Whatever your views about 2016, there’s no denying it was a momentous year on the policy front. Seemingly each passing day brought noteworthy developments in the relationship between the tech industry and lawmakers at the federal, state, local, and international levels. So as December draws to a close, here’s our take on the 16 (of course) biggest technology policy developments of the past year.
#1 Trump wins. The November 8 election was the defining political and policy event of 2016, and that’s true for tech no less than the rest of the country. Much of the tech industry was highly vocal and engaged in the presidential race, almost exclusively on the side of Hillary Clinton and against Donald Trump (with Peter Thiel being the high-profile exception). Stunned by the outcome, Silicon Valley has spent the ensuing weeks trying to gauge the impact and consequences of a Trump presidency, even making a show of truce. To be sure, there are many tech policy issues — those that are state, local, international, or nonpartisan — that will, counterintuitively, not be substantially affected by the outcome of the federal elections. But there are plenty of tech issues, such as net neutrality, encryption, and privacy, on which the new president — and especially his agency appointees — will have “huge” influence.
#2 Brexit. Perhaps the most surprising international political development of 2016 was the United Kingdom voting in June to leave the European Union, aka “Brexit”. The impact of Brexit on the tech sector will take years to shake out; the UK Ambassador to the EU recently said the deal might not be fully completed until the early 2020s. But impact there will be — on data transfer, employment/immigration mobility, and fintech regulations, among other key policy issues — with the precise consequences for the tech industry varying by company and line of business (as well as how the EU and UK end up implementing Brexit). One possible implication, as a16z partner (and UK citizen) Benedict Evans notes, is that Brexit removes the UK’s pro-technology voice from Brussels — a voice which currently serves as an important counterweight in debate to the more preemptive-regulatory, less permissionless-innovation approach of other EU member states.
#3 Apple and the FBI battle it out over encryption. The high-profile showdown between Apple and the Federal Bureau of Investigation came to an abrupt end in March when the FBI announced that it had found its own, unspecified way to access San Bernardino terrorist Syed Rizwan Farook’s iPhone. The law enforcement agency had asked Apple for its assistance in unlocking Farook’s phone; Apple refused to do so, citing the privacy of its customers and noting that developing a cryptographic “back door” for the government would only expose Apple users to malicious actors. While this particular confrontation ended with a whimper, the broader encryption debate remains — some are calling it Crypto Wars 2.0 — and reflects a deep lack of trust between Washington and Silicon Valley.
#4 FCC’s net neutrality rules are upheld (for now). In a 2-1 decision, the U.S. Court of Appeals for the D.C. Circuit in June upheld the controversial “net neutrality” rules adopted in 2015 by the Federal Communications Commission (FCC). Those FCC rules had sought to ensure that broadband providers treat all internet traffic the same, regardless of source. They did this by declaring broadband to be a telecommunications service, and therefore subject to “common carrier” regulation (like a utility). The FCC’s court victory, however, has been reduced to a symbolic one for the Obama administration in light of the election outcome. The action and debate on whether and how to implement the equal-treatment principle of net neutrality will revert back to the FCC and potentially Congress, both of which now have Republican majorities.
#5 Local regulators try to restrict the (house)-sharing economy. In the latest reminder that many important tech policy issues are fought at a state and municipal level, New York State and San Francisco both adopted laws imposing hefty fines on hosts who offer short-term rentals on platforms like Airbnb and others. Airbnb (an a16z company) challenged these laws in federal court, arguing that they violate the Constitution (free speech and due process) and the Communications Decency Act, a federal law establishing that websites are not responsible for content published by their users. Airbnb dropped its New York case (after assurances that the city would not come after the company and that the city would work with the company to fight bad actors) but is continuing the fight in San Francisco. Meanwhile, other cities like New Orleans have taken a more welcoming approach, adopting rules that seek to empower the small business sharing economy (not to mention a new source of tax revenue). These cases warrant continuing close attention for those interested in tech policy and the “disruptor vs. incumbent” paradigm — as well as those interested in regulatory arbitrage by geography.
#6 Drones are cleared for takeoff! The Federal Aviation Administration (FAA) in June released its long-awaited regulations on the operation of commercial drones/ small unmanned aerial vehicles (UAVs). The new rules, which went into effect in August, are a sure sign that regulators believe that drones are here to stay — if regulators thought drones to be a passing fad, they wouldn’t have undertaken as large a task as rulemaking. The FAA regulations have promising implications for business, allowing for greater applications of drone technology in industries as diverse as agriculture, energy, and entertainment/ media. While the rules were a step in the right direction towards enabling drones to become more commonplace, many in the industry wish the rules had come faster and gone farther, allowing drones to fly out of the operator’s line of sight, for instance, since many of the biggest commercial opportunities are in the last mile of delivery and in unreachable (let alone viewable) areas.
#7 Self-driving cars are coming to a road near you. The Obama Administration’s Department of Transportation (DOT) in September released its eagerly awaited guidance on what it calls “highly automated vehicles”. The guidance is meant to provide a general framework for individual states to craft their own rules around autonomous vehicles; so far only 9 states have passed legislation or executive actions that address autonomous vehicles. Even though 41 states still have not passed any regulations around autonomous vehicles (which suggests many regulators remain skeptical of whether they are for real), the fact that the DOT guidance provides states the flexibility to create their own regulatory frameworks is a good thing. There eventually will need to be a standard, federal set of laws around “driverless” cars — and because much of that future standardized regime will likely draw from successful state examples, these 41 states now have an opportunity to contribute to and shape the eventual “gold standard” of driverless car regulation. The battles are just beginning.
#8 Privacy Shield saves the day for data. Many American tech companies — from the likes of Google to small startups — were uncertain about the viability of their cross-continental business after a 2015 decision by the European Court of Justice to strike down the 2000 Safe Harbor agreement, a set of seven principles allowing the efficient transfer of data between the U.S. and the E.U. But there was a collective sigh of relief early this year when American and European officials agreed to the new Privacy Shield deal that allows American companies to continue transferring customer data across the pond. A key provision of the new deal, approved in July, is that the American government must provide annual, written assurances that American intelligence agencies’ access to the European data being transferred will be appropriately limited. But with those assurances, cross-border data transfers are once again up and running; since August, more than 1000 companies have already secured Privacy Shield certification.
#9 The ICANN transfer. Control of the internet’s domain name system (DNS) was transferred to the Internet Corporation for Assigned Names and Numbers (ICANN) on October 1. This was a significant change, because for the previous 18 years the DNS had been controlled by the U.S. National Telecommunications and Information Administration. The transfer was contested by a group of senators led by Senator Ted Cruz, who argued that it would yield partial control of the internet to authoritarian countries, which have representation in the ICANN organization and could try to further censor web content. While the ICANN transfer will go largely unnoticed by everyday web users, this was a landmark event for the internet, as governance of the web gradually moves from a predominantly American-led enterprise to a more diverse and potentially less predictable endeavor, with many more countries, political systems, and cultures having a say.
#10 House Republicans launch “Innovation Initiative”. In March, Majority Leader Kevin McCarthy (R-California) and Chief Deputy Whip Patrick McHenry (R-North Carolina) announced a legislative initiative aimed at “remov[ing] government-made obstacles to innovation and bring[ing] government itself into the 21st century”. On both these fronts, the initiative is already bearing fruit, with multiple bills (many of which are bipartisan) being introduced or passed. McHenry, for instance, has introduced H.R. 6118, the Financial Services Innovation Act, which would allow fintech companies to take their products to market on an accelerated timeline. Meanwhile, in a textbook case of a small but important step in bringing the government into the 21st century, the House recently passed H.R. 4472, the Modernizing the Interstate Placement for Children in Foster Care, which updates the government’s electronic processing system for foster children. Other bills that have been considered under the initiative to date range from promoting women in entrepreneurship to improving homeland security. With a Republican soon to be in the White House, these and other pieces of legislation that arise out of the Innovation Initiative have a strong chance of becoming law.
#11 Bitcoin enters Congress. The bitcoin and blockchain industry now has bipartisan champions in Congress: Jared Polis (D-Colorado), a longtime bitcoin believer (and the first member of Congress to receive donations in bitcoin); and Mick Mulvaney (R-South Carolina). The two officially formed the Congressional Blockchain Caucus in September, with the goal of bringing other legislators up to speed on bitcoin and blockchain technology in order to formulate future laws. Cryptocurrency may now gain even more “currency” in D.C.
#12 CFPB suffers setback in court. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled in October that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional, insofar as the CFPB is headed by a single director who is removable only for cause (as opposed to typical federal agencies, which either have multiple directors, or a single director who is removable at will by the president). For constitutional law nerds, this was a highly significant separation-of-powers ruling. It was also an important decision for tech policy nerds: The CFPB has been active and aggressive in regulating fintech startups around issues such as marketplace lending and data privacy, but that approach might change if the CFPB is subject to greater limits and oversight. The CFPB already has filed an appeal of the October ruling — though in the meantime, the future of the CFPB will be on the agenda of the Trump administration and Congress.
#13 U.S. government to invest in biomedical technology and research. President Obama last week signed into law the 21st Century Cures Act, the product of close cooperation between Democrats and Republicans in Congress. The law loosens FDA regulations on a variety of medical technology industries, such as wearable devices (which in some cases straddle the border between medical and consumer device), and clears the way for $4.8 billion in biomedical research and innovation investment [more on this in this episode of the a16z Podcast]. While the likely repeal of the Affordable Care Act may call into question some healthcare startup business models, there should be no shortage of federal funding for tech companies that are pursuing their own R&D.
#14 Fintech companies to be treated not unlike banks. The Office of the Comptroller of the Currency announced in December that it would soon start offering limited-purpose bank charters — similar to the charters issued to trust banks and credit card banks — to fintech companies such as those doing online payments and online lending. The implications of this policy for the fintech industry are massive, as the policy would allow companies — including budding fintech startups that don’t have a huge regulatory operation in place — to comply with a single set of federal bank regulations, rather than having to register and be differentially regulated in 50 different states.
#15 Google and Oracle battle it out over the future of code. Can APIs be copyrighted… and be subject to fair use? That was the question at the heart of the Oracle vs Google case, which has continued to play out over the last few years — from 2012, when a judge first ruled that APIs aren’t subject to copyright in 2012, to 2014, when the Federal Circuit reversed the decision. The case returned to trial in California in 2016 on a fair use defense, and Google won, but the debate won’t end there: Though the Supreme Court declined to hear the case the first time around, Oracle has said it will appeal. The reason this issue remains so contested (as observed in this summary) is that “everyone actually affected by the case knows what an API is, but the whole affair is being decided by people who don’t”. The API question has significant consequences beyond just these two companies and their users, since application programming interfaces — which allow code and different software programs to connect and communicate with each other — are becoming the primary “interface for business” … especially as more and more companies offer a set of programmatic functions as a service.
#16 Government officials can now (officially) rideshare to work. In September, the House passed the Modernizing Government Travel Act (MGTA), a bipartisan bill sponsored by Congressmen Seth Moulton (D-Massachusetts) and Will Hurd (R-Texas) that allows federal employees to be reimbursed for official travel using ridesharing services such as Lyft and Uber. While the Senate is still reviewing the proposed legislation, the MGTA is an important symbolic step in the government adopting technology — even if after the rest of the country already has (and yes, BlackBerries are still all too common a sight in most federal office buildings). One of the reasons this matters is that the federal government is often quicker in legislating around technology than it is in adopting it, and use of a technology is an important vector to understanding it.
Bonus #17 The arrest of the future CTO of the United States. Everyone’s favorite Silicon Valley entrepreneur — Erlich Bachman (of Aviato and Pied Piper fame) — was rumored to be on the short list to serve as U.S. Chief Technology Officer in the incoming administration. But his prospects were dashed earlier this month when T.J. Miller, the actor who plays Bachman, reportedly was arrested following an altercation with his Uber driver over . . . President-elect Trump. Given the tech sector’s vigorous opposition to Trump, the forthcoming Season 4 of Silicon Valley is sure to include some riff on the election, but this is really taking things to an extreme. [Warning: this item is disputed by the fact checkers.]
~From the a16z Policy & Regulatory Affairs Team, best holiday wishes — and here’s to another year of fascinating tech policy developments in 2017.
Matthew Colford is an investment partner at Human Capital.