The Top 16 Tech Policy Developments of 2017

This year, we saw a transition of presidential administrations — and all of the accompanying policy and bureaucratic reshuffling that inevitably comes with such a change. Issues of innovation and tech policy have remained front and center, with the Trump administration both forging its own path in some respects and continuing in the Obama administration’s footsteps in other ways. Congress was also active on tech policy, as were state and local officials and foreign governments. And so, as we look back on 2017, here’s our annual list of the 16 biggest tech policy developments of the year.

#1 Net neutrality repeal. Over howls of protest from many in Silicon Valley and elsewhere, the Federal Communications Commission (FCC), under Chairman Ajit Pai, voted December 14 to repeal Obama-era Title II regulations that govern how internet service providers (ISPs) oversee web traffic. With this repeal, we will now revert to the pre-2015 landscape of internet regulation. While opponents of the FCC’s repeal decision are forecasting doom and gloom, supporters point out that the internet seemed to be functioning just fine before 2015. Regardless, the net neutrality debate now shifts (once again) to the courts, with net neutrality proponents challenging the FCC’s repeal decision — just like net neutrality opponents in 2015 challenged the FCC’s adoption of the rules in the first place. Ultimately, if there is to be a consensus (and enduring) framework that ensures the principles of net neutrality are upheld in a way that (a) does not discourage ISP investment and (b) preserves the tradition of allowing the internet to develop with minimal regulatory interference, it will be up to Congress to work out that compromise.

#2 Debating the power, and responsibility, of big tech. In the same year that the FCC voted to relinquish its regulatory oversight of the internet, others in Washington were making noise about imposing new government regulations, at least on big tech powers like Amazon, Facebook, Google, and Twitter. Much of this movement stemmed from concerns about “fake news”, bias in web platforms and algorithms, and apparent Russian efforts to use social media to interfere with the 2016 elections. This peaked in the fall when committees in the House and Senate hauled up executives from big tech companies for two days of grilling by lawmakers. The sorts of potential new federal oversight floated over the course of the year included specific regulations around political ad disclosures to more fundamental and existential antitrust actions. Notwithstanding all the hype and headlines around these topics, ratings for the tech industry remained high in consumer polls, and it seems highly unlikely that any broad new regulations will be imposed on the tech industry by Washington anytime soon. But suffice to say, 2017 was a year when the bloom started to come off the rose for tech in the nation’s capital.

#3 Anticompetitive practices, according to Europe. This year, we also saw regulatory difficulties for tech companies outside of the U.S.; in June, the European Commission’s antitrust division fined Google $2.7 billion for “anticompetitive practices” related to Google Shopping, the company’s product comparison tool (specifically, for favoring the company’s own site over competitors). A fine this large — more than double the EU’s previous largest antitrust fine of ~$1 billion against Intel in 2009 — signals an increasingly aggressive approach by European regulators toward American tech companies operating in the region. In November, it was also reported that the EU might be preparing to slap Google with a second, as-of-yet undisclosed, fine over the company’s AdSense network for agreements that supposedly disadvantage the competition. While American companies have traditionally expanded into Europe as the natural next region for growth (as opposed to the more unpredictable regulatory minefield of China for instance), incidents such as these are now making those companies nervous. In September, Google filed an appeal that will be reviewed by an EU court. But don’t expect a decision to come anytime soon: That 2009 fine against Intel? Intel too appealed, and the case was only decided this year. At least the European Court of Justice (the EU’s highest court) sided with Intel… though sending the case back to a lower court.

#4 The White House beefs up its innovation bona fides. With the aim of modernizing government and empowering the tech industry, President Trump signed a Presidential Memorandum establishing the Office of American Innovation (OAI) in March. This past summer, the office — led by Jared Kushner, former Microsoft CFO Chris Liddell, and former real-estate developer Reed Cordish — laid out its priorities, which include technology procurement reform, contracting, and cybersecurity (as well as apprenticeship programs and infrastructure-related issues). Importantly, the OAI remains one of the few offices with bipartisan potential in a hyper-partisan Washington. In fact, the first-ever CTO of the United States, Aneesh Chopra, recently cited the OAI as something that closely resembles his efforts under President Obama, adding that “while you’ll generally see those of us in the Obama world sort of fret all of those decisions [by the Trump administration], on this topic you’ll see a lot of alignment and a lot of support.” The OAI has reached out to Democrats in Congress to solicit ideas and has so far cultivated a reputation as a nonpartisan and pragmatic machine for government transformation.

#5 The FDA goes digital. Under the guidance of its new administrator — physician (and former venture capitalist) Scott Gottlieb — the Food and Drug Administration (FDA) has made four sequential and interrelated policy decisions over the past year in the realm of digital health: (1) In May, the agency announced the creation of a Digital Health Unit within its Center for Devices and Radiological Health, the division of the FDA that oversees approval for digital health products such as heart rate monitors or TENS units. (2) In July, the agency unveiled a Pre-Certification Software Pilot Program, aimed at giving select software startups working on digital health the opportunity to be fast-tracked through the FDA’s notoriously time-intensive approval process. They recently announced the nine companies selected to participate in the pilot program, ranging from large tech companies (Apple) to traditional healthcare providers (Johnson & Johnson) to startups (Pear Therapeutics). (3) In November, the FDA approved its first ever digital pill, Abilify MyCite, which allows patients and physicians to track whether a patient is taking the right dosage of medication. (4) In December, the agency announced that certain types of software don’t qualify as medical devices and therefore won’t be regulated as such. Together, these developments aim to bring healthcare into the 21st century, and are great news for health tech startups looking to get potentially life-altering products to consumers sooner than later.

#6 SESTA vs. CDA 230. Since the passage of the Communications Decency Act (CDA) in 1996, many user-generated content (UGC) websites have relied on a short section within the bill — Section 230 — to shield them from liability for statements made by users of their platforms: “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider”. Section 230 has largely allowed websites like YouTube (or Facebook or Quora or Airbnb or hundreds of others) to flourish with little threat of liability for inflammatory or injurious content posted on their platforms, and has been hailed for its role in bringing about the robust web we know today; the Electronic Frontier Foundation (EFF), for example, calls it “the most important law protecting internet speech”. But in 2017, a bill — the Stop Enabling Sex Trafficking Act (SESTA) — was introduced in the Senate (with more than two dozen co-sponsors, from both parties) that would scale back CDA 230 protections in cases where sex trafficking occurs on websites. Many in the tech world are concerned, arguing that notwithstanding SESTA’s salutary goal of combating sex trafficking, any curtailment of CDA 230 is a serious threat to platform sites and internet freedom, and could be a first step toward policing other content. SESTA is gaining momentum in the Senate, however, and seems likely to pass. The short-term effects of the bill on large content platforms are obvious, but the long-term consequences remain to be seen.

#7 No encryption reset… for now. The arrival of a new administration seemed like it would provide an opportunity for a fresh turn in the ongoing “discussion” between tech leaders and law enforcement around issues of security vs. privacy, specifically around backdoors and encryption. This had been a serious source of tension between the Obama administration and Silicon Valley, due to events ranging from the Snowden disclosures of 2013 to the high profile FBI-Apple showdown of 2015-2016. The new FBI Director, Chris Wray, has not targeted tech companies as publicly as his predecessor did, but recent remarks by Deputy Attorney General Rod Rosenstein suggest the Trump administration’s approach to the encryption debate will continue that of the Obama and other prior administrations. That is: government officials will advocate for “smart encryption” (an oxymoron, in our view), arguing that encryption should be designed to allow select access (“backdoors”) for law enforcement (not possible without also allowing terrorists or criminals exploit these too). Expect this debate to continue… as it has for the last few decades of previous “Crypto Wars”.

#8 Autonomous vehicle guidance 2.0. Last year, we mentioned that the Department of Transportation had released guidelines around highly automated vehicles; it was public recognition by the federal government of the inevitability of autonomous vehicles. Although an important first step, the guidance in many ways left the tech and automotive industry building these technologies scratching their heads over everything from go-to-market to the role of state regulators [see item #9 for more on this]. But in September of this year, the National Highway Traffic Safety Administration (NHTSA) (which is situated within the DoT) released an updated version of the guidance clarifying questions that arose out of version 1.0 and adopted standard industry terminology. It is also, in our view, strongly pro-innovation, and the guidance went to great length to emphasize that it is still, for the time being, voluntary and not mandatory. Meanwhile, Congress has taken steps toward passing a comprehensive autonomous vehicle bill. All of this bodes well for the continued development of autonomous vehicles in 2018.

#9 More states get in the driverless race. Equally important as the developments for autonomous vehicle regulation at the federal level is the policy momentum taking place at the state level. If states are the laboratories of democracy (as we like to say), then they’re especially becoming the laboratories for all things autonomous, from cars to buses. This year, 33 states introduced legislation on autonomous vehicles (up from 20 proposals in 2016), and several states took meaningful steps toward allowing fully autonomous testing — with no human assistance — on public roads. In Arizona, for instance, Governor Doug Ducey courted several companies, from small startups to established incumbents, to pilot their newest vehicles with public passengers. Besides embracing testing, more states have in the past year also shown a keen awareness of how traffic laws will need to adapt. In Georgia, for instance, a new law by the state’s legislature specifies that an existing regulation (which prohibits following another vehicle too closely) does not apply to the non-leading vehicle in a coordinated, autonomous “platoon”. This coming year will be an exciting one for autonomous vehicle policy, especially as companies and states compete with one another to get ahead here.

#10 Drones get a lift. It’s no secret that drone users everywhere, from hobbyists to commercial operators, have felt hamstrung by FAA limits on everything from line-of-sight (not necessary) to payload capacity (more please). It doesn’t help, either, that the airspace in which these drones operate — called the National Airspace System, or the NAS — is controlled at the federal level, leaving little room for experimentation or differentiation across state lines. In October, however, President Trump signed a Presidential Memorandum instructing the U.S. Secretary of Transportation to create an unmanned aerial systems (UAS) Integration Pilot Program. Aiming to “evaluate various models of state, local, and tribal government involvement in the development and enforcement of federal regulations for UAS operations” — specifically between zero and 400 feet — the program has encouraged state and local officials to begin submitting proposals for overseeing drone testing in their respective regions. So in 2018, expect startups in the UAS space to accelerate deployment in ways that were previously not possible.

#11 Mr. and Mrs. ICO go to Washington… and Beijing. In July, the SEC issued its first meaningful guidance on initial coin offerings (ICOs). Generally speaking, the SEC this year has echoed everyone from the media to crypto insiders by telling investors to proceed with caution. After investigating an ICO by a specific blockchain company known as “The DAO” (note, this is distinct from the more general concept of a DAO or “decentralized autonomous organization”), the agency determined The DAO’s process had resembled that of issuing a security, thus making it subject to existing SEC requirements. To be clear however, the regulation around ICOs — and cryptocurrencies more generally — still remains opaque, varying case by case. And while U.S. regulators have not gone as far as their Chinese counterparts (China outright outlawed both ICOs and cryptocurrency exchanges later this year), there’s no reason not to expect increased scrutiny of the crypto space moving forward. Just this month, the SEC’s new cyber unit filed charges against a company, PlexCorps, that executed an ICO deemed to be fraudulent — although the SEC also went out of its way to emphasize that this was a case of pure fraud and should not be taken to be the official SEC position on ICOs. Perhaps 2018 will bring more regulatory clarity… or not. Watch this space.

#12 Modernizing government technology. Of course, the OAI [see item #4 above] is not the first federal initiative to modernize IT, and for the longest time federal agencies have encountered the same problem over and over again in their quest to update legacy technology systems: insufficient funding, or constraints on how existing funding can be used. That all changed just this week, however, with the signing of the Modernizing Government Technology act. The law — which was the brainchild of Congressman Will Hurd of Texas and received bipartisan support in both chambers of Congress — finally frees up federal agency budgets to focus on tech modernization. For all the federal employees who’ve dealt with outdated technology at work (something everyone likes to joke about but actually creates real problems for government efficiency), this is an important development.

#13 Face/off: AT&T and Time Warner. Beyond issues of net neutrality and ISPs, another big policy moment this year came in November, when the Justice Department’s antitrust division sued to block the AT&T-Time Warner merger. The case will be heard in March of 2018, and its outcome will mark a significant milestone (whether a positive signal or a red light) for other content creators and content distributors looking to vertically integrate. More generally, depending on whether or not the courts allow the merger to proceed, it will demonstrate either the power of federal regulators in the modern tech era… or the limits on their power.

#14 Tax reform gives tech an opening. Tax reform is on the verge of passing, and while this will have implications for all sectors of the economy, one provision in particular has especially significant consequences for the tech industry: repatriation. Under the new tax system, multinational companies will have the opportunity to repatriate the capital they hold overseas at a reduced tax rate (the final plan, as of this writing, calls for an 8% rate for illiquid assets and a 15.5% rate for cash; previously companies bringing capital back from abroad were forced to pay the existing 35% corporate tax rate). Given this one-time opportunity, some of the largest tech companies will likely choose to bring back their overseas capital, adding plenty of cash to their balance sheets. This development has potentially large implications for the tech M&A market (more large companies with more capital at their disposal would suggest more acquisitions), as well as for the R&D efforts within these companies. Therefore, assuming tax reform passes, 2018 could bring some new investments in some of the most important emerging tech trends.

#15 A new cyber executive order puts agency heads on notice. In May, President Trump signed an Executive Order (“EO”) instructing each federal agency head to give the White House a risk assessment report on his or her agency’s critical IT infrastructure within 90 days. While the EO stated that the White House would hold agency heads accountable for their own cybersecurity, it also took a significant step by encouraging agencies to consider their cybersecurity in the context of “executive branch enterprise in the aggregate” (translation: a vulnerability at one agency is a vulnerability for the entire federal government). While progress in complying with the EO has been slow at some agencies, support for the EO’s priorities remains strong, and bipartisan. The issue is especially pressing in light of recent large-scale ransomware attacks such as WannaCry — including reports of vulnerabilities in Russian company Kaspersky Labs’ software, which counts the U.S. government as a client. Coupled with the OAI’s efforts to update government technology systems, the cyber EO should be viewed as a positive development for Silicon Valley companies seeking to do business with the federal government.

#16 The TALENT Act. Just as there are finally signs of hope for updating government IT (beyond the notable efforts of USDS and others), there’s also been progress for government recruitment. One of President Obama’s final acts in office (literally: it was carried out in the last hour of Obama’s presidency during President Trump’s inauguration on January 20, 2017) was to sign the TALENT Act, which codified the existence of the Presidential Innovation Fellows (PIF) program. Created in 2012 as a way of bringing more private sector innovators into government, the program has received overwhelming bipartisan support; the TALENT Act itself passed both chambers of Congress with near unanimous votes. Recruiting promising innovators and technologists to leave their higher-paying jobs and join the federal government remains a challenge, but now at least the door remains open across all future administrations for those interested in serving.

Here’s to another year of fascinating tech policy developments in 2018; in the meantime, best holiday wishes from all of us at CFI !