Two months after Congress launched the Conference Committee on Bipartisan Innovation and Competition Legislation in May 2022, the Senate is nearing passage of a compromise “CHIPS Plus” bill.  Majority Leader Chuck Schumer (D-NY) initiated a test vote for the bill on Tuesday and received the assurance—a strong bipartisan vote of 64 to 53—that he sought to proceed. 

The CHIPS Plus bill, at just over 1000 pages, is much shorter than either the Senate’s United States Innovation and Competition Act (“USICA”) or the House’s America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act (“America COMPETES Act”), but significantly more ambitious than an earlier approximately 80-page bill that was limited only to semiconductor and wireless supply chain incentives.

The 80-page bill now forms the base — the CHIPS component — of the CHIPS Plus bill.  That bill included $54 billion in emergency appropriations for semiconductor and wireless supply chain incentives, “guardrails” that potentially constrain the companies that receive the incentives from undertaking certain business activities in China and other foreign countries of concern, and a 25% advanced manufacturing investment tax credit for the construction or acquisition of property integral to a facility whose primary use is to manufacture semiconductors or semiconductor manufacturing equipment.  The CHIPS Plus bill contains all of these provisions, as well as a similar set of guardrails for the tax credits.

The Plus component, added only the day before the test vote, authorizes over $100 billion dollars in government programs to support research and development (“R&D”), technology transfer, innovation, and science, technology, education, and mathematics (“STEM”) education.  These programs draw from Senate Commerce, Science, and Transportation Committee provisions in the USICA and from House Science, Space, and Technology Committee provisions in the America COMPETES Act.  They contain important policy changes and are likely to present massive opportunities for businesses, nonprofits, and education institutions to bolster their R&D efforts and to partner with the Federal government.  Funds will need to be appropriated for many of these programs for them to be effective.

Continue Reading Senate Reaches Compromise on Innovation and Competition Legislation

            After years of negotiations, members of the U.S. Senate and House of Representatives have released bipartisan comprehensive privacy legislation—the American Data Privacy and Protection Act.  Democrats and Republicans have put forward separate proposals in the past that have more in common than different.  The two main points of disagreement that have historically stalled a comprehensive proposal are whether there should be a private right of action for privacy violations and to what extent federal laws should preempt state laws.  Even though this new draft takes novel approaches to both of those issues, division continues.  The chances of Congress passing privacy legislation this session or the next will turn on whether a broader consensus can be found in these two areas, especially after outside stakeholders and the business community now have an opportunity to fully engage.

            Aside from the private right of action and preemption, there is general agreement on how personal information should be collected, used, and shared.  For example, the main Democratic proposal, the Consumer Online Privacy Rights Act (S. 3195) introduced by Senator Maria Cantwell (D-WA), creates consumer rights to delete or correct data and port personal information.  Likewise, Republicans, led by Senators Roger Wicker (R-MS) and Marsha Blackburn (R-TN), have introduced the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (SAFE DATA) Act (S. 2499), which would do largely the same.  The American Data Privacy and Protection Act unsurprisingly follows along these lines as well.  The most notable differences between the parties’ positions have been that the Democratic proposal has a private right of action, while the Republic version has no private right and would completely preempt state law.  The challenge continues to be finding a middle ground between these two approaches.  In particular, whether there is a way to address concerns about repeated lawsuits and opportunities to preserve at least some ability for states to enact and enforce their own regulations.

Continue Reading IS CONGRESS ABOUT TO PASS COMPREHENSIVE PRIVACY LEGISLATION?

Congress launched the Conference Committee on Bipartisan Innovation and Competition Legislation last week with a four-hour meeting featuring remarks by nearly one-hundred committee chairs and members from both chambers of Congress. Chaired by Senator Maria Cantwell (D-WA), the Conference Committee’s objective is to reconcile differences between the United States Innovation and Competition Act (“USICA”), which passed the Senate by a bipartisan vote of 68–32 in June 2021, and the America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act (“America COMPETES Act”), which passed the House by a partisan vote of 222–210 in February 2022.

The kick-off meeting suggested that this objective is attainable, but by no means guaranteed.

On display was broad consensus that the United States is not doing enough to spur innovation and remain competitive around the world, and that legislation is needed in support of those goals.  Chair Cantwell opened the conference by recognizing that this is a “historic day” with a supply chain crisis and that this is a “Sputnik moment.”  A bicameral and bipartisan chorus, including Senate Commerce Committee Ranking Member Roger Wicker (R-MS), House Science Committee Chair Eddie Bernie Johnson (D-TX), and House Science Committee Ranking Member Frank Lucas (R-OK) echoed her optimism and urgency.

Members also generally agreed on several key components in the bills.  Members of both chambers and both sides of the aisle recognized the importance of anchoring supply chains of critical products including semiconductors and pharmaceutical drugs in the United States.  A bipartisan group expressed support for the $52 billion in funding for semiconductor incentives that is included in both the USICA and America COMPETES Act.  Several Democrats and Republicans also noted that they are working together on an additional tax provision, which is currently not in either bill, to encourage semiconductor design and manufacturing in the United States.  Members also agreed on the need to push back against anti-competitive conduct by China such as cyberattacks and intellectual property theft, and to invest in science, technology, education, and mathematics (STEM) education to expand and improve the U.S. workforce.

Continue Reading Congress Kick Offs Conference Committee on Bipartisan Innovation and Competition Legislation

Most observers expect the Republicans to take control of the House of Representatives, and possibly the Senate, in the upcoming midterm elections.  While both Democrats and Republicans are likely to keep their attention on the actions of so-called “Big Tech,” this political shift should bring a renewed focus on amending Section 230 of the Communications Decency Act.  Section 230, which provides platforms with immunity from liability for third-party content and content-moderation decisions, has been a target for lawmakers seeking to limit the power of large technology companies.  Republicans have generally focused more on modifying Section 230, versus Democrats, who have spent more energy on using antitrust legislation to regulate those platforms.

Looking ahead, now is the time to consider policies and plans in light of a Republican-controlled Congress taking on potentially divisive issues through the lens of Section 230.

Republicans, Conservatives, and Section 230

Two trends will guide Republicans’ approach to Section 230 in the next Congress.  First, as in many areas, Republicans will seek to address what they see as “woke capitalism.”  New York Times columnist Ross Douthat coined the term in 2018 and defined it as a “certain kind of virtue-signaling on progressive social causes, a certain degree of performative wokeness, [that] is offered to liberalism and the activist left pre-emptively, in hopes that having corporate America take their side in the culture wars will blunt efforts to tax or regulate our new monopolies too heavily.”

Republicans are already planning a variety of legislative and oversight maneuvers meant to address corporations taking certain positions on cultural issues.  Technology companies may very well be at the top of Republicans’ list.

Second, conservatives increasingly view liberals as having abandoned their commitment to free speech.  For example, Republicans view the Hunter Biden laptop controversy, campus speech codes, and social media content moderation as part of a broader effort to silence and marginalize conservatives.  Simply put, conservatives believe that they are now the defenders of free speech.
Continue Reading SECTION 230 IN A REPUBLICAN CONGRESS

The House Judiciary Committee Subcommittee on the Constitution, Civil Rights, and Civil Liberties held a hearing on Tuesday on potential reform of the Foreign Agents Registration Act (“FARA”), the first FARA hearing by the House Judiciary Committee in over 30 years.

FARA is an arcane statute that requires “agents of foreign principals” engaged in certain

In his State of the Union address last week, President Biden declared that he wants to: “strengthen privacy protections, ban targeted advertising to children, and demand tech companies stop collecting personal data on our children.”  This statement comes just a couple of weeks after Senators Richard Blumenthal (D-CT) and Marsha Blackburn (R-TN) introduced the Kids

In his State of the Union address last week, President Biden declared that he wants to: “strengthen privacy protections, ban targeted advertising to children, and demand tech companies stop collecting personal data on our children.”  This statement comes just a couple of weeks after Senators Richard Blumenthal (D-CT) and Marsha Blackburn (R-TN) introduced the Kids

A new law signed by President Biden brings significant changes to employers’ ability to require arbitration of certain disputes with employees and could lead to an increase in sexual assault and sexual harassment claims against employers in court.  On March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault

While much of the Senate Judiciary Committee’s meeting next Thursday, February 3, will focus on the pending Supreme Court nomination, the Committee is still scheduled to mark up and vote on the Open App Markets Act (S. 2710)—which purports to address unfair competition in the app market.  This vote follows a particularly contentious markup of

Overview

On January 25, 2022, the House of Representatives unveiled the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 (H.R. 4521) (“America COMPETES”), which is companion legislation to the United States Innovation and Competition Act (S. 1260) (“USICA”) passed by the Senate last summer. At over 2,900 pages, the legislation is an omnibus package of incentives and proposed funding for technology areas (principally semiconductors), supply chain proposals, investments in science, technology, engineering, and mathematics (“STEM”), and other pieces of legislation—all directed squarely at enhancing the United States’ competitive position against China.

Nestled within America COMPETES is a 25-page legislative proposal to create an inter-agency process—National Critical Capabilities Reviews—to review and regulate outbound investment (the “Outbound Review Process”). If enacted, the United States would become the first major Western advanced economy to adopt a broad-gauged outbound investment screening process, raising the prospect of a new era in national security-based reviews and restrictions of international investment flows.

To be sure, the concept of an outbound review process in the United States is not new—it first arose in early drafts of what ultimately became the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which updated the statutory authorities governing the Committee on Foreign Investment in the United States (“CFIUS”). More recently, both Senators and House Members have pushed legislation nearly identical to the proposal in America COMPETES, including an attempt last summer by Senators Bob Casey (D-PA) and John Cornyn (R-TX) to add an outbound investment review process as an amendment to USICA. The Casey-Cornyn proposal ultimately was not included in USICA, partly because of pushback by the U.S. business community based on its breadth, but the Biden Administration, notably in a speech last summer by National Security Advisor Jake Sullivan, has signaled potential support for an outbound review process. Thus, while it is by no means certain that the Outbound Review Process will be enacted, the prospect is more real than ever given potential bipartisan support within Congress and alignment between Congress and the Executive Branch.

Outbound Review Process

The stated rationale for an outbound screening process is to safeguard against the U.S. becoming dependent on China for critical parts of the supply chain and production capabilities. The concerns that motivated earlier attempts to regulate outbound investment, however, were centered on technology transfers to China, especially through joint ventures. Among some policymakers, there is a broader view that investments by U.S. companies in China that can help China advance its own capabilities, even if only through financing, should be curbed.

Against that backdrop, the Outbound Review Process, as proposed, is both sweeping in scope and lacking in specifics. As proposed, the legislation would establish a new committee—the “Committee on National Critical Capabilities” (the “Committee”)—that would be chaired by the U.S. Trade Representative (“USTR”) and composed of a number of Executive Branch Agencies.[1]  Modeled to an extent on CFIUS, the Committee would have the authority to review certain transactions that may impact “national critical capabilities.” Specifically, the Committee could review any transaction by a United States business that “shifts or relocates to a country of concern, or transfers to an entity of concern, the design, development, production, manufacture, fabrication, supply, servicing, testing, management, operation, investment, ownership, or any other essential elements involving one or more national critical capabilities,” or “could result in an unacceptable risk to a national critical capability” (a “Covered Transaction”).

As a definitional matter:

  • Much like in the CFIUS regime, the term “United States business” means a “person engaged in interstate commerce in the United States.” The full scope of this is not clear and is a source of ambiguity and tension in CFIUS. This ambiguity would be more acute in legislation that, unlike CFIUS, does not have a 30-plus year history of practice, and that screens outbound capital flows. For example, as drafted, the legislation could arguably capture investments by U.S.-headquartered companies or financial sponsors that are made out of their foreign-based subsidiaries or funds.
  • “Country of concern” means any foreign government or foreign nongovernment person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or security and safety of United States persons, or any non-market economy that is later identified by the Committee.
  • “Entity of concern” means any entity “the ultimate parent entity of which is domiciled in a country of concern; or that is directly or indirectly controlled by, owned by, or subject to the influence of a foreign person that has a substantial nexus with a country of concern.” Thus, for example, the definition could capture companies from allied countries that have substantial minority shareholdings from, or operations in, China or Russia (or other foreign adversaries). (The term “substantial nexus” is not defined.)
  • While the legislation would defer the full definition of “national critical capabilities” to implementing regulations, it suggests that at a minimum the term would mean “systems and assets… so vital to the United States that the inability to develop such systems and assets or the incapacity or destruction of such systems or assets would have a debilitating impact on national security or crisis preparedness” and could include articles in the following general categories, along with any others identified through implementing regulations:
    • medical supplies, medicines, and personal protective equipment;
    • articles essential to the operation, manufacture, supply, service, or maintenance of critical infrastructure;
    • articles critical to infrastructure construction after a natural or manmade disaster;
    • components of systems critical to the operation of weapons systems, intelligence collection systems, or items critical to the conduct of military or intelligence operations; and
    • services critical to each of the foregoing.

Moreover, the legislation requires a study of the following additional industries to identify other critical capabilities:

  • Energy
  • Medical
  • Communications, including electronic and communications components
  • Defense
  • Transportation
  • Aerospace, including space launch
  • Robotics
  • Artificial intelligence
  • Semiconductors
  • Shipbuilding
  • Water, including water purification


Continue Reading National Security Update—The House of Representatives Proposes an Outbound Investment Review Regime as Part of the America COMPETES Act