policy that promotes greater capital access.

VC Sets New Diversity Standards. Kapor Capital, a longtime leader in its commitment to diversity in the tech industry, announced a new set of standards for its portfolio companies this week. TechCrunch calls it a “a four-part roadmap for startups to foster diverse and inclusive cultures early on.” This commitment will soon become one of the terms in all Kapor’s future investment agreements. Portfolio companies will be required to establish diversity and inclusion goals, invest in tools and resources that assist in mitigating bias, organize volunteer opportunities for employees, and participate in Kapor’s diversity and inclusion workshops. Way to put their money where their mouth is!

Startup News Digest: 1/15/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Obama’s Final SOTU. President Obama addressed Congress Tuesday evening in his seventh and final State of the Union, which included a few nods to the tech industry and startups, too. He remarked on some upcoming proposals from the White House, including a push to bring computer science education to more schools. The president also spoke of the country's rich history of innovation, as well as the challenges workers face in the new technology-driven economy. "In this new economy, workers and start-ups and small businesses need more of a voice, not less. The rules should work for them."

Encryption Debate Continues. A new bill was introduced in the New York State Assembly this week that would essentially disable strong encryption on all smartphones sold in the state. If passed, it would be the first state law requiring a “backdoor” for encrypted technologies—something that is not only constitutionally questionable, but also not technically feasible without undermining the security of the system as a whole. The tech industry has been pushing back against these “backdoors” at all levels of government. Just last week at a counterterrorism discussion between high-level federal officials and tech leaders, Apple CEO Tim Cook called on the administration to issue a statement defending the use of unbreakable encryption. The White House has yet to take an official position on encryption.

New Regs and Report for Ride-Sharing in NYC. The New York City Council will soon introduce new legislation regulating for-hire vehicles, the Wall Street Journal reported last week. The proposed legislation would require for-hire vehicle services such as Uber and Lyft to make their cars more accessible to the disabled, among other regulations that may address surge pricing. These new laws could be introduced as soon as next week, following today’s release of the highly anticipated traffic congestion report from the Mayor's office. The study, which examines the impact of new ride-sharing services on the city’s traffic, was commissioned by New York City Mayor Bill de Blasio last summer after proposals to cap the number of for-hire vehicles were defeated. We’ve just started digging into it, but among other things, it claims “For-hire vehicles are a vital part” of the city’s transportation mix and does not blame any one company for local congestion. We’ll be watching whether the report’s findings will influence the city council’s new legislation.

Big News for Autonomous Vehicles. 2016 is shaping up to be the year of the autonomous vehicle. At last week’s Consumer Electronics Show, a number of automakers announced their forays into this rising market. Then, on Thursday the Obama Administration unveiled plans to include $4 billion for autonomous vehicle R&D in the proposed 2017 budget. The Administration also promised to issue regulatory guidance for companies around compliance with safety standards within six months. The federal government has remained relatively hands off in this new market, but the Administration’s announcement this week represents a new level of involvement and a huge win for proponents of this growing technology.

The Size of the Sharing Economy. The results are in. A recent and first-of-its-kind poll conducted this fall found 44 percent of American adults have participated in the sharing and on-demand economy—that's over 90 million people who've booked a room on Airbnb, hopped in an Uber, or ordered groceries from Instacart. The poll also found that 22 percent of American adults have offered goods or services through these new platforms in exchange for income. And despite a spate of recent lawsuits over worker classification, the vast majority of these workers describe their experiences as positive.

The State of Computer Science. Code.org, a national organization dedicated to expanding computer science education, published its 2015 report, revealing K-12 student enrollment in computer sciences courses is growing nationwide. Today, 25 percent of U.S. schools teach computer science and programming and several major school districts including New York and Chicago have made recent pledges to the subject in every school. Computer science is also the fastest-growing AP course of the past decade.

Americans Online. Last week, the Federal Communications Commission released updated numbers on broadband access in the U.S. While the percentage of Americans with access to advanced broadband has improved over the past year, there are still 34 million Americans (or about 10 percent of the country) who lack access to broadband at sufficient speeds. While this report suggests improvements in the broadband ecosystem, more needs to be done to connect the 34 million currently cut off from broadband opportunity.

PRESS RELEASE: Evan Engstrom to become new Acting Executive Director

FOR IMMEDIATE RELEASE

January 14, 2016

Contact:

Rob Haralson for Engine Advocacy

(202) 251-3322, rharalson@franklinsquaregroup.com

Engine Advocacy Announces New Leadership

Evan Engstrom, Policy Director, to take on new role as Acting Executive Director

SAN FRANCISCO - January 14, 2016 - The Board of Directors of Engine, the policy advocacy group and research foundation focused on tech entrepreneurship, today announced that it has appointed Evan Engstrom as the organization’s new Acting Executive Director. Evan has served as Engine’s Policy Director since 2014. Julie Samuels, who is stepping down as the organization’s Executive Director, will remain as President of Engine’s Board of Directors and will be closely involved in the organization’s strategy and operation.

“Not only has Evan played a pivotal role in shaping Engine’s policies, he has also worked diligently to help grow the organization’s presence and has consistently demonstrated the leadership qualities necessary to lead Engine as the team continues to champion issues important to startups,” said board member Marvin Ammori. “Engine plays a critical role representing startups in policy debates, and we are excited to see the continued growth of the organization with Evan at the helm.”

Prior to joining Engine, Evan was an attorney at Farella Braun + Martel in San Francisco, focusing on copyright and other intellectual property litigation matters. At Farella, Evan litigated several high-profile Digital Millennium Copyright Act cases, defending websites and ISPs against claims for secondary copyright liability.

He is a graduate of Harvard Law School and the University of Wisconsin-Madison.

“Since its inception, Engine Advocacy has played an important role in shaping the discussions around key policy issues affecting the startup community,” said Engstrom. “2016 will undoubtedly bring a continued focus on issues surrounding patent reform, copyright, taxes, data localization, privacy and encryption, and newer technologies such as drones, driverless cars and platforms that are advancing the sharing economy. Along with the entire Engine team, I look forward to engaging on these and other important issues to ensure this vibrant community continues to have a voice in Washington and beyond.”

###

About Engine Advocacy

Engine is a technology policy, research, and advocacy organization that bridges the gap between policymakers and startups, working with government and a community of high-technology, growth-oriented startups across the nation to support the development of entrepreneurship. Engine creates an environment where technological innovation and entrepreneurship thrive by providing knowledge about the startup economy and constructing smarter public policy. To that end, Engine conducts research, organizes events, and spearheads campaigns to educate elected officials, the entrepreneur community, and the general public on issues vital to fostering technological innovation. To learn more, visit http://engine.is.

Startup News Digest: 1/8/2016

Our weekly take on some of the biggest stories in startup and tech policy. 

Patent Lawsuits Up in 2015, Trolls in the Lead. Surprise, surprise! The latest numbers are out, proving that patent litigation is still out of control and patent trolling is indeed a real problem. Unified Patents’ latest breakdown of data indicates that 2015 saw the second highest number of patent cases ever (nearly 5,800 cases filed). Further, non-practicing entities (or NPEs, aka, trolls) filed two-thirds of them, largely in the Eastern District of Texas, a judicial district notorious for its friendliness to patent trolls. Additionally, 64 percent of patent litigation in 2015 occurred in the high-tech sector and NPEs were involved in over 88 percent of these high-tech cases, a 10 percent increase over 2014. Until the patent system is fixed, the trolling problem evidently isn’t going anywhere.

Net Neutrality Kerfuffle Over T-Mobile’s “BingeOn” Program: Recent reports about T-Mobile's treatment of streaming video services has many net neutrality advocates up in arms. Its latest offering, BingeOn, has actually avoided most of the criticism typically directed towards so-called "zero rating" programs. With BingeOn, T-Mobile allows any video provider to participate for free, thus skirting net neutrality rules that bar preferential data treatment for some paying companies. However, apparently, T-Mobile has been throttling (or, from T-Mobile's perspective "optimizing") all streaming video its users consume, not just streams from companies participating in BingeOn. Throttling lowers the data consumption associated with watching a video, but also diminishes video quality. Because the FCC's net neutrality rules essentially ban throttling, it's possible that the FCC could find T-Mobile in violation of its Open Internet Order. T-Mobile points out that users can opt out of BingeOn and the associated video throttling, but critics note that T-Mobile makes opting out excessively difficult. While FCC Chairman Tom Wheeler has praised similar offerings from T-Mobile in the past, BingeOn raises difficult questions about the application of the Open Internet Order that the FCC will need to resolve.

Drone Registration Challenged in Court. In December, the Federal Aviation Administration (FAA) announced new rules requiring the registration of recreational drones. According to data released by the FAA this week, over 181,000 drones have been registered since the registration site went live just three weeks ago. But not everyone is keen on registering their brand new toy. Some stakeholders have criticized the rules as being burdensome and unnecessary, while others have raised concerns around the public availability of registry data. And now a Maryland “model aircraft hobbyist” has sued the agency over the contentious rules, arguing that the registration requirement violates a federal law that prohibits the FAA from regulating recreational drones. The court has denied his request to immediately halt registration.

#CES2016. The annual Consumer Electronics Show takes over Las Vegas this week and along with the new electric cars and Ultra HD TVs, policymakers and government officials are also taking the stage. In fact, it was at last year's CES that FCC Chairman Tom Wheeler first indicated the agency's support for net neutrality. We don't expect any news of that nature, but this week FTC leadership told conference-goers the commission is close to striking a data-transfer deal for U.S. tech companies with its EU counterparts and FAA officials discussed new recreational drone requirements. USPTO Director Michelle Lee and Rep. Darrell Issa (R-CA) talked patent reform and Sen. Mark Warner (D-VA) made a showing, addressing policy challenges facing both government and emerging gig-economy startups as did . The new technologies unveiled at CES—virtual reality devices, autonomous cars, and other smart, connected tools—also offer a preview of new tech policy challenges to come.

The State of Female Founders. CrunchBase released their latest data on women-founded companies, illustrating that there is still a long way to go for gender parity among startup founders. Though 18 percent of companies that received seed funding in 2015 have at least one female founder, only 8 percent companies that received seed funding have at least one female founder CEO. For companies that received Series A and B funding in 2015, these numbers drop to 14 percent and 5 percent, respectively. The numbers may seem dismal, but this is a strong improvement from 2014, when only 10 percent of founders raising Series A rounds were women.

Looking Forward (and Backward) to the 2016 Presidential Election

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

As 2015 comes to a close and we look forward to 2016, it is nearly impossible to ignore the presidential contest and its impact (or lack thereof!) on technology and entrepreneurship policy. As the party primaries rage on, notably missing has been any real debate about many of the issues that are most important to the startup community, such as access to capital, net neutrality, patent reform, and access to talent.

A few things are at play here: First, most of these issues are largely bipartisan. On the one hand, this is good news, since we’re more likely to see something get done. On the other, the polarizing nature of primaries—when candidates play to their bases—disincentivizes candidates from addressing anything that could be seen as centrist. Take, for instance, Sen. Marco Rubio’s 2013 efforts to strike a bipartisan deal on immigration, for which his Republican opponents now take him to task.

Second, with at least one notable exception (crypto and cybersecurity, more on that below), the issues startups care the most about frankly aren’t proving to be all that popular with campaigns. This is incredibly short-sighted. As economic growth and opportunity are central issues to every campaign, candidates should recognize startups as significant contributors. Startups are responsible for all net new job growth in the United States. They create opportunity and help the continued economic recovery in cities all over the country.

That’s not to mention all of the amazing technology they create, which is increasingly making its way into crucial and highly-regulated sectors such as health, transit, and education. How our federal government adapts to and regulates new technologies will greatly impact the future and the pace of innovation.

Our political leaders should support this community, which is why we’ve been disappointed to see so little attention paid to startup issues this political season. Troublingly, the only tech conversation receiving any significant airtime in the campaign—cybersecurity—has reflected a serious misunderstanding of the underlying technological issues and a disregard for the impact that ill-conceived cybersecurity policies would have on the startup economy. In the wake of numerous terrorist attacks, it’s no surprise that candidates are looking for any tool available to improve national security. But proposals to curb encryption technologies and increase surveillance programs only serve to make American companies and users more vulnerable to cyberattacks—there is simply no such thing as a “government-only” encryption backdoor—with no likely associated safety benefit. Tech companies and advocates have tried time and again to explain why such policies are technologically unworkable, but politicians do not appear to be listening. Obviously, this should be troubling to the startup sector. If policymakers are unwilling or unable to understand technology and tech issues, it’s unlikely that they’ll be able to craft policy that supports innovation.

It’s not just politicians, of course. Our community needs to make its voice heard, particularly as the primaries wrap up and we get down to the brass tacks of a presidential election. When that time comes, it will be up to us as much as to them to ensure that tech issues get their fair share of debate. We hope you’ll join us in making that happen!

2015 Year in Review: Privacy and Security

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community. 

by Emma Peck and Evan Engstrom

This year saw an alarming number of high-profile data breaches—as of mid-December, there had been over 750 breaches exposing nearly 178 million records, surpassing 2014’s pace. Not surprisingly, policymakers were compelled to turn their attention to data security and privacy issues, putting forth a range of proposals around privacy, encryption, surveillance, and data security. These proposals were met by the startup community with both praise and disapproval, but one clear message permeated the debates around all of these issues: too often, offered policy solutions do not take into account the needs and realities of the quickly evolving startup ecosystem. Outdated laws are applied to new technologies, and increasingly, new proposals show a clear lack of understanding of the technologies they will impact.

ECPA Reform

A prime example of a law that is completely ill-fitted for today’s technological realities is the Electronic Communications and Privacy Act (ECPA). ECPA is the privacy law that governs our interactions with the Internet. But the law was passed in 1986 (before most people even had computers in their homes), and it allows law enforcement to access electronic communications that are older than 6 months without a warrant on the grounds that such communications are “abandoned.” These rules do not conform to how people use and understand the Internet, and providing such lax privacy protections for electronic communications erodes consumer confidence in the safety and security of online services. Thankfully, a coalition of industry and civil rights organizations—including Engine—helped persuade California to correct this problem at the state level. In October, California passed reforms to ECPA requiring law enforcement to obtain a warrant before accessing a wide variety of digital information. A bill to reform ECPA at the federal level also resurfaced this year, garnering support from over 300 cosponsors in the House, which made it one of the most popular bills in Congress. There are still a few federal agencies that oppose reform, but a provision in the recently passed omnibus served as a rebuke to the remaining hold-outs. ECPA reform will likely be one of the first topics considered by the House Judiciary Committee in 2016, and we are tracking.

Encryption

This year, 2016 presidential candidates and current policymakers also put forth proposals aimed at combating terrorist threats to our nation—from “closing that Internet up,” which has been broadly viewed as preposterous, to creating backdoors for encrypted technologies, which unfortunately has been met with acceptance in some circles that ought to know better. The debate around encryption is one of the best examples of the problems that arise when lawmakers don’t understand the technologies at issue in the policies they are proposing. It is well accepted by cryptographic experts that creating a backdoor (or “golden key”) for encrypted technologies is not technically feasible without undermining the security of the system as a whole. And in addition to threatening constitutional rights, it is unlikely that creating a backdoor would even be effective in keeping bad actors from using unbreakable encryption. Yet this “solution” has been central to a number of policy proposals, highlighting a lack of understanding from lawmakers on both sides of the aisle.

Safe Harbor

In October, the tech world was left in a state of confusion after the European Court of Justice (ECJ) invalidated the safe harbor agreement that allows for the legal transfer of data between the U.S. and EU. In short, the ECJ ruled that U.S. laws allowing the government to broadly and secretly collect consumer data violated EU privacy rules and therefore, the safe harbor rule was incompatible with EU law. As such, companies that had previously relied on the safe harbor as the legal basis for importing EU customer data into the U.S. had to find other ways to legally import such data. Many commentators downplayed the significance of the ruling, noting that companies could find other legal pathways for importing EU data via contractual agreements or pre-approved internal data protection mechanisms. But, while such protocols may be feasible for large multinationals, startups with EU customers but without the resources necessary to negotiate alternative arrangements were left in legal limbo. Though EU and U.S. policymakers are working on developing another safe harbor arrangement, the recent push in the U.S. to further weaken privacy protections through misguided encryption policies could end up ensuring that any new safe harbor rule would also fall short of EU privacy standards. More broadly, the court ruling helped crystalize the nonsensical nature of enforcing territorial data restrictions in a globally interconnected digital world and highlighted the impact that U.S. surveillance practices have on the ability of American startups to thrive in an increasingly global world, where many countries have concerns about the privacy of their citizens’ data.

Data Security

Spurred on by the many data breaches in 2015, members of Congress spent considerable time crafting legislation regarding how companies should handle security breaches. A number of the proposals require notification within a set amount of time following discovery of a breach. While well-intentioned, security professionals agree that publicly announcing a breach too early actually decreases security by allowing for bad actors to take advantage of vulnerabilities that have not yet been patched. It’s true that a uniform federal standard would be preferable to the existing 47 state laws governing breach notification insofar as compliance with a single standard is easier for cash-strapped startups than having to comply with 47 different regimes. But the bills introduced this year are deficient in a variety of ways that highlight the alarming lack of technological expertise on Capitol Hill.

Additionally, as a result of a court decision earlier this year, the Federal Trade Commission (FTC) now has explicit authority to police whether companies’ data security practices are “reasonable”. However, determining which practices are reasonable and which are not is a difficult task—even security experts disagree over which protections companies should have in place. The FTC has tried to bridge this gap in technological understanding through their “Start with Security” initiative. And Engine hosted an event in October to help startups navigate data security policy. But it is still clear that lawmakers do not understand data security as a technical matter, and it is the role of the startup community to try to educate policymakers on the ways in which proposed policies can dictate practices, for better or worse.

Looking Forward

Privacy and security were two of the most talked about issues in 2015 and it’s unlikely that they’ll go away in 2016. They have already featured heavily in the Presidential debates, and as more of our daily life migrates to the online world, cybersecurity threats will only continue to grow. Policymakers know they must do something to address these threats, but doing something is not necessarily better than doing nothing if proposed policies don’t reflect the technological realities of today. Before the tech sector can convince Congress to pass bills that support the work we are doing, we have an obligation to instruct policymakers on how their policies will impact and interface with technologies in practice. Engaging at this level will pay dividends down the road.

2015 Year in Review: Regulating the New Economy

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

by Anna Duning and Evan Engstrom

The ever-increasing pace of technological development and expanding reach of innovative enterprises into well-regulated industries has put considerable strain on the nation’s policymaking apparatus. As new technologies (such as recreational drones) become more popular and new platforms integrate everyday activities (such as transit) with technology, policymakers are faced with difficulties in crafting forward-thinking policies or adapting existing regimes to new technologies. In 2015, we saw this phenomena play out in a variety of ways all across the country at the municipal, state, and federal levels.

New Devices, New Rules

In 2015, the drone market grew exponentially, with more than 400,000 drones sold. The increasing presence of unmanned aircrafts—and the corresponding rise in reports of rogue drones posing safety hazards to commercial aircrafts and stoking privacy concerns—prompted the Feds to introduce new regulations for recreational drones this year. The Federal Aviation Administration, along with the Transportation Security Administration, ultimately came up with a drone registry for hobbyists, requiring recreational pilots enter their devices into a new national database. Commercial drones from the likes of Google, Amazon, and even Wal-Mart are also expected to take to the skies in the new year. These companies have all been part of a lobbying effort to keep new regulations limited and reasonable.

As the age of widely-available autonomous vehicles nears (Tesla says within two years), state lawmakers are grappling with how to establish the appropriate safety and regulatory standards for what will surely be one of the most disruptive technologies deployed in recent memory. Cybersecurity, accident liability, and basic road rules are all pressing concerns. Several states have already approved the testing of autonomous vehicles with varying degrees of regulations. Most recently, California introduced proposed rules that would require a licensed driver to be present in the vehicle. This requirement could limit some of the more promising uses of these new vehicles (such as transportation for the young or disabled) and even threaten the vehicle’s safety, but the state will take comments before instituting the final standards. We’ll be monitoring closely as state governments continue craft new regulations. These new rules won’t just impact the big manufacturers, as autonomous vehicles could spawn an entirely new sector of startups creating software for these cars.

Blockchain Rising

Though Bitcoin and the blockchain technology that powers it are relatively old developments by tech standards (2009!), cryptographically-secure distributed ledger technologies came to the attention of the mainstream in a big way this year, drawing interest from large financial institutions and regulators alike. While this increased scrutiny may rankle some of Bitcoin’s techno-libertarian old guard, the relatively cautious approach policymakers have taken to regulating the Bitcoin sector is a promising sign for the future growth of cryptocurrencies and blockchain technologies.

As Federal regulators have been content to monitor the development of cryptocurrencies, state policymakers have taken more proactive steps to regulate the sector. New York enacted its BitLicense rules this summer, which obligate financial intermediaries that hold or control virtual currencies on behalf of New York residents to obtain a license and follow certain customer monitoring and reporting requirements. The rules were meant to apply to just those companies that handle funds on behalf of customers and not impact software developers and entrepreneurs that don’t actually control customer money, but since the Bitcoin system looks so radically different from traditional financial systems, the rules necessarily have created some confusion as to how they will apply in practice. Fortunately, New York regulators appear to be cognizant of the need to avoid overregulating this nascent industry and will hopefully work to rectify any overbroad regulatory issues that may arise. As other states begin to consider regulations like New York’s regime (California for one debated a similar Bitcoin license bill this year before it died in the legislature), the need for a more uniform Federal standard will quickly become a priority for the sector. With more and more money pouring into blockchain startups ($500 million in 2015 alone), digital currency regulation will likely become a more pressing issue in 2016 and beyond.

The New Sharing/Gig/On-Demand Economy

No one seems to have agreed upon the best term to describe the collection of technology startups building platforms that connect customers to workers, homeowners, and drivers. Call it the sharing economy, the gig economy, or the on-demand economy; regardless, this new technology is shaking up well-established industries and the regulatory frameworks in which they’ve long operated.

Startups including Uber, Lyft, TaskRabbit, Handy, and Instacart (to name just a few) are restructuring how a wide variety of services are provided, and with that, challenging the existing labor standards that by and large rely on two narrow designations—employee or independent contractor. Many of these companies now face a slew of lawsuits about that classification, including a class action against Uber in California. Just weeks ago, Seattle became the first city in the nation to allow on-demand drivers to unionize. This legislation, too, will likely be contested in courts. The outcomes of these cases could dramatically reshape the 1099 economy and will surely impact the startups who’ve built their companies around existing worker classification rules. We’ll be paying close attention as they’re debated into 2016 and beyond.

Beyond the labor market, many of these startups are providing new (and in many ways, better, faster, and more efficient) services within highly regulated industries. This year, ridesharing companies, came up against major challenges in cities throughout the world. The New York City Council proposed rules this summer that could have put a freeze on all for-hire vehicles. Another requirement—that ride-sharing apps pass government approval before making changes—was also floated, though ultimately struck down. Meanwhile, San Francisco voted on a ballot proposition to limit Airbnb rentals in the company’s home city, a measure that ultimately failed, but cost the company $8 million to fight.

Ultimately, the trend of startups beginning to compete in heavily-regulated sectors of the economy accelerated in 2015 faster than many had predicted, resulting in an all too common struggle to fit the square peg of new innovations into the round hole of existing regulations. Not surprisingly, given the slow pace at which our nation’s regulatory bodies operate, the many policy debates that came to the fore in 2015 are nowhere near resolution. Next year will almost certainly see these policy debates escalate, and it is imperative that the startup community engage in this policymaking to ensure that the incredible potential of new technologies isn’t stifled by ill-fitting regulations.

2015 Year in Review: Telecom

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

by Emma Peck and Evan Engstrom

The net neutrality debate that dominated the tech policy conversation in 2014 was once again the top telecom issue in 2015, peaking at the end of February with the Federal Communications Commission’s (FCC) passage of its new Open Internet Order, which contained the strongest non-discrimination rules ever put in place to protect the Internet economy in the U.S. The telecom excitement didn’t end there, as policymakers and courts dealt with a huge number of issues related to promoting telecom competition, limiting ISP discrimination, and building out the next generation of telecommunications services. In short, the momentum in 2014 carried over into 2015 in a big way, and looking ahead, 2016 is poised to be yet another landmark year in telecom policy.

In addition to the FCC’s net neutrality order, the startup community saw big wins with the termination of the Comcast-Time Warner Cable merger and the FCC’s decision to undo anti-competitive broadband laws in Tennessee and North Carolina. We weighed in on debates around next year’s incentive auction and continued to push for increased unlicensed spectrum allocation. Lastly, we articulated our hope to see legislation move next year that would open up more federal airwaves for commercial use.

Net Neutrality

After more than a year of campaigning, the tech community won one of its biggest policy victories ever with the FCC’s decision to reclassify broadband as a telecommunications service in order to pass the strongest net neutrality rules this country has ever seen. Net neutrality advocates had little time to rest, however, as the rules immediately came under fire in Congress and in the courts. Republicans used their control of both houses of Congress to push legislative tricks meant to undermine the FCC’s work, including riders to various unrelated appropriations bills that would have blocked the FCC from using any funding to enforce the new Open Internet Order. While the net neutrality community effectively neutralized those threats, a legal challenge to the net neutrality rules is still playing out in the courts. Filed by a consortium of ISPs immediately after the FCC’s February vote, the lawsuit argues that the FCC overstepped its statutory authority in reclassifying broadband under Title II and that—despite more than 4 million public comments—the FCC did not provide adequate notice of the regulatory changes it made. An appellate court heard oral arguments in the case in December and is expected to issue a ruling early next year. Whatever the outcome, the Supreme Court is likely to weigh in, ensuring that the net neutrality debate will continue in 2016 and beyond.

Municipal Broadband

In another high-profile legal battle, the FCC is fighting to uphold its authority to preempt state laws that inhibit municipal broadband build-out. At the same February meeting where the historic Open Internet vote took place, the FCC acted to improve broadband access and competition by undoing anti-competitive broadband laws in Tennessee and North Carolina that prevented local communities from providing Internet access for their citizens. But those states have pushed back against the FCC’s decision in a lawsuit that will continue to play out into 2016. The outcome may impact the FCC’s broader authority to encourage broadband deployment, and we are tracking.

Telecom Mergers

The startup community won another victory in April when Comcast’s plan to merge with Time Warner Cable (TWC) collapsed under regulatory pressure. The proposed merger would have given Comcast monopoly control over Internet access for a huge swath of the country, effectively removing any incentives to increase speeds, lower costs, or expand coverage. The same enthusiasm that drove the effort to pass strong net neutrality rules helped convince regulators at the FCC and in the states to take a hard look at whether allowing this type of consolidation in the market for Internet access would end up doing irreversible harm to the nation’s high-speed broadband market. Recognizing that promoting competition between ISPs is the only way to help put the U.S. back on par with international peers in terms of broadband affordability and quality, the FCC hinted that it would block the merger, prompting Comcast to walk away from the deal. While the merger’s demise meant that ISP competition didn’t deteriorate further, there is still a long way to go before there is adequate competition in broadband markets.

Spectrum

Incentive Auction

Broadcasters, potential bidders, and regulators spent 2015 gearing up for next year’s spectrum incentive auction. With enormous sums of money at stake (an auction of less valuable spectrum brought in more than $40 billion in 2014), stakeholders have been aggressively lobbying for favorable auction rules over the past few years, and this spring saw a particularly heated debate around the size of the auction’s spectrum reserve. As competition is so important for startup growth, the startup community weighed in on the importance of establishing auction rules that promote competition. While we didn’t win the fight for a larger reserve, next year’s auction still has the potential to re-shape competition in the mobile broadband market. We’ll be watching when March rolls around.

Unlicensed Spectrum

Licensed frequencies weren’t the only airwaves getting attention this year. 2015 saw an explosion in the “Internet of Things” and continued growth in the use of Wi-Fi, attracting the attention of policymakers and underscoring the importance of access to unlicensed spectrum. In November, Engine supported legislation introduced by Sen. Schatz that would ensure that unlicensed spectrum is central to any future spectrum strategy. We hope to see that bill or something similar move next year, possibly with a larger spectrum package (more on that below).

Federal Spectrum

The AWS-3 spectrum auction ended in January, netting almost $45 billion and demonstrating that there is still a critical need (and willingness to pay high dollar) for spectrum. In an effort to free up more of this valuable resource, members in both the House and Senate introduced bills that would incentivize the federal government to give up its inefficiently used spectrum. While neither bill was able to move before year’s end, there is hope that a larger spectrum package that includes these provisions, as well as a number of broadband deployment provisions, will be taken up sometime in the new year.

2015 Year in Review: Capital Access

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

by Anna Duning and Evan Engstrom

2015 will be remembered as the year of investment crowdfunding. In October, the SEC released the long-awaited rules that finally allow everyday investors to crowdfund startups in exchange for an ownership stake in the business. The Title III rules were certainly the most anticipated development in of the year in capital access policy, but the SEC also unveiled other alternative fundraising mechanisms that may end up eclipsing investment crowdfunding in impact, at least in the short term. Congress joined the mix as well, working on a variety of bills to help promote capital formation. However, as with the SEC’s efforts, the efficacy of these programs remains to be seen. Ultimately, 2015 was a year of new developments and renewed optimism for capital access policy.

Investment Crowdfunding is Finally Here

After Congress passed the JOBS Act in 2012, the SEC was tasked with crafting rules to fill in the details of Congress’s proposals, including Title III of the JOBS Act, which legalized investment crowdfunding for non-accredited investors. In the intervening years, the SEC passed rules supporting other aspects of the JOBS Act, but it dragged its heels in implementing investment crowdfunding under Title III. Having missed several prior deadlines, the SEC finally issued rules for non-accredited investment crowdfunding at the end of October. The rules themselves improved upon the SEC’s original proposal from 2013 in some key ways, but, as we discussed at length in a white paper on the then-proposed crowdfunding rules earlier this year, the upfront disclosure obligations are especially problematic. Unless and until startups can raise small amounts of capital without having to incur significant costs preparing disclosures, that are largely useless to investors, it’s unlikely that many startups will turn to investment crowdfunding as a primary fundraising tool. We’ll be watching.

The Mini IPO

Several months before the SEC released the long-awaited final Title III crowdfunding rules, the agency completed another set of JOBS Act rulemaking, which garnered slightly less attention. With Title IV rulemaking complete, growing private companies now have another funding mechanism, Regulation A+, through which they can raise up to $50 million without being subject to some of the onerous reporting requirements required of publicly traded companies. Industry experts have called it a sort of “mini IPO.” Regulation A+ also allows for a limited subset of non-accredited investors to participate in the investment. In its short lifespan, this new exemption has seen limited activity: as of October, only 34 companies had pursued or were in the process of pursuing a Reg A+ raise. This slow start may be attributable challenges from state securities regulators about exactly whom should be eligible to take part in these new investments.

States Take Up Crowdfunding, Too

While investment crowdfunding rules languished in the rulemaking process until the very end of 2015, states took it upon themselves to craft new capital formation tools for startups. Throughout the year, several states passed crowdfunding legislation, authorizing local businesses to raise equity from local shareholders within the state. New Jersey was the most recent state to legalize intrastate crowdfunding in November. The SEC also gave intrastate crowdfunding a boost of confidence in November when it proposed a new rule that, among other improvements, would allow companies to pursue intrastate crowdfunding even if incorporated elsewhere. Ultimately, intrastate crowdfunding may not be an appealing fundraising option for high growth technology startups whose services and products may reach far beyond a state’s borders, yet we’re pleased to see state legislators recognize the importance of capital formation for new firms.

Congressional Support for Startups

Throughout the year, members of Congress also attempted to bolster capital formation through various measures, though on a scale far more modest than 2012’s JOBS Act. Recognizing that startups and other tech companies are staying private for longer, policymakers have sought ways to provide much needed liquidity for employees. One such bill, the RAISE Act—which was passed unanimously in the House and ultimately included in the massive highways bill—streamlined the process of privately selling unlisted shares. Other capital access-related legislation such as a bill that would create exchanges for private venture securities (the “Main Street Growth Act”), and one that would loosen restrictions on startups “generally soliciting” investments (the “Helping Angels Lead our Startups” or “HALOS” Act”) received some air time in Congress, but remain in legislative limbo.

Looking Ahead to 2016

In 2016, it seems likely that policymakers will direct efforts in capital access policy towards a few key areas. Improving the structure of Title III investment crowdfunding should remain a priority, as many critics have identified issues with the rules. If Congress is serious about democratizing startup financing, they’ll need to diligently track the growth of the crowdfunding sector and promptly respond to problems that spring up along the way. Similarly, despite the passage of the RAISE Act, liquidity for private shares remains a concern as IPOs decrease. While many tech companies don’t like the idea of liquid markets for their shares, if startup employees continue to find it difficult to receive value for their stock options, startups will find it harder and harder to attract top talent, as employees will be loathe to leave larger firms if the compensation startups can offer is functionally useless.

Finally, as 2016 is likely to see a large scale debate on tax reform, Congress will inevitably consider tax policies meant to help drive startup activity. 2016 may not match 2015’s monumental capital access policy achievements, but startups should work to harness Congress’s enthusiasm for policies that promote startup growth to continue the positive momentum in the new year.

Year in Review: Patent Reform

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

Despite real strides made in the courts, patent trolls continue to be a serious drain on the startup economy. The number of patent cases filed by trolls in the first half of 2015 outnumbered filings in previous years. Historically, the majority of troll cases were filed against small companies with revenues of less than $100 million.

Recap: Patent trolls take advantage of loopholes in the patent system to leverage bad patents and expensive litigation to force companies (especially small ones) into costly settlements. Settlements that could cost several hires, derail products, challenge customer trust, or, worse, harm the whole company.

Back in January, the House reintroduced the Innovation Act and the Senate followed suit with the PATENT Act, reflecting strong commitments from congressional leaders to pass a bill that would put a stop to this tax on startups. These bills are both comprehensive in nature, addressing the trolls’ favorite loopholes. Some of the key provisions address pleading requirements, discovery procedures, and fee-shifting standards.

The House bill also includes a provision to address venue abuse, one that specifically would keep cases out of the now-infamous Eastern District of Texas. The provision would limit patent infringement suits to districts where the patent inventor conducted research or a party operates a physical facility. This will hopefully disincentivize those who cherry-pick venues based on where they are most likely to win -  i.e., the Eastern District of Texas, where nearly half of patent cases in the US were filed in the first half of 2015. Note: Thus far, the Senate bill does not include a similar provision.

Though voted out of their respective Judiciary Committees in June, we’ve seen both bills stalled, waiting to be scheduled for a vote by the entire Congress. Why? As Engine’s Executive Director Julie Samuels explained: competing interests operating in a one-size-fits-all system. The patent system, as it stands now, works for incumbents, like the pharmaceutical and manufacturing industries that have profited from it for decades. Unfortunately, this system does not work so well for technologies that rely on software, which represent an ever-increasing amount of economic activity. And not just from tech companies! Industries like retail, homebuilders, and realtors, for example, increasingly rely on software innovations to grow their business, only to find themselves facing a broken patent system, staring down the gun of a patent troll.

This year, we also saw non-comprehensive patent reform legislation introduced (again) that, while a good start, would not have gone nearly far enough to address the patent troll problem. And due to the lack of action from Congress, 2015 saw an increasing number of state legislators attempt to curb the patent troll problem. And there was also the evolution of the Pharmaceutical industry’s (PhRMA) own troll: Kyle Bass, the hedge fund manager who uses the Inter Partes Review (IPR) program at the Patent Office to challenge weak pharmaceutical patents and then short the stock of the company that owns the patent. In response, PhRMA has advocated for changes to the IPR process to limit Bass’ success. We hope these changes don’t happen; it’s important that we keep this program robust as an effective alternative to challenging bad patents without wasting the resources demanded in a courtroom.

Though patent reform was met with challenges in 2015, we remain confident that 2016 could bring about real and comprehensive legislation. Representative Goodlatte in the House and Senators Schumer, Cornyn, Grassley, and Leahy in the Senate remain committed to seeing legislation through. Coupled with court cases that help address low patent quality (like last year’s Alice v. CLS Bank decision, which has gone a long way to help get bad patents out of the system), the prospect for patent reform remains good. Engine will remain a firm supporter of comprehensive patent reform as we head into the new year.

Year in Review: Tech Talent and Diversity

This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.

by Anna Duning and Ange Royall-Kahin

Lawmakers, industry leaders, and nonprofit groups alike contributed to important, and sometimes heated, conversations about America’s tech talent pool this year. The growing need for talented workers, the lack of diversity in the industry, and the vexed immigration system continue to pose challenges to both tech firms as well as policymakers.

Diversity

Additional tech companies joined some of the larger firms this year in releasing their diversity numbers. While the figures themselves didn’t inspire much confidence about industry diversity, we observed a growing recognition of the issue and commitment to creating a more inclusive tech industry. Engine participated in the Tech Inclusion Conference in San Francisco, where participants from across the country discussed challenges to improving the makeup of the tech community and solutions to making change. Several companies have also demonstrated good faith commitments to closing these gaps.

In Congress, Engine helped launch the Diversifying Tech Caucus in January to highlight the importance of diversity in the tech community and craft policy solutions to bring new people into this workforce. The bicameral, bipartisan Caucus, now with over 20 members, facilitated dialogues about startup efforts to diversify tech as well as the roles and obstacles veterans face in the industry. Another legislative group, the Congressional Black Caucus, also affirmed its commitment to diversifying the tech industry this year and launched Tech2020, an effort to increase the participation of African Americans in technology.

The White House and federal agencies also launched several initiatives this year to bolster and diversify the tech workforce:

• In March, the White House announced TechHire, a national program to get more Americans the training they need to enter the tech workforce. Through partnerships with universities, community colleges, apprenticeship programs, and non-traditional educational offerings such as coding bootcamps, TechHire has recruited over 40 communities to support their efforts.

• At the beginning of August, the White House hosted its first Demo Day under the theme of inclusive entrepreneurship, showcasing a diverse set of 50 entrepreneurs. The event also highlighted members of the tech community making concrete commitments to improving diversity.

• Later this year, the Department of Education launched a pilot program to evaluate the effectiveness of non-traditional education providers, such as coding bootcamps. While these new programs offer students valuable skills for well-paying, in-demand jobs, many are un-accredited and therefore disqualify students from using federal funding towards tuition. If successful, the outcomes of the Department’s pilot may help expand access to new learning models for vital technical skills.

Veterans

This year, we saw Washington take interest in how to connect veterans with resources that would aid them in transitioning into the tech industry. In July, Senators Moran and Tester introduced the Veterans Entrepreneurial Transition Act of 2015. The bill would allow veterans to apply their GI Bill benefits towards starting their own businesses. In August, the Department of Veterans Affairs (VA) launched a new pilot for accelerated learning programs (e.g. coding bootcamps with certain providers) - at no cost to participants. We look forward to seeing how the results shape the conversation around using GI Bill benefits towards coding bootcamps and alternative tech education.

Immigration

Immigration policy also plays a key role in supporting and growing technology companies and startups, too. Some of our country’s most successful technology firms were founded by immigrants and foreign talent is in high demand among U.S. tech companies, big and small. In 2015, the United States Citizen and Immigration Services (USCIS) received a record number of H-1B visa applications: 233,000 for the 85,000 spots. The H-1B program also came under fire this year for both favoring large companies and outsourcing firms (see Disney’s actions), as well as for abuse.

The H-1B program represents just one set of issues rattling our outdated immigration system, yet, none of these additional challenges saw real solutions from Congress this year. Speaker Paul Ryan made it clear that it’s unlikely any needed legislation will pass until a new president is elected. Nonetheless, a few incremental improvements (that didn’t require congressional approval) were pushed forward. USCIS began accepting work authorization applications so H-4 dependent spouses can work here, too. The Department of Homeland Security (DHS) is considering extending the OPT visa program for STEM students. And we soon expect DHS to announce guidelines for improved pathways for foreign entrepreneurs to acquire visas in order to start companies here.

Looking Ahead

While Speaker Ryan’s outlook gives the tech community little optimism for immigration reform in 2016, we hope high-skilled immigration policy will make its way into the presidential candidate agendas. It is likely that progress will be made to support veterans entering tech. The VET Act is gaining support and we expect that it will head to the Senate floor in the first half of the year. We also hope to see legislation introduced that would allow veterans to use their GI Bill benefits towards alternative tech education programs, such as coding bootcamps. On the industry side, we’re optimistic, too. The public pressure and attention on tech firms’ employee diversity that mounted throughout this year has now raised expectations. Companies are keenly aware they need to do better and made promises that we hope to see begin to come to fruition in 2016.

2015 in Tech and Startup Policy

In 2015, Engine celebrated several political victories for the tech community, traveled across the country to emerging startup ecosystems, and published new research on the challenging issues facing startups and policymakers alike.

We’re especially grateful for all the support of our community of entrepreneurs, VCs, and technology experts. They helped us win net neutrality, signed our letters to Congress, joined us on Capitol Hill, and shared their stories to demonstrate why entrepreneurs and the startups they build are such a valuable part of our economy and our nation.

Watch this space to read about all the issues we tackled this year.

Engine Highlights in 2015: Major Wins and Moments for Technology Startups and Entrepreneurs

Net Neutrality: The FCC announced its historic net neutrality decision to keep the Internet open and fair. Engine has since defended attempts to undermine net neutrality in the courts.

Capital Access: The SEC finalized investment crowdfunding and Reg A+. Engine published a paper on improving investment crowdfunding policy for startups and investors.

Patent Reform: Over 140 venture capitalists and 200 startups signed letters in support of patent reform. We brought several groups of startups to the Hill and released a book of troll stories. And this summer, the PATENT Act and the Innovation Act were passed out of Judiciary Committees in both the Senate and House.

Diversity in Tech: Engine launched Congress’ first and only caucus uniquely dedicated to expanding diversity in the tech industry. We also launched efforts to support #VetsWhoTech with a briefing on Capitol Hill, support for the VET Act, and released a series of stories about veterans in the tech sector.

Telecom: We worked with a coalition to successfully stop Comcast’s attempted merger with Time Warner.

Digital Privacy: The state of California passed one of the strongest electronic communication privacy laws in the nation.

Startup Cities: Engine visited emerging startup ecosystems around the country, stopping with the #RiseofRest tour in Richmond, Raleigh-Durham, Atlanta, New Orleans, Baltimore, Philly, Buffalo, and Manchester.

2016 Race: Engine hosted the first ever Iowa Presidential Tech Town Hall.

We hope you’ll join us in 2016 as we continue to fight for greater capital access, improved educational opportunities for tech workers and aspiring entrepreneurs, patent reform, and strong net neutrality protections.

Catch you next year!

Startup Policy Digest: 12/18/2015

Our weekly take on some of the biggest stories in startup and tech policy. 

CISA Sneaks into Omnibus. As Congress scrambled to clear its legislative calendar before leaving DC for the year, it packed a bunch of unrelated bills together into a 2,000 page omnibus spending bill that will need to pass in order to adequately fund the government. This potpourri approach to legislation raises serious concerns about government transparency and access, as all but the most well-connected groups are effectively blocked from the closed-door dealmaking that resulted in the omnibus. This year’s omnibus produced one notably terrible outcome: the resurrection of the much-maligned Cyber Intelligence Sharing Act (CISA), which is meant to allow companies to share information on cyber attacks with government in order to help prevent future hacks. Critics argue that the bill creates more problems than it solves by jeopardizing user privacy, incentivizing companies to secretly monitor user activity, and allowing the government to obtain consumer data without a warrant. With the ECJ’s nullification of the EU/U.S. data transfer safe harbor so fresh in policymakers’ minds, it is a particularly inopportune time to pass a bill that many believe is effectively an expansion of government surveillance authority.

EU Sets New Data Privacy Rules. On Tuesday, the European Parliament and Council effectively agreed upon a negotiated version of the EU Data Protection Reform originally drafted in 2012. The measures will be formally adopted in early 2016 and go into effect in 2018. US businesses are concerned with several of the law’s provisions that make compliance challenging and also expensive. Among their concerns: Companies that violate the rules could face fines of up to 4 percent of global sales; the law also formalizes the “right to be forgotten” statute, allowing users to not only correct inaccurate personal data, but also the right to remove irrelevant or outdated information; the age of consent for data processing is set at 16 years; companies must alert authorities within three days of a reported data breach; and larger “data-processing” companies must designate a data protection officer.

An Uber Union? Seattle has become the first city in the nation to allow on-demand drivers for companies like Uber and Lyft to unionize. The legislation, passed by Seattle’s city council on Monday, is seen as a test case for the changing 21st century workforce and will likely be contested in court. While some have argued that the new policy conflicts with federal law and raises antitrust concerns, others insist that the local law has teeth. Regardless of its merits, the law further complicates the broader debate around worker classification in the emerging “gig economy” and whether policies can support both innovation and workers.

California’s New Self-Driving Car Laws. A month after a study by California’s Department of Motor Vehicles, the state released proposed rules for driverless cars. Some of the rules came as no surprise to driverless car manufacturers such as Google, Tesla, and Ford: consumers must receive special training certificates and the autonomous vehicles must meet certain cybersecurity standards. However, one proposal, if passed, could significantly impede innovations in this emerging industry. The California DMV wants a licensed driver present in the vehicle, preventing the kinds of functions—package-delivering vehicles or transportation for the blind—that could truly revolutionize transit. This rule also complicates the liability question by making the licensed driver legally on the hook for any accidents. Google, on the other hand, has thus far stated that it is willing to take responsibility for any accidents on the road. There’s still room for debate though; these rules open for public comment next month.

BingeOn? Maybe Not Says FCC. In its net neutrality rules from earlier this year, the FCC declined to enact a flat ban on “zero rating” programs whereby ISPs exempt certain data from user data caps. Instead the FCC decided to tackle such issues on a case-by-case basis. Since then, ISPs have begun to test the FCC’s willingness to regulate data exemption policies, such as T-Mobile’s Music Freedom and BingeOn plans. While T-Mobile’s programs do not implicate the most concerning net neutrality problems by allowing any music or video streaming company to take advantage of the data exemption without payment, some net neutrality advocates have taken aim at T-Mobile’s policy of throttling all video traffic regardless of whether it is a part of the BingeOn program. FCC Chairman Tom Wheeler has previously applauded T-Mobile’s programs as creative, pro-consumer innovations, but now, the FCC wants to take a closer look. With the Commission’s data cap inquiry and the DC Circuit’s pending decision on the validity of the FCC’s net neutrality, 2016 looks to be an important year for the future of the open Internet.

Drone Registration Goes Live. The Federal Aviation Administration unveiled new recreational drone requirements this week. Starting December 21, drone hobbyists must register their unmanned aircrafts and pay a $5 fee through a new FAA web page. The registration requirements represent a mostly uncontroversial attempt to maintain safety and accountability in national airspace as more and more drones populate the skies.

GOP Misses on Tech Issues. While many observers called this week’s Republican debate the most “substantive” yet, tech experts heard uninformed positions and misconstrued information on issues such as surveillance, the operation of the Internet, and encryption. For instance, Gov. Kasich inaccurately assumed that encryption prevented law enforcement from collecting information that could have foiled the San Bernardino shootings. Yet, whether encryption played any role in law enforcement’s access to important digital communications has not been confirmed. Meanwhile, Mr. Trump suggested that parts of the Internet should be “closed,” a preposterous suggestion that would not only hinder communication amongst bad guys, but also the good guys who drive ambulances, operate hospitals, and alert the world to vital information. Such superficial positions on high-impact tech policy are disconcerting - legislating these areas will require thoughtful (and, frankly, more complicated) solutions.

Prisoners Turned Coders. San Quentin State Prison just graduated 21 inmates from its tech incubator, which teaches inmates to code as well as the skills it takes to design and pitch a business to investors and peers. The program,  made possible by The Last Mile organization, has become so popular that inmates are requesting transfers to San Quentin. Next up: A new program from The Last Mile will provide inmates with paid coding jobs for businesses outside prison walls.