Shifting Sands In The Tech Sector
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.