How local governments are scaring tech companies

Congress has failed to regulate tech, so states and cities are stepping in with their own approaches to food delivery apps, AI regulation and, yes, privacy. Tech doesn't like what it sees.

an illustration representing a patchwork "quilt" of several states

States and cities are taking the lead on more tech policy issues than ever.

Illustration: Protocol

Andrew Rigie said it isn't worth waiting around for tech regulation in Washington.

"New York City is a restaurant capital of the world," Rigie told Protocol. "We need to lead on these issues."

Rigie, executive director of the New York City Hospitality Alliance, has pushed for New York City's new laws on food delivery apps such as Uber Eats. His group supported measures to make permanent a cap on the service fees the apps charge to restaurants, ban the apps from listing eateries without permission and share customer information with restaurants that ask for it.

While Rigie's official purview is dining in the Big Apple, his belief that the local government should lead on regulating tech companies in a way Washington hasn't has become increasingly common.

"It wouldn't be a surprise if lawmakers elsewhere seek to implement similar policies," Rigie said. "Some of it could potentially come from the federal government, but New York City can't wait for the federal government to maybe act."

New York is not the only city to take action. While the Federal Trade Commission has faced calls to regulate third-party food delivery apps at a national level, San Francisco was first to pass a permanent fee cap for them in June.

Food apps are just a microcosm highlighting the patchworks of local-level regulation that are developing, or are already a fact of life, for tech. These regulatory patchworks occur when state and local governments move ahead of Congress to pass their own, often divergent, laws and rules. So far, states and municipalities are racing ahead of the feds on issues such as cybersecurity, municipal broadband, content moderation, gig work, the use of facial recognition, digital taxes, mobile app store fees and consumer rights to repair their own devices, among others.

Many in tech became familiar with the idea when the California Consumer Privacy Act passed in 2018, making it clear more states would follow suit, although the possibility has popped up throughout modern tech policy history on issues such as privacy requirements on ISPs, net neutrality and even cybersecurity breach notification.

Many patchworks reflect the stance of advocates, consumers and legislators that Washington has simply failed to do its job on tech. The resulting uncompromising or inconsistent approaches by local governments also has tech companies worried enough to push Congress to overrule states and establish one uniform U.S. standard.

"With a bit of a vacuum at the federal level, states are looking to step in, whether that's on content moderation, whether that's on speech on platforms, antitrust and anticompetitive conduct regulation, data privacy," said April Doss, executive director of Georgetown University's Institute for Technology Law and Policy. "It is the whole bundle of issues."

Patchworks often start to bubble up in places such as California, Washington state or New York, where Democrats are more likely to hold political power and major companies have key offices. That means those state-level regulations can have an outsize effect on the tech sector.

"Every one of these companies has a presence in New York," said state Sen. Michael Gianaris, referring to Big Tech companies such as Amazon. "Once we're able to enforce more stringent laws, that will affect their behavior everywhere."

Gianaris, a Democrat, recently led a push to address what he called the lack of "teeth in our antitrust laws right now," including new legislation to make it easier for the state to prove a company's dominance in court and harder for businesses to argue their conduct is justified. The bill passed the state Senate in June, and Gianaris has pledged to bring it back next session to try to get it through the Assembly.

"In the absence of aggressive action from the federal government, it's important for the states to do what we can to move the needle forward," Gianaris told Protocol. He added that he's heard from other states that might be interested in following New York's example.

'Insane' to wait on Congress

Some reform groups actively prefer a state-by-state approach to reform. They see the incremental technique as providing more stringent approaches to tech, especially in liberal states, than what arises on compromise-dependent Capitol Hill. The tougher approaches, in turn, set terms for the national conversation.

"There's a lot of concern about monopoly power nationally, and in a lot of states, it's easier to pass legislation than in Congress," said Matt Stoller, director of research at the American Economic Liberties Project, which has advocated for changes to existing antitrust law to rein in tech giants and other consolidated industries. Stoller, who said his group takes "a whole-of-government approach to the problem," testified in favor of the New York bill and added that AELP has provided "technical expertise" to legislators.

"We're trying to be supportive of policymakers who are serious and want to take on private power," he said.

Antitrust may be one of the few tech-related policy areas that has always had a significant state component. State statutes are on the books across the U.S., and states can also enforce federal competition law, as we've seen in the recent Google and Facebook cases. On other issues, though, the move toward state and local approaches has upended expectations about how to regulate industries as massive as tech.

Jim Steyer, who has long been involved in tech policy as CEO of the children's advocacy group Common Sense Media, likewise said pursuing state-level regulation has been an explicit strategy. He pins the beginnings of the approach to when the group's "good ideas," particularly on kids' privacy, started to fall apart in Congress in the early 2010s. By 2018, Steyer said, he'd decided to work on the successful effort to pass a new privacy law in California.

"We blindsided the industry at the beginning by going to the state level," he claimed. Since then, Steyer said, Common Sense has worked on the Maryland digital ad tax, California Gov. Gavin Newsom's idea to give consumers a cut of the value companies derive from their data, platform accountability, the digital divide and a further tightening of California's privacy rules. He blames partisanship for taking Congress out of the equation.

"What are we going to do? Sit around and wait for Congress to get its act together?" Steyer asked. "That's an insane strategy if you really care about the issues."

Pushes for state-level tech regulation aren't just the realm of Democrats, though. In May, Florida's Republican governor signed a content moderation law that would make it easier for conservatives claiming they've been silenced on social media to sue companies such as Facebook and Twitter. Other states have considered similar bills, although a federal judge has temporarily blocked the Florida law.

Tech scrambles

There's little question state and local policy moves get the attention of both tech companies and Congress. David Edmonson, vice president for state policy and government relations at the trade group TechNet, said that the "impact of a 50-state patchwork" is among the group's highest concerns.

The group, which is known for its state-level advocacy work, said it worries about the compliance costs and impact of patchwork regulation on small businesses — although its membership is primarily midsize and large companies. It also fears the potential impact on consumers who may be confused about their rights or who remain completely uncovered because of where they live, according to Edmonson.

"A 50-state patchwork of state-based privacy laws creates more problems than it solves both for consumers and the digital economy," he said. "A single federal standard that applies to all 50 states is better for both consumers and businesses."

Edmonson described TechNet's state-level work as being focused on "education and engagement with state legislators." Particularly with privacy, that often means haggling over the specific definitions in a particular bill.

"This is an issue where definitions are so core to the implementation of the bill — what constitutes data, what constitutes personal data, what constitutes a sale of that data," Edmonson said.

Tech trade associations like TechNet have tried to get ahead of patchworks by urging Congress to regulate and overrule whatever state policies are on the books. BSA | The Software Alliance, which counts Microsoft and Oracle as members, has also pushed for national privacy legislation, as well as laws on bias in high-risk artificial intelligence products such as facial recognition. And tech trade groups routinely call for actions on issues like research and development, broadband funding and more.

The companies work behind the scenes as well, including in King County, Washington, home to 2.3 million people and the headquarters of both Amazon and Microsoft. The county, which also includes Seattle, passed a ban on government use of facial recognition technology this year.

"We only heard from one company, and we did not hear from them publicly," said Jeanne Kohl-Welles, the county council member who led the bill. "They approached me initially, trying to get me to back off this legislation."

The company, which she declined to name, also approached Kohl-Welles' colleagues on the council. Often the company's message was that legislators should wait for Washington state's 2020 law that curtailed police use of facial recognition to "have some time to work." Yet unlike the U.S. Congress, where Democrats tend to focus on consumer concerns and Republicans tend to foreground business concerns, the county bill passed unanimously.

Up to Congress

Despite the proliferation of new tech policy laws in cities and states across the U.S., Congress still appears to feel some urgency on comprehensive online privacy. Bills related to privacy have become law in three states — California, Virginia and Colorado — with more states looking into it.

Lawmakers' track record at educating themselves on the issues and overcoming partisan splits isn't strong: All 50 states, for instance, have put in place their own cybersecurity breach notification laws since the first one passed in California nearly two decades ago. Congress, however, has still failed to act on that issue, despite repeated attempts.

"I think we're going to continue to see that trend unless and until Congress is able to really devote some attention and make some progress on [tech issues]," said Georgetown's Doss.

On privacy, many U.S. consumer groups and their Democratic allies have urged Congress to establish minimum standards that states can still build on, instead of preempting local rules in favor of a uniform federal approach — as some companies and Republicans would prefer. The question of preemption remains one of the biggest differences between Democrats and Republicans and continues to hold up privacy legislation in Congress.

"The longer Congress waits to enact bipartisan legislation, the more states decide to create their own laws," Republican Rep. Bob Latta said during a hearing in July. "I'm concerned about this patchwork of state laws as it breeds confusion and leaves gaps in consumer protection."

Yet Doss said the fact that companies, trade groups and corporate lobbyists and lawyers are finally seeking regulation, oftentimes after years of fighting it, may be a reason for some optimism that rules can pass.

"To some extent, simplification, streamlining, predictability is being more highly valued as the regulatory environment gets more complicated," Doss said of tech companies. "If they're going to be regulated, they would prefer it to be fairly uniform."


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