Shifting Sands In The Tech Sector

from the regulatory-sandboxes dept

In the U.S., politicians are itching to disrupt Big Tech. In January, the Senate Judiciary Committee approved the American Innovation and Choice Online Act, introduced by Senator Klobuchar in October 2021, which would prohibit large technology companies like Amazon, Apple, Facebook, and Google from preferencing their own products and services.

Senator Grassley celebrated the bill for helping “level the playing field for small businesses and entrepreneurs.” But what if Congress could offer small businesses an even better deal than a “level playing field?”

Enter the regulatory sandbox.

Regulatory sandboxes are regulatory frameworks which allow qualifying companies to sell products and services without complying with the red tape governing that industry. Sandbox companies are not exempt from all regulations. For example, regulatory sandboxes may provide for consumer protections like product liability. Regulatory sandboxes may expire after a set period of time, and companies exit the sandbox once they outgrow the criteria.

Legislatures create regulatory sandboxes to reduce legal pressure on growing businesses in order to encourage experimentation and innovation. Regulators then collaborate with sandbox companies to collect data on the industry. In turn, lawmakers use the sandbox data to inform legislative changes and better serve the business community.

In 2018, Arizona created the first, successful regulatory sandbox in the U.S. Since then, Wyoming, Utah, Kentucky, Nevada, Vermont, Hawaii, Florida, South Dakota, West Virginia, and North Carolina have developed sandboxes of their own in a variety of industries.

Arizona’s regulatory sandbox for fintech companies defines the sandbox as a program “that allows a person to temporarily test an innovation on a limited basis without otherwise being licensed or authorized to act under the laws of this state.” Through this simple definition, Arizona’s sandbox lifts licensing and authorization requirements, lowering barriers to entry for innovative companies.

The federal government has already experimented with a regulatory sandbox for drones. Under the Unmanned Aircraft Systems Integration Pilot Program, the Federal Aviation Administration (FAA) and Department of Transportation allowed state, local, and tribal governments to partner with the private sector to test low-altitude drone operations. The FAA currently allows drone pilots to apply for Part 107 Waivers, which allow qualified pilots to perform certain flight activities prohibited to the general public.

A regulatory sandbox for technology startups could mirror the Part 107 waiver system, with the federal government or an agency issuing waivers to growing and innovative tech companies. To specify which companies qualify, Congress could repurpose the term used by current antitrust bills: “covered platform.”

In the context of the sandbox, “covered platform” would apply to online platforms or services with less than a certain number of users and a limited market capitalization. Lawmakers could tailor the definition as needed by adjusting the user and revenue limits.

A federal regulatory sandbox for technology could include provisions covering consumer protection, data privacy, and environmental considerations. Additionally, Congress could work with sandbox companies to collect data on content moderation and disinformation. In doing so, lawmakers would receive insight into hot button issues.

Through this bottom-up approach, the government would encourage more competitors to enter the technology marketplace, promoting competition in a very literal sense. Congress should prioritize the creation of new technology companies rather than attempting to dismantle successful incumbent firms.

Andy Jung is a Legal Fellow at TechFreedom, a non-profit, non-partisan think tank focused on technology law and policy. Andy received his law degree from Antonin Scalia Law School in Arlington, VA. Before law school, Andy worked for software startup companies in California.

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Comments on “Shifting Sands In The Tech Sector”

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9 Comments
Anonymous Coward says:

I am a simple person. I see that someone graduated from the Antonin Scalia Scholastic House Of Legal Education, I don’t trust a thing they say.

But on the subject of the article, for real: the main people I see hyping up regulatory sandboxes are libertarian types who don’t want regulation at all. ‘Innovation’ has become a complete and total buzzword devoid of meaning, used heavily by free-marketeers to fight against things like Net Neutrality, consumer protections, antitrust, and more.

Regulatory sandboxes are, from my perspective, a wedge by which libertarian/right-wing free market think tanks want to start pushing more heavily for an agenda of deregulation.

Anonymous Coward says:

Unfortunately, data privacy is an example of something which is easier to implement, whereas speech is something which definitely shouldn’t be regulated by the government.

It’s simpler to avoid collecting a bit of data, or to implement end-to-end encryption, than it is to follow a set of complex rules.

With consumer protections, it depends a lot on what those protections are. If we’re talking about 230, the larger a platform is, the more speech may be inadvertently removed under a faulty premise.

Anonymous Coward says:

Pretty halfhearted approach toward regulation, hmm?

Congress should prioritize the creation of new technology companies rather than attempting to dismantle successful incumbent firms.

The article sounded fine until the last sentence. “Successful incumbent firms” sure sounds a lot like “Google, Facebook, Amazon, and Microsoft are fine and should be left alone”. Or “consumer harm isn’t happening”.
This sounds like classic libertarian (ignorant or deliberate) blindness to the price-gouging, perpetual oligopolization backed by governments on all levels, nonconsensual data collection and sharing, dark patterns, patent law abuse, copyright abuse etc. in telecom, digital technology, aviation, journalism, pharmaceutical manufacturing, music, movies, etc.

Bottom-up approaches are crucial for promoting competition and reducing consumer harm. However, Congress can also use top-down regulation approaches at the same time. It’s not “one or the other”. If you think that protecting comsumers isn’t worth spending a massive chunk of the budget on, then you’re naive or okay with the abuse that is going on due to decades of deregulation and corruption.

Pilot more sandboxes to get more samples, reform copyright law, repeal DMCA 1201, update legal definitions of consumer harm (include privacy violations, poor security practices, predatory pricing, overzealous acquisitions and mergers, track records of misleading and lying to consumers, treating consumers as products, etc.), and pass privacy legislation (require opt-in consent forllection and sharing, include a private right of action, be a floor rather than a ceiling for stronger state/local privacy laws, etc.).

frankcox (profile) says:

Is the regulation necessary?

It seems to me that it is in the public interest that an activity needs to be regulated, or it does not.

If it needs to be regulated, then the regulations should apply equally to all involved in that activity.

If it doesn’t need to regulated, then there’s no rational reason to say “you guys must follow these rules and those guys over there, who are doing exactly the same thing you are doing, get to do whatever they want.”

Rocky says:

Re:

If it needs to be regulated, then the regulations should apply equally to all involved in that activity.

In many cases regulations are instituted because of the predatory behavior incumbent industries exhibit which makes it almost impossible for new players to enter that particular market.

Of course, there is different types of regulation like food safety or the like which should be applied equally.

Which is why (as someone mentioned) we need both top-down and bottom-up regulation.

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