New Tech Vetting Law in SF Could Fuel Regulatory Trend

San Francisco officials want to get ahead of the emerging technology curve by prequalifying and regulating startup tech proposals before products become available to consumers.

That approach is a developing trend in the U.S., according to Arle Lommel, senior analyst at CSA Research. If approved, the creation of a city-controlled regulatory office would invert the historical norm and effectively require companies to request permission for anything not expressly allowed.

The City Council recently voted to introduce legislation creating an Office of Emerging Technology (OET), which would function as a centralized main entrance for firms to pilot emerging technologies and evaluate their impacts.

If passed in a second vote next month, the measure will require tech companies to pitch new services in advance of offering them, so the City no longer will be taken by surprise and have to scramble to address their impact.

In recent years, San Francisco has battled with tech companies over new devices or services that exploit gray areas in the law. Among those controversial emerging technologies were robots using sidewalks to make deliveries, and the sudden arrival of e-scooters rentable over cellphone applications.

Before any new tech device is used, tested or piloted in the city, the OET would coordinate the review with relevant departments and issue a Notice to Proceed if the net result was found to be for the common good.

San Francisco is home to many tech companies that aim to reshape urban life, but the city often has seemed ill-prepared to deal with them, whether by welcoming or regulating them.

Demanding Details

The proposal would require tech companies to get permission from OET officials before they could test any new products in San Francisco.

That office would handle more than just helping tech firms obtain approvals and permits. The new governmental department also would weigh the potential impact of a proposed technology on city infrastructure, public safety, privacy and security, before granting approval to a pilot project or product launch.

The vetting process in part involves the OET coordinating with other city departments to assess the positive and negative effects that a proposed product or service would create before issuing an approval or denial. That would help companies better understand the city’s relevant rules and regulations from the outset, according to city officials.

Members of the public also could request a public hearing on any new emergent technology company seeking a permit. If the OET approved a pilot program, the startup permission would last for up to a year. Then OET officials would determine if the technology was safe and secure, and would provide for the common good.

“A lot of innovation relies on a permissionless economy, which has traditionally been the approach in the U.S.,” CSA Research’s Lommel told TechNewsWorld. “This stance enables companies to experiment as long as their actions do not directly harm third parties. If they do, the traditional remedy has been via tort law for the harm caused.”

More Than a Local Issue

As word of the proposal to create a preapproval process spread last week, Twitter users near and far issued both outcries and support for the proposition.

The shift in the city’s approach to vetting tech proposals before companies open their doors for business resulted in large part from the entry of scooter companies into the market, noted Lommel.

The visibility of large numbers of abandoned scooters on sidewalks and roads — or even maliciously dumped in waterways — helped create a consensus across political boundaries in favor of a pre-emptive regulatory approach, he explained.

“Other municipalities will almost certainly follow San Francisco’s example. The danger is that as the number of permission-first municipalities increases, compliance costs will mushroom,” Lommel said.

Some states may attempt to forestall this situation by acting legislatively to prevent it. However, the issue is not yet prominent in state capitals, and it will take some time to shake out, he suggested. “In addition, even though dealing with 50 states is easier than dealing with hundreds or thousands of counties, this may eventually rise to the federal level.”

Need Exists

Some area tech business leaders see merit in the Office of Emerging Technology proposal. Although it is tempting for startups to adopt an “ask forgiveness later” mindset, there is some benefit to “seek permission first,” suggested Adam Fingerman, chief experience officer of ArcTouch.

Since their sudden appearance in shared spaces — sometimes blocking public sidewalks — electric scooters have sparked public outrage. That is certainly not the result the companies were hoping for with their go-to-market strategy.

“As innovation surrounding robotics and connected devices continues at an incredible pace, some entity needs to be involved that represents the public interest, just as self-driving cars are being closely regulated because of the obvious safety issues,” Fingerman told TechNewsWorld.

Ideally, the OET will be an enabler for startup companies, helping provide the support they need from the city to accelerate their go-to-market plans. He said. User testing is a key piece of any successful product rollout, but city streets and sidewalks should not be an unregulated test lab.

Potential to Grow

The proposal to create a preapproval regulation is in very early stages. It remains unclear whether the proposal will garner enough votes to fly, noted Charles King, principal analyst at Pund-IT.

While this currently is a regional issue, there is potential for it catching on in government agencies elsewhere. San Francisco has been a laboratory for what can happen when startup companies foist bright and not-so-bright ideas on the public without regulation, he pointed out.

“It has happened time and again, from companies littering the sidewalks with electric scooters to rideshare company drivers turning rush hour traffic headaches into daily gridlock migraines. Resistance in many communities is already organized and disorganized. If San Francisco succeeds at reining in tech’s worst excesses, I expect other cities and towns will follow suit,” King told TechNewsWorld.

Given the growing dissatisfaction with tech companies and past problems that San Francisco has had with miscreant startups, the measure likely will have broad support among local voters.

“Other cities and states will almost certainly use the measure to try to get startups to relocate. If so, and said companies follow the ‘it’s better to ask for forgiveness than permission’ ethos that is commonplace in San Francisco, those migrations are likely to become classic examples of being careful of what you wish for,” said King.

No Uniform Standard Yet

San Francisco city officials no doubt intend the OET to operate benevolently and simply weed out companies with harmful practices. What constitutes “harmful,” however, is an inherently political question, noted CSA Research’s Lommel.

Established industries will work hard to ensure regulatory capture. The decisions will be made to protect incumbents in the market.

“Given San Francisco’s leanings, that almost certainly means that organized labor and environmental concerns will have a strong voice at the table, but in other cities the forces will reflect local preferences,” Lommel said.

There is also an associated measure that would impact job automation services, Pund-IT’s King noted. Opponents are likely to say that the office will stifle innovation, hobble competition, and add unnecessary costs and layers of bureaucracy.

Many supporters of permission-based approaches will see the new regulating office as a way to curb tech giants, said Lommel, but the large players are precisely the ones with the resources to navigate city halls to get what they want.

“As a result, I would expect to see them line up to support the OET with declarations about how it will help curb abuse and will be for the good of humanity,” he said.

Alienation Possible

Under the new proposal, startups will have one place to go to make sure that they can test or pilot their technology in the public areas of the city. On a certain level, it does not change much. City agencies always have regulated the city, according to Chris Nicholson, CEO of Skymind.

“There are a lot of them, and startups are usually a few young people without experience navigating a bewildering municipal bureaucracy. So this could be a good thing, if the office can serve those startups as a guide and save them some hassle,” he told TechNewsWorld.

San Francisco is a divided city when it comes to industries, Nicholson noted. The city is having a hard time adapting to its role as the global capital of technology.

It is a high-touch regulatory environment — in some ways too high-touch, he said. Having an agency to guide startups through the jungle is not a bad idea, as long as you are not increasing the size and complexity of the bureaucratic jungle.

City regulations have pushed out other industries, like movie-making, in the past — and San Francisco does run the risk of alienating the tech sector, warned Nicholson. “The city is divided in how it feels about the effects of technology. Tech has brought a lot of change and pushed a lot of people out.”