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Editor’s Note: Thomas M. Johnson Jr. was the General Counsel of the FCC from 2017-2021. As general counsel through most of Ajit Pai’s tenure as chairman, Johnson was the chief FCC attorney responsible for ensuring Chairman Pai’s agenda was successfully defended in the courts. His litigation victories included the Supreme Court’s 9-0 decision in Prometheus v. FCC, upholding the FCC’s media ownership reforms; Mozilla v. FCC, upholding the FCC’s repeal of the so-called “net neutrality” rules; and Huawei v. FCC, upholding the FCC’s national security and supply chain order. During his tenure Johnson witnessed startup leaders, including yours truly, make pitches and present their case as to why the FCC should or should not do something. Now the Co-Chair of Wiley Rein‘s Issues and Appeals Practice, he shares with us his three reasons why every startup needs a regulatory strategy.
Every startup is Operating in Regulated Space
The technology ecosystem is heavily regulated and knowledge of the playing field is critical to success. Now more than ever, policymakers and regulators are laser focused on the technology sector, with bipartisan calls to address a host of issues, from national security to privacy to content moderation policies. Unfortunately, the bewildering array of existing regulations (and the potential for more to come) tends to disproportionately impact startups, who often lack the capital, experience, and knowhow to navigate the legal landscape and absorb regulatory and litigation risk. Startups need to understand what regulators are likely to come knocking as they develop their business plan and whether there are any federal or state approvals necessary to proceed. For example, many communications businesses that require use of the airwaves need licenses from the FCC. Certain transactions involving foreign investment in the United States must be reviewed by CFIUS. Apps that engage in political activity may need to familiarize themselves with FEC regulations. And nearly all businesses will want to pay close attention to the FTC and its consumer protection counterparts in the states as they ramp up enforcement in the technology space.
Entrepreneurs and regulators speak different languages
Entrepreneurs can understandably experience frustration in their interactions with regulators. Innovators may have creative ideas and tangible plans for how to deliver value to consumers or improve the world, but then find that they need to ask permission from Washington or statehouse bureaucrats. Even worse, regulators’ concerns with legal compliance often do not map onto an entrepreneur’s vision for a startup. Startups might find themselves changing their corporate structure, financing, staffing plans, or acquisition targets, not because it makes business sense, but to check some antiquated regulatory box. In this environment, it is important for startups to find lawyers with deep knowledge of the relevant agencies to “translate” the client’s goals into language the regulator will understand and maximize the likelihood that they will be able to execute on their business strategy with minimal regulatory interference.
Stable regulatory environments foster long-term commercial success
While regulations can be burdensome, a stable regulatory environment can also help protect against risks that would develop in a completely unregulated market. Recent challenges in the crypto space, for example, provide a telling example. Some social media companies, in turn, have actively lobbied for new laws to provide ground rules for content moderation and privacy concerns. Startups that offer “cutting edge” services or enter into developing commercial markets should think about what risks might emerge from an unregulated ecosystem and consider proactively developing relationships with policymakers now. It can sometimes be better to come to regulators with productive solutions than have them identify you as the problem to be solved.